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What changed in VERACYTE, INC.'s 10-K — 2022 vs 2023

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

+545 added−551 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-01)

Top changes in VERACYTE, INC.'s 2023 10-K

545 paragraphs added · 551 removed · 416 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

108 edited+39 added−47 removed212 unchanged
Biggest changeThese are statements that relate to future events and include, but are not limited to, the factors that may impact our financial results; our expectations regarding revenue; our expectations with respect to our future research and development, general and administrative and selling and marketing expenses and our anticipated uses of our funds; the impact of inflation, rising interest rates and foreign exchange fluctuations, as well as the conflict in Ukraine, energy and supply chain disruptions, and market volatility resulting from the above, on our business; the impact of the COVID-19 pandemic and our expectations regarding the return to pre-COVID-19 volume and revenue levels; changes in our executive officers; our beliefs with respect to the optimization of our processes for the analysis of ribonucleic acid, or RNA, samples; our ability to successfully integrate HalioDx and Decipher Biosciences into our business; our ability to deploy the nCounter Analysis System successfully and run our tests on this platform worldwide; our collaboration with Johnson & Johnson Services, Inc.; our belief in the importance of maintaining libraries of clinical evidence; our expectations regarding the Percepta Nasal Swab classifier for early lung cancer detection, the Envisia classifier on the nCounter system and the LymphMark lymphoma subtyping test; our expectations regarding our diagnostic company partnerships; our ability to have the targeted Atlas platform transferred to our pulmonology indications; our expectations regarding capital expenditures; our anticipated cash needs and our estimates regarding our capital requirements; the timing and success of our transition to a single platform for all of our classifiers and tests; our ability to maintain Medicare coverage for each of our tests; our need for additional financing; potential future sources of cash; our business strategy and our ability to execute our strategy; our ability to achieve and maintain reimbursement from third-party payers at acceptable levels and our expectations regarding the timing of reimbursement; the estimated number of patients who are candidates for our test; the attributes and potential benefits of our tests and any future tests we may develop to patients, physicians and payers; the factors we believe drive demand for and reimbursement of our tests; our ability to sustain or increase demand for our tests; our intent to expand into other clinical areas; our ability to develop new tests, and the timeframes for development or commercialization; our ability to get our data and clinical studies accepted in peer-reviewed publications; our dependence on and the terms of our agreement with Thyroid Cytopathology Partners, or TCP, and on other strategic relationships, and the success of those relationships; our beliefs regarding our laboratory capacity; the potential for future clinical studies to contradict or undermine previously published clinical study results; the applicability of clinical results to actual outcomes; our expectations regarding our international expansion; the occurrence, timing, outcome or success of clinical trials or studies; the ability of our tests to impact treatment decisions; our beliefs regarding our competitive position; our compliance with federal, state and international regulations; the potential impact of regulation of our tests by the Food and Drug Administration, or FDA, or other regulatory bodies; the impact of new or changing policies, regulation or legislation, or of judicial decisions, on our business; the impact of seasonal fluctuations and economic conditions on our business; our belief that we have taken reasonable steps to protect our intellectual property; our belief that our intellectual property will develop and maintain our competitive position; the impact of accounting pronouncements and our critical accounting policies, judgments, estimates, models and assumptions on our financial results; and anticipated trends and challenges in our business and the markets in which we operate.
Biggest changeThese are statements that relate to future events and include, but are not limited to, the factors that may impact our financial results; our expectations regarding revenue; our expectations with respect to our future research and development, general and administrative and selling and marketing expenses and our anticipated uses of our funds; the impact of inflation, rising interest rates and foreign exchange fluctuations, as well as regional conflicts globally, energy and supply chain disruptions, and market volatility resulting from the above, on our business; changes in our executive officers; our beliefs with respect to the optimization of our processes for the analysis of ribonucleic acid, or RNA, samples; our ability to successfully integrate C2i Genomics, Inc., or C2i, HalioDx and Decipher Biosciences into our business; our ability to deploy the nCounter Analysis System successfully and run our tests on this platform worldwide; our belief in the importance of maintaining libraries of clinical evidence; our expectations regarding the Percepta Nasal Swab classifier for early lung cancer detection, the Envisia classifier on the nCounter system and the LymphMark lymphoma subtyping test; our expectations regarding the addition of minimal residue detection capabilities to our diagnostics platform; our expectations regarding our diagnostic company partnerships; our expectations regarding capital expenditures; our anticipated cash needs and our estimates regarding our capital requirements; the timing and success of our transition to offering more of our tests as in vitro diagnostic tests on multiple platforms worldwide; our ability to maintain Medicare coverage for each of our tests; our need for additional financing; potential future sources of cash; our business strategy and our ability to execute our strategy; our ability to achieve and maintain reimbursement from third-party payers at acceptable levels and our expectations regarding the timing of reimbursement; the estimated number of patients who are candidates for our tests; the attributes and potential benefits of our tests and any future tests we may develop to patients, physicians and payers; the factors we believe drive demand for and reimbursement of our tests; our ability to sustain or increase demand for our tests; our intent to expand into other clinical areas; our ability to develop new tests, and the timeframes for development or commercialization; our ability to get our data and clinical studies accepted in peer-reviewed publications; our dependence on strategic relationships, and the success of those relationships; our beliefs regarding our laboratory capacity; the potential for future clinical studies to contradict or undermine previously published clinical study results; the applicability of clinical results to actual outcomes; our expectations regarding our international expansion; the occurrence, timing, outcome or success of clinical trials or studies; the ability of our tests to impact treatment decisions; our beliefs regarding our competitive position; our compliance with federal, state and international regulations; the potential impact of regulation of our tests by the Food and Drug Administration, or FDA, or other regulatory bodies; the impact of new or changing policies, regulation or legislation, or of judicial decisions, on our business; the impact of seasonal fluctuations and economic conditions on our business; our belief that we have taken reasonable steps to protect our intellectual property; our belief that our intellectual property will develop and maintain our competitive position; the impact of accounting pronouncements and our critical accounting policies, judgments, estimates, models and assumptions on our financial results; and anticipated trends and challenges in our business and the markets in which we operate.
The findings showed that Afirma GSC has a sensitivity of 91% and specificity of 68%, meaning that in a patient population with 24% cancer prevalence – which is what would be expected in clinical practice – the test can identify more than two-thirds of benign thyroid nodules, with a negative predictive value, or NPV, of 96%.
The findings showed that the Afirma GSC has a sensitivity of 91% and specificity of 68%, meaning that in a patient population with 24% cancer prevalence – which is what would be expected in clinical practice – the test can identify more than two-thirds of benign thyroid nodules, with a negative predictive value, or NPV, of 96%.
European Union Regulation of Laboratory Testing Directive 98/79/EC In the European Union, or EU, IVDs were previously regulated under EU-Directive 98/79/EC, or the IVDD, and corresponding national provisions. The IVDD requires that IVDs meet certain essential requirements, which are set out in an annex of the IVDD.
European Union Regulation of Laboratory Testing Directive 98/79/EC In the European Union, or EU, IVDs previously were regulated under EU-Directive 98/79/EC, or the IVDD, and corresponding national provisions. The IVDD requires that IVDs meet certain essential requirements, which are set out in an annex of the IVDD.
Our principal executive offices are located at 6000 Shoreline Court, Suite 300, South San Francisco, California 94080, and our phone telephone number is (650) 243-6300. We completed our initial public offering in October 2013, and our common stock is listed on The Nasdaq Global Market under the symbol “VCYT.” Our website address is www.veracyte.com.
Our principal executive offices are located at 6000 Shoreline Court, Suite 300, South San Francisco, California 94080, and our telephone number is (650) 243-6300. We completed our initial public offering in October 2013, and our common stock is listed on The Nasdaq Global Market under the symbol “VCYT.” Our website address is www.veracyte.com.
NYSDOH approval has also been received for Percepta Nasal Swab in support of our clinical trial. Should we be found out of compliance with New York laboratory standards of practice, we could be subject to such sanctions, which could harm our business.
NYSDOH approval has also been received for Percepta Nasal Swab in support of our clinical trial. Should we be found out of compliance with New York laboratory standards of practice, we could be subject to sanctions, which could harm our business.
Due to the lack of capacity on the part of EU notified regulatory bodies to deal with the volume of IVDs requiring their input, the EU Commission adopted a proposal to amend the transitional provisions of the IVDR.
However, due to the lack of capacity on the part of EU notified regulatory bodies to deal with the volume of IVDs requiring their input, the EU Commission adopted a proposal to amend the transitional provisions of the IVDR.
In this table, Decipher Prostate is the only gene expression test with the highest level of evidence (Level 1) for validation. The NCCN Guidelines also uniquely suggest use of the Decipher Prostate RP test to inform treatment recommendations, post surgery, based on the patient’s Decipher score. Decipher Prostate is covered by Medicare and commercial payers representing approximately 195 million enrollees.
In this table, Decipher Prostate is the only gene expression test with the highest level of evidence (Level 1) for validation. The NCCN Guidelines also uniquely suggest use of the Decipher Prostate RP test to inform treatment recommendations, post surgery, based on the patient’s Decipher score. Decipher Prostate is covered by Medicare and commercial payers representing approximately 200 million enrollees.
Outside of the United States, the test is included in leading medical guidelines, including from the National Institute for Health and Care Excellence in the United Kingdom and the European Society for Medical Oncology, or ESMO. The Prosigna assay utilizes formalin-fixed and paraffin-embedded breast cancer tissue and is offered as an IVD test that runs on the nCounter Analysis System.
Outside of the United States, the test is included in leading medical guidelines, including from the National Institute for Health and Care Excellence in the United Kingdom and the European Society for Medical Oncology. The Prosigna assay utilizes formalin-fixed and paraffin-embedded breast cancer tissue and is offered as an IVD test that runs on the nCounter Analysis System.
In 2022, an updated global (ATS/ERS/JRS/ALAT) clinical practice guideline highlighted the role of the Envisia Classifier in the diagnosis of IPF with more than 40% of the guideline authors voting to recommend Envisia testing. The guideline points to a newly published meta-analysis in AnnalsATS demonstrating consistently high specificity of 92% across 4 separate studies.
In 2022, an updated global (ATS/ERS/JRS/ALAT) clinical practice guideline highlighted the role of the Envisia Classifier in the diagnosis of IPF with more than 40% of the guideline authors voting to recommend Envisia testing. The guideline points to a published meta-analysis in AnnalsATS demonstrating the Envisia test's consistently high specificity of 92% across 4 separate studies.
The IVDD was replaced with the full implementation of the In Vitro Diagnostic Medical Device Regulations (2017/746), or IVDR, in the EU on 26 May 2022. This is, however, subject to relevant transitional periods, as amended. The main aims of the IVDR are to standardize diagnostic procedures throughout the EU, increase reliability of diagnostic analysis and enhance patient safety.
The IVDD was replaced with the full implementation of the In Vitro Diagnostic Medical Device Regulations (2017/746), or IVDR, in the EU on 26 May 2022. This is, however, subject to relevant transitional periods. The main aims of the IVDR are to standardize diagnostic procedures throughout the EU, increase reliability of diagnostic analysis and enhance patient safety.
These take into account the intended purpose of the IVD and its inherent risks. The IVDR also introduces new requirements for conformity assessments. In particular, substantially more IVDs 15 Table of Contents will require the involvement of a notified body to be able to affix a CE mark to the IVD.
These take into account the intended purpose of the IVD and its inherent risks. The IVDR also introduces new requirements for conformity assessments. In particular, substantially more IVDs 14 Table of Contents will require the involvement of a notified body to be able to affix a CE mark to the IVD.
We developed the Afirma Genomic Sequencing Classifier, or GSC, to determine which patients with indeterminate results are actually benign so that these patients may avoid unnecessary, costly surgery that often leads to the need for lifelong daily thyroid hormone replacement drugs.
We developed the Afirma Genomic Sequencing Classifier, or GSC, to determine which patients with indeterminate results are actually benign so that these patients may avoid unnecessary, costly surgery that often leads to the need for lifelong daily thyroid hormone replacement therapy.
All such filings are available free of charge. The information posted on our website is not incorporated into this report. The SEC maintains a website that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov. 22 Table of Contents
All such filings are available free of charge. The information posted on our website is not incorporated into this report. The SEC maintains a website that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov. 21 Table of Contents
Following the CJEU’s decision and an executive order issued by President Biden on October 7, 2022, the European Commission on December 13, 2022 announced that it had begun the process of adopting a new adequacy decision that would permit data transfers to the United States under an updated EU-US Data Privacy Framework and attempt to address the 17 Table of Contents shortcomings of the Privacy Shield identified in the CJEU’s decision.
Following the CJEU’s decision and an executive order issued by President Biden on October 7, 2022, the European Commission on December 13, 2022 announced that it had begun the process of adopting a new adequacy decision that would permit data transfers to the United States under an updated EU-US Data Privacy Framework and attempt to address the shortcomings of the Privacy Shield identified in the CJEU’s decision.
If we were to be found out of compliance with CLIA requirements and subjected to sanctions, our business could be harmed. We hold CLIA certifications to perform testing at our South San Francisco and San Diego, California; Richmond, Virginia; and Austin, Texas laboratory locations.
If we were to be found out of compliance with CLIA requirements and subjected to sanctions, our business could be harmed. We hold CLIA certifications to perform testing at our South San Francisco and San Diego, California; and Austin, Texas laboratory locations.
Our high-performing tests enable clinicians to make more confident diagnostic, prognostic and treatment decisions, helping patients avoid unnecessary procedures and interventions, and speed time to appropriate treatment, thereby improving outcomes for patients all over the world.
Our high-performing tests enable clinicians to make more confident diagnostic, prognostic and treatment decisions, helping patients avoid unnecessary procedures and interventions, and accelerating time to appropriate treatment, thereby improving outcomes for patients all over the world.
Unless exempt, for Class II devices, the FDC Act requires the submission to FDA of a premarket notification, referred to as a “510(k),” which must provide data and information showing that the device is substantially equivalent to an already legally marketed device, referred to as a predicate device, with respect to the indications for use and the product’s technological characteristics.
Unless exempt, for Class II devices, the FDC Act requires the submission to FDA of a premarket notification, referred to as a “510(k),” which must 11 Table of Contents provide data and information showing that the device is substantially equivalent to an already legally marketed device, referred to as a predicate device, with respect to the indications for use and the product’s technological characteristics.
Our Afirma test faces competition from companies and academic institutions that use next generation sequencing technology or other methods to measure mutational markers such as BRAF and KRAS, along with numerous other mutations.
Our Afirma test faces competition from companies that use next generation sequencing technology or other methods to measure mutational markers such as BRAF and KRAS, along with numerous other mutations.
Generally, courts have taken a broad interpretation of the scope of the Anti-kickback Statute, holding that the statute may be violated if merely one purpose of a payment arrangement is to induce or reward referrals or purchases. 19 Table of Contents The federal Anti-kickback Statute includes statutory exceptions and provides for a number of regulatory safe harbors.
Generally, courts have taken a broad interpretation of the scope of the Anti-kickback Statute, holding that the statute may be violated if merely one purpose of a payment arrangement is to induce or reward referrals or purchases. The federal Anti-kickback Statute includes statutory exceptions and provides for a number of regulatory safe harbors.
If an arrangement meets the provisions of a safe harbor, it is deemed not to violate the Anti-kickback Statute. An arrangement must fully comply with each element of an applicable safe harbor in order to qualify for protection. Many state anti-kickback statutes have analogous exceptions or safe harbors to those of the federal Anti-kickback Statute.
If an arrangement meets the provisions of a safe harbor, it is deemed not to violate the Anti-kickback Statute. An arrangement 18 Table of Contents must fully comply with each element of an applicable safe harbor in order to qualify for protection. Many state anti-kickback statutes have analogous exceptions or safe harbors to those of the federal Anti-kickback Statute.
We developed the Percepta Nasal Swab test to help physicians more accurately, quickly and confidently identify lung cancer risk so that patients whose lung nodules are benign may avoid unnecessary invasive procedures and patients whose nodules are likely cancerous may proceed to further diagnostic work-up and, if necessary, treatment.
We developed the noninvasive Percepta Nasal Swab test to help physicians more accurately, quickly and confidently determine lung cancer risk so that patients whose lung nodules are benign may avoid unnecessary invasive procedures and patients whose nodules are likely cancerous may proceed to further diagnostic work-up and, if necessary, treatment.
These publications typically indicate that they have obtained their information from sources they believe to be reliable, but do not guarantee the accuracy and completeness of their information. Some data contained in this annual report is also based on our 1 Table of Contents internal estimates.
These publications typically indicate that they have obtained their information from sources they believe to be reliable, but do not guarantee the accuracy and completeness of their information. Some data contained in this annual report is also based on our internal estimates.
While we have developed alternate sourcing strategies for these materials and vendors, we cannot be certain whether these strategies will be effective, or the alternative sources will be available when we need them.
While we have developed alternate sourcing strategies for these materials and vendors where possible, we cannot be certain whether these strategies will be effective, or the alternative sources will be available when we need them.
We believe key factors contributing to our success in the market include our scientific and technological excellence, evidence of clinical differentiation, strong KOL support and payer coverage policies for our tests. We believe our strength across these areas form a barrier to entry and a competitive advantage.
We believe key factors contributing to our success in the market include our Veracyte Diagnostics Platform, scientific and technological excellence, evidence of clinical differentiation, strong KOL support and payer coverage policies for our tests. We believe our strength across these areas form a barrier to entry and a competitive advantage.
