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

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

+478 added−585 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-23)

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

478 paragraphs added · 585 removed · 333 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

58 edited+26 added−173 removed76 unchanged
Biggest changeIn addition, we may be subject to state laws that prohibit other specified practices, such as billing physicians for testing that they order; waiving coinsurance, copayments, deductibles, and other amounts owed by patients; billing a state Medicaid program at a price that is higher than what is charged to one or more other payors; employing, exercising control over, licensed professionals in violation of state laws prohibiting corporate practice of medicine and other professions, and prohibitions against the splitting of professional fees with licensed professionals.
Biggest changeFor example, California has a direct bill rule specific to anatomic pathology services that prohibits any provider from billing for anatomic pathology services if those services were not actually rendered by that person or under his or her direct supervision with some exemptions (California Business and Professions Code Section 655.7). 9 Table of Contents In addition, we may be subject to state laws that prohibit other specified practices, such as billing physicians for testing that they order; waiving coinsurance, copayments, deductibles, and other amounts owed by patients; billing a state Medicaid program at a price that is higher than what is charged to one or more other payors; employing, exercising control over, licensed professionals in violation of state laws prohibiting corporate practice of medicine and other professions, and prohibitions against the splitting of professional fees with licensed professionals.
Additionally, several companies develop next-generation sequencing platforms that can be used for genomic profiling for biopharmaceutical research and development applications. These include Illumina, Thermo Fisher Scientific Inc., and other organizations that specialize in the development of next-generation sequencing instrumentation that can be sold directly to biopharmaceutical companies, clinical laboratories, and research centers.
Additionally, several companies develop next-generation sequencing platforms that can be used for genomic profiling for biopharmaceutical research and development applications. These include Illumina, Inc. ("Illumina"), Thermo Fisher Scientific Inc., and other organizations that specialize in the development of next-generation sequencing instrumentation that can be sold directly to biopharmaceutical companies, clinical laboratories, and research centers.
In addition, the U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid healthcare costs, including price controls and restrictions on reimbursement. Additionally, the coverage and reimbursement status of newly-approved or cleared laboratory tests, including our NeXT Dx offering, is uncertain.
In addition, the U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid healthcare costs, including price controls and restrictions on reimbursement. Additionally, the coverage and reimbursement status of newly-approved or cleared laboratory tests, including our NeXT Personal Dx offering, is uncertain.
These patents and patent applications generally fall into five broad categories: • our ACE assay and NeXT Platform technology, including claims directed to methods for enriching nucleic acids from a sample based on differences in various genomic features, such as GC-content, molecular size, presence of genetic variations or rearrangements, identification of biomedically interpretable variants, epigenetic modifications, and/or species-origin (e.g., human and non-human); • hybrid exome-genome technologies, including claims directed to methods for combining exome and/or whole genome sequencing data generated from a sample, along with the identification of other variants to identify or detect disease; • liquid biopsy methods, including claims directed to methods of analyzing sequenced nucleic acids obtained from a patient sample in comparison with nucleic acids representing the reference genome, obtained from a blood sample, to identify disease, or recommend a drug treatment; 13 Table of Contents • clinical interpretation and neoantigen identification and prediction methods, including claims directed to methods of ranking genes associated with a phenotype and inheritance pattern or identifying neoantigens expressed in a disease sample that may be used for targeted treatments; and • personalized genetic testing assays, including claims directed to methods for using sequencing data to create a personalized genetic test to monitor cancer progression, identify neoantigen candidates for personalized cancer vaccine treatment, or detect the recurrence of disease at the earliest possible timepoint.
These patents and patent applications generally fall into five broad categories: • our Accuracy and Content Enhanced ("ACE") assay and NeXT platform technology, including claims directed to methods for enriching nucleic acids from a sample based on differences in various genomic features, such as GC-content, molecular size, presence of genetic variations or rearrangements, identification of biomedically interpretable variants, epigenetic modifications, and/or species-origin (e.g., human and non-human); 5 Table of Contents • hybrid exome-genome technologies, including claims directed to methods for combining exome and/or whole genome sequencing data generated from a sample, along with the identification of other variants to identify or detect disease; • liquid biopsy methods, including claims directed to methods of analyzing sequenced nucleic acids obtained from a patient sample in comparison with nucleic acids representing the reference genome, obtained from a blood sample, to identify disease, or recommend a drug treatment; • clinical interpretation and neoantigen identification and prediction methods, including claims directed to methods of ranking genes associated with a phenotype and inheritance pattern or identifying neoantigens expressed in a disease sample that may be used for targeted treatments; and • personalized genetic testing assays, including claims directed to methods for using sequencing data to create a personalized genetic test to monitor cancer progression, identify neoantigen candidates for personalized cancer vaccine treatment, or detect the recurrence of disease at the earliest possible timepoint.
The Stark Law and similar state laws, including California’s Physician Ownership and Referral Act, generally prohibit, among other things, clinical laboratories and other entities from billing a patient or any governmental or commercial payer for any diagnostic services when the physician ordering the service, or any member of such physician’s immediate family, has a direct or indirect investment interest in or compensation arrangement with us, unless the arrangement meets an exception to the prohibition.
The Stark Law and similar state laws, including California’s Physician Ownership and Referral Act, generally prohibit, among other things, clinical laboratories and other entities from billing a patient or any governmental or commercial payor for any diagnostic services when the physician ordering the service, or any member of such physician’s immediate family, has a direct or indirect investment interest in or compensation arrangement with us, unless the arrangement meets an exception to the prohibition.
The FDA has broad post-market enforcement powers, and if unanticipated problems with our products arise, or if we or our suppliers fail to comply with regulatory requirements following FDA clearance or approval, we may become subject to enforcement actions such as: • restrictions on manufacturing processes; • restrictions on product marketing; 15 Table of Contents • warning letters; • withdrawal or recall of products from the market; • refusal to approve pending PMAs, 510(k)s, or supplements to approved PMAs or cleared 510(k)s that we submit; • fines, restitution, or disgorgement of profits or revenue; • suspension or withdrawal of regulatory clearances or approvals; • limitation on, or refusal to permit, import or export of our products; • product seizures; • injunctions; or • imposition of civil or criminal penalties.
The FDA has broad post-market enforcement powers, and if unanticipated problems with our products arise, or if we or our suppliers fail to comply with regulatory requirements following FDA clearance or approval, we may become subject to enforcement actions such as: • restrictions on manufacturing processes; • restrictions on product marketing; • warning letters; • withdrawal or recall of products from the market; • refusal to approve pending PMAs, 510(k)s, or supplements to approved PMAs or cleared 510(k)s that we submit; • fines, restitution, or disgorgement of profits or revenue; • suspension or withdrawal of regulatory clearances or approvals; • limitation on, or refusal to permit, import or export of our products; • product seizures; • injunctions; or • imposition of civil or criminal penalties.
Separate from their instrumentation product lines, both Illumina and Thermo Fisher Scientific Inc., for example, currently market next-generation sequencing clinical oncology kits that are sold to customers who have bought and operate their respective sequencing instruments. We believe that we compete favorably because of the high sensitivity and comprehensiveness of the data generated by our NeXT Platform.
Separate from their instrumentation product lines, both Illumina and Thermo Fisher Scientific Inc., for example, currently market next-generation sequencing clinical oncology kits that are sold to customers who have bought and operate their respective sequencing instruments. We believe that we compete favorably because of the high sensitivity and comprehensiveness of the data generated by our products.
On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect until 2031, unless additional Congressional action is taken.
On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect until 2032, unless additional Congressional action is taken.
Under the FCA, private citizens can bring claims on behalf of the government through qui tam actions. We must also operate within the bounds of the fraud and abuse laws of the states in which we do business which may apply to items or services reimbursed by non-governmental third-party payers, including private insurers.
Under the FCA, private citizens can bring claims on behalf of the government through qui tam actions. We must also operate within the bounds of the fraud and abuse laws of the states in which we do business which may apply to items or services reimbursed by non-governmental third-party payors, including private insurers.
Under PAMA, laboratories that receive the majority of their Medicare revenue from payments made under the Medicare Clinical Laboratory Fee Schedule (the "Physician Fee Schedule") are required to report to CMS, beginning in 2017 and every three years thereafter (or annually for “advanced diagnostic laboratory tests”), private payer payment rates and volumes for their tests.
Under PAMA, laboratories that receive the majority of their Medicare revenue from payments made under the Medicare Clinical Laboratory Fee Schedule (the "Physician Fee Schedule") are required to report to CMS, beginning in 2017 and every three years thereafter (or annually for “advanced diagnostic laboratory tests”), private payor payment rates and volumes for their tests.
All statements made in any of our securities filings, including all forward-looking statements or information, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law. 20 Table of Contents
All statements made in any of our securities filings, including all forward-looking statements or information, are made as of the date of the document in which the statement is included, and we do not assume or undertake any obligation to update any of those statements or documents unless we are required to do so by law. 12 Table of Contents
Unlike the federal Anti-Kickback Statute, EKRA’s reach extends beyond federal health care programs to include private insurance (i.e., it is an “all payer” statute). Additionally, most of the safe harbors available under the federal Anti-Kickback Statute are not reiterated under EKRA, and certain EKRA safe harbors conflict with the safe harbors available under the federal Anti-Kickback Statute.
Unlike the federal Anti-Kickback Statute, EKRA’s reach extends beyond federal health care programs to include private insurance (i.e., it is an “all payor” statute). Additionally, most of the safe harbors available under the federal Anti-Kickback Statute are not reiterated under EKRA, and certain EKRA safe harbors conflict with the safe harbors available under the federal Anti-Kickback Statute.
Penalties may apply to the billing physician or supplier if Medicare or another payer is billed at a rate that exceeds the performing laboratory’s charges to the billing physician or supplier, and the performing laboratory could be at risk under false claims laws, described below, for causing the submission of a false claim.
Penalties may apply to the billing physician or supplier if Medicare or another payor is billed at a rate that exceeds the performing laboratory’s charges to the billing physician or supplier, and the performing laboratory could be at risk under false claims laws, described below, for causing the submission of a false claim.
For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “ACA”), became law. This law substantially changed the way health care is financed by both commercial payers and government payers, and significantly impacted our industry.
For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “ACA”), became law. This law substantially changed the way health care is financed by both commercial payors and government payors, and significantly impacted our industry.
Unless an exemption applies, each new or significantly modified medical device we seek to commercially distribute in the United States will require either a premarket notification to the FDA requesting permission for commercial distribution under Section 510(k) of the FDC Act, also referred to as a 510(k) clearance, or approval from the FDA of a premarket approval application 14 Table of Contents (“PMA”).
Unless an exemption applies, each new or significantly modified medical device we seek to commercially distribute in the United States will require either a premarket notification to the FDA requesting permission for commercial distribution under Section 510(k) of the FDC Act, also referred to as a 510(k) clearance, or approval from the FDA of a premarket approval application (“PMA”).
The AKS prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in return for or to induce such person to refer an individual, or to purchase, lease, order, arrange for, or recommend purchasing, leasing, or ordering, any good, facility, item, or service that is reimbursable, in whole or in part, under a federal healthcare program.
The AKS prohibits, among other things, knowingly and willfully offering, paying, soliciting, or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in return for or to induce such person to refer an individual, or to purchase, lease, order, 8 Table of Contents arrange for, or recommend purchasing, leasing, or ordering, any good, facility, item, or service that is reimbursable, in whole or in part, under a federal healthcare program.
We also anticipate there will continue to be proposals by legislators at both the federal and state levels, regulators and private payers to reduce costs while expanding individual healthcare benefits.
We also anticipate there will continue to be proposals by legislators at both the federal and state levels, regulators and private payors to reduce costs while expanding individual healthcare benefits.
Further, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA 2022”) into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025.
Further, on 10 Table of Contents August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA 2022”) into law, which among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through plan year 2025.
It is possible for a manufacturer to obtain a Class I or Class II designation without an appropriate predicate by submitting a de novo request for reclassification. The process for submitting a 510(k) premarket notification and receiving FDA clearance usually takes from three to 12 months, but it can take significantly longer and clearance is never guaranteed.
It is possible for a manufacturer to obtain a Class I or Class II designation without an appropriate predicate by submitting a de novo request for reclassification. 7 Table of Contents The process for submitting a 510(k) premarket notification and receiving FDA clearance usually takes from three to 12 months, but it can take significantly longer and clearance is never guaranteed.
Currently, there is no proposed regulation interpreting or implementing EKRA, nor any public guidance released by a federal agency concerning EKRA. 16 Table of Contents Other Federal and State Healthcare Laws In addition to the requirements discussed above, several other healthcare laws could have an effect on our business.
Currently, there is no proposed regulation interpreting or implementing EKRA, nor any public guidance released by a federal agency concerning EKRA. Other Federal and State Healthcare Laws In addition to the requirements discussed above, several other healthcare laws could have an effect on our business.
Laboratories performing high complexity testing are required to meet more stringent requirements than laboratories performing less complex tests. In addition, a laboratory that is certified as “high complexity” under CLIA may develop, manufacture, validate, and use proprietary tests referred to as laboratory developed tests (“LDTs”).
Laboratories performing high complexity testing are required to meet more stringent requirements than laboratories performing less complex tests. In addition, a laboratory that is certified 6 Table of Contents as “high complexity” under CLIA may develop, manufacture, validate, and use proprietary tests referred to as laboratory developed tests (“LDTs”).
CMS will use this data to calculate a weighted median payment rate for each test, which will be used to establish revised Medicare reimbursement rates for the tests. Laboratories that fail to report the required 18 Table of Contents payment information may be subject to substantial civil monetary penalties.
CMS will use this data to calculate a weighted median payment rate for each test, which will be used to establish revised Medicare reimbursement rates for the tests. Laboratories that fail to report the required payment information may be subject to substantial civil monetary penalties.
(“Illumina”) as the sole supplier of sequencers and various associated reagents, and as the sole provider of maintenance and repair services for these sequencers. We have certain agreements and purchase arrangements in place with Illumina to satisfy the projected needs of our laboratory operations.
For example, we rely on Illumina as the sole supplier of sequencers and various associated reagents, and as the sole provider of maintenance and repair services for these sequencers. We have certain agreements and purchase arrangements in place with Illumina to satisfy the projected needs of our laboratory operations.
Government Regulations Coverage and Reimbursement Our ability, and the ability of our customers, to commercialize diagnostic tests based on our technology will depend in part on the extent to which coverage and reimbursement for these tests will be available from third-party payors.
Regulatory Environment Coverage and Reimbursement Our ability, and the ability of our customers, to commercialize diagnostic tests based on our technology will depend in part on the extent to which coverage and reimbursement for these tests will be available from third-party payors.