When marketing our tests outside of the United States, we may be subject to foreign regulatory requirements governing human clinical testing, prohibitions on the import of tissue necessary for us to perform our tests or restrictions on the export of 21 Table of Contents tissue imposed by countries outside of the United States or the import of tissue into the United States, and marketing approval.
When marketing our tests outside of the United States, we may be subject to foreign regulatory requirements governing human clinical testing, prohibitions on the import of tissue necessary for us to perform our tests or restrictions on the export of tissue imposed by countries outside of the United States or the import of tissue into the United States, and marketing approval.
The FCPA prohibits any U.S. individual, business entity or employee of a U.S. business entity to offer or provide, directly or through a third party, including any potential distributors we may rely on in certain markets, anything of value to a foreign government official with corrupt intent to influence an award or continuation of business or to gain an unfair advantage, whether or not such conduct violates local laws.
The FCPA prohibits any United States individual, business entity or employee of a United States business entity to offer or provide, directly or through a third party, including any potential distributors we may rely on in certain markets, anything of value to a foreign government official with corrupt intent to influence an award or continuation of business or to gain an unfair advantage, whether or not such conduct violates local laws.
We are running the Percepta Nasal Swab test in our CLIA lab in support of our clinical utility study, in an effort to demonstrate data to help drive Medicare and private payer coverage, as well as clinical adoption.
We are running the Percepta Nasal Swab test in our CLIA lab in support of our NIGHTINGALE clinical utility study, in an effort to produce data to help drive Medicare and private payer coverage, as well as clinical adoption.
When general controls are 12 Table of Contents considered insufficient to provide reasonable assurance of safety and effectiveness, but there is sufficient information to establish special controls to provide such assurance, FDA will classify the device as a Class II device.
When general controls are considered insufficient to provide reasonable assurance of safety and effectiveness, but there is sufficient information to establish special controls to provide such assurance, FDA will classify the device as a Class II device.
This NPV would assist physicians in avoiding unnecessary invasive procedures in these patients with a very small likelihood of missing a cancer. When the test identified patients as high risk, its specificity was 92%, for a positive predictive value, or PPV, of 70% at a malignancy rate of 25%.
We believe this NPV can assist physicians in avoiding unnecessary invasive procedures in these patients with a very small likelihood of missing a cancer. When the test identified patients as high risk, its specificity was 92%, for a positive predictive value, or PPV, of 70% at a malignancy rate of 25%.
However, DNA mutational analysis, traditional clinical methods and nomograms are currently in use by physicians for similar purposes. 9 Table of Contents We believe our primary competition in pulmonology with our Envisia classifier will similarly come from traditional methods used by physicians to diagnose the related diseases.
However, DNA mutational analysis, traditional clinical methods and nomograms are currently in use by physicians for similar purposes. We believe our primary competition in pulmonology with our Envisia classifier will similarly come from traditional methods used by physicians to diagnose the related diseases.
The test is currently reimbursed in Germany, France, Spain, Portugal, Italy, Netherlands, Norway, Sweden, Denmark, Austria, Lithuania, Switzerland, Canada, England, Scotland, and Israel. Competition Our main competition from diagnostic companies or academic institutions are those that use next generation sequencing technology or other methods to measure genomic biomarkers in disease areas addressed by our tests.
The test is currently reimbursed in Germany, France, Spain, Portugal, Italy, Netherlands, Norway, Sweden, Denmark, Austria, Lithuania, Switzerland, Canada, England, Scotland, and Israel. Competition Our main competition are companies that use next generation sequencing technology or other methods to measure genomic biomarkers in disease areas addressed by our tests.
There were no material capital expenditures related to environmental compliance in the 10 Table of Contents year ended December 31, 2022. Similarly, we do not anticipate any significant expenditures for the year ended December 31, 2023. Raw Materials and Suppliers We procure reagents, equipment, and other materials that we use to perform our tests from sole suppliers.
There were no material capital expenditures related to environmental compliance in the year ended December 31, 2023. Similarly, we do not anticipate any significant expenditures for the year ending December 31, 2024. 9 Table of Contents Raw Materials and Suppliers We procure reagents, equipment, and other materials that we use to perform our tests from sole suppliers.
Limitations in current technologies make IPF notoriously difficult to diagnose, often leading to treatment delays, repeated misdiagnoses, patient distress and added healthcare expenses. Physicians routinely use high-resolution computed tomography, or HRCT, imaging to identify usual interstitial pneumonia, or UIP, the pattern whose presence is essential to IPF diagnosis.
Limitations in current technologies often make IPF difficult to diagnose, which can lead to treatment delays, repeated misdiagnoses, patient distress and added healthcare expenses. Physicians routinely use high-resolution computed tomography, or HRCT, imaging to identify usual interstitial pneumonia, or UIP, the pattern whose presence is essential to IPF diagnosis.
Actions which violate the Anti-kickback Statute can also lead to liability under the Federal False Claims Act, which prohibits, among other things, knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to the U.S. Government.
Actions which violate the Anti-kickback Statute can also lead to liability under the Federal False Claims Act, which prohibits, among other things, knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to the United States Government.
We may receive notices of claims of potential infringement from third parties in the future. We hold or in-license registered trademarks in the United States for “Veracyte,” “Afirma,” “Percepta,” “Envisia,” “Prosigna,” “Lymphmark,” “Decipher,” “GRID,” “HalioDx,” “Immunoscore,” “Brightplex,” “Immunosign,” and the Veracyte logo. We also hold registered trademarks in various jurisdictions outside of the United States.
We may receive notices of claims of potential infringement from third parties in the future. We hold or in-license registered trademarks in the United States for “Veracyte,” “Afirma,” “Percepta,” “Envisia,” “Prosigna,” “Lymphmark,” “Decipher,” “GRID,” “HalioDx,” “Immunoscore,” “Brightplex,” “Immunosign,” “TMExplore,” and the Veracyte logo.
California has an analogous state false claims act applicable to all payers, as do many other states; however, we may not be aware of all such rules and statutes and cannot provide assurance that we will be in compliance with all such laws and regulations. In general, in recent years U.S.
California has an analogous state false claims act applicable to all payers, as do many other states; however, we may not be aware of all such rules and statutes and cannot provide assurance that we will be in compliance with all such laws and regulations.
If the new adequacy decision is ultimately adopted by the European Commission, some uncertainty would remain as it is widely expected that the new adequacy decision will also be challenged before the CJEU.
If the new adequacy decision is ultimately adopted by the European Commission, some uncertainty would remain as it is widely expected that the new adequacy decision will also be 16 Table of Contents challenged before the CJEU.
See Risk Factors for further discussion. Reimbursement United States Revenue from our tests comes from several sources, including commercial third-party payers, such as insurance companies and health maintenance organizations, government payers, such as Medicare and Medicaid, and patients. Medicare generally covers molecular diagnostic tests through the individual Medicare Administrative Contracts, or MACs.
Reimbursement United States Revenue from our tests comes from several sources, including commercial third-party payers, such as insurance companies and health maintenance organizations, government payers, such as Medicare and Medicaid, and patients. Medicare generally covers molecular diagnostic tests through the individual Medicare Administrative Contracts, or MACs.
Of these, we estimate that the global early-stage breast cancer recurrence market is significant, with approximately 750,000 patients potentially eligible for the Prosigna Breast Cancer Assay 6 Table of Contents annually. This is comprised of approximately 280,000 patients in the United States and 270,000 across the major markets in Europe.
Of these, we estimate that the global early-stage breast cancer recurrence market is significant, with approximately 750,000 patients potentially eligible for the Prosigna Breast Cancer Assay annually. Included in this estimate are approximately 280,000 patients in the United States and 270,000 across the major markets in Europe.
Patients diagnosed with non-metastatic muscle-invasive bladder cancer, or MIBC, often undergo neoadjuvant chemotherapy, or NAC, prior to standard-of-care radical cystectomy, even though the absolute survival benefit associated with the addition of NAC to radical cystectomy is just 5-10%. Until recently, there was no reliable way to determine which MIBC tumors would – or would not – respond to chemotherapy.
Patients diagnosed with non-metastatic muscle-invasive bladder cancer, or MIBC, often undergo neoadjuvant chemotherapy, or NAC, prior to standard-of-care radical cystectomy, even though the absolute survival benefit associated with the addition of NAC to radical cystectomy is just 5% to 10%. Until recently, physicians often struggled to determine which MIBC tumors would or would not respond to chemotherapy.
Immunoscore is the registered trademark of Institut National de la Santé et de la Recherche Médicale, or Inserm, in the U.S. and selected countries and used by Veracyte under license. This annual report contains statistical data and estimates that we obtained from industry publications and reports.
Immunoscore is the registered trademark of Institut National de la Santé et de la Recherche Médicale, or Inserm, in the United States and selected countries and used by Veracyte under license. 1 Table of Contents This annual report contains statistical data and estimates that we obtained from industry publications and reports.
If these suppliers can no longer provide us with the materials we need to perform the tests and for our collection kits, if the materials do not meet our quality specifications or are otherwise unusable, if we cannot obtain acceptable substitute materials, if materials become unavailable due to COVID-19 related increases in demand for the materials, or if we elect to change suppliers, an interruption in test processing could occur, we may not be able to deliver patient reports and we may incur higher one-time switching costs.
If these suppliers can no longer provide us with the materials we need to perform the tests and for our collection kits, if the materials do not meet our quality specifications or are otherwise unusable, if we cannot obtain acceptable substitute materials, if materials become unavailable, or if we elect to change suppliers, an interruption in test processing could occur, we may not be able to deliver patient reports and we may incur high switching costs.
Today, approximately 1 million Americans are screened annually for lung cancer, and about 1.6 million lung nodules are found incidentally.
Approximately 1 million Americans are screened annually for lung cancer, and about 1.6 million lung nodules are found incidentally each year.
For the Percepta Nasal Swab test, we expect competition from companies focused on lung cancer such as Biodesix, Inc. We believe our principal competitor in the breast cancer diagnostics market is Exact Sciences, Inc., which currently commands a substantial majority of the market. Other competitors in the breast cancer diagnostics market include Myriad Genetics, Inc. and Agendia, Inc.
For the Percepta Nasal Swab test, we expect competition from companies focused on lung cancer such as Biodesix, Inc. We believe our principal competitor in the breast cancer diagnostics market is Exact Sciences, Inc., which currently commands a substantial majority of the market.
Driving Global Growth with Distributed IVD Tests Once we have developed robust clinical evidence and physician adoption of our tests in the United States, we typically then drive further patient access by launching them, as appropriate, into global markets as IVD tests that are run on the nCounter Analysis System.
Driving Global Growth with Distributed IVD Tests Once we have developed robust clinical evidence and physician adoption of our tests in the United States, we typically then drive further patient access by launching them, as appropriate, into global markets as IVD tests.
This approach enables our tests to be performed locally in laboratories and hospitals worldwide, which we believe facilitates market access and physician adoption in Europe and other strategic global markets. In December 2019, we acquired the exclusive worldwide license to the nCounter Analysis System for clinical IVD test use, development and commercialization.
This approach enables our tests to be performed locally in laboratories and hospitals worldwide, which we believe facilitates market access and physician adoption in Europe and other strategic global markets. We currently offer IVD testing in breast cancer using the nCounter Analysis System, for which we acquired the exclusive worldwide license for clinical IVD test use in December 2019.
A meta-analysis of 13 independent studies assessing the test's performance in a real-world clinical setting found a sensitivity of 97%, a specificity of 88%, and an NPV of 99%, reinforcing Afirma's performance. Afirma GSC and its predecessor, the Afirma Gene Expression Classifier, are supported by more than 70 peer-reviewed, published studies.
In 2022, a meta-analysis of 13 independent studies assessing the test's performance in a real-world clinical setting found a sensitivity of 97%, a specificity of 88%, and an NPV of 99%, reinforcing Afirma's performance. Afirma GSC and its predecessor, the Afirma Gene Expression Classifier, have been featured in more than 140 peer-reviewed, published studies.
These requirements vary by jurisdiction, differ from those in the United States and may in some cases require us to perform additional pre-clinical or clinical testing. In many countries outside of the United States, coverage, pricing and reimbursement approvals are also required. Teams and Culture Our People. At December 31, 2022, we had 787 employees.
These requirements vary by jurisdiction, differ from those in the United States and may in some cases require us to perform 20 Table of Contents additional pre-clinical or clinical testing. In many countries outside of the United States, coverage, pricing and reimbursement approvals are also required. Human Capital Our People. At December 31, 2023, we had 815 employees.
In clinical validation data presented at the 2021 American College of Chest Physicians, or CHEST, Annual Meeting, when the Percepta Nasal Swab test identified patients as low risk, its sensitivity was 97%, providing a negative predictive value, or NPV, of 98% in a population with the 25% cancer prevalence that would be expected in a broad cohort with suspicious lung nodules.
Clinical validation data published in the journal CHEST showed that when the Percepta Nasal Swab test identified patients as low risk, its sensitivity was 97%, providing a negative predictive value, or NPV, of 98% in a population with the 25% cancer prevalence that would be expected in a broad cohort with suspicious lung nodules.
Any such actions could materially affect our business. We maintain current licenses in good standing with CDPH. However, we cannot provide assurance that CDPH will at all times in the future find us to be in compliance with all such laws.
We maintain current licenses in good standing with CDPH. However, we cannot provide assurance that CDPH will at all times in the future find us to be in compliance with all such laws.
Finally, under the Protecting Access to Medicare Act of 2014, or PAMA, laboratories are required to report to CMS the private payer payment rates and test volumes paid by private payers based on final payments made during a specific “data collection period.” This data reporting requirement is triennial for most clinical diagnostic laboratory tests (annual for ADLTs), with the first data reporting period occurring in 2017 for final payments made in January through June 2016.
To date, neither the Department of Justice nor HHS has issued guidance further interpreting or implementing EKRA. 19 Table of Contents Finally, under the Protecting Access to Medicare Act of 2014 laboratories are required to report to CMS the private payer payment rates and test volumes paid by private payers based on final payments made during a specific “data collection period.” This data reporting requirement is triennial for most clinical diagnostic laboratory tests (annual for ADLTs), with the first data reporting period occurring in 2017 for final payments made in January through June 2016.
However, our competitive landscape may change over time as new competitors enter the market. As we add new tests and services, we will face many of these same competitive risks for these new tests as well. Patents and Proprietary Technology In order to remain competitive, we must develop and maintain protection of the proprietary aspects of our technologies.
As we add new tests and services, we will face many of these same competitive risks for these new tests as well. Patents and Proprietary Technology In order to remain competitive, we must develop and maintain protection of the proprietary aspects of our technologies.
Veracyte, Afirma, Percepta, Envisia, Prosigna, Lymphmark, Decipher, GRID, HalioDx, Brightplex, Immunosign, and the Veracyte logo are registered trademarks of Veracyte, Inc. and its subsidiaries in the U.S. and selected countries. nCounter is the registered trademark of NanoString Technologies, Inc., or NanoString, in the U.S. and selected countries and used by Veracyte under license.
Veracyte, Afirma, Percepta, Envisia, Prosigna, Lymphmark, Decipher, GRID, HalioDx, TMExplore, Brightplex, Immunosign, C2i Genomics, C2intelligence, C2inform and the Veracyte logo are registered or pending trademarks of Veracyte, Inc. and its subsidiaries in the United States and selected countries. nCounter is the registered trademark of NanoString Technologies, Inc., or NanoString, in the United States and selected countries and used by Veracyte under license.
The Percepta Nasal Swab test is built upon foundational "field of injury" science - through which genomic changes associated with lung cancer in current and former smokers to detect smoking-related damage associated with lung cancer in current or former smokers, but uses a sample collected non-invasively from the nasal passage.
The Percepta Nasal Swab test is built upon foundational "field of injury" science, through which genomic changes associated with lung cancer in current and former smokers are detected using a sample collected non-invasively from the nasal passage.
Attorneys’ Offices have increased scrutiny of the healthcare industry, as have Congress, the Department of Justice, the HHS-OIG and the Department of Defense.
In general, in recent years United States Attorneys’ Offices have increased scrutiny of the healthcare industry, as have Congress, the Department of Justice, the HHS-OIG and the Department of Defense.
Factors that impact reimbursement: • Variability in medical policies indicating coverage for our products and services • Network status and claims adjudication as in-network or out of network and corresponding patient co-pay/coinsurance responsibilities • Patient financial assistance programs • Changes to AMA-CPT coding rules and edits • Medicare clinical laboratory and physician fee schedules • Government sequestration • Medicaid fee schedules • Contracted rates for our diagnostics • Utilization management or prior authorization processes and steps put in place by commercial payers ensuring medical necessity of services ordered for patients • Billing errors • Claims disputes For the years ended December 31, 2022, 2021 and 2020, respectively, revenue was represented by the indicated percent for each payer: Medicare accounted for 31%, 30% and 24% of our revenue.
Factors that impact reimbursement include, among others: • variability in medical policies indicating coverage for our products and services; • network status and claims adjudication as in-network or out of network and corresponding patient co-pay/coinsurance responsibilities; • patient financial assistance programs; • changes to American Medical Association's CPT coding rules and edits; • Medicare clinical laboratory and physician fee schedules; • government sequestration; • Medicaid fee schedules; • contracted rates for our diagnostics; • utilization management or prior authorization processes and steps put in place by commercial payers ensuring medical necessity of services ordered for patients; • billing errors; and • claims disputes.