If the FDA determines that our tests and associated software do not fall within the definition of an LDT, or there are regulatory or legislative changes, or if we voluntarily submit one or more of our tests for premarket notification, review, clearance or approval by the FDA as medical devices, we may be required to obtain premarket clearance for our tests and associated software under Section 510(k) of the FDC Act or approval of a PMA.
If the FDA determines that our tests and associated software do not fall within the definition of an LDT, or the Proposed Rule is finalized in its present form, or there are other regulatory or legislative changes, or if we voluntarily submit one or more of our tests for premarket notification, review, clearance or approval by the FDA as medical devices, we may be required to obtain premarket clearance for our tests and associated software under Section 510(k) of the FDC Act or approval of a PMA.
Following is a list of our core company values: • Integrity • Trust • Respect • Teamwork and collaboration 19 Table of Contents • Commitment to scientific excellence • Dedication to discovery and innovation • Passion At a foundational level, employees receive training related to workplace safety and emergency preparedness, awareness and expectations of inclusion and diversity, required data protection, and other regulatory matters.
Following is a list of our core company values: • Integrity • Passion • Scientific excellence and innovation • Respect and inclusion • Teamwork and collaboration At a foundational level, employees receive training related to workplace safety and emergency preparedness, awareness and expectations of inclusion and diversity, required data protection, and other regulatory matters.
Pursuant to the CARES Act, the statutory phase-in of the payment reductions has been extended through 2024 with a 0% reduction cap for 2021-2022 and a 15% reduction cap for 2023 through 2025.
Pursuant to the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), the statutory phase-in of the payment reductions has been extended through 2024 with a 0% reduction cap for 2021-2022 and a 15% reduction cap for 2023 through 2025.
As of December 31, 2022, we own 18 issued U.S. patents and 7 issued foreign patents. Issued U.S. patents in our portfolio of company-owned patents are expected to expire between 2033 and 2038, excluding any additional term for patent term adjustments or patent term extensions.
As of December 31, 2023, we own 27 issued U.S. patents and 14 issued foreign patents. Issued U.S. patents in our portfolio of company-owned patents are expected to expire between 2033 and 2038, excluding any additional term for patent term adjustments or patent term extensions.
As of December 31, 2022, more than 45% of our employees had completed a Ph.D. or other advanced science or medical degree. None of our employees are represented by a labor union or covered by collective bargaining agreements, and we have not experienced any work stoppages. We consider our relations with our employees to be good.
As of January 31, 2024, more than 40% of our employees had completed a Ph.D. or other advanced science or medical degree. 11 Table of Contents None of our employees are represented by a labor union or covered by collective bargaining agreements, and we have not experienced any work stoppages. We consider our relations with our employees to be good.
We and/or our collaborators may also voluntarily submit one or more of our tests for premarket notification, review, clearance or approval by the FDA as medical devices, which may be as companion diagnostic medical devices.
We and/or our collaborators may also be required to submit one or more of our tests for premarket notification, review, clearance or approval by the FDA as medical devices.
In addition, we file for patent protection on our ongoing research and development efforts, particularly related to other novel assay technologies which may be applicable to the diagnosis and treatment of cancer and other diseases.
In addition, we file for patent protection on our ongoing research and development efforts, particularly related to other novel assay technologies which may be applicable to the diagnosis and treatment of cancer and other diseases. Our patent portfolio is comprised of patents and patent applications owned by the Company.
Despite the FDA’s historic enforcement discretion policy with respect to LDTs, if the FDA determines that our tests are subject to enforcement as medical devices, we could be subject to administrative and judicial sanctions, and additional regulatory controls and submissions for our tests, all of which could be burdensome.
If the FDA determines that our tests are subject to enforcement as medical devices, we could be subject to enforcement action, including administrative and judicial sanctions, and additional regulatory controls and submissions for our tests, all of which could be burdensome.
As part of one of our new strategies for 2023 and beyond, we are working with a growing number of leading cancer centers and world-class academic research institutions to build and publish the clinical evidence-base to support our products and our key indications.
To this end, one of our key strategies is working with a growing number of leading cancer centers and world-class academic research institutions to build and publish the clinical evidence-base to support our products and our key indications.
Environment We believe we are in compliance with the regulations established by the state of California Division of Occupational Safety and Health Requirements and California Environmental Protection Agency applicable to our operations in Menlo Park and Fremont, California.
The use of independent contractors is not a material part of our workforce strategy. Environment We believe we are in compliance with the regulations established by the state of California Division of Occupational Safety and Health Requirements and California Environmental Protection Agency applicable to our operations in Fremont, California.
Certain of these changes could impose additional limitations on the prices we will be able to charge for our tests, the coverage of or the amounts of reimbursement available for our tests from payers, including commercial payers and government payers.
Certain of these changes could impose additional limitations on the prices we will be able to charge for our tests, the coverage of or the amounts of reimbursement available for our tests from payors, including commercial payors and government payors. Human Capital We recognize that our employees are both our most valuable asset and our most important investment.
Class II devices, in addition to general controls, generally require special controls and premarket clearance through the submission of a section 510(k) premarket notification. Class III devices are subject to general controls and special controls, and also require premarket approval prior to commercial distribution, which is a more rigorous process than premarket clearance.
Class III devices are subject to general controls and special controls, and also require premarket approval prior to commercial distribution, which is a more rigorous process than premarket clearance.
If our tests are considered medical devices that are not subject to enforcement discretion, or if we voluntarily submit one or more of our tests for premarket notification, review, clearance or approval by the FDA as medical devices, and one or more of our tests is considered to fall under the 21 C.F.R. § 866.5950 classification regulation for GHR tests, or under another Class II classification that is subject to a premarket notification requirement, we would be required to obtain marketing clearance for such tests.
If our tests fall under the 21 C.F.R. § 866.5950 classification regulation for GHR tests, or under another Class II classification that is subject to a premarket notification requirement, we would be required to obtain marketing clearance for such tests.
We would also be subject to ongoing regulatory requirements such as registration and listing requirements, medical device reporting requirements, and quality control requirements.
We would also be subject to ongoing regulatory requirements such as registration and listing requirements, medical device reporting requirements, and quality control requirements. The regulatory requirements to which our tests are subject would depend on the FDA’s classification of our tests.
Department of Health and Human Services (“HHS”) issued regulations that establish uniform standards governing the conduct of certain electronic healthcare transactions and requirements for protecting the privacy and security of protected health information (“PHI”), used or disclosed by covered entities and business associates. Covered entities and business associates are subject to HIPAA and HITECH.
HIPAA and HITECH Under the administrative simplification provisions of HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), HHS issued regulations that establish uniform standards governing the conduct of certain electronic healthcare transactions and requirements for protecting the privacy and security of protected health information (“PHI”), used or disclosed by covered entities and business associates.
Our subcontractors that create, receive, maintain, transmit, or otherwise process PHI on behalf of us are HIPAA “business associates” and must also comply with HIPAA as a business associate.
Covered entities and business associates are subject to HIPAA and HITECH. Our subcontractors that create, receive, maintain, transmit, or otherwise process PHI on behalf of us are HIPAA “business associates” and must also comply with HIPAA as a business associate. HIPAA and HITECH include privacy and security rules, breach notification requirements, and electronic transaction standards.
If we decide to seek reimbursement for our NeXT Dx offering or other in vitro diagnostic tests we may develop, and if such tests are inadequately covered by insurance or ineligible for such reimbursement, this could limit our ability to market any such future tests.
If we are inadequately covered by insurance or ineligible for such reimbursement, this could limit our ability to market tests in the future.
Reports of our position relative to the benchmarks are reported to management and the compensation committee of our board of directors on a periodic basis. As of December 31, 2022, we had 399 employees, of which 395 were full-time employees.
Our turnover rates over the last three years have been consistent with such benchmarks. Reports of our position relative to the benchmarks are reported to management and the compensation committee of our board of directors on a periodic basis. As of January 31, 2024, we had 225 employees, of which 223 were full-time employees.
HIPAA and HITECH include privacy and security rules, breach notification requirements, and electronic transaction standards. 17 Table of Contents The Privacy Rule covers the use and disclosure of PHI by covered entities and business associates. The Privacy Rule generally prohibits the use or disclosure of PHI, except as permitted under the Rule.
The Privacy Rule covers the use and disclosure of PHI by covered entities and business associates. The Privacy Rule generally prohibits the use or disclosure of PHI, except as permitted under the Rule.
Reporting of payment data under PAMA for clinical diagnostic laboratory tests has been delayed on numerous occasions. Based on current law, between January 1, 2023 and March 31, 2023, applicable laboratories will be required to report on data collected during January 1, 2019 and June 30, 2019. This data will be utilized to determine 2024 to 2026 CLFS rates.
Based on current law, between January 1, 2025 and March 31, 2025, applicable laboratories will be required to report on data collected during January 1, 2019 and June 30, 2019. This data will be utilized to determine 2025 to 2027 CLFS rates.
If our tests are considered medical devices not subject to enforcement discretion, or if we voluntarily submit one or more of our tests for premarket notification, review, clearance or approval by the FDA as medical devices, one classification regulation that could be relevant to one or more of our tests is a classification for genetic health risk (“GHR”) assessment tests, codified at 21 C.F.R. § 866.5950.
One classification regulation that could be relevant to one or more of our tests is a classification for genetic health risk (“GHR”) assessment tests, codified at 21 C.F.R. § 866.5950.
If the key opinion leaders ("KOLs") we are collaborating with have a positive experience using our platform, we are optimistic this will support broader use of our platform by other KOLS, as well as clinicians in the future. Our work in oncology is underpinned by our experience and capacity for next-generation sequencing at scale.
If the key opinion leaders ("KOLs") we are collaborating with have a positive experience using our products, we are optimistic this will support broader use of our products by other KOLs, as well as clinicians in the future. Furthermore, generating clinical evidence is crucial to obtaining reimbursement coverage from Medicare and other payors.
Of these full-time employees, 166 were in research and development, 94 in laboratory operations, 71 in commercial operations and 64 in general and administrative functions. 377 of our full-time employees were located in the United States, 6 were located in Europe and 12 were located in China.
Of these full-time employees, 80 were in research and development, 70 in laboratory operations, 38 in commercial operations and 35 in general and administrative functions. 221 of our full-time employees were located in the United States, with the remaining two located in Europe (including the U.K.).
As a clinical laboratory, our business practices may face additional scrutiny from government regulatory agencies such as the Department of Justice, the HHS Office of Inspector General (the “OIG”), and CMS. Certain arrangements between clinical laboratories and referring physicians have been identified in fraud alerts issued by the OIG as implicating the Anti-Kickback Statute.
As a clinical laboratory, our business practices may face additional scrutiny from government regulatory agencies such as the Department of Justice, the U.S. Department of Health and Human Services ("HHS"), Office of Inspector General (the “OIG”), and CMS.
We regularly benchmark our compensation and benefits by geography, industry (life sciences), and by role to ensure we maintain our status as an employer of choice in these areas. Our turnover rates over the last three years have been consistent with such benchmarks.
An engaged workforce with skills specific to our needs is critical for our successful growth in a competitive market and sector. We regularly benchmark our compensation and benefits by geography, industry (life sciences), and by role to ensure we maintain our status as an employer of choice in these areas.
The class into which a device is placed determines the requirements that a medical device manufacturer must meet both pre- and post-market. Generally, Class I devices do not require premarket authorization, but are subject to a comprehensive set of regulatory authorities referred to as general controls.
The class into which a device is placed determines the requirements that a medical device manufacturer must meet both pre- and post-market.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs.
Certain arrangements between clinical laboratories and referring physicians have been identified in fraud alerts issued by the OIG as implicating the Anti-Kickback Statute. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs.
If patents are issued on our pending patent applications, the resulting patents are projected to expire on dates ranging from 2033 to 2042.
If patents are issued on our pending patent applications, the resulting patents are projected to expire on dates ranging from 2033 to 2042. Supply of Materials We rely on a limited number of suppliers for sequencers and other equipment and raw materials that we use in our laboratory operations.
These companies offer services that implement various technological approaches including next-generation sequencing and microarray analyses.
These companies offer services that implement various technological approaches including next-generation sequencing and microarray analyses. Some of our present or potential competitors include Adela, Inc., BostonGene Corporation, Caris Life Sciences, Inc., Foresight Diagnostics Inc.
This program provides clinicians with two ways to participate, including through the Advanced Alternative Payment Models (“APMs”), and the Merit-based Incentive Payment System (“MIPS”). In November 2019, CMS issued a final rule finalizing the changes to the Quality Payment Program.
This program provides clinicians with two ways to participate, including through the Advanced Alternative Payment Models (“APMs”), and the Merit-based Incentive Payment System (“MIPS”). Under both APMs and MIPS, performance data collected each performance year will affect Medicare payments in later years, including potentially reducing payments.
In 2020, VA MVP accounted for 71% of our revenue and no other customer accounted for 10% or more. 12 Table of Contents Our Competition Our principal competition comes from commercial and academic organizations using established and new laboratory tests to produce information that is similar to the information that we generate for our customers.
One of our 2024 goals is to submit for Medicare reimbursement for NeXT Personal Dx upon publication of compelling clinical evidence in three key indications. Competition Our principal competition comes from commercial and academic organizations using established and new laboratory tests to produce information that is similar to the information that we generate for our customers.
Our Menlo Park office currently continues to house our Clinical Laboratory Improvement Amendments of 1988 (“CLIA”)-certified and College of American Pathologists (“CAP”)-accredited laboratory and we expect to move our laboratory operations from Menlo Park to the new facility in 2023. We were incorporated under the laws of the state of Delaware in February 2011 under the name Personalis, Inc.
We perform large-scale, high quality next-generation sequencing ("NGS") in our Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) certified and College of American Pathologists (“CAP”) accredited 100,000 square foot laboratory located in Fremont, California. We were incorporated under the laws of the state of Delaware in 2011 under the name Personalis, Inc. and became a publicly-traded company in 2019.
We issued a purchase order against the quotation in December 2022. Human Capital Management within Our Company We recognize that our employees are both our most valuable asset and our most important investment. The success of our organization is reliant upon each individual’s significant contribution to our corporate culture and goals.
The success of our organization is reliant upon each individual’s significant contribution to our corporate culture and goals.
Specifically, because of the high sensitivity of our technology, we aim to focus on three indications in the next 2-3 years: immunotherapy (IO) monitoring, breast cancer, and lung cancer. We have announced collaborations with BC Cancer, Duke University, UCSF, Criterium, and Academic Breast Cancer Consortium that will focus on building the evidence-base for our technology and these indications.
We have collaborations with Cancer Research UK, University College London, and the Francis Crick Institute (the TRACERx study); The Royal Marsden; the Vall d'Hebron Institute of Oncology (VHIO); Duke University; the Dana-Farber Cancer Institute; University Medical Center Hamburg-Eppendorf (also known as UKE); and Criterium and the Academic Breast Cancer Consortium that will focus on building the evidence-base for our technology and these indications.
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Item 1. Bu siness. Overview We strive to develop some of the most comprehensive and actionable cancer genomic tests in the world to help patients live better and longer lives.
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Item 1. Bu siness. Company Background Personalis develops and markets advanced cancer genomic tests and analytics. Our tests and analytics are used by pharmaceutical companies for translational research, biomarker discovery, the development of personalized cancer therapies, and we expect in the near future, for clinical trial enrollment.
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We believe we have one of the most discerning technologies to both characterize and monitor cancer – with the aim of driving a new paradigm for cancer management and guiding care from biopsy through the life of the patient. Our assays combine tumor-and-normal profiling with proprietary algorithms to deliver advanced insights even as cancer evolves over time.
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Our advanced tests are used by physicians to detect cancer recurrence, monitor cancer evolution, and uncover insights for therapy selection. We also provide sequencing and data analysis services to support population sequencing initiatives.
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Our products are designed to detect recurrence at the earliest timepoints, enable selection of targeted therapies based on ultra-comprehensive genomic profiling, and enhance biomarker strategy for drug development. Today, our platforms are routinely used by many of the largest oncology-focused pharmaceutical companies for analysis of patient samples in their clinical trials and drug development programs.
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Products For pharmaceutical and biopharmaceutical companies NeXT Personal NeXT Personal is a tumor-informed liquid biopsy test for detection of minimal residual disease ("MRD") and recurrence in cancer. It delivers industry-leading, ultra-high analytical sensitivity, which we believe allows for detection of cancer earlier than other technologies. NeXT Personal answers the questions: Does the patient have MRD?
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Our advanced genomic sequencing and analytics also support the development of personalized cancer vaccines and other next-generation cancer immunotherapies. For example, we are providing genomic testing to Moderna in its ongoing clinical trials evaluating a personalized cancer vaccine. In addition, we partner with diagnostics companies by providing our advanced tumor profiling and analysis capabilities as an input to their products.
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What are the kinetics of circulating tumor DNA ("ctDNA")? ImmunoID NeXT ImmunoID NeXT is a tissue-based test that combines whole exome (DNA) and whole transcriptome (RNA) sequencing data with advanced analytics to provide a multi-dimensional view of the tumor and the tumor microenvironment from a single sample.
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More recently, we launched new diagnostic offerings for the clinical setting and are preparing for future expansion in the clinical diagnostics market. Finally, we have also pursued non-cancer related business opportunities, specifically within the population sequencing market, by providing whole genome sequencing ("WGS") services under contract with the U.S. Department of Veterans Affairs Million Veteran Program ("VA MVP").
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It is designed to enable the development of more efficacious cancer immunotherapies and the next-generation of composite biomarkers to better predict patient response. ImmunoID NeXT answers the question: What are the composite biomarkers in the tumor and the tumor microenvironment?
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We have the capacity to sequence and analyze approximately 200 trillion bases of DNA per week in our facility. We believe that our capacity is already larger than most cancer genomics companies, and we continue to build automation and other infrastructure to scale further as demand increases.
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For cancer patients NeXT Personal Dx NeXT Personal Dx is a tumor-informed liquid biopsy test for detection of MRD and recurrence in cancer. We believe it provides for earlier detection of cancer than other technologies and has been shown to detect cancer recurrence ahead of traditional imaging. It is designed to aid decision making throughout a patient's cancer journey.
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To date, we have sequenced more than 300,000 human samples, of which more than 160,000 were whole human genomes. In October 2022, we relocated our corporate headquarters from Menlo Park, California to a new facility in Fremont, California.
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NeXT Personal Dx involves an initial test (whole genome sequencing of a tumor and normal sample) and subsequent blood/plasma tests based on a tumor-informed personalized panel for each patient. NeXT Personal Dx answers the questions: Does the patient have MRD? Has the cancer returned?
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We signed a 13.5-year lease that extends to 2036 for the 100,000 square foot facility, which is approximately triple the amount of space than our Menlo Park location. The new facility allows for expansion of our laboratory for testing to support pharmaceutical customers and clinical diagnostic testing.
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NeXT Dx NeXT Dx is a comprehensive tumor profiling test that unlocks the entire exome (DNA) and transcriptome (RNA) with matched tumor-normal analysis. We believe it improves chances of finding an effective therapy or clinical trial. NeXT Dx answers the question: What are the actionable therapies and clinical trials for the patient?
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In addition, the new space is intended to support the expansion of research and development efforts to bring leading edge products and services to the marketplace.
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For diagnostics companies and population sequencing initiatives WES We perform whole exome sequencing ("WES") of cancer tissue and matched blood samples for diagnostic companies as an input to their products. WGS We perform whole genome sequencing ("WGS") on human samples for research projects, such as population sequencing initiatives.
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Our customers include pharmaceutical companies, biopharmaceutical companies, diagnostics companies, healthcare providers, universities, non-profits, and government entities.
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Markets and Distribution Our customers include pharmaceutical companies, biopharmaceutical companies, diagnostics companies, universities, non-profits, government entities, and patients. We sell through a small direct sales force, organized by geography. In November 2023, we entered into an agreement with Tempus AI, Inc.
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Market Opportunities We have estimated the potential future annual U.S. market opportunity for our current and planned products to be approximately $38 billion as follows: • Therapy Selection and Monitoring: According to the American Cancer Society’s Cancer Facts & Figures 2020 , more than 16.9 million cancer survivors were alive on January 1, 2019 in the United States.
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(formerly known as Tempus Labs, Inc., and referred to herein as "Tempus") to commercialize NeXT Personal Dx in the clinical diagnostics market. As a result, we will also leverage the sales force of Tempus beginning 4 Table of Contents in 2024.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn addition, competitors may develop their own versions of our current or planned future services and products in countries where we did not apply for or receive patents and compete with us in those countries, including encouraging the use of their products or services by biopharmaceutical companies in other countries.
Biggest changeIn addition, competitors may develop their own versions of our current or planned future services and products in countries where we did not apply for or receive patents and compete with us in those countries, including encouraging the use of their products or services by biopharmaceutical companies in other countries. 16 Table of Contents We have substantial customer concentration, with a limited number of customers accounting for a substantial portion of our revenue and accounts receivable; in particular, we currently derive a substantial portion of our revenue from one of our largest customers, Natera, and in the past have derived a substantial portion of our revenue from another of our largest customers, the VA MVP.
We will need to further establish and grow the market for our services through the expansion of our current relationships and development of new relationships with biopharmaceutical customers. Gaining acceptance in medical communities can be supported by, among other things, publications in leading peer-reviewed journals of results from studies using our services.
We will need to further establish and grow the market for our services through the expansion of our current relationships and development of new relationships with biopharmaceutical customers and through gaining acceptance in medical communities. Gaining acceptance in medical communities can be supported by, among other things, publications in leading peer-reviewed journals of results from studies using our services.
See “—If our facilities become damaged or inoperable, or we are required to vacate the facilities, our ability to sell and provide our services and pursue our research and development efforts may be jeopardized.” We may not be able to manage our future growth effectively, which could make it difficult to execute our business strategy.
See “—If our facilities become damaged or inoperable, or we are required to vacate the facilities, our ability to sell and provide our services and pursue our research and development efforts may be jeopardized." We may not be able to manage our future growth effectively, which could make it difficult to execute our business strategy.
Regulatory, Legal and Cybersecurity Risks Our tests may be subject to regulatory action if regulatory agencies determine that our tests do not appropriately comply with statutory and regulatory requirements enforced by the FDA, or equivalent foreign regulatory authorities and/or CLIA requirements for quality laboratory testing or equivalent foreign requirements.
Regulatory, Legal and Cybersecurity Risks Our tests may be subject to regulatory action if regulatory agencies or authorities determine that our tests do not appropriately comply with statutory and regulatory requirements enforced by the FDA, or equivalent foreign regulatory authorities and/or CLIA requirements for quality laboratory testing or equivalent foreign requirements.
Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately.
Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or distribution activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately.
Collaborations are subject to numerous risks, which include that: • we may incur increased research and development expenses, and such activities may also divert management attention and resources and/or create competing internal priorities for us, which could prevent us from successfully conducting other parts of our business or collaborating with others; • collaborators have significant discretion in determining the efforts and resources that they will apply to collaborations; • collaborators may not pursue development and commercialization of our services or products or may elect not to continue or renew development or commercialization programs based on trial or test results, changes in their strategic focus due to the acquisition of competitive services or products, availability of funding, or other external factors, such as a business combination that diverts resources or creates competing priorities for our collaborator; • collaborators could independently develop, or develop with third parties, services or products that compete directly or indirectly with our services or products; • collaborators with marketing, manufacturing, and distribution rights to one or more services or products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities; • we could grant exclusive rights to our collaborators that would prevent us from collaborating with others; 32 Table of Contents • a large percentage of our revenue may be concentrated with the collaborators if the collaborations are successful and we may experience further losses if they are or later become unsuccessful; • collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability; • disputes may arise between us and a collaborator that causes the delay or termination of the research, development, or commercialization of our current or future services or products or that results in costly litigation or arbitration that diverts management attention and resources; • collaborations may be terminated, and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable current or future services or products; • collaborators may own or co-own intellectual property covering our services or products that results from our collaborating with them, and in such cases, we would not have the exclusive right to develop or commercialize such intellectual property; • collaborators’ activities or use of our services or deliverables may create additional regulatory obligations and could lead to side effects or adverse events in patients, exposing us to potential liability or regulatory review; and • collaborators’ sales and marketing activities or other operations may not be in compliance with applicable laws resulting in civil or criminal proceedings.
Collaborations are subject to numerous risks, which include that: • we may incur increased research and development expenses, and such activities may also divert management attention and resources and/or create competing internal priorities for us, which could prevent us from successfully conducting other parts of our business or collaborating with others; • collaborators have significant discretion in determining the efforts and resources that they will apply to collaborations; • collaborators may not pursue development and commercialization of our services or products or may elect not to continue or renew development or commercialization programs based on trial or test results, changes in their strategic focus due to the acquisition of competitive services or products, availability of funding, or other external factors, such as a business combination that diverts resources or creates competing priorities for our collaborator; • collaborators could independently develop, or develop with third parties, services or products that compete directly or indirectly with our services or products; • collaborators with marketing, manufacturing, and distribution rights to one or more services or products may not commit sufficient resources to or otherwise not perform satisfactorily in carrying out these activities; 24 Table of Contents • we could grant exclusive rights to our collaborators that would prevent us from collaborating with others; • a large percentage of our revenue may be concentrated with the collaborators if the collaborations are successful and we may experience further losses if they are or later become unsuccessful; • collaborators may not properly maintain or defend our intellectual property rights or may use our intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential liability; • disputes may arise between us and a collaborator that causes the delay or termination of the research, development, or commercialization of our current or future services or products or that results in costly litigation or arbitration that diverts management attention and resources; • collaborations may be terminated, and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable current or future services or products; • collaborators may own or co-own intellectual property covering our services or products that results from our collaborating with them, and in such cases, we would not have the exclusive right to develop or commercialize such intellectual property; • collaborators’ activities or use of our services or deliverables may create additional regulatory obligations and could lead to side effects or adverse events in patients, exposing us to potential liability or regulatory review; and • collaborators’ sales and marketing activities or other operations may not be in compliance with applicable laws resulting in civil or criminal proceedings.
Currently, there is no proposed regulation interpreting or implementing EKRA, nor any public guidance released by a federal agency concerning EKRA; • other federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral, fee-splitting restrictions, insurance fraud laws, prohibitions on the provision of tests at no or discounted cost to induce physician or patient adoption, and false claims acts, which may extend to services reimbursable by any 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; • state laws that prohibit other specified practices, such as billing physicians for testing that they order as discussed above; waiving coinsurance, copayments, deductibles, and other amounts owed by patients; billing a state Medicaid program at a price that is higher than what is charged to one or more other payors; employing, exercising control over, licensed professionals in violation of state laws prohibiting corporate practice of medicine and other professions, and prohibitions against the splitting of professional fees with licensed professionals; and • similar foreign laws and regulations that apply to us in the countries in which we operate or may operate in the future.
Currently, there is no proposed regulation interpreting or implementing EKRA, nor any public guidance released by a federal agency concerning EKRA; • other federal and state fraud and abuse laws, such as anti-kickback laws, prohibitions on self-referral, fee-splitting restrictions, insurance fraud laws, prohibitions on the provision of tests at no or discounted cost to induce physician or patient adoption, and false claims acts, which may extend to services reimbursable by any payor, 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; • state laws that prohibit other specified practices, such as billing physicians for testing that they order as discussed above; waiving coinsurance, copayments, deductibles, and other amounts owed by patients; billing a state Medicaid program at a price that is higher than what is charged to one or more other payors; employing, exercising control over, licensed professionals in violation of state laws prohibiting corporate practice of medicine and other professions, and prohibitions against the splitting of professional fees with licensed professionals; and • similar foreign laws and regulations that apply to us in the countries in which we operate or may operate in the future.
Although we market our tests as LDTs that are currently subject to the FDA’s exercise of enforcement discretion, if we fail to operate within the conditions of that exercise of enforcement discretion, if any of our services or products otherwise fail to comply with FDA regulatory requirements as enforced, or if we voluntarily submit one or more of our tests for premarket notification, review, clearance or approval by the FDA as medical devices, we would be subject to the applicable requirements of the FDC Act and the FDA’s implementing regulations.
Although we market our tests as LDTs that are currently subject to the FDA’s exercise of enforcement discretion, if we fail to operate within the conditions of that exercise of enforcement discretion, if any of our services or products otherwise fail to comply with FDA regulatory requirements as enforced, or if we are required or voluntarily submit one or more of our tests for premarket notification, review, clearance or approval by the FDA as medical devices, we would be subject to the applicable requirements of the FDC Act and the FDA’s implementing regulations.
While we believe that we are currently in material compliance with applicable laws and regulations as currently enforced, the FDA or other regulatory agencies may not agree, and a determination that we have violated these laws or a public announcement that we are being investigated for possible violations of these laws could adversely affect our business, financial condition, results of operations, and prospects.
While we believe that we are currently in material compliance with applicable laws and regulations as currently enforced, the FDA or other regulatory agencies and authorities may not agree, and a determination that we have violated these laws or a public announcement that we are being investigated for possible violations of these laws could adversely affect our business, financial condition, results of operations, and prospects.
However, the patent process is expensive, time consuming, and complex, and we may not be able to apply for patents on certain aspects of our services, products, and other technologies in a timely fashion, at a reasonable cost, in all jurisdictions or at all, and any potential patent coverage we obtain may not be sufficient to prevent substantial competition.