We have an active monitoring program to ensure lab operations exceed regulatory requirements. We use a systematic, analytical approach aimed at delivering optimal outcomes for patients and referring physicians, while driving cost and lab-efficiency improvement as we scale operations.
We use a systematic, analytical approach aimed at delivering optimal outcomes for patients and referring physicians, while driving cost and lab-efficiency improvement as we scale operations.
Under the final rule, for CDLTs furnished on or after January 1, 2018, the amount Medicare pays is equal to the weighted median of private payer rates for the CDLTs, reported triennially for CDLTs, and annually for ADLTs.
Under the final rule, for CDLTs furnished on or after January 1, 2018, the amount Medicare pays is equal to the weighted median of private payer rates for the CDLTs, reported triennially for CDLTs, and annually for ADLTs. Since the initial implementation of PAMA, Congress has extended the payment review cycle on multiple occasions.
Together these restrictions generally prohibit us from billing a patient or any governmental or private payer for any diagnostic services when the physician ordering the service, or any member of such physician's immediate family, has an investment interest in or compensation arrangement with us, unless the arrangement meets an exception to the prohibition. 18 Table of Contents Both the Stark Law and PORA contain an exception for compensation paid to a physician for personal services rendered by the physician meeting certain contractual requirements.
Together these restrictions generally prohibit us from billing a patient or any governmental or private payer for any diagnostic services when the physician ordering the service, or any member of such physician's immediate family, has an investment interest in or compensation arrangement with us, unless the arrangement meets an exception to the prohibition.
In 16 Table of Contents 2009, Congress amended HIPAA through the Health Information Technology for Economic and Clinical Health Act, or HITECH. The implementing regulations of HIPAA, as amended by HITECH, were last modified in 2013 and resulted in significant changes to the privacy, security, breach notification, and enforcement requirements with which we must comply.
The implementing regulations of HIPAA, as amended by HITECH, were last modified in 15 Table of Contents 2013 and resulted in significant changes to the privacy, security, breach notification, and enforcement requirements with which we must comply.
We submit claims to payers directly using unique American Medical Association Current Procedural Terminology, or CPT, codes when they exist for our products and services and use either miscellaneous or common CPT codes for non-proprietary testing services or when unique codes do not exist.
If not delayed further, rates reported in 2025 would set CLFS payment rates from 2026-2028. We submit claims to payers directly using unique American Medical Association Current Procedural Terminology, or CPT, codes when they exist for our products and services and use either miscellaneous or common CPT codes for non-proprietary testing services or when unique codes do not exist.
We serve global markets with two complementary models. In the United States, we offer laboratory developed tests, or LDTs, through our centralized, Clinical Laboratory Improvement Amendments of 1988, or CLIA, certified laboratories in South San Francisco and San Diego, California, supported by our cytopathology expertise in Austin, Texas.
In the United States, we offer laboratory developed tests, or LDTs, through our centralized CLIA certified laboratories in South San Francisco and San Diego, California, supported by our cytopathology expertise in Austin, Texas.
Payment from third-party payers differs depending on whether we have entered into a contract with the payers as a “contracted provider” or do not have a contract and are considered a “non-contracted provider.” Payers will often reimburse non-contracted providers, if at all, at a lower rate than contracted providers. 8 Table of Contents When we contract to serve as a contracted provider, reimbursements are made pursuant to a negotiated fee schedule and are limited to only covered indications.
Payment from third-party payers differs depending on whether we have entered into a contract with the payers as a “contracted provider” or do not have a contract and are considered a “non-contracted provider.” Payers will often reimburse non-contracted providers, if at all, at a lower rate than contracted providers.
In addition, knowing violations of the Stark Law may also serve as the basis for 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. Further, a violation of PORA is a misdemeanor and could result in civil penalties and criminal fines.
In addition, knowing violations of the Stark Law may also serve as the basis for 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 United States Government.
The Decipher Prostate Genomic Classifier test results dramatically improve the physician's ability to personalize therapy for each patient and make more appropriate treatment decisions. 4 Table of Contents The Decipher Prostate cancer tests, developed through whole-transcriptome analysis and machine learning, are used across localized disease to predict a patient’s risk of progressing to metastatic disease within five years, which helps physicians determine an appropriate treatment plan.
The Decipher Prostate cancer tests, developed through whole-transcriptome analysis and machine learning, are used across localized disease to predict a patient’s risk of progressing to metastatic disease within five years, which helps physicians 3 Table of Contents determine an appropriate treatment plan.
The test’s performance and utility has been evaluated in approximately 70 peer-reviewed, published studies. The NCCN Clinical Practice Guidelines in Oncology, or NCCN Guidelines, for Prostate Cancer (v1.2023) includes a new table (Table 1) in Principles of Risk Stratification summarizing the characteristics of different tools used for initial risk stratification of clinically localized prostate cancer.
The NCCN Clinical Practice Guidelines in Oncology, or NCCN Guidelines, for Prostate Cancer (v1.2023) includes a table (Table 1) in Principles of Risk Stratification summarizing the characteristics of different tools used for initial risk stratification of clinically localized prostate cancer.
In 2020, there were an estimated 2.3 million new cases of the disease. Hormone receptor positive breast cancer is the most prevalent type of breast cancer, comprising approximately 70% of cases.
Breast Cancer - Prosigna Breast Cancer Assay Breast cancer is the most common cancer and the leading cause of cancer-related death in women worldwide. In 2020, there were an estimated 2.3 million new cases of the disease. Hormone receptor positive breast cancer is the most prevalent type 5 Table of Contents of breast cancer, comprising approximately 70% of cases.
The Prosigna test is FDA 510(k) cleared in the United States for use on the nCounter Analysis System. The Prosigna Breast Cancer Assay is sold to laboratories by our direct sales team, who also lead efforts to gain support among KOLs in breast cancer oncology.
The Prosigna test is FDA 510(k) cleared in the United States for use on the nCounter Analysis System. The Prosigna Breast Cancer Assay is sold to laboratories by our direct sales team and through distributors in certain countries.
This approach, however, frequently provides inconclusive results, with current guidelines recommending consideration of 5 Table of Contents surgery to secure a more definitive diagnosis. Such surgeries are risky and expensive, and many patients are too frail to undergo the procedure.
UIP also helps identify non-IPF patients whose ILD is likely to progress. HRCT, however, frequently provides inconclusive results, with current guidelines recommending consideration of surgery to secure a more definitive diagnosis. Such surgeries are risky and expensive, and many patients are too frail to undergo the procedure.
If the FDA finds a violation, it can institute a wide variety of enforcement actions, ranging from an Untitled Letter or Warning Letter to more severe sanctions such as: • fines, injunctions, and civil money penalties; • recall or seizure of products; • operating restrictions, partial suspension or total shutdown of production; and 13 Table of Contents • criminal prosecution.
If the FDA finds a violation, it can institute a wide variety of enforcement actions, ranging from an Untitled Letter or Warning Letter to more severe sanctions such as: • fines, injunctions, and civil money penalties; • recall or seizure of products; • operating restrictions, partial suspension or total shutdown of production; and • criminal prosecution. 12 Table of Contents Federal Oversight of Laboratory Developed Tests and Research Use Only Products Clinical laboratory tests like our proprietary genomic tests are regulated under CLIA, as administered by CMS, as well as by applicable state laws.
Becoming a contracted provider generally results in higher reimbursement for covered indications and lack of reimbursement for non-covered indications. As a result, the impact of becoming a contracted provider with a specific payer will vary. In some cases, third party payers may request audits of the amounts paid to us.
As a result, the impact of becoming a contracted provider with a specific payer will vary. In some cases, third party payers may request audits of the amounts paid to us. This may require us to repay certain amounts to payers as a result of such audits.
We obtained Medicare coverage for the Envisia classifier through the Molecular Diagnostics Services Program, or MolDX, program in 2019. We estimate that half of the patients evaluated for ILDs/IPF in the United States are covered by Medicare. Bladder Cancer - Decipher Bladder Genomic Classifier Each year in the U.S., nearly 85,000 people are expected to be diagnosed with bladder cancer.
We obtained Medicare coverage for the Envisia classifier through the Molecular Diagnostics Services Program, or MolDX, program in 2019. We estimate that half of the patients evaluated for ILDs/IPF in the United States are covered by Medicare.
State Laboratory Licensing California Laboratory Licensing In addition to federal certification requirements of laboratories under CLIA, licensure is required and maintained for our South San Francisco and San Diego, California and Richmond, Virginia clinical reference laboratories under California law.
State Laboratory Licensing California Laboratory Licensing In addition to federal certification requirements of laboratories under CLIA, licensure is required and maintained for our South San Francisco and San Diego, California clinical reference laboratories under California law. Such laws establish standards for the day-to-day operation of a clinical reference laboratory, including the training and skills required of personnel and quality control.
However, we cannot be certain that regulators would find these arrangements to be in compliance with Stark, PORA or similar state laws. We would be required to refund any payments we receive pursuant to a referral prohibited by these laws to the patient, the payer or the Medicare program, as applicable.
We would be required to refund any payments we receive pursuant to a referral prohibited by these laws to the patient, the payer or the Medicare program, as applicable.
Biopharmaceutical and Other Revenue We have formed numerous biopharmaceutical partnerships that derive value out of our current assets or future ones. Through development and commercialization of our tests, we have built or gained access to unique biorepositories that include extensive clinical cohorts and whole-genome RNA sequencing and other data, such as immuno-oncology.
Through development and commercialization of our tests, we have built or gained access to unique biorepositories that include extensive clinical cohorts and whole-genome RNA sequencing and other data.
It is possible that legislation could be enacted into law or regulations, or guidance could be 14 Table of Contents issued by the FDA which may result in new or increased regulatory requirements for us to continue to offer our tests or to develop and introduce new tests.
It is possible that legislation could be enacted into law or regulations, or guidance could be issued by the FDA which may result in new or increased regulatory requirements for us to continue to offer our tests or to develop and introduce new tests. 13 Table of Contents If premarket review, clearance, or approval is required for the tests that we market as LDTs, our business could be negatively affected until such review is completed and clearance or approval to market is obtained, and the FDA could require that we stop selling our tests pending premarket clearance or approval.
EKRA also applies to the payment or offering of remuneration in 20 Table of Contents exchange for an individual using the services of a recovery home, clinical treatment facility, or laboratory. To date, neither the Department of Justice nor HHS has issued guidance further interpreting or implementing EKRA.
EKRA also applies to the payment or offering of remuneration in exchange for an individual using the services of a recovery home, clinical treatment facility, or laboratory.
Currently, the FDA believes these tests meet the definition of a device under the FDC Act and that it has the authority to regulate them.
Clinical laboratory tests that are developed and run within a single CLIA-certified laboratory are referred to as laboratory developed tests, or LDTs, by the FDA. Currently, the FDA believes these tests meet the definition of a device under the FDC Act and that it has the authority to regulate them.
Finally, other states have self-referral restrictions with which we have to comply that differ from those imposed by federal and California law.
Further, a violation of PORA is a misdemeanor and could result in civil penalties and criminal fines. Finally, other states have self-referral restrictions with which we have to comply that differ from those imposed by federal and California law.
The extent of the impact of COVID-19 and other macroeconomic factors on our future liquidity and operational performance will depend on certain developments, including the deployment and long-term efficacy of vaccines; the duration and spread of the outbreak particularly in the form of more transmissible variants; the impact on our customers' operations; the impact to our sales and renewal cycles; changes in central bank policies and interest rates; rates of inflation; and changes in foreign currency exchange rates.
The extent of the impact of macroeconomic factors on our future liquidity and operational performance will depend on certain developments, the impact on our customers' operations; the impact to our sales and renewal cycles; changes in central bank policies and interest rates; rates of inflation; and changes in foreign currency exchange rates. See "Risk Factors" for further discussion.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur restated certificate of incorporation and amended and restated bylaws include provisions that: • authorize our board of directors to issue, without further action by the stockholders, up to 5.0 million shares of undesignated preferred stock; • require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent; • specify that special meetings of our stockholders can be called only by our board of directors, our chairman of the board, or our chief executive officer; • establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors; • establish that our board of directors is divided into three classes, Class I, Class II and Class III, with each class serving staggered terms; • provide that our directors may be removed only for cause; • provide that vacancies on our board of directors may, except as otherwise required by law, be filled only by a majority of directors then in office, even if less than a quorum; • provide that the federal district courts of the United States shall be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended; • specify that no stockholder is permitted to cumulate votes at any election of directors; and • require a super-majority of votes to amend certain of the above-mentioned provisions.
Biggest changeOur restated certificate of incorporation and amended and restated bylaws include provisions that: • authorize our board of directors to issue, without further action by the stockholders, up to 5.0 million shares of undesignated preferred stock; • require that any action to be taken by our stockholders be effected at a duly called annual or special meeting and not by written consent; • specify that special meetings of our stockholders can be called only by our board of directors, our chairman of the board, or our chief executive officer; 60 Table of Contents • establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including proposed nominations of persons for election to our board of directors; • establish that our board of directors is divided into three classes, with each class serving staggered three-year terms.
In December 2021, through the Protecting Medicare and American Farmers from Sequester Cuts Act, Congress further delayed the next reporting period to 2023. In December 2022, through the Consolidated Appropriations Act of 2023, Congress further delayed the next reporting period to 2024.
In December 2021, through the Protecting Medicare and American Farmers from Sequester Cuts Act, Congress further delayed the next reporting period to 2023. In December 2022, through the Consolidated Appropriations Act of 2023, Congress further delayed the next reporting period to 2024.
We believe that the Afirma, Decipher Prostate Biopsy, Decipher Prostate RP, Envisia, and Decipher Bladder classifiers, have been developed and are performed in a manner consistent with FDA’s enforcement discretion policy concerning LDTs.
We believe that the Afirma, Decipher Prostate Biopsy, Decipher Prostate RP, Envisia, and Decipher Bladder classifiers, have been developed and are performed in a manner consistent with the FDA’s enforcement discretion policy concerning LDTs.
Such actions could also lead FDA to investigate our purchase and use of supplier products and for the Agency to question whether or not Veracyte has violated the FDC Act.
Such actions could also lead the FDA to investigate our purchase and use of supplier products and for the Agency to question whether or not Veracyte has violated the FDC Act.
In addition, we have limited experience in obtaining PMA, 510(k) clearance, or De Novo authorization approval from the FDA and are therefore supplementing our operational capabilities to manage the more complex processes needed to obtain and maintain marketing authorization. Notwithstanding the expense, these efforts may never result in FDA clearance or approval.
In addition, we have limited experience in obtaining PMA approval, 510(k) clearance, or De Novo authorization from the FDA and are therefore supplementing our operational capabilities to manage the more complex processes needed to obtain and maintain marketing authorization. Notwithstanding the expense, these efforts may never result in FDA clearance or approval.
These may include routine inspections by notified bodies, FDA, CMS, and other health authorities, of our manufacturing facilities and our records for compliance with standards such as ISO 13485 and the QSR, which establish extensive requirements for quality assurance and control as well as manufacturing and change control procedures, among other things.
These may include routine inspections by notified bodies, the FDA, CMS, and other health authorities, of our manufacturing facilities and our records for compliance with standards such as ISO 13485 and the QSR, which establish extensive requirements for quality assurance and control as well as manufacturing and change control procedures, among other things.
In addition, we may be subject to similar regulatory regimes of foreign jurisdictions as we continue to commercialize our products in new markets outside of the United States and Europe. Adverse notified body, EU competent authority or FDA or global regulatory authority action in any of these areas could significantly increase our expenses and limit our revenue and profitability.
In addition, we may be subject to similar regulatory regimes of foreign jurisdictions as we continue to commercialize our products in new markets outside of the United States and Europe. Adverse notified body, EU competent authority or the FDA or global regulatory authority action in any of these areas could significantly increase our expenses and limit our revenue and profitability.
If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights and face increased competition to our business. A loss of key research personnel work product could hamper or prevent our ability to commercialize potential products, which could harm our business.
If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights and face increased competition to our business. A loss of key research personnel work product may hamper or prevent our ability to commercialize potential products, which could harm our business.
Risks Related to Our Common Stock Our stock price may be volatile, and you may not be able to sell shares of our common stock at or above the price you paid.
Risks Related to Our Common Stock Our stock price may be volatile, and you may not be able to sell shares of our common stock at or above the price you paid.