However, the patent process is expensive, time consuming, and complex, and we may choose not to, or we may not be able to, apply for patents on certain aspects of our services, products, and other technologies in a timely fashion, at a reasonable cost, in all jurisdictions or at all, and any potential patent coverage we obtain may not be sufficient to prevent substantial competition.
The government and other third-party payors are increasingly attempting to contain health care costs by limiting both insurance coverage and the level of reimbursement for new diagnostic tests. As a result, they may not cover or provide adequate payment for any future in vitro diagnostic tests that we develop.
The government and other third-party payors are increasingly attempting to contain health care costs by limiting both insurance coverage and the level of reimbursement for new diagnostic tests. As a result, they may not cover or provide adequate payment for any current or future in vitro diagnostic tests that we develop.
The market price of our common stock may fluctuate or decline significantly in response to numerous factors, many of which are beyond our control, including: • actual or anticipated fluctuations in our operating results; • failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public; • issuance of new or updated research reports by securities analysts or changed recommendations for our stock; • competition from existing tests or new tests that may emerge; • announcements by us or our competitors relating to significant acquisitions, strategic partnerships, joint ventures, collaborations, capital commitments, or by or pertaining to our customers, particularly the VA MVP and Natera, as our largest customers; • the timing and amount of our investments in the growth of our business; • actual or anticipated changes in regulatory oversight of our business or issues we may face with regulators; • additions or departures of key management or other personnel; • inability to obtain additional funding; • sales of our common stock by us or our stockholders in the future; • disputes or other developments related to our intellectual property or other matters, including litigation; • health epidemics or pandemics, geopolitical conflicts, inflation, global supply chain issues, regional or national economic slowdowns, recessions, depressions or other economic downturns; and • other general economic, industry, and market conditions, including factors unrelated to our operating performance or the operating performance of our competitors.
The market price of our common stock may fluctuate or decline significantly in response to numerous factors, many of which are beyond our control, including: • actual or anticipated fluctuations in our operating results; • failure to meet or exceed financial estimates and projections of the investment community or that we provide to the public; • issuance of new or updated research reports by securities analysts or changed recommendations for our stock; • competition from existing tests or new tests that may emerge; • announcements by us or our competitors relating to significant acquisitions, strategic partnerships, joint ventures, collaborations, capital commitments, or by or pertaining to our customers, particularly the VA MVP and Natera, as our largest customers; • the timing and amount of our investments in the growth of our business; 46 Table of Contents • actual or anticipated changes in regulatory oversight of our business or issues we may face with regulators; • additions or departures of key management or other personnel; • inability to obtain additional funding; • sales of our common stock by us or our stockholders in the future; • disputes or other developments related to our intellectual property or other matters, including litigation; • health epidemics or pandemics, geopolitical conflicts, inflation, global supply chain issues, regional or national economic slowdowns, recessions, depressions or other economic downturns; and • other general economic, industry, and market conditions, including factors unrelated to our operating performance or the operating performance of our competitors.
Our ability to successfully market our services that we have developed, and may develop in the future, will depend on numerous factors, including: • our ability to demonstrate the utility and value of our services to our customers and potential customers; • the success of our commercial team, including sales and business development personnel; • the recruitment, hiring, and retention of our commercial team personnel; • whether our customers and potential customers accept that our services are sufficiently sensitive and specific; • our ability to convince our customers and potential customers of the utility of the comprehensiveness of our services and of testing patients at multiple time-points; • our ability to continue to fund sales and marketing activities; • whether our services are considered superior to those of our competitors; • any negative publicity regarding our or our competitors’ services resulting from defects or errors; • our success obtaining and maintaining patent and trade secret protection for our services and technologies; and • our success enforcing and defending intellectual property rights and claims.
Our ability to successfully market our services that we have developed, and may develop in the future, will depend on numerous factors, including: • our ability to demonstrate the utility and value of our services to our customers and potential customers; • the success of our commercial team, including sales and business development personnel; • the recruitment, hiring, and retention of our commercial team personnel; • whether our customers and potential customers accept that our services are sufficiently sensitive and specific; • our ability to educate our customers and potential customers of the utility of the comprehensiveness of our services and of testing patients at multiple time points; • our ability to continue to fund sales and marketing activities; • whether our services are considered superior to those of our competitors; • any negative publicity regarding our or our competitors’ services resulting from defects or errors; • our success obtaining and maintaining patent and trade secret protection for our services and technologies; and • our success enforcing and defending intellectual property rights and claims.
Further, collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability. Also, we may be obligated under our agreements with our collaborators, licensors, suppliers, and others to indemnify and hold them harmless for damages arising from intellectual property infringement by us.
Further, collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability. Also, we may be obligated under our agreements with our collaborators, licensors, customers, suppliers, and others to indemnify and hold them harmless for damages arising from intellectual property infringement by us.
The commercial success of future services and products in both domestic and international markets may depend in part on the availability of coverage and adequate reimbursement from third-party payors, including government payors, such as the Medicare and Medicaid programs, or equivalent foreign programs, managed care organizations, and other third-party payors.
The commercial success of current or future services and products in both domestic and international markets may depend in part on the availability of coverage and adequate reimbursement from third-party payors, including government payors, such as the Medicare and Medicaid programs, or equivalent foreign programs, managed care organizations, and other third-party payors.
Private individuals can bring False Claims Act “qui tam” actions, on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in amounts paid by the entity to the government in fines or settlement; • the federal Civil Monetary Penalties Law, which prohibits, among other things, the offering or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies; • the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, biologicals, and medical devices or supplies that require premarket approval by or notification to the FDA, and for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with certain exceptions, to report annually to the Centers 42 Table of Contents for Medicare & Medicaid Services ("CMS") information related to (i) payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), other healthcare professionals (such as physicians assistants and nurse practitioners) and teaching hospitals, and (ii) ownership and investment interests held by physicians and their immediate family members; • the HIPAA fraud and abuse provisions, which created federal civil and criminal statutes that prohibit, among other things, defrauding healthcare programs, willfully obstructing a criminal investigation of a healthcare offense, and falsifying or concealing a material fact or making any materially false statements in connection with the payment for healthcare benefits, items or services.
Private individuals can bring False Claims Act “qui tam” actions, on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in amounts paid by the entity to the government in fines or settlement; • the federal Civil Monetary Penalties Law, which prohibits, among other things, the offering or transfer of remuneration to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state healthcare program, unless an exception applies; • the federal Physician Payments Sunshine Act, which requires certain manufacturers of drugs, biologicals, and medical devices or supplies that require premarket approval by or notification to the FDA, and for which payment is available under Medicare, Medicaid, or the Children’s Health Insurance Program, with certain exceptions, to report annually to CMS information related to (i) payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), other healthcare professionals (such as physicians assistants and nurse practitioners) and teaching hospitals, and (ii) ownership and investment interests held by physicians and their immediate family members; • the HIPAA fraud and abuse provisions, which created federal civil and criminal statutes that prohibit, among other things, defrauding healthcare programs, willfully obstructing a criminal investigation of a healthcare offense, and falsifying or concealing a material fact or making any materially false statements in connection with the payment for healthcare benefits, items or services.
In addition, there can be no assurance that: • others will not or may not be able to make, use, offer to sell, or sell tests that are the same as or similar to our products or services but that are not covered by the claims of the patents that we own or license; • we or our future licensors or collaborators are the first to make the inventions covered by each of our issued patents and pending patent applications that we own or license; • we or our future licensors or collaborators are the first to file patent applications covering certain aspects of our inventions; • others will not independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; • a third party may not challenge our patents and, if challenged, a court would hold that our patents are valid, enforceable, and infringed; • any issued patents that we own or may license will provide us with any competitive advantages, or will not be challenged by third parties; • we may develop or in-license additional proprietary technologies that are patentable; • pending patent applications that we own or may license will lead to issued patents; • the patents of others will not have a material or adverse effect on our business, financial condition, results of operations, and prospects; and • our competitors do not conduct research and development activities in countries where we do not have enforceable patent rights and then use the information learned from such activities to develop competitive products or services for sale in our major commercial markets.
In addition, there can be no assurance that: • others will not or may not be able to make, use, offer to sell, or sell tests that are the same as or similar to our products or services but that are not covered by the claims of the patents that we own or license; • we or our future licensors or collaborators are the first to make the inventions covered by each of our issued patents and pending patent applications that we own or license; • we or our future licensors or collaborators are the first to file patent applications covering certain aspects of our inventions; • others will not independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights; 41 Table of Contents • a third party may not challenge our patents and, if challenged, a court would hold that our patents are valid, enforceable, and infringed; • any issued patents that we own or may license will provide us with any competitive advantages, or will not be challenged by third parties; • we may develop or in-license additional proprietary technologies that are patentable; • pending patent applications that we own or may license will lead to issued patents; • the patents of others will not have a material or adverse effect on our business, financial condition, results of operations, and prospects; and • our competitors do not conduct research and development activities in countries where we do not have enforceable patent rights and then use the information learned from such activities to develop competitive products or services for sale in our major commercial markets.
In particular, the EEA and the U.K. have significantly restricted the transfer of personal information to the U.S. and other countries whose data privacy and security laws they believe are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws.
In particular, the EEA and the U.K. have significantly restricted the transfer of personal information to the U.S. and other countries whose data privacy and security laws they generally believe are inadequate. Other jurisdictions may adopt similarly stringent interpretations of their data localization and cross-border data transfer laws.
Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and services and, further, may export otherwise infringing products to territories where we have patent protection or licenses but enforcement is not as strong as that in the U.S.
Competitors may use our technologies in jurisdictions where we have not sought or obtained patent protection to develop their own products and services and, further, may export otherwise infringing products to territories where we have patent protection or licenses but enforcement is not as strong as that in the U.S.
Additionally, a key component of our research and development process involves using biological samples as the basis for the development of our services, and our services typically involve using biological samples provided by or on behalf of our customers. In some cases, these samples are difficult to obtain.
Additionally, a key component of our research and development process involves using biological samples as the basis for the development of our services, and our services typically involve using biological samples provided by or on behalf of our customers or collaborators. In some cases, these samples are difficult to obtain.
Penalties may apply to the billing physician or supplier if Medicare or another payer is billed at a rate that exceeds the performing laboratory’s charges to the billing physician or supplier, and the performing laboratory could be at risk under false claims laws, described below, for causing the submission of a false claim; • the 14-Day Rule, also known as the Medicare Date of Service Rule, which prohibits a laboratory supplier from billing the Medicare program for tests performed on samples collected during or within 14 days of an inpatient hospital stay, unless an exception applies, and requires the laboratory supplier to bill the hospital in those cases.
Penalties may apply to the billing physician or supplier if Medicare or another payor is billed at a rate that exceeds the performing laboratory’s charges to the billing physician or supplier, and the performing laboratory could be at risk under false claims laws, described below, for causing the submission of a false claim; • the 14-Day Rule, also known as the Medicare Date of Service Rule, which prohibits a laboratory supplier from billing the Medicare program for tests performed on samples collected during or within 14 days of an inpatient hospital stay, unless an exception applies, and requires the laboratory supplier to bill the hospital in those cases.
Additionally, COVID-19 previously disrupted Illumina’s ability to fulfill our purchase orders for reagents or other materials in a timely manner and a resurgence of COVID-19 or another health epidemic or pandemic may disrupt the ability of Illumina and our other suppliers to fulfill our purchase orders in a timely manner or at all.
Additionally, COVID-19 previously disrupted Illumina’s ability to fulfill our purchase orders for reagents or other materials in a timely manner and another health epidemic or pandemic may disrupt the ability of Illumina and our other suppliers to fulfill our purchase orders in a timely manner or at all.
If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences, such as government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive information (including personal information); litigation (including class claims); indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss; and other similar harms.
If we (or a third party upon whom we rely) experience a security incident or are perceived to have experienced a security incident, we may experience adverse consequences, such as government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight; restrictions on processing sensitive information (including personal information); litigation (including class claims) and mass arbitration; indemnification obligations; negative publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss; and other similar harms.
We are involved in legal proceedings to enforce our intellectual property rights and may in the future become involved in other lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming, and unsuccessful. Our intellectual property rights involve complex factual, scientific and legal questions.
We are involved in legal proceedings to defend and enforce our intellectual property rights and may in the future become involved in other lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming, and unsuccessful. Our intellectual property rights involve complex factual, scientific and legal questions.
If a court were to find either exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business. 57 Table of Contents The requirements of being a public company consume substantial resources, may result in litigation and may divert management’s attention.
If a court were to find either exclusive forum provision in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur further significant additional costs associated with resolving the dispute in other jurisdictions, all of which could seriously harm our business. 50 Table of Contents The requirements of being a public company consume substantial resources, may result in litigation and may divert management’s attention.
If an ownership change occurs and our ability to use our net operating loss carryforwards is materially limited, it could harm our future operating results by effectively increasing our future tax obligations. 56 Table of Contents Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our common stock.
If an ownership change occurs and our ability to use our net operating loss carryforwards is materially limited, it could harm our future operating results by effectively increasing our future tax obligations. 49 Table of Contents Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our common stock.
Our data processing activities may subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and security.
Our data processing activities subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and security.
The FDA has broad post-market enforcement powers, and if unanticipated problems with our services or products arise, or if we or our suppliers fail to comply with regulatory requirements following FDA clearance or approval, we may become subject to enforcement actions such as: • restrictions on manufacturing processes; • restrictions on service or product marketing; • warning letters; • withdrawal or recall of services or products from the market; • refusal to approve pending PMAs, 510(k)s, or supplements to approved PMAs or cleared 510(k)s that we submit; • fines, restitution, or disgorgement of profits or revenue; • suspension or withdrawal of regulatory clearances or approvals; • limitation on, or refusal to permit, import or export of our products; 36 Table of Contents • product seizures; • injunctions; or • imposition of civil or criminal penalties.
The FDA has broad post-market enforcement powers, and if unanticipated problems with our services or products arise, or if we or our suppliers fail to comply with regulatory requirements following FDA clearance or approval, we may become subject to enforcement actions such as: • restrictions on manufacturing processes; • restrictions on service or product marketing; • warning letters; • withdrawal or recall of services or products from the market; • refusal to approve pending PMAs, 510(k)s, or supplements to approved PMAs or cleared 510(k)s that we submit; • fines, restitution, or disgorgement of profits or revenue; • suspension or withdrawal of regulatory clearances or approvals; • limitation on, or refusal to permit, import or export of our products; • product seizures; • injunctions; or • imposition of civil or criminal penalties.
See “—Litigation or other proceedings or third-party claims of intellectual property infringement, misappropriation or other violations may require us to spend significant time and money, and could in the future prevent us from selling our tests or impact our stock price, any of which could have a material adverse effect.” We cannot assure you that, if we were forced to replace Illumina or another supplier on which we rely, we would be able to secure alternative equipment, reagents, and other materials, and bring such equipment, reagents, and other materials on-line and revalidate them without experiencing interruptions in our workflow.
See “—Litigation or other proceedings or third-party claims of intellectual property infringement, misappropriation or other violations may require us to spend significant time and money, and could in the future prevent us from selling our tests or impact our stock price, any of which could have a material adverse effect.” We cannot 19 Table of Contents assure you that, if we were forced to replace Illumina or another supplier on which we rely, we would be able to secure alternative equipment, reagents, and other materials, and bring such equipment, reagents, and other materials on-line and revalidate them without experiencing interruptions in our workflow.
If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant administrative, civil and criminal penalties, damages, fines, imprisonment, exclusion from government healthcare programs, contractual 41 Table of Contents damages, refunding of payments received by us, reputational harm, additional reporting, or oversight obligations if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with the law and curtailment or restructuring of our operations.
If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and results of operations, including the imposition of significant administrative, civil and criminal penalties, damages, fines, imprisonment, exclusion from government healthcare programs, contractual damages, refunding of payments received by us, reputational harm, additional reporting, or oversight obligations if we become subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with the law and curtailment or restructuring of our operations.
Precisely what constitutes a law of nature or abstract idea is uncertain, and it is possible that certain aspects of genetic diagnostics tests would be considered natural laws. Accordingly, the evolving case law in the U.S. may adversely affect our ability to obtain patents and may facilitate third-party challenges to any owned or licensed patents.
Precisely what constitutes a law of nature or abstract idea is uncertain, and it is possible that certain aspects of genetic diagnostic tests would be considered natural laws. Accordingly, the evolving case law in the U.S. may adversely affect our ability to obtain patents and may facilitate third-party challenges to any owned or licensed patents.
Therefore, period-to-period comparisons of our operating results relating to VA MVP contracted orders may not be meaningful. The timing and number of VA MVP samples may also be negatively affected by a public health crisis, such as COVID-19. For example, in March 2020, the VA MVP announced that it was suspending sample collection due to the COVID-19 pandemic.
Therefore, period-to-period comparisons of our operating results relating to VA MVP contracted orders may not be meaningful. The timing and number of VA MVP samples may also be negatively affected by a public health crisis. For example, in March 2020, the VA MVP announced that it was suspending sample collection due to the COVID-19 pandemic.
On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain until 2031 unless additional Congressional action is taken.
On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain until 2032 unless additional Congressional action is taken.
Under PAMA, laboratories that receive the majority of their Medicare revenue from payments made under the Physician Fee Schedule are required to report to CMS, beginning in 2017 and every three years thereafter (or annually for “advanced diagnostic laboratory tests”), private payer payment rates and volumes for their tests.
Under PAMA, laboratories that receive the majority of their Medicare revenue from payments made under the Physician Fee Schedule are required to report to CMS, beginning in 2017 and every three years thereafter (or annually for “advanced diagnostic laboratory tests”), private payor payment rates and volumes for their tests.
Any of these outcomes could result in SEC enforcement actions, monetary fines or other penalties, damage to our reputation, and harm to our financial condition. 58 Table of Contents If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.
Any of these outcomes could result in SEC enforcement actions, monetary fines or other penalties, damage to our reputation, and harm to our financial condition. 51 Table of Contents If we fail to maintain effective internal control over financial reporting in the future, the accuracy and timing of our financial reporting may be adversely affected.
An independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation. 59 Table of Contents Item 1B. Unresolve d Staff Comments. Not applicable.
An independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management’s assessment might not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur the expense of remediation. 52 Table of Contents Item 1B. Unresolve d Staff Comments. Not applicable.
If we or the third parties on which we rely fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, we could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims); additional reporting requirements and/or oversight; bans on processing personal information; orders to destroy or not use personal information; and imprisonment of company officials.
If we or the third parties on which we rely fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, we could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims) and mass arbitration demands; additional reporting requirements and/or oversight; bans on processing personal information; orders to destroy or not use personal information; and imprisonment of company officials.
Our current and projected future expense levels are to a large extent fixed and are largely based on our current investment plans and our estimates of future test volume. As a result, if revenue does not meet our expectations we may not be able to promptly adjust or reduce our spending to levels commensurate with our revenue.
Our current and projected future expense levels are to a large extent fixed and are largely based on our current investment plans and our estimates of future test volume. As a result, if revenue does not meet our expectations we may not be able to promptly adjust or reduce our spending to levels commensurate with our revenue, or at all.
Unlike the federal Anti-Kickback Statute, EKRA’s reach extends beyond federal health care programs to include private insurance (i.e., it is an “all payer” statute). Additionally, most of the safe harbors available under the federal Anti-Kickback Statute are not reiterated under EKRA, and certain EKRA safe harbors conflict with the safe harbors available under the federal Anti-Kickback Statute.
Unlike the federal Anti-Kickback Statute, EKRA’s reach extends beyond federal health care programs to include private insurance (i.e., it is an “all payor” statute). Additionally, most of the safe harbors available under the federal Anti-Kickback Statute are not reiterated under EKRA, and certain EKRA safe harbors conflict with the safe harbors available under the federal Anti-Kickback Statute.
In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in loss of patent rights in the relevant jurisdiction.
In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance has resulted or can result in abandonment or lapse of a patent or patent application, resulting in loss of patent rights in the relevant jurisdiction.
The IVDR and its associated guidance documents and harmonized standards governing, among other things, device design and development, preclinical and clinical or performance testing, premarket conformity assessment, registration and listing, manufacturing, labeling, storage, claims, sales and distribution, export and import and post-market surveillance, vigilance, and market surveillance.
The IVDR and its associated guidance documents and harmonized standards govern, among other things, device design and development, preclinical and clinical or performance testing, premarket conformity assessment, registration and listing, manufacturing, labeling, storage, claims, sales and distribution, export and import and post-market surveillance, vigilance, and market surveillance.
Several of our customers were delayed in sending us samples due to the inability to collect or ship samples during the COVID-19 pandemic, and these and additional customers may be disrupted from collecting samples or sending purchase orders or samples to us in the future in the event of a resurgence of COVID-19 or the emergence of another health epidemic or pandemic.
Several of our customers were delayed in sending us samples due to the inability to collect or ship samples during the COVID-19 pandemic, and these and additional customers may be disrupted from collecting samples or sending purchase orders or samples to us in the future in the event of the emergence of another health epidemic or pandemic.
If any of our current or pipeline tests 35 Table of Contents are not considered by the FDA to be GHR tests or do not qualify for the limited exemption for a sponsor’s subsequent GHR tests once the assessment system has been reviewed and cleared by FDA, or if any of our tests fall under a different non-exempt classification or are unclassified, we could be required to obtain 510(k) clearance or approval of a PMA for such test in the future.
If any of our current or pipeline tests are not considered by the FDA to be GHR tests or do not qualify for the limited exemption for a sponsor’s subsequent GHR tests once the assessment system has been reviewed and cleared by FDA, or if any of our tests fall under a different non-exempt classification or are unclassified, we could be required to obtain 510(k) clearance or approval of a PMA for such test in the future.
Failure to achieve broad market acceptance of our services would materially harm our business, financial condition, and results of operations. 23 Table of Contents If we cannot compete successfully with our competitors, we may be unable to increase or sustain our revenue or achieve and sustain profitability.
Failure to achieve broad market acceptance of our services would materially harm our business, financial condition, and results of operations. 15 Table of Contents If we cannot compete successfully with our competitors, we may be unable to increase or sustain our revenue or achieve and sustain profitability.
These payors may also conclude that the overall cost of using one of our tests exceeds the overall cost of using a competing test, and third-party payors may not approve any future in vitro diagnostic tests we develop for insurance coverage and adequate reimbursement.
These payors may also conclude that the overall cost of using one of our tests exceeds the overall cost of using a competing test, and third-party payors may not approve any current or future in vitro diagnostic tests we develop for insurance coverage and adequate reimbursement.
Coverage and reimbursement of new products and services is uncertain, and whether the companies that use our instruments to develop their own products or services will attain coverage and adequate reimbursement is unknown. In the U.S. and the EU, there is no uniform policy for determining coverage and reimbursement.
Coverage and reimbursement of new products and services is uncertain, and whether the companies that use our tests or services to develop their own products or services will attain coverage and adequate reimbursement is unknown. In the U.S. and the EU, there is no uniform policy for determining coverage and reimbursement.
If the volume of samples received under our agreement with Natera were to be significantly reduced or eliminated, or if our agreement with Natera were to be terminated, for these or other reasons, or if we are unable to successfully research, develop, launch and/or commercialize our services or service capabilities, including NeXT Personal, our business, financial condition, revenue and other operating results, and cash flows may be materially harmed.
If the volume of samples received under our agreement with Natera were to be significantly reduced or eliminated, or if our agreement with Natera were to be terminated, for these or other reasons, or if we are 17 Table of Contents unable to successfully research, develop, launch and/or commercialize our services or service capabilities, including NeXT Personal, our business, financial condition, revenue and other operating results, and cash flows may be materially harmed.
For example, the VA MVP contracted order received in September 2020 had a value of $30.9 million, whereas the VA MVP contracted orders received in September 2021 and 2022 had values of $9.7 million and $10.0 million, respectively, which represents a substantial decline.
For example, the VA MVP contracted order received in September 2020 had a value of $30.9 million, whereas the VA MVP contracted orders received in September 2021, 2022, and 2023 had values of $9.7 million, $10.0 million, and $7.5 million, respectively, which represents a substantial decline.
The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant civil, criminal, and administrative penalties.
The FDA and other agencies or authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant civil, criminal, and administrative penalties.
Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.
Proceedings to defend or enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate.
Financial and Market Risks and Risks Related to Owning Our Common Stock • Our inability to raise additional capital on acceptable terms in the future may limit our ability to continue to operate our business and further expand our operations. • The market price of our common stock may be volatile or may decline steeply or suddenly regardless of our operating performance, we may not be able to meet investor or analyst expectations, and you may lose all or part of your investment. • Our quarterly results may fluctuate significantly, which could adversely impact our common stock’s value. • Insiders may exercise significant control over our company and will be able to influence corporate matters. • Future sales of shares by existing stockholders, or the perception that such sales could occur, could cause the stock price of our common stock to decline. • We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation of the value of our common stock. • If securities or industry analysts do not publish research or reports about our business, or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline. • Our ability to use net operating losses to offset future taxable income may be subject to limitations. • Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our common stock; our amended and restated certificate of incorporation has an exclusive forum provision, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. • Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud. 22 Table of Contents Risk Factors.
Financial and Market Risks and Risks Related to Owning Our Common Stock • Our inability to raise additional capital on acceptable terms in the future may limit our ability to continue to operate our business and further expand our operations. • The market price of our common stock may be volatile or may decline steeply or suddenly regardless of our operating performance, we may not be able to meet investor or analyst expectations, and you may lose all or part of your investment. • Our quarterly results may fluctuate significantly, which could adversely impact our common stock’s value. • Insiders may exercise significant control over our company and will be able to influence corporate matters. • Future sales of shares by existing stockholders, or the perception that such sales could occur, could cause the stock price of our common stock to decline. • We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on appreciation of the value of our common stock. • If securities or industry analysts do not publish research or reports about our business, or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline. • Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws could make a merger, tender offer, or proxy contest difficult, thereby depressing the trading price of our common stock; our amended and restated certificate of incorporation has an exclusive forum provision, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees. • Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud. 14 Table of Contents Risk Factors.
The IRA 2022 also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and through a newly established manufacturer discount program. It is possible that the ACA will be subject to judicial or Congressional challenges in the future.
The IRA 2022 also eliminates the “donut hole” under the Medicare Part D program beginning 36 Table of Contents in 2025 by significantly lowering the beneficiary maximum out-of-pocket cost and through a newly established manufacturer discount program. It is possible that the ACA will be subject to judicial or Congressional challenges in the future.
Despite the contractual provisions employed when working with third parties, the need to share trade secrets, know-how, and other confidential information increases the risk that such trade secrets and know-how become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements.
Despite the contractual provisions employed when working with third parties, the need to share trade secrets, know-how, and other confidential information increases the risk that such trade secrets and know-how become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of 43 Table of Contents these agreements.
The incurrence of additional indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in restrictive covenants, 53 Table of Contents such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business.
The incurrence of additional indebtedness or the issuance of certain equity securities could result in increased fixed payment obligations and could also result in restrictive covenants, such as limitations on our ability to incur additional debt or issue additional equity, limitations on our ability to acquire or license intellectual property rights, and other operating restrictions that could adversely affect our ability to conduct our business.
If we are not able to invalidate such patents or obtain or maintain a license on commercially reasonable terms and such third parties assert infringement claims against us, we may be prevented from exploiting our technology and our business, financial condition, results of operations, and prospects may be materially and adversely 46 Table of Contents affected.
If we are not able to invalidate such patents or obtain or maintain a license on commercially reasonable terms and such third parties assert infringement claims against us, we may be prevented from exploiting our technology and our business, financial condition, results of operations, and prospects may be materially and adversely affected.
As we continue to commercialize our tests in their current or an updated form, launch different and expanded tests, and enter new markets, other competitors or potential competitors might claim that our tests infringe, misappropriate, or violate their intellectual property rights as part of business strategies designed to impede our successful commercialization and entry into new markets.
As we continue to commercialize our tests in their current or an updated form, launch different and expanded tests, and enter new markets, other competitors or potential competitors might claim that our tests infringe, misappropriate, or violate their intellectual 39 Table of Contents property rights as part of business strategies designed to impede our successful commercialization and entry into new markets.
We may not be able to maintain the quality of or expected turnaround times for our tests, or satisfy customer demand 31 Table of Contents as our test volume grows. Our ability to manage our growth properly will require us to continue to improve our operational, financial, and management controls, as well as our reporting systems and procedures.
We may not be able to maintain the quality of or expected turnaround times for our tests, or satisfy customer demand as our test volume grows. Our ability to manage our growth properly will require us to continue to improve our operational, financial, and management controls, as well as our reporting systems and procedures.
In the ordinary course of our business, we collect, process, receive, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, share and store (collectively, “process”) proprietary, confidential, and sensitive information, including protected health information (“PHI”), personal information, credit card and other financial information, intellectual property, trade secrets, medical information, biometric information and genomic information (collectively, “sensitive information”) owned or controlled by ourselves or our customers, payors, and other parties.