These laws and regulations currently include, among others: • the Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which established comprehensive federal standards with respect to the privacy and security of protected health information and requirements for the use of certain standardized electronic transactions, and amendments made to those standards in 2013 pursuant to the Health Information Technology for Economic and Clinical Health Act, or HITECH Act, which strengthened and expanded HIPAA privacy and security compliance requirements, increased penalties for violators, extended enforcement authority to state attorneys general, and imposed new requirements for breach notification; • Medicare billing and payment regulations applicable to clinical laboratories, including requirements to have an active CLIA certificate; • the Federal Anti-kickback Statute (and state equivalents), which prohibits knowingly and willfully offering, paying, soliciting, or receiving remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for, or recommending of an item or service that is reimbursable, in whole or in part, by a federal healthcare program; • the Eliminating Kickbacks in Recovery Act of 2018, which prohibits the solicitation, receipt, payment or offering of any remuneration in return for referring a patient or patronage to a recovery home, clinical treatment facility, or laboratory for services covered by both government and private payers; • the Federal Stark physician self-referral law (and state equivalents), which prohibits a physician from making a referral for certain designated health services covered by the Medicare program, including laboratory and pathology services, if the physician or an immediate family member has a financial relationship with the entity providing the designated health services, unless the financial relationship falls within an applicable exception to the prohibition; • the Federal Civil Monetary Penalties Law, which prohibits, among other things, the offering or transfer of remuneration to a Medicare or state health-care program beneficiary if the person knows or should know it is likely to 46 Table of Contents influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health-care program, unless an exception applies; • the Federal False Claims Act, which imposes liability on any person or entity who knowingly presents, or causes to be presented, a false, fictitious, or fraudulent claim for payment to the federal government; • the Physician Payments Sunshine Act, enacted as part of the ACA, which imposes annual reporting requirements on manufacturers of certain devices, drugs and biologics for certain payments and transfers of value by them and in some cases their distributors to covered recipients, including physicians, as defined by such law, teaching hospitals, and certain healthcare providers as well as ownership or investment interests that physicians or physicians’ immediate family members hold with the reporting entity; • other federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral, fee-splitting restrictions, prohibitions on the provision of products at no or discounted cost to induce physician or patient adoption, and false claims acts, which may extend to services reimbursable by any third-party payer, including private insurers; • the prohibition on reassignment of Medicare claims, which, subject to certain exceptions, precludes the reassignment of Medicare claims to any other party; • the Protecting Access to Medicare Act of 2014, which requires us to report private payer rates and test volumes for specific CPT codes on a triennial basis and imposes penalties for failures to report, omissions, or misrepresentations; • the No Surprises Act and its implementing regulations (effective January 1, 2022), which prohibit an out-of-network provider from billing a patient at an amount in excess of the in-network cost sharing for services furnished with respect to a visit at certain in-network health-care facilities, as well as various state laws restricting balance billing of patients; • the rules regarding billing for diagnostic tests reimbursable by the Medicare program, which prohibit a physician or other supplier from marking up the price of the technical component or professional component of a diagnostic test ordered by the physician or other supplier and supervised or performed by a physician who does not “share a practice” with the billing physician or supplier; • state laws that prohibit other specified practices related to billing such as billing physicians for testing that they order, waiving co-insurance, co-payments, deductibles, and other amounts owed by patients, and billing a state Medicaid program at a price that is higher than what is charged to other payers; • the Foreign Corrupt Practices Act of 1977, and other similar laws, which apply to our international activities; • unclaimed property (escheat) laws and regulations, which may require us to turn over to governmental authorities the property of others held by us that has been unclaimed for a specified period of time; • enforcing our intellectual property rights; and • foreign laws and regulations equivalent to the above.
These laws and regulations currently include, among others: • the Federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which established comprehensive federal standards with respect to the privacy and security of protected health information and requirements for the use of certain standardized electronic transactions, and amendments made to those standards in 2013 pursuant to the Health Information Technology for Economic and Clinical Health Act, or HITECH Act, which strengthened and expanded HIPAA privacy and security compliance requirements, increased penalties for violators, extended enforcement authority to state attorneys general, and imposed new requirements for breach notification; • Medicare billing and payment regulations applicable to clinical laboratories, including requirements to have an active CLIA certificate; • the Federal Anti-kickback Statute (and state equivalents), which prohibits knowingly and willfully offering, paying, soliciting, or receiving remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for, or recommending of an item or service that is reimbursable, in whole or in part, by a federal healthcare program; • the Eliminating Kickbacks in Recovery Act of 2018, which prohibits the solicitation, receipt, payment or offering of any remuneration in return for referring a patient or patronage to a recovery home, clinical treatment facility, or laboratory for services covered by both government and private payers; • the Federal Stark physician self-referral law (and state equivalents), which prohibits a physician from making a referral for certain designated health services covered by the Medicare program, including laboratory and pathology services, if the physician or an immediate family member has a financial relationship with the entity providing the designated health services, unless the financial relationship falls within an applicable exception to the prohibition; • the Federal Civil Monetary Penalties Law, which prohibits, among other things, the offering or transfer of remuneration to a Medicare or state health-care program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state health-care program, unless an exception applies; • the Federal False Claims Act, which imposes liability on any person or entity who knowingly presents, or causes to be presented, a false, fictitious, or fraudulent claim for payment to the federal government; 44 Table of Contents • the Physician Payments Sunshine Act, enacted as part of the ACA, which imposes annual reporting requirements on manufacturers of certain devices, drugs and biologics for certain payments and transfers of value by them and in some cases their distributors to covered recipients, including physicians, as defined by such law, teaching hospitals, and certain healthcare providers as well as ownership or investment interests that physicians or physicians’ immediate family members hold with the reporting entity; • other federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral, fee-splitting restrictions, prohibitions on the provision of products at no or discounted cost to induce physician or patient adoption, and false claims acts, which may extend to services reimbursable by any third-party payer, including private insurers; • the prohibition on reassignment of Medicare claims, which, subject to certain exceptions, precludes the reassignment of Medicare claims to any other party; • the Protecting Access to Medicare Act of 2014, which requires us to report private payer rates and test volumes for specific CPT codes on a triennial basis and imposes penalties for failures to report, omissions, or misrepresentations; • the No Surprises Act and its implementing regulations (effective January 1, 2022), which prohibit an out-of-network provider from billing a patient at an amount in excess of the in-network cost sharing for services furnished with respect to a visit at certain in-network health-care facilities, as well as various state laws restricting balance billing of patients; • the rules regarding billing for diagnostic tests reimbursable by the Medicare program, which prohibit a physician or other supplier from marking up the price of the technical component or professional component of a diagnostic test ordered by the physician or other supplier and supervised or performed by a physician who does not “share a practice” with the billing physician or supplier; • state laws that prohibit other specified practices related to billing such as billing physicians for testing that they order, waiving co-insurance, co-payments, deductibles, and other amounts owed by patients, and billing a state Medicaid program at a price that is higher than what is charged to other payers; • the Foreign Corrupt Practices Act of 1977, and other similar laws, which apply to our international activities; • unclaimed property (escheat) laws and regulations, which may require us to turn over to governmental authorities the property of others held by us that has been unclaimed for a specified period of time; • enforcing our intellectual property rights; and • foreign laws and regulations equivalent to the above.
Critical accounting policies and estimates used in preparing our consolidated financial statements include those related to: revenue recognition; write-down of supplies; the useful lives of property and equipment; the recoverability of long-lived assets; the incremental borrowing rate for leases; the estimation of the fair value of intangible assets and contingent consideration; variable interest entity assessment; impairment of equity investment, at cost; stock options; income tax uncertainties, including a valuation allowance for deferred tax assets; reserve on accounts receivable and contingencies.
Critical accounting policies and estimates used in preparing our consolidated financial statements include those related to: revenue recognition; write-down of supplies; the useful lives of property, plant and equipment; the recoverability of long-lived assets; the incremental borrowing rate for leases; the estimation of the fair value of intangible assets and contingent consideration; variable interest entity assessment; impairment of equity investment, at cost; stock options; income tax uncertainties, including a valuation allowance for deferred tax assets; reserve on accounts receivable and contingencies.
If the FDA were to determine that Afirma, Decipher Prostate Biopsy, Decipher Prostate RP, Envisia and Decipher Bladder classifiers are not within the scope of FDA's enforcement discretion policy for LDTs for any reason, including new rules, policies or guidance, or due to changes in statute, our tests may become subject to extensive FDA requirements, or our business may otherwise be adversely affected.
If the FDA were to determine that Afirma, Decipher Prostate Biopsy, Decipher Prostate RP, Envisia and Decipher Bladder classifiers are not within the scope of the FDA's enforcement discretion policy for LDTs for any reason, including new rules, regulations, policies or guidance, or due to changes in statute, our tests may become subject to extensive FDA requirements, or our business may otherwise be adversely affected.
A mutual recognition agreement (MRA) aligning in vitro diagnostic (IVD) regulations between the European Union and Switzerland has officially expired following the In Vitro Diagnostic Medical Devices Regulation’s (IVDR) May 26, 2022 date of application, impacting certification and authorized representation requirements for manufacturers. The Swiss government has issued its own Ordinance on In Vitro Diagnostic Medical Devices (IvDO).
A mutual recognition agreement, or MRA, aligning IVD regulations between the European Union and Switzerland has officially expired following the In Vitro Diagnostic Medical Devices Regulation’s, or IVDR, May 26, 2022 date of application, impacting certification and authorized representation requirements for manufacturers. The Swiss government has issued its own Ordinance on In Vitro Diagnostic Medical Devices, or IvDO.
It is possible that others will design around our current or future patented technologies. We may not be successful in defending any challenges made against our patents or patent applications. Any successful third-party challenge to our patents could result in the unenforceability or invalidity of such patents and increased competition to our business.
It is possible that others will design around our current or future patented technologies. We may not be successful in defending any challenges made against our patents or patent applications. Any successful third-party challenge to our patents may result in the unenforceability or invalidity of such patents and increased competition to our business.
We could incur substantial costs and divert the attention of our management and technical personnel in defending against any of these claims. Parties making claims against us may be able to obtain injunctive or other relief, which could block our ability to develop, commercialize and sell products, and could result in the award of substantial damages against us.
We may incur substantial costs and divert the attention of our management and technical personnel in defending against any of these claims. Parties making claims against us may be able to obtain injunctive or other relief, which may block our ability to develop, commercialize and sell products, and may result in the award of substantial damages against us.
Several factors make the billing process complex, including: • differences between the list price for our tests and the reimbursement rates of payers; • compliance with complex federal and state regulations related to billing government payers, such as Medicare and Medicaid, including requirements to have an active CLIA certificate; • risk of government audits related to billing Medicare and other government payers; • disputes among payers as to which party is responsible for payment; 43 Table of Contents • differences in coverage and in information and billing requirements among payers, including the need for prior authorization and/or advanced notification; • the effect of patient co-payments or co-insurance; • individual payers may argue technical contract noncompliance and withhold payment; • changes to billing codes used for our tests; • incorrect or missing billing information; and • the resources required to manage the billing and claims appeals process.
Several factors make the billing process complex, including: • differences between the list price for our tests and the reimbursement rates of payers; • compliance with complex federal and state regulations related to billing government payers, such as Medicare and Medicaid, including requirements to have an active CLIA certificate; • risk of government audits related to billing Medicare and other government payers; 41 Table of Contents • disputes among payers as to which party is responsible for payment; • differences in coverage and in information and billing requirements among payers, including the need for prior authorization and/or advanced notification; • the effect of patient co-payments or co-insurance; • individual payers may argue technical contract noncompliance and withhold payment; • changes to billing codes used for our tests; • incorrect or missing billing information; and • the resources required to manage the billing and claims appeals process.
A material intended for RUO, without any medical purpose or objective, is therefore not considered as an IVD MD and is not subject to compliance with the IVD MDs requirements. Depending on the product in question, other regulations may be applicable to the RUO products.
A material intended for RUO, without any medical purpose or objective, is therefore not considered as an IVD medical device, or IVD MD, and is not subject to compliance with the IVD MDs requirements. Depending on the product in question, other regulations may be applicable to the RUO products.
If we were to enforce a claim that a third-party had illegally obtained and was using our trade secrets, it would be expensive and time consuming, and the outcome would be unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets.
If we were to enforce a claim that a third-party had illegally obtained and was using our trade secrets, it may be expensive and time-consuming, and the outcome may be unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets.
CMS bundles payments for clinical laboratory diagnostic tests together with other services performed during hospital outpatient visits under the Hospital Outpatient Prospective Payment System. CMS currently maintains an exemption for molecular pathology tests and “Criterion A” ADLTs from this bundling provision.
CMS bundles payments for many clinical laboratory diagnostic tests together with other services performed during hospital outpatient visits under the Hospital Outpatient Prospective Payment System. CMS currently maintains an exemption for molecular pathology tests and “Criterion A” ADLTs from this bundling provision.
Although we maintain product liability and errors and omissions insurance, we cannot assure you that our insurance would fully protect us from the financial impact of defending against these types of claims or any judgments, fines or settlement costs arising out of any such claims.
Although we maintain product liability and errors and omissions insurance, we cannot assure that our insurance would fully protect us from the financial impact of defending against these types of claims or any judgments, fines or settlement costs arising out of any such claims.
In contrast, UKCA marking and certificates issued by UK notified regulatory bodies are not recognized on the EU market. The rules for placing medical devices on the Northern Ireland market differ from those in Great Britain, and the IVDR will apply in Northern Ireland.
In contrast, UKCA marking and certificates issued by UK notified regulatory bodies are not yet recognized on the EU market. The rules for placing medical devices on the Northern Ireland market differ from those in Great Britain, and the IVDR will apply in Northern Ireland.
Any litigation that may be necessary in the future could result in substantial costs and diversion of resources and could have a material adverse effect on our business, operating results or financial condition.
Any litigation that may be necessary in the future may result in substantial costs and diversion of resources and may have a material adverse effect on our business, operating results or financial condition.
We depend on a few payers for a significant portion of our revenue and if one or more significant payers stops providing reimbursement or decreases the amount of reimbursement for our tests, our revenue could decline.
We depend on a few payers for a significant portion of our revenue; if one or more significant payers stops providing reimbursement or decreases the amount of reimbursement for our tests, our revenue could decline.
These billing complexities, and the related uncertainty in obtaining payment for our tests, could negatively affect our revenue and cash flow, our ability to achieve profitability, and the consistency and comparability of our results of operations. 44 Table of Contents We rely on a third-party provider to transmit claims to payers, and any delay in transmitting claims could have an adverse effect on our revenue.
These billing complexities, and the related uncertainty in obtaining payment for our tests, could negatively affect our revenue and cash flow, our ability to achieve profitability, and the consistency and comparability of our results of operations. 42 Table of Contents We rely on a third-party provider to transmit claims to payers, and any delay in transmitting claims could have an adverse effect on our revenue.
Payers may attempt to recoup prior payments after review, sometimes after significant time has passed, which would impact future revenue. We expect to continue to focus substantial resources on increasing adoption, coverage and reimbursement for the Afirma, Decipher Prostate, Prosigna, Envisia and Decipher Bladder and any other future tests we may develop.
Payers may attempt to recoup prior payments after review, sometimes after significant time has passed, which would impact future revenue. We expect to continue to focus substantial resources on increasing adoption, coverage and reimbursement for the Afirma, Decipher Prostate, Prosigna, Envisia and Decipher Bladder, as well as any other future tests we may develop.
The outcome of any litigation or other proceeding is inherently uncertain and might not be favorable to us, and we might not be able to obtain licenses to technology that we require on acceptable terms or at all. Further, we could encounter delays in product introductions, or interruptions in product sales, as we develop alternative methods or products.
The outcome of any litigation or other proceeding is inherently uncertain and might not be favorable to us, and we might not be able to obtain licenses to technology that we require on acceptable terms or at all. Further, we may encounter delays in product introductions, or interruptions in product sales, as we develop alternative methods or products.
Unauthorized access, loss or dissemination of such data also could disrupt our operations, including our ability to process tests, provide test results, bill payers or patients, process claims and appeals, provide customer assistance services, conduct research and development activities, collect, process, and prepare company financial information, provide information about our tests and other patient and physician education and outreach efforts through our website, and manage the administrative aspects of our business, any of which could adversely affect our business, including by materially damaging our reputation.
Unauthorized access, loss or dissemination of such data also could disrupt our operations, including our ability to process tests, provide test results, bill payers or patients, process claims and appeals, provide customer assistance services, conduct research and development activities, collect, process, and prepare company financial information, provide information about our tests and other patient and physician education and outreach efforts through our website, and manage the 51 Table of Contents administrative aspects of our business, any of which could adversely affect our business, including by materially damaging our reputation.
Courts frequently render opinions in the biotechnology field that may affect the patentability of certain inventions or discoveries, including opinions that may affect the patentability of methods for analyzing or comparing nucleic acids. In particular, the patent positions of companies engaged in the development and commercialization of genomic diagnostic tests are particularly uncertain. Various courts, including the U.S.
Courts frequently render opinions in the biotechnology field that may affect the patentability of certain inventions or discoveries, including opinions that may affect the patentability of methods for analyzing or comparing nucleic acids. In particular, the patent positions of companies engaged in the development and commercialization of genomic diagnostic tests may be particularly uncertain. Various courts, including the U.S.
In addition, during the course of this kind of litigation, there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.
In addition, during the course of this kind of litigation, there may be public announcements of the results of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it may have a substantial adverse effect on the price of our common stock.
We could incur substantial costs related to royalty payments for licenses obtained from third parties, which could negatively affect our financial results. In addition, we could encounter delays in product introductions while we attempt to develop alternative methods or products to avoid infringing third-party patents or proprietary rights.
We may incur substantial costs related to royalty payments for licenses obtained from third parties, which may negatively affect our financial results. In addition, we may encounter delays in product introductions while we attempt to develop alternative methods or products to avoid infringing third-party patents or proprietary rights.
In March 2020, through the CARES Act, Congress further delayed the next reporting period to 2022 for final payments made between January 1 and June 30, 2019, 25 Table of Contents extending the applicability for the payment rates based on 2017 reporting through December 31, 2022.
In March 2020, through the CARES Act, Congress further delayed the next reporting period to 2022 for final payments made between January 1 and June 30, 2019, 24 Table of Contents extending the applicability for the payment rates based on 2017 reporting through December 31, 2022.
As a general rule, demonstration of conformity of IVD MDs and their manufacturers with the essential requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions 38 Table of Contents of use.
As a general rule, demonstration of conformity of IVD MDs and their manufacturers with the essential requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions 36 Table of Contents of use.
The outcome of patent litigation can be uncertain and any attempt by us to enforce our patent rights against others may not be successful, or, if successful, may take substantial time and result in substantial cost, and may divert our efforts and attention from other aspects of our business.
The outcome of patent litigation can be uncertain and any attempts by us to enforce our patent rights against others may not be successful, or, if successful, may take substantial time and result in substantial cost, and may divert our efforts and attention from other aspects of our business.
In addition, as we develop diagnostic tests, we will have to make additional investments in our sales and marketing operations, which may be prematurely or unnecessarily incurred if the commercial launch of a test is abandoned or delayed.
In addition, as we develop diagnostic tests, we will have to make additional investments in our laboratory operations as well as sales and marketing operations, which may be prematurely or unnecessarily incurred if the commercial launch of a test is abandoned or delayed.
Further, competitors could attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology or develop their own competitive technologies that fall outside of our intellectual property rights.
Further, competitors may attempt to replicate some or all of the competitive advantages we derive from our development efforts, willfully infringe our intellectual property rights, design around our protected technology, or develop their own competitive technologies that fall outside of our intellectual property rights.
Before we can successfully develop and commercialize any of our currently planned or other new diagnostic solutions, we will need to: • conduct substantial research and development; • obtain the necessary testing samples and related data; • conduct analytical and clinical validation studies, as well as clinical utility studies; • expend significant funds; • expand and scale-up our laboratory processes; • expand and train our sales force; • gain acceptance from ordering clinicians at a larger number of hospitals; • gain acceptance from ordering laboratories; and • seek and obtain regulatory clearances, approvals or certifications of our new solutions, as required by applicable regulatory bodies.
Before we can successfully develop and commercialize any of our currently planned or other new diagnostic solutions, we will need to: • conduct substantial research and development; • obtain the necessary testing samples and related data; • conduct analytical and clinical validation studies, as well as clinical utility studies; • expend significant funds; • expand and scale-up our laboratory processes; • expand and train our sales force; • gain acceptance from a large number of ordering clinicians; • gain acceptance from ordering laboratories; and • seek and obtain regulatory clearances, approvals or certifications of our new solutions, as required by applicable regulatory bodies.
The legal systems of many other countries do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology, which could make it difficult for us to stop the infringement of our patents in such countries.
The legal systems of many other countries do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology, which may make it difficult for us to stop the infringement of our patents in such countries.
Our Decipher Prostate test faces competition from Myriad Genetics and MDx Health, which offer genomic testing for prognostic purposes within localized prostate cancer. Additionally, traditional methods used by pathologists and clinicians to estimate risk of disease progression pose competitive threats to our business in addition to new technologies such as artificial intelligence and digital pathology.
Our Decipher Prostate test faces competition from Myriad Genetics and MDx Health, which offer genomic testing for prognostic purposes within localized prostate cancer. Additionally, traditional methods used by pathologists and clinicians to estimate risk of disease progression pose competitive threats to our business in addition to new technologies such as AI and digital pathology.
While we are not currently aware of any such attack or breach having occurred, if such an event were to occur and cause interruptions in our operations, our networks would be compromised and the information we store on those networks could potentially be accessed 52 Table of Contents by unauthorized parties, publicly disclosed, lost or stolen.
While we are not currently aware of any such attack or breach having occurred, if such an event were to occur and cause interruptions in our operations, our networks would be compromised and the information we store on those networks could potentially be accessed by unauthorized parties, publicly disclosed, lost or stolen.
In addition, if we resort to legal proceedings to enforce our intellectual property rights or to determine the validity, scope and coverage of the intellectual property or other proprietary rights of others, the proceedings could be burdensome and expensive, even if we were to prevail.
In addition, if we resort to legal proceedings to enforce our intellectual property rights or to determine the validity, scope, and coverage of the intellectual property or other proprietary rights of others, the proceedings may be burdensome and expensive, even if we were to prevail.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information may be compromised by disclosure during this type of litigation.
If we are unable to change clinical practice in a meaningful way or compete successfully against current and future competitors, we may be unable to increase market acceptance and sales of our products, 42 Table of Contents which could prevent us from increasing our revenue or achieving profitability and could cause the market price of our common stock to decline.
If we are unable to change clinical practice in a meaningful way or compete successfully against current and future competitors, we may be unable to increase market acceptance and sales of our products, which could prevent us from increasing our revenue or achieving profitability and could cause the market price of our common stock to decline.
We may also be subject to similar types of claims related to our Decipher Prostate, Prosigna, Envisia, and Decipher Bladder tests, as well as tests we may develop or acquire in the future. Any of the foregoing defects or errors could harm our reputation, decrease market acceptance of our products or services or expose us to product liability claims.
We may also be subject to similar types of claims related to our Decipher Prostate, Prosigna, Envisia, and Decipher Bladder tests, as well as tests we may develop or acquire in the future. 49 Table of Contents Any of the foregoing defects or errors could harm our reputation, decrease market acceptance of our products or services or expose us to product liability claims.
Defense of any lawsuit or failure to obtain any of these licenses could prevent us from commercializing products, and the prohibition of sale of any of our products could materially affect our business and our ability to gain market acceptance for our products.
Defense of any lawsuit or failure to obtain any of these licenses may prevent us from commercializing products, and the prohibition of sale of any of our products may materially affect our business and our ability to gain market acceptance for our products.
Others may develop products with prices lower than ours that could be viewed by physicians and payers as functionally equivalent to our solutions or offer solutions at prices designed to promote market penetration, which could force us to lower the list price of our solutions and affect our ability to achieve profitability.
Others may develop products with prices lower than ours that could be viewed by physicians and payers as functionally equivalent to our solutions or offer solutions at prices designed to promote market penetration, which could force us to lower the list price of our solutions and 40 Table of Contents affect our ability to achieve profitability.
The CCPA and CPRA provide for civil penalties and a private right of action for data breaches that is expected to increase data breach litigation. The CCPA and CPRA may increase our compliance costs and potential liability.
The CCPA and CPRA provide for civil penalties and a private right of action for data breaches that are expected to increase data breach litigation. The CCPA and CPRA may increase our compliance costs and potential liability.
We could also voluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so if we determine it would be important to our business relationships.
We may also voluntarily agree to defend or indemnify third parties in instances where we are not obligated to do so if we determine it would be important to our business relationships.
Our failure to establish broad adoption of and reimbursement for our tests, or our inability to maintain existing reimbursement from payers, will negatively impact our ability to generate revenue and achieve profitability, as well as our future prospects and our business. We may experience limits on our revenue if physicians decide not to order our tests.
Our failure to establish broad adoption of and reimbursement for our tests, or our inability to maintain existing reimbursement from payers, will negatively impact our ability to generate revenue and achieve profitability, as well as our future prospects and our business. 26 Table of Contents We may experience limits on our revenue if physicians decide not to order our tests.
We rely on sole suppliers for critical supply of reagents, equipment and other materials and services that we use to perform our tests, for the manufacture of the nCounter Analysis System for diagnostic use and Prosigna test kits sold to customers. We also purchase components used in our sample collection kits from sole-source suppliers.
We rely on sole suppliers for critical supply of reagents, equipment and other materials and services that we use to perform our tests, to access the nCounter Analysis System for diagnostic use and for components related to the Prosigna test kits sold to customers. We also purchase components used in our sample collection kits from sole-source suppliers.
In March 2020, Congress passed the CARES Act, which suspended the 2% 33 Table of Contents reduction in Medicare fee-for-service payments from May 1, 2020 through December 31, 2020. To account for this temporary suspension, the legislation also extends the effect of sequestration by a year (now through fiscal year 2031).
In March 2020, Congress passed the CARES Act, which suspended the 2% reduction in Medicare fee-for-service payments from May 1, 2020 through December 31, 2020. To account for this temporary suspension, the legislation also extends the effect of sequestration by a year (now through fiscal year 2031).
Since each payer makes its own decision as to whether to establish a coverage policy or enter into a contract to reimburse our tests, seeking these approvals is a time-consuming and costly process. We are an out-of-network provider with some commercial payers in the U.S. and thus, we do not have control over rates or terms of reimbursement.
Since each payer makes its own decision as to whether to establish a coverage policy or enter into a contract to reimburse our tests, seeking these approvals is a time-consuming and costly process. We are an out-of-network provider with some commercial payers in the United States and thus, we do not have control over rates or terms of reimbursement.
Our inability to raise additional capital on acceptable terms in the future may limit our ability to develop and commercialize new solutions and technologies and expand our operations. We expect continued capital expenditures and operating losses over the next few years as we expand our infrastructure, commercial operations and research and development activities.
Our inability to raise additional capital on acceptable terms in the future may limit our ability to develop and commercialize new solutions and technologies and expand our operations, organically or inorganically. We expect continued capital expenditures and operating losses over the next few years as we expand our infrastructure, commercial operations and research and development activities.
These decisions state, among other things, that patent claims that recite laws of nature (for example, the relationship between blood levels of certain metabolites and the likelihood that a dosage of a specific drug will be ineffective or cause harm) are not themselves patentable.
These 54 Table of Contents decisions state, among other things, that patent claims that recite laws of nature (for example, the relationship between blood levels of certain metabolites and the likelihood that a dosage of a specific drug will be ineffective or cause harm) are not themselves patentable.
If a clinical utility study fails to demonstrate the value of a particular test, we may not be able to obtain reimbursement for the test. In addition, we recognize test revenue upon delivery of the patient report to the prescribing physician based on the amount we expect to ultimately realize.
If a clinical utility study fails to demonstrate the value of a particular test, we may choose not to commercialize, or we may not be able to obtain reimbursement for, the test. In addition, we recognize test revenue upon delivery of the patient report to the prescribing physician based on the amount we expect to ultimately realize.
Other potential competitors include companies that develop diagnostic products, such as Roche Diagnostics, a division of Roche Holding Ltd, Siemens AG and Qiagen N.V., and we also may face competition from competitors of our biopharma services such as Neogenomics, Adapative, Tempus and Akoya.
Other potential competitors include companies that develop diagnostic products, such as Roche Diagnostics, a division of Roche Holding Ltd, Siemens AG and Qiagen N.V., and we also may face competition from competitors of our biopharma services such as Neogenomics, Adaptive Biotechnologies, Tempus and Akoya.
This law, which takes effect January 1, 2022, prohibits an out-of-network provider from billing a patient at an amount in excess of the in-network cost sharing for services furnished with respect to a visit at certain in-network health-care facilities.
This law, which took effect on January 1, 2022, prohibits an out-of-network provider from billing a patient at an amount in excess of the in-network cost sharing for services furnished with respect to a visit at certain in-network health-care facilities.
Our management and other personnel need to devote a substantial amount of time to these compliance and disclosure obligations. Moreover, these rules and regulations have and will continue to increase our legal, accounting and 59 Table of Contents financial compliance costs and make some activities more complex, time-consuming and costly.
Our management and other personnel need to devote a substantial amount of time to these compliance and disclosure obligations. Moreover, these rules and regulations have and will continue to increase our legal, accounting and financial compliance costs and make some activities more complex, time-consuming and costly.
The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions imposed by the U.S. and the European Union, and other countries and companies and organizations, could adversely affect the global economy and financial markets and thus could affect our business and results of operations, as well as the price of our common stock and our ability to raise additional capital when needed on acceptable terms.
The impact to Ukraine as well as actions taken by other countries, including new and stricter sanctions imposed by the United States and the European Union, and other countries and companies and organizations, could adversely affect the global economy and financial markets and thus could affect our business and results of operations, as well as the price of our common stock and our ability to raise additional capital when needed on acceptable terms.
There can be no assurance that the payment rate for Afirma or Prosigna will not decrease in the future or that the payment rates for Decipher Prostate Biopsy, Decipher Prostate RP or Decipher Bladder will not be adversely affected by the PAMA law and regulations. 34 Table of Contents Our Envisia classifier was approved by CMS as a New ADLT on September 17, 2020.
There can be no assurance that the payment rate for Afirma or Prosigna will not decrease in the future or that the payment rates for Decipher Prostate Biopsy, Decipher Prostate RP or Decipher Bladder will not be adversely affected by the PAMA law and regulations. Our Envisia classifier was approved by CMS as a New ADLT on September 17, 2020.
MACRA created the Merit-Based Incentive Payment System which, beginning in 2019, more closely aligns physician payments with composite performance on performance metrics similar to three existing incentive programs (i.e., the Physician Quality Reporting System, the Value-based modifier program and the Electronic Health Record Meaningful Use program) and incentivizes physicians to enroll in alternative payment methods.
MACRA created the Merit-Based Incentive Payment System which, beginning in 2019, more closely aligns physician payments with composite performance on performance metrics similar to three existing incentive programs (i.e., the Physician Quality Reporting System, the Value-based modifier program and the Electronic Health Record Meaningful Use program) and 32 Table of Contents incentivizes physicians to enroll in alternative payment methods.
Our quarterly financial and operating results depend on sales of our products in the markets we operate and are sensitive to a number of factors, including patient and clinician demand, market conditions in the US and globally, and the prevalence of the indications we seek to address.
Our quarterly financial and operating results depend on sales of our products in the markets we operate and are sensitive to a number of factors, including patient and clinician demand, market conditions in the U.S. and globally, and the prevalence of the indications we seek to address.
In addition, the GDPR prohibits the transfer of personal data from the EEA to the United States and other jurisdictions that the European Commission does not recognize as having “adequate” data protection laws unless a data-protective transfer mechanism has been put in place.
In addition, the GDPR prohibits the transfer of personal data from the EEA to other jurisdictions that the European Commission does not recognize as having “adequate” data protection laws unless a data-protective transfer mechanism has been put in place.
Effective January 2012, Palmetto GBA, the regional Medicare Administrative Contractor, or MAC, that handled claims processing for Medicare services over our jurisdiction at that time, issued coverage and payment determinations for our Afirma Classifiers now covered by Noridian Healthcare Solutions, the current MAC for our jurisdiction, through the MolDX program, administered by Palmetto GBA, under an LCD.
Effective January 2012, Palmetto GBA, the regional Medicare Administrative Contractor, or MAC, that handled claims processing for Medicare services over our jurisdiction at that time, issued coverage and payment determinations for our Afirma Classifiers now covered by Noridian Healthcare Solutions, the current MAC for our jurisdiction, through the MolDX program, administered by Palmetto GBA, under a Local Coverage Determination, or LCD.
If we fail to maintain CLIA certificates in our 28 Table of Contents South San Francisco, California, San Diego, California, Austin, Texas or Richmond, Virginia laboratory locations, we would be unable to bill for services provided by state and federal healthcare programs, as well as many private third-party payers, which may have an adverse effect on our business, financial condition and results of operations.
If we fail to maintain CLIA certificates in our South San Francisco, California; San Diego, California; or Austin, Texas laboratory locations, we would be unable to bill for services provided by state and federal healthcare programs, as well as many private third-party payers, which may have an adverse effect on our business, financial condition and results of operations.
Moreover, we cannot predict how future economic conditions will affect our customers, suppliers and distributors and any negative impact on our critical customers, suppliers or distributors may also have an adverse impact on our results of operations or financial condition.
Moreover, we cannot predict how future economic conditions will affect our customers, suppliers and distributors and any negative impact on our critical customers, suppliers or distributors may also have an adverse impact on our results of operations 48 Table of Contents or financial condition.
Once tests are clinically validated and commercially available for patient testing, we must continue to develop and publish evidence that our tests are informing clinical decisions in order for them to receive positive coverage decisions by payers. Without coverage policies, our tests may not be reimbursed and we will not be able to recognize revenue.
Once tests are clinically validated and 23 Table of Contents commercially available for patient testing, we must continue to develop and publish evidence that our tests are informing clinical decisions in order for them to receive positive coverage decisions by payers. Without coverage policies, our tests may not be reimbursed and we will not be able to recognize revenue.
Most clinical diagnostic tests developed and run within a single CLIA-certified clinical laboratory (known as “laboratory developed tests” or “LDTs”), are not currently subject to regulation under the FDA's enforcement discretion policy concerning LDTs.
Most clinical diagnostic tests developed and run within a single CLIA-certified clinical laboratory (known as laboratory developed tests or LDTs), are not currently subject to regulation under the FDA's enforcement discretion policy concerning LDTs.
Developing new products involves a lengthy and complex process, and if we do not achieve our projected development and commercialization goals in the time frames we announce and expect, our business will suffer and our stock price may decline .
Developing new products involves a lengthy and complex process, and if we do not achieve our projected development and commercialization goals in the timeframes we announce and expect, our business will suffer and our stock price may decline .
The cost of compliance with these laws and regulations may become significant, and our failure to comply may result in substantial fines or other consequences, and either could negatively affect our operating results. We must successfully integrate the HalioDx and Decipher Biosciences businesses to realize the financial goals that we currently anticipate.
The cost of compliance with these laws and regulations may become significant, and our failure to comply may result in substantial fines or other consequences, and either could negatively affect our operating results. We must successfully integrate acquired businesses to realize the financial goals that we currently anticipate.
Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
Even if we are successful in defending against these claims, litigation may result in substantial costs and be a distraction to management.