In the ordinary course of our business, we, and the third parties upon which we rely, collect, process, receive, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit, share and store (collectively, “process”) proprietary, confidential, and sensitive information, including protected health information (“PHI”), personal information, credit card and other financial information, intellectual property, trade secrets, medical information, biometric information and genomic information (collectively, “sensitive information”) owned or controlled by ourselves or our customers, payors, and other parties.
No assurance can be given that other patent applications will not have priority over our patent applications. In addition, changes to the patent laws of the U.S. allow for various post-grant opposition proceedings, such as inter partes review proceedings, providing additional methods for others to challenge our patents.
The outcome of such proceedings is uncertain. No assurance can be given that other patent applications will not have priority over our patent applications. In addition, changes to the patent laws of the U.S. allow for various post-grant opposition proceedings, such as inter partes review proceedings, providing additional methods for others to challenge our patents.
Consequently, we do not know whether any of our platform advances, products, services, 48 Table of Contents and other technologies will be protectable or remain protected by valid and enforceable patents. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative technologies, services, or products in a non-infringing manner.
Consequently, we do not know whether any of our platform advances, products, services, and other technologies will be protectable or remain protected by valid and enforceable patents. Our competitors or other third parties may be able to circumvent our patents by developing similar or alternative technologies, services, or products in a non-infringing manner.
We seek protection for certain aspects of our technologies, products, and services through the filing of patents, registration of copyrights, and use of non-disclosure agreements. In addition, we also rely on trade secrets and proprietary know-how protection for our 50 Table of Contents confidential and proprietary information, and we have taken security measures to protect this information.
We seek protection for certain aspects of our technologies, products, and services through the filing of patents, registration of copyrights, and use of non-disclosure agreements. In addition, we also rely on trade secrets and proprietary know-how protection for our confidential and proprietary information, and we have taken security measures to protect this information.
We also anticipate there will continue to be proposals by legislators at both the federal and state levels, regulators and private payers to reduce costs while expanding individual healthcare benefits.
We also anticipate there will continue to be proposals by legislators at both the federal and state levels, regulators and private payors to reduce costs while expanding individual healthcare benefits.
If the FDA determines that our tests and associated software do not fall within the definition of an LDT, or there are regulatory or legislative changes, or if we voluntarily submit one or more of our tests for premarket notification, review, clearance or approval by the FDA as medical devices, we may be required to obtain premarket clearance for our tests and associated software under Section 510(k) of the FDC Act or approval of a premarket approval application (“PMA”).
If the FDA determines that our tests and associated software do not fall within the definition of an LDT, or there are regulatory or legislative changes such as FDA's Proposed Rule, or if we voluntarily submit one or more of our tests for premarket notification, review, clearance or approval by the FDA as medical devices, we may be required to obtain premarket clearance for our tests and associated software under Section 510(k) of the FDC Act or approval of a premarket approval application (“PMA”).
Additionally, we use certain consumables in our operations, and we have faced, and may face in the future, difficulties in acquiring such consumables if our suppliers prioritize orders related to COVID-19 or another health epidemic or pandemic or if other supply chain issues arise as a result of such a public health crisis.
Additionally, we use certain consumables in our operations, and we have faced, and may face in the future, difficulties in acquiring such consumables if our suppliers prioritize orders related to a health epidemic or pandemic or if other supply chain issues arise as a result of such a public health crisis.
Failure to comply with applicable clinical laboratory licensure requirements may result in a range of enforcement actions, including license suspension, limitation, or revocation, directed plan of action, onsite monitoring, civil monetary penalties, and criminal 37 Table of Contents sanctions as well as significant adverse publicity.
Failure to comply with applicable clinical laboratory licensure requirements may result in a range of enforcement actions, including license suspension, limitation, or revocation, directed plan of action, onsite monitoring, civil monetary penalties, and criminal sanctions as well as significant adverse publicity.
Other states, such as Virginia, Colorado, Connecticut and Utah have also passed comprehensive privacy laws, and similar laws are being considered in several other states, as well as at the federal and local levels.
Other states, such as Virginia, Colorado, Connecticut and Utah have also enacted comprehensive privacy laws, and similar laws are being considered in several other states, as well as at the federal and local levels.
Our suppliers, including Illumina, could cease supplying these materials and equipment at any time, could increase the price of these materials or equipment (including the promotional pricing offered to us by Illumina for our 2022 VA MVP Agreement) or fail to provide us with sufficient quantities of materials or equipment that meet our specifications.
Our suppliers, including Illumina, could cease supplying these materials and equipment at any time, could increase the price of these materials or equipment (including the promotional pricing offered to us by Illumina for our 2022 VA MVP Agreement and certain other projects) or fail to provide us with sufficient quantities of materials or equipment that meet our specifications.
Our collaborators, consultants, and advisors are generally employed by employers other than us and may have commitments under agreements with other entities that may limit their availability to us.
Our collaborators, consultants, and advisors are generally self-employed or employed by employers other than us and may have commitments under agreements with other entities that may limit their availability to us.
The Medicare Access and CHIP Reauthorization Act of 2015, enacted on April 16, 2015 (“MACRA”) repealed the formula by which Medicare made annual payment adjustments to physicians and 44 Table of Contents replaced the former formula with fixed annual updates, and established a quality payment incentive program, also referred to as the Quality Payment Program.
The Medicare Access and CHIP Reauthorization Act of 2015, enacted on April 16, 2015 (“MACRA”) repealed the formula by which Medicare made annual payment adjustments to physicians and replaced the former formula with fixed annual updates, and established a quality payment incentive program, also referred to as the Quality Payment Program.
Each member of our executive management team has an employment agreement; however, the existence of an employment agreement 30 Table of Contents does not guarantee retention of members of our executive management team, and we may not be able to retain those individuals or replace them in the event we lose their services.
Each member of our executive management team has an employment agreement; however, the existence of an employment agreement does not guarantee retention of members of our executive management team, and we may not be able to retain those individuals or replace them in the event we lose their services.
We are seeking reimbursement for our NeXT Dx offering and other in vitro diagnostic tests we may develop, and if such tests are inadequately covered by insurance or ineligible for such reimbursement, this could limit our ability to derive revenue from any such future tests.
We are seeking reimbursement for our NeXT Dx and NeXT Personal Dx tests, and other in vitro diagnostic tests we may develop, and if such tests are inadequately covered by insurance or ineligible for such reimbursement, this could limit our ability to derive revenue from any such current or future tests.
The products must bear the statement: “For Research Use Only. Not for Use in Diagnostic Procedures.” Manufacturers of RUO products cannot make any claims related to safety, effectiveness or diagnostic utility, and RUO products cannot be intended by the manufacturer for clinical diagnostic use.
The products must bear the statement: “For Research Use Only. Not for Use in Diagnostic Procedures.” Manufacturers of RUO products cannot make any claims related to safety, 28 Table of Contents effectiveness or diagnostic utility, and RUO products cannot be intended by the manufacturer for clinical diagnostic use.
Further, we may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our intellectual property. Litigation may be necessary to defend against these claims.
Further, 44 Table of Contents we may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our intellectual property. Litigation may be necessary to defend against these claims.
If an author or other third party that distributes such open source 52 Table of Contents software were to allege that we had not complied with the conditions of an open source license, we could incur significant legal costs defending ourselves against such allegations.
If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of an open source license, we could incur significant legal costs defending ourselves against such allegations.
For example, we have an agreement with Natera to provide advanced tumor analysis for use in Natera’s MRD testing offerings. During the year ended December 31, 2022, revenue under our agreement accounted for 41% of our total revenue. See “—We currently derive a substantial portion of our revenue from DNA sequencing and data analysis services that we provide to Natera.
For example, we have an agreement with Natera to provide advanced tumor analysis for use in Natera’s MRD testing offerings. During the year ended December 31, 2023, revenue under our agreement accounted for 43% of our total revenue. See “—We currently derive a substantial portion of our revenue from DNA sequencing and data analysis services that we provide to Natera.
As a result of our policy to comply with the FCPA, the U.K. Bribery Act and similar anti-bribery laws, we may be at a competitive 33 Table of Contents disadvantage to competitors that are not subject to, or do not comply with, such laws.
As a result of our policy to comply with the FCPA, the U.K. Bribery Act and similar anti-bribery laws, we may be at a competitive disadvantage to competitors that are not subject to, or do not comply with, such laws.
Although we have evaluated and may continue in the future to evaluate equipment and materials from other suppliers, the use of 27 Table of Contents equipment or materials provided by these replacement suppliers would require us to alter our laboratory operations.
Although we have evaluated and may continue in the future to evaluate equipment and materials from other suppliers, the use of equipment or materials provided by these replacement suppliers would require us to alter our laboratory operations.
We have no certainty that funding will be made available for our services, or that the VA MVP will award any future contracts, contract renewals or contracted orders to us. The priorities of the VA, the VA MVP, or the U.S. government may change, including in response to COVID-19 or another health epidemic or pandemic.
We have no certainty that funding will be made available for our services, or that the VA MVP will award any future contracts, contract renewals or contracted orders to us. The priorities of the VA, the VA MVP, or the U.S. government may change, including in response to a health epidemic or pandemic.
Many factors have the potential to impact our customer relations, including the type of support our customers and potential customers require and our ability to deliver it, our customers’ satisfaction with our services, and other factors that may be beyond our 26 Table of Contents control.
Many factors have the potential to impact our customer relations, including the type of support our customers and potential customers require and our ability to deliver it, our customers’ satisfaction with our services, and other factors that may be beyond our control.
For example, in 2018, we experienced downtime in our information technology systems in connection with the adoption of certain new information technology, and our results of operations in the first and second quarters of 2018 were adversely affected as a result.
For example, in 2018, we experienced downtime in our information technology systems in 30 Table of Contents connection with the adoption of certain new information technology, and our results of operations in the first and second quarters of 2018 were adversely affected as a result.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThis facility was previously used as our corporate headquarters. Our CLIA-certified and CAP-accredited laboratory is currently located in the facility. We believe that our facilities are sufficient to meet our current and foreseeable future needs. We also believe we will be able to obtain additional space, as needed, on commercially reasonable terms. Item 3. Legal Proceedings.
Biggest changeWe believe that our facilities are sufficient to meet our current and foreseeable future needs. We also believe we will be able to obtain additional space, as needed, on commercially reasonable terms. Item 3. Legal Proceedings. See the disclosure under the heading "Contingencies" in Note 11 to our consolidated financial statements. Item 4. Mine Safe ty Disclosures.
Item 2. Pr operties. Our corporate headquarters are located in Fremont, California, and comprise 100,000 square feet of space, pursuant to a lease that expires in 2036. The lease includes two options to extend the term for a period of five-years per option, at prevailing market rates. This facility is used for corporate functions and research and development.
Item 2. Pr operties. Our corporate headquarters is located in Fremont, California, and comprise 100,000 square feet of space, pursuant to a lease that expires in 2036. The lease includes two options to extend the term for a period of five-years per option, at prevailing market rates.
We intend to move our laboratory operations from Menlo Park, California to the Fremont, California facility in 2023. We also lease 31,280 square feet of space in Menlo Park, California, pursuant to a lease that expires in 2027. The lease includes an option to extend the term for a period of three years, at prevailing market rates.
This facility is used for our CLIA-certified and CAP-accredited laboratory operations, research and development, and corporate functions. We also lease 31,280 square feet of space in Menlo Park, California, pursuant to a lease that expires in 2027. This facility was previously used for laboratory operations and our former corporate headquarters. We are actively marketing the space for sublease.
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See the disclosure under the heading "Contingencies" in Note 9 to our consolidated financial statements. Item 4. Mine Safe ty Disclosures. Not applicable. 60 Table of Contents PART II
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Not applicable. 54 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHolders As of February 14, 2023, there were approximately 65 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.
Biggest changeThe actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Payment of cash dividends, if any, in the future will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. Item 6. [Res erved] 61 Table of Contents
Payment of cash dividends, if any, in the future will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. Item 6. [Res erved] 55 Table of Contents
This number of holders of record also does not include stockholders whose shares may be held in trust by other entities. Dividend Policy We have not declared or paid any cash dividend on our common stock. We intend to retain any future earnings and do not expect to pay cash dividends in the foreseeable future.
Dividend Policy We have not declared or paid any cash dividend on our common stock. We intend to retain any future earnings and do not expect to pay cash dividends in the foreseeable future.
Item 5. Market for Registrant’s Common Equity, Related Stock holder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock has been listed on The Nasdaq Global Market under the symbol “PSNL” since June 20, 2019. Prior to our initial public offering, there was no public market for our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stock holder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock is listed on The Nasdaq Global Market under the symbol “PSNL.” Holders As of February 22, 2024, there were approximately 60 holders of record of our common stock.