Although these changes were not finalized, if CMS makes similar changes in the future, it could negatively impact our business. 35 Table of Contents In addition, we must maintain CLIA compliance and certification to sell our tests and be eligible to bill for diagnostic services provided to Medicare beneficiaries.
Although these changes were not finalized, if CMS makes similar changes in the future, it could negatively impact our business. In addition, we must maintain CLIA compliance and certification to sell our tests and be eligible to bill for diagnostic services provided to Medicare beneficiaries.
This methodology involved the use of a range of rates that fell between zero and 80% of the calculated California-specific Medicare rate and the calculation of a weighted average (based on units billed) of such rates.
This methodology 31 Table of Contents involved the use of a range of rates that fell between zero and 80% of the calculated California-specific Medicare rate and the calculation of a weighted average (based on units billed) of such rates.
Following Brexit, the IVDR will not be applicable in Great Britain (although it will apply in Northern Ireland), but the UK government is currently undertaking a consultation on the 36 Table of Contents regime applicable to in vitro diagnostics in the UK, and it is anticipated that similar provisions will be introduced as under the IVDR.
Following Brexit, the IVDR will not be applicable in Great Britain (although it will apply in Northern Ireland), but the UK government is currently undertaking a consultation on the regime applicable to in vitro diagnostics in the UK, and it is anticipated that similar provisions will be introduced as under the IVDR.
War, terrorism, geopolitical uncertainties, including any developments or consequences of the conflict in Ukraine or related sanctions, trade restrictions, public health issues, natural disasters and other catastrophic events may cause damage or disruption to the economy and commerce on a global, regional or country-specific basis, and could disrupt supply or delivery of, or demand for, our products.
War, terrorism, geopolitical uncertainties, including any developments or consequences of regional conflicts globally or related sanctions, trade restrictions, public health issues, natural disasters and other catastrophic events may cause damage or disruption to the economy and commerce on a global, regional or country-specific basis, and could disrupt supply or delivery of, or demand for, our products.
We may seek to raise additional capital through equity offerings, debt financings, collaborations or licensing arrangements. Additional funding may not be available to us on acceptable terms, or at all. If we raise funds by issuing equity securities, dilution to our stockholders could result.
We may seek to raise additional capital through equity 50 Table of Contents offerings, debt financings, collaborations or licensing arrangements. Additional funding may not be available to us on acceptable terms, or at all. If we raise funds by issuing equity securities, dilution to our stockholders could result.
If we are required or agree to defend or indemnify third parties in connection with any infringement claims, we could incur significant costs and expenses that could adversely affect our business, operating results, or financial condition. 57 Table of Contents Our ability to use our net operating loss carryforwards may be limited and may result in increased future tax liability to us.
If we are required or agree to defend or indemnify third parties in connection with any infringement claims, we may incur significant costs and expenses that may adversely affect our business, operating results, or financial condition. Our ability to use our net operating loss carryforwards may be limited and may result in increased future tax liability to us.
If we do not obtain or maintain regulatory clearances, certifications, approvals, or marketing authorizations for future diagnostic kit products or expand future indications for diagnostic purposes, if additional regulatory limitations are placed on our diagnostic kit products or if we fail to successfully commercialize such products, the market potential for our diagnostic kit products would be constrained, and our business and growth prospects would be adversely affected. 40 Table of Contents We are subject to ongoing and increasingly extensive regulatory requirements, which may be subject to change, and our failure to comply with these requirements could substantially harm our business.
If we do not obtain or maintain regulatory clearances, certifications, approvals, or marketing authorizations for existing or future diagnostic kit products or technology, or expand future indications for diagnostic purposes, if additional regulatory limitations are placed on our diagnostic kit products or if we fail to successfully commercialize such products, the market potential for our diagnostic kit products would be constrained, and our business and growth prospects related to our IVD strategy would be adversely affected. 38 Table of Contents We are subject to ongoing and increasingly extensive regulatory requirements, which may be subject to change, and our failure to comply with these requirements could substantially harm our business.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business. 55 Table of Contents Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property.
Proceedings to enforce our patent rights in foreign jurisdictions may result in substantial cost and divert our efforts and attention from other aspects of our business. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries may diminish the value of our intellectual property.
If the FDA were to disagree with our LDT status or modify its approach to regulating LDTs, we could experience reduced revenue or increased costs, which could adversely affect our business, prospects, results of operations and financial condition.
If the FDA were to disagree with our LDT status or modify its approach to regulating LDTs as currently proposed or otherwise, we could experience reduced revenue or increased costs, which could adversely affect our business, prospects, results of operations and financial condition.
If we are required to assert our rights against such party, it could result in significant cost and distraction. Monitoring unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate.
If we are required to assert our rights against such party, it may result in significant cost and distraction. Monitoring unauthorized disclosure may be difficult, and we may not know whether the steps we have taken to prevent such disclosure are, or will be, adequate.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES We lease office and laboratory facilities in South San Francisco (approximately 59,000 square feet) and San Diego (approximately 28,400 square feet), California; Austin, Texas (approximately 10,400 square feet); Marseille, France (approximately 31,400 square feet); and Richmond, Virginia (approximately 8,200 square feet). We believe our facilities are in good condition and adequate for their current use.
Biggest changeITEM 2. PROPERTIES We lease office and laboratory facilities in South San Francisco (approximately 59,000 square feet) and San Diego (approximately 50,900 square feet), California; Austin, Texas (approximately 10,400 square feet); and Marseille, France (approximately 31,400 square feet). We believe our facilities are in good condition and adequate for their current use.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIn addition, the terms of our credit agreement restrict our ability to pay dividends on our common stock, and we may also enter into credit agreements or other borrowing arrangements in the future that will further restrict our ability to declare or pay dividends on our common stock. 62 Table of Contents Recent Sale of Unregistered Securities and Use of Proceeds None.
Biggest changeIn addition, we may also enter into credit agreements or other borrowing arrangements in the future that may restrict our ability to declare or pay dividends on our common stock. 63 Table of Contents Recent Sale of Unregistered Securities and Use of Proceeds None. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is traded on the Nasdaq Global Market under the symbol "VCYT". Holders of Record As of February 24, 2023, there were 14 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 Information Our common stock is traded on the Nasdaq Global Market under the symbol "VCYT". Holders of Record As of February 23, 2024, there were 38 holders of record of our common stock.
Removed
Purchases of Equity Securities by the Issuer and Affiliated Purchasers None.
Added
December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 December 31, 2023 Veracyte, Inc. $ 100.00 $ 222.00 $ 389.00 $ 328.00 $ 189.00 $ 219.00 Nasdaq Global Market Index $ 100.00 $ 135.00 $ 194.00 $ 236.00 $ 158.00 $ 226.00 Nasdaq Biotechnology Index $ 100.00 $ 125.00 $ 158.00 $ 158.00 $ 142.00 $ 149.00
Removed
December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020 December 31, 2021 December 31, 2022 Veracyte, Inc. $ 100.00 $ 193.00 $ 428.00 $ 749.00 $ 631.00 $ 363.00 Nasdaq Global Market Index $ 100.00 $ 96.00 $ 130.00 $ 187.00 $ 227.00 $ 152.00 Nasdaq Biotechnology Index $ 100.00 $ 94.00 $ 117.00 $ 148.00 $ 148.00 $ 133.00 ITEM 6. [RESERVED] 63 Table of Contents

Item 7. Management's Discussion & Analysis

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

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Biggest changeCost of revenue Comparison of the years ended December 31, 2022 and 2021 was as follows (in thousands of dollars, except percentages): Year Ended December 31, 2022 Change % 2021 Cost of testing revenue: Laboratory expense $ 37,502 $ 5,312 17 % $ 32,190 Sample collection expense 9,633 4,210 78 % 5,423 Compensation expense 17,018 5,243 45 % 11,775 License fees and royalties 75 (856) (92) % 931 Depreciation and amortization 1,247 106 9 % 1,141 Other expenses 4,080 1,170 40 % 2,910 Allocations 5,762 1,272 28 % 4,490 Total $ 75,317 $ 16,457 28 % $ 58,860 Cost of product revenue: Product costs $ 5,879 $ 1,128 24 % $ 4,751 License fees and royalties 1,089 28 3 % 1,061 Depreciation and amortization 151 76 101 % 75 Other expenses 620 620 NM — Allocations 81 81 NM — Total $ 7,820 $ 1,933 33 % $ 5,887 Cost of biopharmaceutical and other revenue: Compensation expense $ 8,935 $ 4,678 110 % $ 4,257 License fees and royalties 170 69 68 % 101 Depreciation and amortization 400 166 71 % 234 Other expenses 8,732 3,638 71 % 5,094 Allocations 208 241 (730) % (33) Total $ 18,445 $ 8,792 91 % $ 9,653 Cost of testing revenue increased $16.5 million, or 28.0%, for the year ended December 31, 2022 compared to 2021.
Biggest changeComparison of revenue for the years ended December 31, 2022 and 2021 is included in Item 8 of Part II of the Annual Report on Form 10-K filed with the Securities and Exchange Commission dated March 1, 2023. 73 Table of Contents Cost of revenue Comparison of the years ended December 31, 2023 and 2022 was as follows (in thousands of dollars, except percentages): Year Ended December 31, 2023 Change % 2022 Cost of testing revenue: Laboratory expense $ 46,876 $ 9,374 25 % $ 37,502 Sample collection expense 10,814 1,181 12 % 9,633 Compensation expense 18,534 1,516 9 % 17,018 License fees and royalties 90 15 20 % 75 Depreciation and amortization 1,521 274 22 % 1,247 Other expenses 3,946 (134) (3) % 4,080 Allocations 7,132 1,370 24 % 5,762 Total $ 88,913 $ 13,596 18 % $ 75,317 Cost of product revenue: Product costs $ 6,362 $ 483 8 % $ 5,879 License fees and royalties 1,242 153 14 % 1,089 Depreciation and amortization 316 165 109 % 151 Other expenses 586 (34) (5) % 620 Allocations 160 79 98 % 81 Total $ 8,666 $ 846 11 % $ 7,820 Cost of biopharmaceutical and other revenue: Compensation expense $ 7,747 $ (1,188) (13) % $ 8,935 License fees and royalties (2) (172) (101) % 170 Depreciation and amortization 347 (53) (13) % 400 Other expenses 5,267 (3,465) (40) % 8,732 Allocations 1,965 1,757 845 % 208 Total $ 15,324 $ (3,121) (17) % $ 18,445 Cost of testing revenue increased $13.6 million, or 18.1%, for the year ended December 31, 2023 compared to 2022.
The update will generally result in an entity recognizing contract assets and contract liabilities at 79 Table of Contents amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The new standard is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption permitted.
The update will generally result in an entity recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition date rather than at fair value. The new standard is effective on a prospective basis for fiscal years beginning after December 15, 2022, with early adoption 79 Table of Contents permitted.
Foreign Currency Translation The functional currency of our foreign subsidiary, Veracyte SAS, is the Euro. Assets and liabilities denominated in foreign currencies are translated to U.S. dollars using the exchange rates at the balance sheet date. Foreign currency translation adjustments are recorded as a component of accumulated other comprehensive loss within stockholders’ equity.
Foreign Currency Translation The functional currency of our foreign subsidiary, Veracyte SAS, is the Euro. Assets and liabilities denominated in foreign currencies are translated to U.S. dollars using the exchange rates at the balance sheet date. Foreign currency translation adjustments are recorded as a component of accumulated other comprehensive income (loss) within stockholders’ equity.
Revenue and expenses from our foreign subsidiaries are translated using the monthly average exchange rates in effect during the period in which the transactions occur. Foreign currency transaction gains and losses are recorded in other income, net, on the consolidated statements of operations.
Revenue and expenses from our foreign subsidiaries are translated using the monthly average exchange rates in effect during the period in which the transactions occur. Foreign currency transaction gains and losses are recorded in other income (loss), net, on the consolidated statements of operations.
Cost of Testing Revenue The components of our cost of testing revenue are laboratory expenses, sample collection kit costs, sample collection expenses, compensation expense, license fees and royalties, depreciation, other expenses such as equipment and laboratory supplies, and allocations of facility and information technology expenses.
Cost of Testing Revenue The components of our cost of testing revenue are sample collection kit costs, reagent expenses, compensation expense, license fees and royalties, depreciation, other expenses such as equipment and laboratory supplies, and allocations of facility and information technology expenses.
Our high-performing tests enable clinicians to make more confident diagnostic, prognostic and treatment decisions, helping patients avoid unnecessary procedures and interventions, and speed time to appropriate treatment, thereby improving outcomes for patients all over the world. We currently offer tests in thyroid cancer (Afirma); prostate cancer (Decipher Prostate); breast cancer (Prosigna); interstitial lung diseases (Envisia); and bladder cancer (Decipher Bladder).
Our high-performing tests enable clinicians to make more confident diagnostic, prognostic and treatment decisions, helping patients avoid unnecessary procedures and interventions, and accelerating time to appropriate treatment, thereby improving outcomes for patients all over the world. We currently offer tests in thyroid cancer (Afirma); prostate cancer (Decipher Prostate); breast cancer (Prosigna); bladder cancer (Decipher Bladder); and interstitial lung diseases (Envisia).
Cost of Biopharmaceutical and Other Revenue Our cost of biopharmaceutical and other revenue are the costs of performing activities under arrangements that require us to perform research and development, commercialization, contract manufacturing and development, and contract testing services on behalf of a customer. This cost is mainly composed of compensation expense, laboratory supplies and pass-through costs.
Cost of Biopharmaceutical and Other Revenue Our cost of biopharmaceutical and other revenue are the costs of performing activities under arrangements that require us to perform research and development, commercialization, contract manufacturing and development, and previously included contract testing services on behalf of a customer. This cost is mainly composed of compensation expense, manufacturing and laboratory supplies and pass-through costs.
Recent Accounting Pronouncements In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 2014-09, Revenue from Contracts with Customers (Topic 606).
Recent Accounting Pronouncements Recently adopted accounting pronouncements In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers , which requires entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 2014-09, Revenue from Contracts with Customers (Topic 606).
At the end of each reporting period, we re-evaluate the probability of achievement of milestones that are within either party’s control, such as operational developmental milestones and any related constraint, and if necessary, adjusts our estimate of the overall transaction price.
At the end of each reporting period, we re-evaluate the probability of achievement of milestones that are within either party’s control, such as operational developmental milestones and any related constraint, and if necessary, adjust our estimate of the overall transaction price.
Spending on research and development, for both experiments and studies, may vary significantly by quarter depending on the timing of these various expenses. Financial Overview Revenue Through December 31, 2022, we had derived most of our revenue from the sale of Decipher and Afirma tests, delivered primarily to physicians in the United States.
Spending on research and development, for both experiments and studies, may vary significantly by quarter depending on the timing of these various expenses. Financial Overview Revenue Through December 31, 2023, we derived most of our revenue from the sale of Decipher and Afirma tests, delivered primarily to physicians in the United States.
Notwithstanding our efforts to obtain payment for these tests, payers may deny our claims, in whole or in part, and we may never receive payment for these tests. We bill list price regardless of contract rate, but only recognize revenue from amounts that we estimate are collectible and meet our revenue recognition criteria.
Notwithstanding our efforts to obtain payment for these tests, payers may deny our claims, in whole or in part, and we may never receive payment for these tests. 66 Table of Contents We bill list price regardless of contract rate, but only recognize revenue from amounts that we estimate are collectible and meet our revenue recognition criteria.
Cash used as a result of changes in operating assets and liabilities was $16.4 million, primarily comprising an increase in accounts receivable of $4.5 million, a decrease in accrued liabilities of $3.9 million, a decrease in operating lease liability of $3.4 million, an increase in supplies and inventory of 78 Table of Contents $3.0 million, and an increase in other assets of $3.0 million, partially offset by a decrease in prepaid expense and other current assets of $1.4 million.
Cash used as a result of changes in operating assets and liabilities was $16.4 million, primarily comprising an increase in accounts receivable of $4.5 million, a decrease in accrued liabilities of $3.9 million, a decrease in operating lease liability of $3.4 million, an increase in supplies and inventory of $3.0 million, and an increase in other assets of $3.0 million, partially offset by a decrease in prepaid expense and other current assets of $1.4 million.
Cash Flows from Investing Activities Cash used in investing activities for the year ended December 31, 2022 was $29.4 million for the purchase and maturity of short-term investments and acquisition of property and equipment.
Cash used in investing activities for the year ended December 31, 2022 was $29.4 million for the purchase and maturity of short-term investments and acquisition of property and equipment.
Cash Flows from Financing Activities Cash provided by financing activities for the year ended December 31, 2022 was $3.5 million, consisting of $7.9 million in proceeds from the exercise of options to purchase our common stock and purchase of stock under our Employee Stock Purchase Plan, or ESPP, partially offset by $3.2 million in tax payments during the period related to the vesting of restricted stock units granted to employees and $1.3 million in payment of long-term debt.
Cash provided by financing activities for the year ended December 31, 2022 was $3.5 million, consisting of $7.9 million in proceeds from the exercise of options to purchase our common stock and purchase of stock under our ESPP partially offset by $3.2 million in tax payments during the period related to the vesting of restricted stock units granted to employees and $1.3 million in payment of long-term debt.
These expenses consist of compensation expenses, direct research and development expenses such as laboratory supplies and costs associated with setting up and conducting 68 Table of Contents clinical studies at domestic and international sites, professional fees, depreciation and amortization, other miscellaneous expenses and allocation of facility and information technology expenses.