Item 7. Management's Discussion & Analysis

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

58 edited+40 added−47 removed27 unchanged
Biggest changeYear Ended December 31, 2022 2021 2020 2019 2018 Consolidated Statements of Operations: (in thousands, except share and per share data) Revenue $ 65,047 $ 85,494 $ 78,648 $ 65,207 $ 37,774 Costs and expenses Cost of revenue 51,697 53,837 58,534 43,127 25,969 Research and development 64,912 49,312 28,568 22,418 14,304 Selling, general and administrative 63,969 47,698 33,692 22,080 11,271 Total costs and expenses 180,578 150,847 120,794 87,625 51,544 Loss from operations (115,531 ) (65,353 ) (42,146 ) (22,418 ) (13,770 ) Interest income 2,396 367 949 1,620 293 Interest expense (201 ) (184 ) (2 ) (1,133 ) (1,894 ) Loss on debt extinguishment — — — (1,704 ) (4,658 ) Other income (expense), net 61 (42 ) (24 ) (1,440 ) 150 Loss before income taxes (113,275 ) (65,212 ) (41,223 ) (25,075 ) (19,879 ) Provision for income taxes 40 14 57 9 7 Net loss $ (113,315 ) $ (65,226 ) $ (41,280 ) $ (25,084 ) $ (19,886 ) Net loss per share, basic and diluted $ (2.48 ) $ (1.49 ) $ (1.20 ) $ (1.39 ) $ (6.49 ) Weighted-average shares outstanding, basic and diluted 45,704,805 43,886,730 34,374,903 18,011,470 3,063,157 December 31, 2022 2021 2020 2019 2018 Consolidated Balance Sheet Data: (in thousands) Cash and cash equivalents, and short-term investments $ 167,658 $ 287,064 $ 203,290 $ 128,289 $ 19,744 Working capital 166,568 286,918 180,083 89,616 (28,291 ) Total assets 292,700 396,528 244,842 157,291 41,670 Total debt 2,596 3,494 — — 4,996 Long-term obligations 41,430 54,914 9,261 639 804 Total liabilities 74,561 86,227 49,897 50,601 58,654 Redeemable convertible preferred stock — — — — 89,404 Total stockholders' equity (deficit) 218,139 310,301 194,945 106,690 (106,388 ) Results of Operations This section generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
Biggest changeYear Ended December 31, 2023 2022 2021 2020 2019 Consolidated Statements of Operations: (in thousands, except share and per share data) Revenue $ 73,481 $ 65,047 $ 85,494 $ 78,648 $ 65,207 Costs and expenses Cost of revenue 55,273 51,697 53,837 58,534 43,127 Research and development 64,776 64,912 49,312 28,568 22,418 Selling, general and administrative 49,726 63,969 47,698 33,692 22,080 Lease impairment 5,565 — — — — Restructuring and other charges 8,077 — — — — Total costs and expenses 183,417 180,578 150,847 120,794 87,625 Loss from operations (109,936 ) (115,531 ) (65,353 ) (42,146 ) (22,418 ) Interest income 5,901 2,396 367 949 1,620 Interest expense (110 ) (201 ) (184 ) (2 ) (1,133 ) Loss on debt extinguishment — — — — (1,704 ) Other income (expense), net (4,068 ) 61 (42 ) (24 ) (1,440 ) Loss before income taxes (108,213 ) (113,275 ) (65,212 ) (41,223 ) (25,075 ) Provision for income taxes 83 40 14 57 9 Net loss $ (108,296 ) $ (113,315 ) $ (65,226 ) $ (41,280 ) $ (25,084 ) Net loss per share, basic and diluted $ (2.25 ) $ (2.48 ) $ (1.49 ) $ (1.20 ) $ (1.39 ) Weighted-average shares outstanding, basic and diluted 48,175,201 45,704,805 43,886,730 34,374,903 18,011,470 December 31, 2023 2022 2021 2020 2019 (in thousands) Cash and cash equivalents, and short-term investments $ 114,179 $ 167,658 $ 287,064 $ 203,290 $ 128,289 Working capital 99,510 166,568 286,918 180,083 89,616 Total assets 225,099 292,700 396,528 244,842 157,291 Total debt 2,880 2,596 3,494 — — Long-term obligations 48,424 41,430 54,914 9,261 639 Total liabilities 95,658 74,561 86,227 49,897 50,601 Total stockholders' equity 129,441 218,139 310,301 194,945 106,690 Results of Operations This section generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
If the key opinion leaders ("KOLs") we are collaborating with have a positive experience using our platform, we are optimistic this will support broader use of our platform by other KOLS, as well as clinicians in the future. Our work in oncology is underpinned by our experience and capacity for next-generation sequencing at scale.
If the key opinion leaders ("KOLs") we are collaborating with have a positive experience using our products, we are optimistic this will support broader use of our products by other KOLs, as well as clinicians in the future. Our work in oncology is underpinned by our experience and capacity for next-generation sequencing at scale.
Accessing these new customers through scientific engagement and marketing to gain initial buy-in is critical to our success and gives us the opportunity to demonstrate the utility of our platform. • Our revenue and cost are affected by the volume of samples we receive from customers from period to period.
Accessing these new customers through scientific engagement and marketing to gain initial buy-in is critical to our success and gives us the opportunity to demonstrate the utility of our products. • Our revenue and cost are affected by the volume of samples we receive from customers from period to period.
We currently have no history or expectation of paying cash dividends on our common stock. • Risk-Free Interest Rate —The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the award.
We currently have no history or expectation of paying cash dividends on our common stock. • Risk-Free Interest Rate —The risk-free interest rate is based on the yield available on U.S. Treasury zero-coupon issues similar in duration to the expected term of the warrants.
Because our technology is novel, some customers begin using our platform by initiating pilot studies involving a small number of samples to gain experience with our service. As a result, historically a significant portion of our revenue has come from existing customers.
Because our technology is novel, some customers begin using our products by initiating pilot studies involving a small number of samples to gain experience with our service. As a result, historically a significant portion of our revenue has come from existing customers.
In September 2022, the lease commencement date for our new facility in Fremont, California was delayed from the original intended date due to delays in the completion of the work necessary for the Company to move into the facility, which resulted in a reassessment of the lease term and consequently a remeasurement of the lease liability and corresponding adjustment to the carrying amount of the right-of-use asset based on the updated incremental borrowing rate.
In September 2022, the lease commencement date for our new facility in Fremont, California was delayed from the original intended date due to delays in the completion of the work necessary for us to move into the facility, which resulted in a reassessment of the lease term and consequently a remeasurement of the lease liability and corresponding adjustment to the carrying amount of the right-of-use asset based on an updated incremental borrowing rate.
The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. Additional capital may not be available on reasonable terms, or at all. 68 Table of Contents Our short-term investments portfolio is primarily invested in highly rated securities, with the primary objective of minimizing the potential risk of principal loss.
The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations. Additional capital may not be available on reasonable terms, or at all. Our short-term investments portfolio is primarily invested in highly rated securities, with the primary objective of minimizing the potential risk of principal loss.
Most of our revenue to date has been derived from sales in the United States. 64 Table of Contents Costs and Expenses Cost of Revenue Cost of revenue consists of raw materials costs, personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits), laboratory supplies and consumables, depreciation and maintenance on equipment, and allocated facilities and information technology (“IT”) costs.
Most of our revenue to date has been derived from sales in the United States. Costs and Expenses Cost of Revenue Cost of revenue consists of raw materials costs, personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits), laboratory supplies and consumables, depreciation and maintenance on equipment, and allocated facilities and information technology (“IT”) costs.
Revenue from our partnership with Natera to provide advanced tumor analysis for use in Natera's MRD testing offerings currently makes up substantially all of the revenue in this category. • Population sequencing includes sales of genomic sequencing services and data analytics to support large-scale genetic research programs.
Revenue from our partnership with Natera to provide advanced tumor analysis for use in Natera's MRD test currently makes up substantially all of the revenue in this category. • Population sequencing includes sales of genomic sequencing services and data analytics to support large-scale genetic research programs.
As a result, these discounts do not constitute a material right and do not meet the definition of a separate performance obligation, except in limited instances. We do not offer retrospective discounts or rebates. Accordingly, all of the transaction price, net of any discounts, is allocated to one performance obligation.
As a result, these discounts do not constitute a material right and do not meet the definition of a separate performance obligation, except in limited instances. We do not offer retrospective discounts or rebates. 63 Table of Contents Accordingly, all of the transaction price, net of any discounts, is allocated to one performance obligation.
Our publications, posters and presentations at scientific conferences lead to engagement at the scientific level with potential customers who often make the initial decision to gain experience with our platform.
Our publications, posters and presentations at scientific conferences lead to engagement at the scientific level with potential customers who often make the initial decision to gain experience with our products.
Our performance depends on the willingness of pharmaceutical companies, enterprise customers, and oncologists to continue to seek more comprehensive molecular information to develop more efficacious cancer therapies. 63 Table of Contents • Increasing adoption of our products and solutions by existing customers. Our performance depends on our ability to retain and broaden adoption with existing customers.
Our performance depends on the willingness of pharmaceutical companies, enterprise customers, and oncologists to continue to seek more comprehensive molecular information to develop more efficacious cancer therapies. • Increasing adoption of our products and solutions by existing customers. Our performance depends on our ability to retain and broaden adoption with existing customers.
However, we generally do not have binding and enforceable purchase orders beyond the short term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project. We currently expect spend in this area to increase in 2023 to support expected higher levels of revenue. Operating expenditures .
However, we generally do not have binding and enforceable purchase orders beyond the short term, and the timing and magnitude of purchase orders beyond such period is difficult to accurately project. We currently expect spending in this area to increase in 2024 relative to 2023 to support expected higher levels of revenue. Operating expenditures .
We have the capacity to sequence and analyze approximately 200 trillion bases of DNA per week in our facility. We believe that our capacity is already larger than most cancer genomics companies, and we continue to build automation and other infrastructure to scale further as demand increases.
We have the capacity to sequence and analyze over 300 trillion bases of DNA per week in our facility. We believe that our capacity is already larger than most cancer genomics companies, and we continue to build automation and other infrastructure to scale further as demand increases.
We believe that the assumptions and estimates associated with revenue recognition, stock-based compensation, and leases have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. Revenue Recognition We generate our revenue from selling sequencing and data analysis services.
We believe that the assumptions and estimates associated with revenue recognition, leases, and common stock warrants have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates. Revenue Recognition We generate our revenue from selling sequencing and data analysis services.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021, which is incorporated by reference herein.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 , filed with the SEC on February 23, 2023, which is incorporated by reference herein.
Components of Operating Results Revenue We derive our revenue primarily from sales of advanced sequencing and analytics to the following four groups of customers: • Pharma tests and services includes sales of testing services and data analytics for clinical trials and research to pharmaceutical companies in support of their drug development programs. • Enterprise sales includes sales of tumor profiling and diagnostic tests directly to other businesses as an input to their products.
Components of Operating Results Revenue We derive our revenue from sales of advanced sequencing and analytics to the following four customer types: • Pharma tests and services includes sales of testing services and data analytics for clinical trials and research to pharmaceutical companies in support of their drug development programs. • Enterprise sales includes sales of tumor profiling and diagnostic tests directly to another business as an input to their products.
As part of one of our new strategies for 2023 and beyond, we are working with a growing number of leading cancer centers and world-class academic research institutions to build and publish the clinical evidence-base to support our products and our key indications.
As part of one of our new strategies for 2023 and beyond, we are working with a growing number of leading cancer centers and world-class academic research institutions to build and publish the clinical evidence-base to support our products and our key indications, as well as to obtain reimbursement coverage from Medicare and other payors.
Revenue from our partnership with the VA MVP to provide population sequencing accounts for all of the revenue in this category. • Other includes sales of genomic tests and analytics to universities and non-profits. This category also includes sales of diagnostics tests ordered by healthcare providers for cancer patients, which was insignificant in 2022.
All of the revenue in this category is from our partnership with the VA MVP. • Other includes sales of genomic tests and analytics to universities and non-profits. This category also includes sales of diagnostics tests ordered by healthcare providers for cancer patients, which was insignificant for periods presented.
We plan to fund our material cash requirements with our existing cash and cash equivalents and short-term investments, which amounted to $167.7 million as of December 31, 2022, as well as anticipated cash receipts from customers.
We plan to fund our material cash requirements with our existing cash and cash equivalents and short-term investments, which amounted to $114.2 million as of December 31, 2023, as well as anticipated cash receipts from customers.
Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Other Income (Expense), Net Other income (expense), net consists primarily of foreign currency exchange gains and losses, and realized gains or losses associated with sales of marketable securities. 65 Table of Contents Trend Financial Information The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the notes thereto in Item 8 of Part II, “Financial Statements and Supplementary Data”.
Otherwise, other income (expense), net consists primarily of foreign currency exchange gains and losses. 58 Table of Contents Trend Financial Information The following selected consolidated financial data should be read in conjunction with the consolidated financial statements and the notes thereto in Item 8 of Part II, “Financial Statements and Supplementary Data”.
Our primary use of cash relates to paying employees, spend on professional services, spend related to research and development projects, and other costs related to our research and development, selling, general and administrative functions. We currently expect to decrease our spend in these areas as a result of our first quarter 2023 workforce reduction.
Our primary use of cash relates to employee compensation, spend on professional services, spend related to research and development projects, and other costs related to our research and development, selling, general and administrative functions. We currently expect to decrease our spend in these areas as a result of our workforce reductions initiated in 2023.
Our ability to increase revenue will depend on our ability to further increase sales to these groups of customers and expand our customer base within each group.
Our ability to increase revenue will depend on our ability to further increase sales to these groups of customers, expand our customer base within each group, and expand our business in the clinical diagnostics market.
These expenses consist of personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits), corporate insurance, audit and legal expenses, consulting costs, and allocated facilities and IT costs. We expense all selling, general and administrative costs as incurred.
Our general and administrative expenses include costs for our executive, accounting, finance, legal, and human resources functions. These expenses consist of personnel costs (salaries, bonuses, stock-based compensation, payroll taxes, and benefits), corporate insurance, audit and legal expenses, consulting costs, and allocated facilities and IT costs. We expense all selling, general and administrative costs as incurred.
Investment in research and development, including the development of new products and capabilities is critical to establish and maintain our leading position. We have invested significantly in our NeXT Platform, introducing new products and additional capabilities.
Investment in research and development, including the development of new products and capabilities is critical to establish and maintain our leading position. We have invested significantly in our NeXT platform, introducing new products and additional capabilities. We are also collaborating with KOLs to support the clinical utility of our products.
Actual results may differ from these estimates under different assumptions or conditions. 69 Table of Contents An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements.
An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements.
We expect cost of revenue to increase as our revenue grows. We expect variability in our gross margins over the medium term due to fluctuating population sequencing revenue, investments in new capabilities such as automation of laboratory workflows, processing of diagnostic tests for the clinical market while we work to secure reimbursement, and costs related to our new Fremont facility.
We expect variability in our gross margins over the medium-term due to fluctuations in customer mix and volume, investments in newer sequencing platforms and new capabilities such as automation of laboratory workflows, processing of diagnostic tests for the clinical market while we work to secure reimbursement, and costs related to our new Fremont facility.
Our investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. As of December 31, 2022, cash and cash equivalents held by foreign subsidiaries was $0.7 million.
Our investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. As of December 31, 2023, cash and cash equivalents held by foreign subsidiaries was $1.2 million, most of which was held by our China subsidiary.
Revenue The following table shows revenue by customer type (in thousands): Years Ended December 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Pharma tests and services $ 29,552 $ 30,282 $ 21,396 (2%) 42% Enterprise sales 26,641 8,774 479 204% 1,732% Population sequencing 8,443 45,671 56,154 (82%) (19%) Other 411 767 619 (46%) 24% Total revenue $ 65,047 $ 85,494 $ 78,648 (24%) 9% The following table shows customers that made up at least 10% of total revenue in each year presented: Year Ended December 31, 2022 2021 2020 Natera, Inc. 41% 10% * VA MVP 13% 53% 71% Merck & Co., Inc. 11% * * * Less than 10% of revenue 66 Table of Contents Pharma tests and services Revenue from pharma tests and services decreased 2%, or $0.7 million, in 2022.
Revenue The following table shows revenue by customer type (in thousands): Years Ended December 31, Change 2023 2022 2021 2023 vs 2022 2022 vs 2021 Pharma tests and services $ 31,904 $ 29,552 $ 30,282 8% (2%) Enterprise sales 31,729 26,641 8,774 19% 204% Population sequencing 9,412 8,443 45,671 11% (82%) Other 436 411 767 6% (46%) Total revenue $ 73,481 $ 65,047 $ 85,494 13% (24%) 59 Table of Contents The following table shows customers that made up at least 10% of total revenue in each year presented: Year Ended December 31, 2023 2022 2021 Natera, Inc. 43% 41% 10% VA MVP 13% 13% 53% Merck & Co., Inc. * 11% * * Less than 10% of revenue Pharma tests and services Revenue from pharma tests and services increased 8%, or $2.4 million, in 2023.