These expenses consist of compensation expenses, direct research and development expenses such as laboratory supplies and costs associated with setting up and conducting clinical studies at domestic and international sites, professional fees, depreciation and amortization, other miscellaneous expenses and allocation of facility and information technology expenses.
The net loss of $36.6 million includes non-cash charges of $26.7 million of stock-based compensation expense, $25.9 million of depreciation and amortization, including $21.4 million of intangible asset amortization, $3.3 million of impairment of intangible asset, noncash lease expense of $3.3 million, and $0.5 million of foreign currency loss.
The net loss of $36.6 million includes non-cash charges of $26.7 million of stock-based compensation expense, $25.9 million of depreciation and amortization, including $21.4 million of intangible asset amortization, $3.3 million of impairment of intangible asset, 78 Table of Contents noncash lease expense of $3.3 million, and $0.5 million of foreign currency loss.
Continued Adoption of and Reimbursement for our Products Revenue growth depends on our ability to secure coverage decisions, achieve broader reimbursement at increased levels from third-party payers, expand our base of prescribing physicians and increase our penetration in existing accounts.
Continued Adoption of and Reimbursement for our Products Revenue growth depends on our ability to secure coverage decisions, achieve broader reimbursement from third-party payers, expand our base of prescribing physicians and increase our penetration in existing accounts.
As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. 71 Table of Contents Supplies and Inventory Supplies consists of materials and reagents consumed in the performance of testing services.
As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future. Supplies and Inventory Supplies consists of materials and reagents consumed in the performance of testing services.
Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to 69 Table of Contents understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
Third-party payers and other customers in excess of 10% of total revenue and their related revenue as a percentage of total revenue were as follows: Year Ended December 31, 2022 2021 2020 Medicare 31 % 30 % 24 % UnitedHealthcare 10 % 10 % 11 % 41 % 40 % 35 % For tests performed, we recognize the related revenue upon delivery of a patient report to the prescribing physician based on the amount that we expect to ultimately receive.
Third-party payers and other customers in excess of 10% of total revenue and their related revenue as a percentage of total revenue were as follows: Year Ended December 31, 2023 2022 2021 Medicare 31 % 31 % 30 % UnitedHealthcare 10 % 10 % 10 % 41 % 41 % 40 % For tests performed, we recognize the related revenue upon delivery of a patient report to the prescribing physician based on the amount that we expect to ultimately receive.
We generally invoice third-party payers upon delivery of a patient report to the prescribing physician. As such, we take the assignment of benefits and the risk of cash collection from the third-party payer and 67 Table of Contents individual patients.
We generally invoice third-party payers upon delivery of a patient report to the prescribing physician. As such, we take the assignment of benefits and the risk of cash collection from the third-party payer and individual patients.
We expect that our near- and longer-term liquidity requirements will continue to consist of costs to run our laboratories, research and development expenses, selling and marketing expenses, general and administrative expenses, working capital, capital expenditures, lease obligations and general corporate expenses associated with the growth of our business.
We expect that our near- and longer-term liquidity requirements will continue to consist of costs to run our laboratories, research and development expenses, selling and marketing expenses, general and administrative expenses, working capital, capital expenditures, lease obligations, potential milestones associated with the C2i acquisition and general corporate expenses associated with the growth of our business.
The estimation of the stand-alone selling price may include independent evidence of market price, forecasted revenues or costs, development timelines, discount rates, and probabilities of technical and regulatory success.
The estimation of the stand-alone selling price may include independent evidence of 70 Table of Contents market price, forecasted revenues or costs, development timelines, discount rates, and probabilities of technical and regulatory success.
At the inception of each arrangement that includes milestone payments (variable consideration), we evaluate whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price.
At the inception of each arrangement that includes milestone payments (variable consideration), we evaluate whether the milestones are considered probable of being reached and estimate the amounts to be included in the transaction price.
Our net proceeds from the offering were approximately $193.8 million, after deducting underwriting commissions and offering expenses of $13.2 million. Operating Leases We lease office and laboratory facilities in South San Francisco and San Diego, California; Austin, Texas; Marseille, France; and Richmond, Virginia, and lease certain equipment under various non-cancelable lease agreements.
Our net proceeds from the offering were approximately $593.8 million, after deducting underwriting discounts and commissions and offering expenses of $38.7 million. Operating Leases We lease office and laboratory facilities in South San Francisco and San Diego, California; Austin, Texas; Marseille, France; and Richmond, Virginia, and lease certain equipment under various non-cancelable lease agreements.
This process involves identifying the contract with a customer, determining the performance obligations in the contract, 65 Table of Contents determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied.
This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied.
Research and Development Research and development expenses include expenses incurred to develop our technology, collect clinical samples and conduct clinical studies to develop and support our products and pipeline.
Research and Development Research and development expenses include expenses incurred to collect clinical samples and conduct clinical studies to develop and support our products and pipeline, as well as develop future technology.
Comparison of research and development expense for the years ended December 31, 2021 and 2020 are included in Item 8 of Part II of the Annual Report on Form 10-K filed with the Securities and Exchange Commission dated February 28, 2022.
Comparison of research and development expense for the years ended December 31, 2022 and 2021 are included in Item 8 of Part II of the Annual Report on Form 10-K filed with the Securities and Exchange Commission dated March 1, 2023.
Comparison of general and administrative expense for the years ended December 31, 2021 and 2020 are included in Item 8 of Part II of the Annual Report on Form 10-K filed with the Securities and Exchange Commission dated February 28, 2022.
Comparison of general and administrative expense for the years ended December 31, 2022 and 2021 are included in Item 8 of Part II of the Annual Report on Form 10-K filed with the Securities and Exchange Commission dated March 1, 2023.
As of December 31, 2022, Veracyte SAS has signed a lease agreement for facilities which will be constructed in Marseille, France. The lease will commence upon completion of the construction of the office building which we currently expect to occur in the fourth quarter of 2023 at which time we will record a lease liability and a corresponding right-of-use asset.
As of December 31, 2023, Veracyte SAS has signed a lease agreement for facilities which will be constructed in Marseille, France. The lease will commence upon completion of the construction of the office building at which time we will record a lease liability and a corresponding right-of-use asset.
We expense all research and development costs in the periods in which they are incurred. We incurred a majority of our research and development expenses in years ended December 31, 2022 and December 31, 2021 in support of our early-stage products, including Percepta Nasal Swab.
We expense all research and development costs in the periods in which they are incurred. We incurred a majority of our research and development expenses in the years ended December 31, 2023 and December 31, 2022 in support of our early-stage products, including Percepta Nasal Swab, as well as the development of new IVD products.
Cash used as a result of changes in operating assets and liabilities was $0.5 million, primarily comprised of a decrease in accrued liabilities of $0.9 million, a decrease in operating lease liability of $1.4 million, and an increase in prepaid expense and other current assets of $1.0 million, partially offset by a decrease in accounts receivable of $1.0 million, an increase in accounts payable of $0.7 million and a decrease in supplies of $1.1 million.
Cash used as a result of changes in operating assets and liabilities was $4.2 million, primarily comprising a decrease in operating lease liability of $4.3 million, an increase in supplies and inventory of $1.7 million, a decrease in accrued liabilities of $0.7 million, an increase in prepaid expense and other current assets of $0.5 million, and an increase in other assets of $0.8 million, partially offset by a decrease in accounts receivable of $3.9 million.
Our Percepta Nasal Swab test is being run in our CLIA lab in support of clinical studies and our tests for kidney cancer and lymphoma are in development, the latter as a companion diagnostic. We serve global markets with two complementary models.
Our Percepta Nasal Swab test is being run in our CLIA lab in support of clinical studies and our test for lymphoma is in development as a companion diagnostic. We serve global markets with two complementary models.
Factors impacting the number of tests that we report as completed include, but are not limited to: • the impact of COVID-19 on patients seeking to have tests performed; • the availability of hospital staff to perform and support procedures needed to collect samples for our tests; • the number of samples that we receive that meet the medical indication for each test performed; • the quantity and quality of the sample received; • receipt of the necessary documentation, such as physician order and patient consent, required to perform, bill and collect for our tests; • the patient's ability to pay or provide necessary insurance coverage for the tests performed; • the time it takes us to perform our tests and report the results; • the seasonality inherent in our business, such as the impact of work days per period, timing of industry conferences and the timing of when patient deductibles are exceeded, which also impacts the reimbursement we receive from insurers; and • our ability to obtain prior authorization or meet other requirements instituted by payers, benefit managers, or regulators necessary to be paid for our tests.
Factors impacting the number of tests that we report as completed include, but are not limited to: • the number of samples that we receive that meet the medical indication for each test performed; • the quantity and quality of the sample received; • receipt of the necessary documentation, such as physician order and patient consent, required to perform, bill and collect for our tests; • the patient's ability to pay or provide necessary insurance coverage for the tests performed; • the time it takes us or our customers to perform our tests and report the results, including as a result of supply chain challenges (including quality of reagents); • the seasonality inherent in our business, such as the impact of work-days per period, timing of industry conferences and timing of when patient deductibles are exceeded, which also impacts the reimbursement we receive from insurers; and • our ability to obtain prior authorization or meet other requirements instituted by payers, benefit managers, or regulators necessary to be paid for our tests.
Today, this includes our Prosigna test, and in the future, we intend to offer the Envisia, Decipher Prostate and Percepta Nasal Swab tests as in IVD tests that run on the nCounter Analysis System. We believe our broad menu of advanced diagnostic tests, combined with our ability to deliver them globally, uniquely positions us in the diagnostics industry.
Today, this includes our Prosigna test, and in the future, we intend to offer the Decipher Prostate and Percepta Nasal Swab tests as IVD tests. We believe our broad menu of advanced diagnostic tests, combined with our ability to deliver them globally, differentiates us in the diagnostics industry.
Cash Flows The following table summarizes our cash flows for the years ended December 31, 2022, 2021 and 2020 (in thousands of dollars): Years Ended December 31, 2022 2021 2020 Net cash provided by (used in) operating activities $ 7,535 $ (31,621) $ (9,711) Net cash used in investing activities (29,387) (739,206) (3,837) Net cash provided by financing activities 3,494 596,320 203,595 Cash Flows from Operating Activities Cash provided by operating activities for the year ended December 31, 2022 was $7.5 million.
Cash Flows The following table summarizes our cash flows for the years ended December 31, 2023, 2022 and 2021 (in thousands of dollars): Years Ended December 31, 2023 2022 2021 Net cash provided by (used in) operating activities $ 44,222 $ 7,535 $ (31,621) Net cash provided by (used in) investing activities 15,112 (29,387) (739,206) Net cash provided by financing activities 2,837 3,494 596,320 Cash Flows from Operating Activities Cash provided by operating activities for the year ended December 31, 2023 was $44.2 million.
As a result, our cost of testing revenue as a percentage of testing revenue may vary significantly from period to period because we may not recognize all revenue in the period in which the associated costs are incurred. We expect cost of testing revenue in absolute dollars to increase as the number of tests we perform increases.
As a result, our cost of testing revenue as a percentage of testing revenue may vary significantly from period to period because we may not recognize all revenue in the period in which the associated costs are incurred.
See Risk Factors for further discussion. Factors Affecting Our Performance Reported Total Test Volume Our performance depends on the number of tests that we perform and report as completed in our CLIA-certified laboratories and Prosigna tests processed on the nCounter Analysis System.
See "Risk Factors" for further discussion. 65 Table of Contents Factors Affecting Our Performance Reported Total Test Volume Our performance depends on the number of tests that we perform and report as completed in our CLIA-certified laboratories and Prosigna tests purchased by our customers.
Revenues are presented net of the taxes that are collected from customers and remitted to governmental authorities. Biopharmaceutical and Other Revenues For biopharmaceutical and other revenue, we develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligations.
Biopharmaceutical and Other Revenues For biopharmaceutical and other revenue, we develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation which determines how the transaction price is allocated among the performance obligations.
Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. Revisions to our estimate of the transaction price may also result in negative revenues and earnings in the period of adjustment. One collaboration arrangement with milestone payments falls under the scope of ASC 808.
Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. Revisions to our estimate of the transaction price may also result in negative revenues and earnings in the period of adjustment.
Payments received that are not related to sales or services to a customer or collaboration revenue are recorded as offsets against research and development expense or cost of biopharmaceutical and other revenue in our consolidated statements of operations.
Net sales of data or other services to our customers are recognized in accordance with ASC 606 and are classified under biopharmaceutical and other revenue. Payments received that are not related to sales or services to a customer are recorded as offsets against research and development expense or cost of biopharmaceutical and other revenue in our consolidated statements of operations.
We committed to pay cash consideration of $1.5 million to holders of unvested options on the date the employee satisfies the original service requirement. As part of the agreement, we held back $16.8 million of the cash consideration, or the holdback, which will be payable to the founders of HalioDx based on their continuous employment with us.
We committed to pay cash consideration of $1.5 million to holders of unvested options on the date the employee satisfies the original service requirement. As part of the agreement, we held back $16.8 million of the cash consideration, or the holdback.
The remaining increase was primarily due to annual compensation adjustments and investments in infrastructure. General and administrative expenses related to occupancy costs and information technology costs are allocated monthly to general and administrative expense, selling and marketing expense, research and development expense, and cost of revenue based on the headcount and employee location.
General and administrative expenses related to occupancy costs and information technology costs are allocated monthly to general and administrative expense, selling and marketing expense, research and development expense, and cost of revenue based on the headcount and employee location.
Cash provided by financing activities for the year ended December 31, 2020 was $203.6 million, consisting of $193.8 million in net proceeds from the issuance of common stock in a public offering in August 2020, $13.7 million in proceeds from the exercise of options to purchase our common stock and purchase of stock under our ESPP partially offset by $3.8 million in tax payments during the period related to the vesting of restricted stock units granted to employees.
Cash Flows from Financing Activities Cash provided by financing activities for the year ended December 31, 2023 was $2.8 million, consisting of $9.6 million in proceeds from the exercise of options to purchase our common stock and purchase of stock under our Employee Stock Purchase Plan, or ESPP, partially offset by $6.7 million in tax payments during the period related to the vesting of restricted stock units granted to employees.
As of December 31, 2022, the achievement of two of the milestones is forecasted to occur within the next 12 months, requiring payments totaling $7.0 million.
As of December 31, 2023, the achievement of one of the milestones is forecasted to occur within the next 12 months, requiring payments totaling $3.5 million.
Pursuant to the terms of the agreement, we paid NanoString $40.0 million in cash and $10.0 million in Veracyte common stock, and may pay up to an additional $10.0 million in cash, contingent upon first achievement or occurrence, by or on behalf of Veracyte, of the commercial launch of the first, second and third diagnostic tests for use on the nCounter multiplex analysis system.
Acquisition-Related Contingent Consideration As part of our agreement to acquire the exclusive global diagnostic license to the nCounter Analysis System, we may pay up to an additional $10.0 million in cash, contingent upon first achievement or occurrence, by or on behalf of Veracyte, of the commercial launch of the first, second and third diagnostic tests for use on the nCounter multiplex analysis system.
However, we expect that the cost per test will decrease over time due to leveraging fixed costs, efficiencies we may gain as test volume increases and from automation, process efficiencies and other cost reductions.
We expect cost of testing revenue in absolute dollars to increase as the number of tests we 68 Table of Contents perform increases. However, we expect that the cost per test will decrease over time due to leveraging fixed costs, efficiencies we may gain as test volume increases and from automation, process efficiencies and other cost reductions.
Historical average reimbursement is not necessarily indicative of future average reimbursement. We incur expense for tests in the period in which the test is conducted and recognize revenue for tests in the period in which our revenue recognition criteria are met. Product Revenue Our products consist of the Prosigna breast cancer assay, the nCounter Analysis System and related diagnostic kits.
Historical average reimbursement is not necessarily indicative of future average reimbursement. We incur expense for tests in the period in which the test is conducted and recognize revenue for tests in the period in which our revenue recognition criteria are met.
We recognize product revenue when control of the promised goods is transferred to our customers, in an amount that reflects the consideration expected to be received in exchange for those products.
Product Revenue Our products consist of the Prosigna breast cancer assay, the nCounter Analysis System, related diagnostic kits, and services. We recognize product revenue when control of the promised goods is transferred to our customers, in an amount that reflects the consideration expected to be received in exchange for those products.
In the event we determine that it is more likely than not the carrying value of the reporting unit is higher than its fair value, quantitative testing is performed comparing recorded values to estimated fair values. If impairment is present, the impairment loss is measured as the excess of the recorded goodwill over its implied fair value.
In the event we determine that it is more likely than not the carrying value of the reporting unit is higher than its fair value, quantitative testing is performed comparing 71 Table of Contents recorded values to estimated fair values.
Going forward, we expect to incur significant expense as we invest in the development of our innovation engine, early-stage products, including required clinical studies, the development of current tests for the nCounter instrument and the transition of manufacturing to our Veracyte SAS facility.
Going forward, we expect to incur significant expense as we invest in the development of our innovation engine, early-stage products including our MRD tests, required clinical studies and the development of current tests on multiple IVD platforms.
The extent of the impact of COVID-19 and other macroeconomic factors on our future liquidity and operational performance will depend on certain developments, including the deployment and long-term efficacy of vaccines; the duration and spread of the outbreak particularly in the form of more transmissible variants; the impact on our customers' operations; the impact to our sales and renewal cycles; changes in central bank policies and interest rates; rates of inflation; and changes in foreign currency exchange rates.
The extent of the macroeconomic factors on our future liquidity and operational performance will depend on certain developments, the impact on our customers' operations; the impact to our sales and renewal cycles; changes in central bank policies and interest rates; rates of inflation; and changes in foreign currency exchange rates.
The lease terms extend to October 2030 and contain extension of lease term and expansion options. As of December 31, 2022, the leases have a weighted average remaining lease term of 3.9 years and total future minimum lease payments of $16.6 million.
The lease terms extend to January 2029 and contain extension of lease term and expansion options. As of December 31, 2023, the leases have a weighted average remaining lease term of 2.7 years and total future minimum lease payments of $14.0 million.
We perform our annual evaluation of goodwill during the fourth quarter of each fiscal year. There was no impairment recognized during the years ended December 31, 2022, 2021, or 2020.
If impairment is present, the impairment loss is measured as the excess of the recorded goodwill over its implied fair value. We perform our annual evaluation of goodwill during the fourth quarter of each fiscal year. There was no impairment recognized during the years ended December 31, 2023, 2022, or 2021.
As of December 31, 2022, we had an accumulated deficit of $393.7 million. 76 Table of Contents We believe our existing cash and cash equivalents and short-term investments of $178.9 million as of December 31, 2022, and cash flows generated by our revenue during the next 12 months will be sufficient to meet our anticipated cash requirements for at least the next 12 months.
We believe our existing cash and cash equivalents of $216.5 million as of December 31, 2023, and cash flows generated by our revenue during the next 12 months will be sufficient to meet our anticipated cash requirements for at least the next 12 months.
General and administrative expenses include costs related to the acquisitions of Decipher Biosciences and HalioDx, which were included in general and administrative compensation expense and professional fees. We expect general and administrative expenses to continue to increase as we build our infrastructure to scale revenue growth, and to stabilize thereafter.
General and administrative expenses include costs related to the acquisitions of Decipher Biosciences and HalioDx, which were included in general and administrative compensation expense and professional fees.
The consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred which may be at a point in time or over time. Consideration associated with at-risk substantive performance milestones is recognized as revenue when it is probable that a significant reversal of the cumulative revenue recognized will not occur.
Consideration associated with at-risk substantive performance milestones is recognized as revenue when it is probable that a significant reversal of the cumulative revenue recognized will not occur.
Other Income, Net Other income, net consists primarily of realized and unrealized gains and losses on foreign currency transactions, French research tax credits, interest expense on our debt and interest income from our cash held in interest bearing accounts.
Amortization expense is expected to be approximately $13.5 million per year through 2024 and decrease thereafter. Other Income (Loss), Net Other income (loss), net consists primarily of interest income from our cash held in interest bearing accounts, realized and unrealized gains and losses on foreign currency transactions, and French research tax credits.
The estimated selling price of each deliverable reflects our best estimate of what the selling price would be if the deliverable was regularly sold by us on a stand-alone basis or using an adjusted market assessment approach if the selling price on a stand-alone basis is not available.
The estimated selling price of each deliverable reflects our best estimate of what the selling price would be if the deliverable was regularly sold by us on a stand-alone basis or using an adjusted market assessment approach if the selling price on a stand-alone basis is not available. 67 Table of Contents The consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred which may be at a point in time or over time.
For the years ended December 31, 2022, 2021 and 2020, we had net losses of $36.6 million, $75.6 million and $34.9 million, respectively, and we expect to incur additional losses in 2023 and potentially in future years.
We have incurred net losses since our inception. For the years ended December 31, 2023, 2022 and 2021, we had net losses of $74.4 million, $36.6 million and $75.6 million, respectively, and we expect to incur additional losses in 2024 and potentially in future years. As of December 31, 2023, we had an accumulated deficit of $468.1 million.
Cash used in operating activities for the year ended December 31, 2020 was $9.7 million.
Cash provided by operating activities for the year ended December 31, 2022 was $7.5 million.
The business units have dedicated marketing support, as well as a marketing operations team that serves the commercial organization broadly. Prosigna sales outside of the U.S. are led by country managers that call on laboratories and breast cancer oncologists and have dedicated marketing support.
Prosigna sales outside of the United States are led by country managers that call on laboratories and breast cancer oncologists and have dedicated marketing support.
This was primarily due to a $62.4 million increase in testing revenue driven by a 32% volume increase, as well as a $13.5 million increase in our Biopharmaceutical and other revenue.
This was primarily due to a $76.0 million increase in testing revenue driven by a 24% volume increase, partially offset by a $14.4 million decrease in our Biopharmaceutical and other revenue.
We recognize product revenue when control of the promised goods is transferred to our customers, in an amount that reflects the consideration expected to be received in exchange for those products. Shipping and handling costs incurred for product shipments are charged to our customers and included in product revenue.
Product Revenue Our products consist of the Prosigna breast cancer assay, the nCounter Analysis System, related diagnostic kits, and services. We recognize product revenue when control of the promised goods is transferred to our customers, in an amount that reflects the consideration expected to be received in exchange for those products.
The increase in cost of testing revenue is due to increased volume in testing, primarily related to Afirma and Decipher Prostate as well as approximately $1.3 million of costs related to sample collection kits that were classified as marketing expense in the prior year. Cost of product revenue is related to sales of Prosigna and nCounter Analysis Systems.
The increase in cost of testing revenue is due to increased volume in testing, primarily related to Afirma and Decipher Prostate. Cost of product revenue is related to sales of Prosigna and nCounter Analysis Systems.
Comparison of Other income, net, for the years ended December 31, 2021 and 2020 are included in Item 8 of Part II of the Annual Report on Form 10-K filed with the Securities and Exchange Commission dated February 28, 2022.
Comparison of Other income, net, for the years ended December 31, 2022 and 2021 are included in Item 8 of Part II of the Annual Report on Form 10-K filed with the Securities and Exchange Commission dated March 1, 2023. 76 Table of Contents Liquidity and Capital Resources From inception through December 31, 2023, we have been financed primarily through net proceeds from the sale of our equity securities.
Shipping and handling costs incurred for product shipments are charged to our customers and included in product revenue.
Shipping and handling costs incurred for product shipments are charged to our customers and included in product revenue. Revenue is presented net of the taxes that are collected from customers and remitted to governmental authorities.
We intend to continue to monitor macroeconomic conditions closely and may determine to take certain financial or operational actions in response to such conditions as appropriate.
Moreover, the continued fluctuation of the U.S. dollar compared to other currencies, has impacted and may continue to impact our results of operations. We intend to continue to monitor macroeconomic conditions closely and may determine to take certain financial or operational actions in response to such conditions as appropriate.
Selling and marketing Comparison of the years ended December 31, 2022 and 2021 was as follows (in thousands of dollars, except percentages): Year Ended December 31, 2022 Change % 2021 Selling and marketing expense: Compensation expense $ 72,258 $ 14,847 26 % $ 57,411 Direct marketing expense 6,138 (1,073) (15) % 7,211 Other expenses 13,485 3,045 29 % 10,440 Allocations 5,679 901 19 % 4,778 Total $ 97,560 $ 17,720 22 % $ 79,840 Selling and marketing expense increased $17.7 million, or 22%, for the year ended December 31, 2022 compared to 2021.
Selling and marketing Comparison of the years ended December 31, 2023 and 2022 was as follows (in thousands of dollars, except percentages): Year Ended December 31, 2023 Change % 2022 Selling and marketing expense: Compensation expense $ 74,886 $ 2,628 4 % $ 72,258 Direct marketing expense 5,422 (716) (12) % 6,138 Other expenses 14,584 1,099 8 % 13,485 Allocations 6,598 919 16 % 5,679 Total $ 101,490 $ 3,930 4 % $ 97,560 Selling and marketing expense increased $3.9 million, or 4%, for the year ended December 31, 2023 compared to 2022.
Fifty percent of the holdback was placed in escrow on the founders' behalf on the first anniversary of the closing date and the remainder will be paid directly to the founders on the second anniversary.
Fifty percent of the holdback was placed in escrow on the founders' behalf on the first anniversary of the closing date and the remainder was paid directly to the founders who remained employed with Veracyte on the second anniversary. As of December 31, 2023, there were no remaining amounts for these HalioDx related items to be paid.
The initial term of the lease will be twelve years with annual rent of approximately $1.4 million, which is subject to change based on final construction.
The initial term of the lease will be twelve years with annual rent of approximately $1.3 million, which is subject to change based on final construction. 77 Table of Contents Supplies Purchase Commitments We had non-cancelable purchase commitments with suppliers to purchase a minimum quantity of supplies for approximately $19.4 million at December 31, 2023.
The increase in direct research and development expense was primarily related to our on-going clinical studies including but not limited to furthering the support and evidence of our Percepta Nasal Swab test. We recognized a $0.9 million favorable impact from foreign currency exchange when compared to the prior year rates.
The increase in compensation expense was primarily due to annual merit compensation increases. The increase in direct research and development expense was primarily related to our on-going clinical studies including, but not limited to, furthering the support and clinical utility evidence of our Percepta Nasal Swab test and urology products.
Finally, the measures taken by Russia in response to European support for Ukraine have increased the risk of disruptions to energy supplies in Europe, which may impact our ability to manufacture tests from our facility in Marseille, France.
In addition, the regional conflicts like those between Russia and Ukraine have increased the risk of disruptions to energy supplies in Europe, which may impact our ability to manufacture tests or perform services from our facility in Marseille, France, and other conflicts may adversely impact our business and operating results.
If the assets acquired are not a business, we account for the transaction as an asset acquisition. Business combinations are accounted for by using the acquisition method of accounting. Under the acquisition method, assets acquired, and liabilities assumed are recorded at their respective fair values as of the acquisition date in our consolidated financial statements.
Under the acquisition method, assets acquired, and liabilities assumed are recorded at their respective fair values as of the acquisition date in our consolidated financial statements. The excess of the fair value of consideration transferred over the fair value of the net assets acquired is recorded as goodwill.
These milestone payments are recognized in the same manner as milestone payments from customers and are classified under biopharmaceutical and other revenue. 70 Table of Contents Other Significant Accounting Policies Acquisitions We first determine whether a set of assets acquired and liabilities assumed constitute a business and should be accounted for as a business combination.
Other Significant Accounting Policies Acquisitions We first determine whether a set of assets acquired and liabilities assumed constitute a business and should be accounted for as a business combination. If the assets acquired are not a business, we account for the transaction as an asset acquisition. Business combinations are accounted for by using the acquisition method of accounting.
Cost of biopharmaceutical and other revenue includes labor costs incurred by our employees working on customer projects and laboratory supplies and pass-through expenses incurred on these projects.
Cost of product revenue increased $0.8 million, or 11%, for the year ended December 31, 2023 compared to the same period in 2022, driven by increased product test volume. Cost of biopharmaceutical and other revenue includes labor costs incurred by our employees working on customer projects and laboratory supplies and pass-through expenses incurred on these projects.
The net loss of $34.9 million includes non-cash charges of $13.0 million of stock-based compensation expense, $7.9 million of depreciation and amortization, including $5.1 million of intangible asset amortization, a $1.1 million write-down of supplies, noncash lease expense of $1.0 million, an impairment loss of $1.0 million and a $1.5 million expense for the revaluation of the contingent consideration related to the NanoString transaction.
The net loss of $74.4 million includes non-cash charges of $68.3 million tied to the impairment of long-lived assets, $33.1 million of stock-based compensation expense, $27.2 million of depreciation and amortization, including $20.6 million of intangible asset amortization, $5.4 million from the revaluation of contingent consideration, and noncash lease expense of $4.2 million.
Cash used in investing activities for the year ended December 31, 2020 was $2.8 million for the acquisition of property and equipment and $1.0 million for the purchase of equity securities of MAVIDx, Inc.
Cash Flows from Investing Activities Cash provided by investing activities for the year ended December 31, 2023 was $15.1 million consisting of $25.1 million from the purchase and maturity of short-term investments, offset by $10.0 million used in the acquisition of property and equipment.
Our comprehensive loss includes our net loss and gains and losses from the foreign currency translation of the assets and liabilities of our foreign subsidiaries. 72 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2022 and 2021 (in thousands of dollars, except percentages and test volume) Year Ended December 31, 2022 Change % 2021 Revenue: Testing revenue $ 250,544 $ 62,362 33 % $ 188,182 Product revenue 12,632 1,168 10 % 11,464 Biopharmaceutical and other revenue 33,360 13,492 68 % 19,868 Total revenue 296,536 77,022 35 % 219,514 Operating expense: Cost of testing revenue 75,317 16,457 28 % 58,860 Cost of product revenue 7,820 1,933 33 % 5,887 Cost of biopharmaceutical and other revenue 18,445 8,792 91 % 9,653 Research and development 40,603 10,760 36 % 29,843 Selling and marketing 97,560 17,720 22 % 79,840 General and administrative 76,518 (24,835) (25) % 101,353 Intangible asset amortization 21,354 5,373 34 % 15,981 Total operating expenses 337,617 36,200 12 % 301,417 Loss from operations (41,081) 40,822 50 % (81,903) Other income, net 4,654 4,400 1,732 % 254 Loss before income tax benefit (36,427) 45,222 (55) % (81,649) Income tax provision (benefit) 133 6,219 (102) % (6,086) Net loss $ (36,560) $ 39,003 52 % $ (75,563) Other Operating Data: Diagnostic tests reported 93,340 22,891 32 % 70,449 Product tests sold 9,184 1,068 13 % 8,116 Total test volume 102,524 23,959 30 % 78,565 Depreciation and amortization expense $ 25,928 $ 6,335 32 % $ 19,593 Stock-based compensation expense $ 27,456 $ 4,937 22 % $ 22,519 Revenue Revenue increased $77.0 million, or 35%, for the year ended December 31, 2022 compared to 2021.
Our comprehensive loss includes our net loss and gains and losses from the foreign currency translation of the assets and liabilities of our foreign subsidiaries. 72 Table of Contents Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 (in thousands of dollars, except percentages and test volume) Year Ended December 31, 2023 Change % 2022 Revenue: Testing revenue $ 326,542 $ 75,998 30 % $ 250,544 Product revenue 15,588 2,956 23 % 12,632 Biopharmaceutical and other revenue 18,921 (14,439) (43) % 33,360 Total revenue 361,051 64,515 22 % 296,536 Operating expense: Cost of testing revenue 88,913 13,596 18 % 75,317 Cost of product revenue 8,666 846 11 % 7,820 Cost of biopharmaceutical and other revenue 15,324 (3,121) (17) % 18,445 Research and development 57,305 16,702 41 % 40,603 Selling and marketing 101,490 3,930 4 % 97,560 General and administrative 86,229 13,029 18 % 73,200 Impairment of long-lived assets 68,349 65,031 1,960 % 3,318 Intangible asset amortization 20,570 (784) (4) % 21,354 Total operating expenses 446,846 109,229 32 % 337,617 Loss from operations (85,795) (44,714) (109) % (41,081) Other income, net 9,183 4,529 97 % 4,654 Loss before income tax benefit (76,612) (40,185) 110 % (36,427) Income tax (benefit) provision (2,208) (2,341) (1,760) % 133 Net loss $ (74,404) $ (37,844) (104) % $ (36,560) Other Operating Data: Diagnostic tests reported 115,785 22,445 24 % 93,340 Product tests sold 11,192 2,008 22 % 9,184 Total test volume 126,977 24,453 24 % 102,524 Depreciation and amortization expense $ 27,188 $ 1,260 5 % $ 25,928 Stock-based compensation expense $ 33,489 $ 6,033 22 % $ 27,456 Revenue Revenue increased $64.5 million, or 22%, for the year ended December 31, 2023 compared to 2022.
Selling and Marketing Selling and marketing expenses consist of compensation expenses, direct marketing expenses, professional fees, other expenses such as travel and communications costs, as well as allocation of facility and information technology expenses. Our sales team of approximately 120 representatives is organized by business unit, with separate teams calling on thyroid cancer, urologic cancers, and pulmonology physicians.
Selling and Marketing Selling and marketing expenses consist of compensation expenses, direct marketing expenses, professional fees, other expenses such as travel and communications costs, as well as allocation of facility and information technology expenses.

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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 changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rates.
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk We are exposed to market risks in the ordinary course of our business. These risks primarily relate to interest rates. We had cash and cash equivalents of $216.5 million as of December 31, 2023 which consisted of bank deposits and money market funds.
As of December 31, 2022 a hypothetical 10% appreciation or depreciation of the U.S. dollar relative to the Euro would not have had a material impact on our consolidated financial statements.
As of December 31, 2023 a hypothetical 10% appreciation or depreciation of the U.S. dollar relative to the Euro would not have had a material impact on our consolidated financial statements.
Such interest-bearing instruments carry a degree of risk; however, As of December 31, 2022, a hypothetical 10% change in interest rates would not have had a material impact on our consolidated financial statements. Foreign Currency Risk As of December 31, 2022, we held $3.6 million of bank deposits denominated in Euros.
Such interest-bearing instruments carry a degree of risk; however, As of December 31, 2023, a hypothetical 10% change in interest rates would not have had a material impact on our consolidated financial statements. Foreign Currency Risk As of December 31, 2023, we held $4.1 million of bank deposits denominated in Euros.
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We had cash and cash equivalents and short-term investments of $178.9 million as of December 31, 2022 which consisted of bank deposits, money market funds and U.S. treasury securities.

Other VCYT 10-K year-over-year comparisons