Incremental Borrowing Rate Lease liabilities are recognized at the present value of the fixed lease payments, reduced by landlord incentives, using a discount rate based on the Company’s current borrowing rate at the lease commencement date (the incremental borrowing rate), unless the rate implicit in the lease is readily determinable.
Therefore, upon delivery of the services, there are no remaining performance obligations. Leases Lease liabilities are recognized at the present value of the fixed lease payments, reduced by landlord incentives, using a discount rate based on our current borrowing rate at the lease commencement date (the incremental borrowing rate), unless the rate implicit in the lease is readily determinable.
Interest Income, Interest Expense and Other Expense, Net Year Ended December 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 (in thousands) Interest income $ 2,396 $ 367 $ 949 553% (61%) Interest expense (201 ) (184 ) (2 ) 9% NM Other income (expense), net 61 (42 ) (24 ) NM 75% Total $ 2,256 $ 141 $ 923 Interest income and interest expense The increase in interest income in 2022 was due to increased yields on our investments.
Interest Income, Interest Expense and Other Income (Expense), Net Year Ended December 31, Change 2023 2022 2021 2023 vs 2022 2022 vs 2021 (in thousands) Interest income $ 5,901 $ 2,396 $ 367 146% 553% Interest expense (110 ) (201 ) (184 ) (45%) 9% Other income (expense), net (4,068 ) 61 (42 ) NM NM Total $ 1,723 $ 2,256 $ 141 Interest income and interest expense The increase in interest income was due to increased yields on our investments.
Factors Affecting Our Performance We believe there are several important factors that have impacted, and that we expect will continue to impact, our operating performance and results of operations, including: • The continued development of the market for genomic-based tests.
Continued efforts to reduce expenses across the board. 56 Table of Contents Factors Affecting Our Performance We believe there are several important factors that we expect to impact our operating performance and results of operations, including: • The continued development of the market for genomic-based tests.
Our advanced genomic sequencing and analytics also support the development of personalized cancer vaccines and other next-generation cancer immunotherapies. For example, we are providing genomic testing to Moderna in its ongoing clinical trials evaluating a personalized cancer vaccine. In addition, we partner with diagnostics companies by providing our advanced tumor profiling and analysis capabilities as an input to their products.
Our advanced genomic sequencing and analytics also support the development of personalized cancer vaccines and other next-generation cancer immunotherapies. For example, we are providing genomic testing to Moderna, Inc. ("Moderna") in its ongoing clinical trials evaluating a personalized cancer vaccine.
Going forward, our capital expenditures are expected to consist primarily of laboratory equipment and computer equipment. We currently expect capital expenditures to be between $4 million to $6 million in each of the years 2023, 2024, and 2025. Property leases . Our noncancelable operating lease payments were $83.8 million as of December 31, 2022.
We currently expect capital expenditures to be approximately $1 million in 2024 and between $4 million to $6 million in each of the years 2025 and 2026. Property leases . Our noncancelable operating lease payments were $78.6 million as of December 31, 2023.
As of December 31, 2022, we had cash and cash equivalents in the amount of $89.1 million and short-term investments in the amount of $78.5 million. We have incurred net losses since our inception.
As of December 31, 2023, we had cash and cash equivalents of $57.0 million and short-term investments of $57.2 million. We have incurred net losses since our inception.
More recently, we launched new diagnostic offerings for the clinical setting and are preparing for future expansion in the clinical diagnostics market. Finally, we have also pursued non-cancer related business opportunities, specifically within the population sequencing market, by providing whole genome sequencing ("WGS") services under contract with the U.S. Department of Veterans Affairs Million Veteran Program ("VA MVP").
(formerly known as Tempus Labs, Inc., and referred to herein as "Tempus") to commercialize NeXT Personal Dx in the clinical diagnostics market. Finally, we have also pursued non-cancer related business opportunities, specifically within the population sequencing market, by providing whole genome sequencing ("WGS") services under contract with the U.S. Department of Veterans Affairs Million Veteran Program ("VA MVP").
To do this, we are developing a growing set of state-of-the-art services and products, advancing our operational infrastructure, building our regulatory credentials, focusing our marketing efforts on large pharmaceutical companies, and seeking additional partnerships such as ours with Natera. We sell through a small direct sales force.
To do this, we are developing a growing set of state-of-the-art services and products; advancing our operational infrastructure; building our regulatory credentials; focusing our marketing efforts on large pharmaceutical companies; building and publishing the clinical evidence-base to support our products and our key indications, as well as to obtain reimbursement coverage from Medicare and other payors; and seeking additional partnerships such 57 Table of Contents as ours with Natera.
Liquidity and Capital Resources The following tables present selected financial information and cash flow information (in thousands): December 31, 2022 2021 2020 Cash and cash equivalents, and short-term investments $ 167,658 $ 287,064 $ 203,290 Property and equipment, net 61,935 19,650 11,834 Contract liabilities 1,264 3,982 21,034 Working capital 166,568 286,918 180,083 Year Ended December 31, 2022 2021 2020 Net cash used in operating activities $ (70,233 ) $ (70,828 ) $ (42,653 ) Net cash used in investing activities 52,537 (60,069 ) (65,143 ) Net cash provided by financing activities 1,366 169,700 121,268 From our inception through December 31, 2022, we have funded our operations primarily from $279.0 million in net proceeds from our follow-on equity offerings in August 2020 and January 2021, $144.0 million in net proceeds from our IPO in June 2019, and $89.6 million from issuance of redeemable convertible preferred stock, as well as cash from operations and debt financings.
Liquidity and Capital Resources The following table presents selected financial information (in thousands): December 31, 2023 2022 2021 Cash and cash equivalents, and short-term investments $ 114,179 $ 167,658 $ 287,064 Property and equipment, net 57,366 61,935 19,650 Contract liabilities 7,216 1,264 3,982 Working capital 99,510 166,568 286,918 From our inception through December 31, 2023, we have funded our operations primarily from $279.0 million in net proceeds from our follow-on equity offerings in August 2020 and January 2021, $144.0 million in net proceeds from our IPO in June 2019, $89.6 million from issuance of redeemable convertible preferred stock, $3.5 million in net proceeds from our ATM facility (see Note 2, Summary of Significant Accounting Policies), as well as cash from operations and debt financings.
Further discussion of these transactions can be found in Part I, Item 1 of this Annual Report on Form 10-K in the Notes to Consolidated Financial Statements in Note 6, Loans. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP.
We will make a payment of $0.4 million in September 2024 to pay off this loan. Further discussion of this loan can be found in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 6, “Loans.” Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. GAAP.
The increase in our estimated borrowing rate between August 2021 and September 2022 mostly reflects the higher interest rate environment in 2022 as compared to 2021. Recent Accounting Pronouncements See the sections titled “Summary of Significant Accounting Policies—Recent Accounting Pronouncements” and “—Recent Accounting Pronouncements Not Yet Adopted” in Note 2 to our consolidated financial statements for additional information.
Recent Accounting Pronouncements See the sections titled “Summary of Significant Accounting Policies—Recent Accounting Pronouncements” in Note 2 to our consolidated financial statements for additional information.
The timing of these future payments, by year, can be found in Part II, Item 8 of this Annual Report on Form 10-K in the Notes to Consolidated Financial Statements in Note 7, Leases. Other .
The timing of these future payments, by year, can be found in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements in Note 7, “Leases.” Other . As of December 31, 2023, we have an outstanding noninterest bearing loan that was used to finance the purchase of equipment for our laboratory.
We have invested significantly in our sample processing capabilities and commercial infrastructure. With our current operating model and infrastructure, we can increase our production and commercialize new generations of our platform. We expect to grow our revenue and spread our costs over a larger volume of services.
We believe this work is critical to gaining customer adoption and expect our investments in these efforts to continue. • Leverage our operational infrastructure. We have invested significantly in our sample processing capabilities and commercial infrastructure. With our current operating model and infrastructure, we can increase our production and commercialize new generations of our products.
Selling, General and Administrative Expenses Selling expenses consist of personnel costs (salaries, commissions, bonuses, stock-based compensation, payroll taxes, and benefits), customer support expenses, direct marketing expenses, and market research. Our general and administrative expenses include costs for our executive, accounting, finance, legal, and human resources functions.
We expect research and development expenses to decrease as a result of our reductions in workforce initiated in 2023 and our closure of operations in China. Selling, General and Administrative Expenses Selling expenses consist of personnel costs (salaries, commissions, bonuses, stock-based compensation, payroll taxes, and benefits), customer support expenses, direct marketing expenses, and market research.
On a long-term basis, we manage future cash requirements relative to our long-term business plans. Capital expenditures . Capital expenditures are expected to decrease significantly after 2022 as we have substantially completed the one-time build-out of our new headquarters and laboratory facility in Fremont, California as of the end of 2022.
On a long-term basis, we manage future cash requirements relative to our long-term business plans. Capital expenditures . Capital expenditures are expected to decrease from 2023 levels as we have completed significant laboratory capacity additions. Going forward, our capital expenditures are expected to consist primarily of laboratory equipment and computer equipment.
We filed a prospectus supplement in January 2022 pursuant to which we could offer and sell additional shares of our common stock up to an aggregate amount of $100.0 million through an at-the-market offering program.
We filed a sales agreement prospectus in December 2023 pursuant to which we may offer and sell up to $50.0 million of shares of our common stock through our ATM facility.
Our products are designed to detect recurrence at the earliest timepoints, enable selection of targeted therapies based on ultra-comprehensive genomic profiling, and enhance biomarker strategy for drug development. Today, our platforms are routinely used by many of the largest oncology-focused pharmaceutical companies for analysis of patient samples in their clinical trials and drug development programs.
Our advanced tests are used by physicians to detect cancer recurrence, monitor cancer evolution, and uncover insights for therapy selection. We also provide sequencing and data analysis services to support population sequencing initiatives. Today, our products are routinely used by many of the largest oncology-focused pharmaceutical companies for analysis of patient samples in their clinical trials and drug development programs.
The number of samples processed increased over 300% in 2022 as compared to 2021. Population sequencing Population sequencing revenue is made up entirely of sales to the VA MVP.
Population sequencing Population sequencing revenue is made up entirely of sales to the VA MVP. The increase in revenue was driven by an increase in samples we tested, which offset a nearly 50% reduction in selling prices in 2023 as compared to 2022.
During 2022, cash provided by investing activities was $52.5 million due to $102.4 million of net proceeds from short-term investments partially offset by $49.9 million in property and equipment purchases.
The $39.4 million decrease in cash provided by investing activities during 2023 as compared to 2022 was due to significantly lower net proceeds from short-term investment maturities, partially offset by a $39.0 million reduction in capital expenditures.
Costs and Expenses Year Ended December 31, Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 (in thousands) Cost of revenue $ 51,697 $ 53,837 $ 58,534 (4%) (8%) Research and development 64,912 49,312 28,568 32% 73% Selling, general and administrative 63,969 47,698 33,692 34% 42% Total costs and expenses $ 180,578 $ 150,847 $ 120,794 20% 25% Cost of revenue The decrease in cost of revenue of 4%, or $2.1 million, in 2022 was primarily due to lower revenue levels but also improved contribution margins due to customer mix (non-population sequencing sales generally have higher contribution margins), partially offset by higher fixed laboratory costs and indirect supplies costs (enterprise and pharma customer orders require more supplies to process as compared to population sequencing orders).
Costs and Expenses Year Ended December 31, Change 2023 2022 2021 2023 vs 2022 2022 vs 2021 (in thousands) Cost of revenue $ 55,273 $ 51,697 $ 53,837 7% (4%) Research and development 64,776 64,912 49,312 (0%) 32% Selling, general and administrative 49,726 63,969 47,698 (22%) 34% Lease impairment 5,565 — — NM NM Restructuring and other charges 8,077 — — NM NM Total costs and expenses $ 183,417 $ 180,578 $ 150,847 2% 20% Cost of revenue The increase in cost of revenue of 7%, or $3.6 million, was primarily due to higher revenue levels (revenue increased 13% over the same period), partially offset by dedication of more laboratory resources to support sample processing required for clinical evidence generation, which is a non-revenue generating activity and thus reported as R&D expense.
Interest expense in 2022 and 2021 is the recognition of imputed interest on noninterest bearing loans. Other income (expense), net Other income (expense), net consisted mainly of foreign currency remeasurements.
Interest expense is the recognition of imputed interest on noninterest bearing loans. Other Income (Expense), Net Other income (expense), net consists primarily of charges related to the issuance and remeasurement of warrants to Tempus during the year ended December 31, 2023.
We also anticipate increasing our revenue in the future through entrance into the clinical diagnostics market and have begun building our regulatory, clinical, and reimbursement capabilities, including hiring a national clinical sales force. We have one reportable segment from the sale of sequencing and data analysis services.
We sell through a small direct sales force. In late 2023, we entered into an agreement with Tempus to commercialize NeXT Personal Dx in the clinical diagnostics market and will be leveraging Tempus' significantly larger sales force. We have one reportable segment from the sale of sequencing and data analysis services.
As of December, 2022, we had three noninterest bearing loans to finance the purchase of $6.9 million of computer hardware, internal use software licenses, and related ongoing support. In connection with the loans, we made payments of $2.3 million in 2022. Remaining payments of $2.3 million and $0.4 million due in 2023 and 2024, respectively.
We owe a total of $2.5 million, with half of that amount owed in 2024 and the other half in 2025. Additionally, we had an outstanding noninterest bearing loan that was used to finance the purchase of internal use software licenses and related ongoing support.
We expect our selling, general and administrative expenses to decrease significantly in the medium term as a result of the 2023 reduction in workforce, partially offset by investments in our diagnostic sales outreach efforts. Interest Income and Interest Expense Interest income consists primarily of interest earned on our cash and cash equivalents and short-term investments.
Restructuring and Other Charges Restructuring and other charges consists of charges in connection with our two reductions in workforce initiated in 2023 and charges in connection with the closure of our China operations. Interest Income and Interest Expense Interest income consists primarily of interest earned on our cash and cash equivalents and short-term investments.
Specifically, because of the high sensitivity of our technology, we aim to focus on three indications in the next 2-3 years: immunotherapy (IO) monitoring, breast cancer, and lung cancer. We have announced collaborations with BC Cancer, Duke University, UCSF, Criterium, and Academic Breast Cancer Consortium that will focus on building the evidence-base for our technology and these indications.
We have collaborations with Cancer Research UK, University College London, and the Francis Crick Institute (the TRACERx study); The Royal Marsden; the Vall d'Hebron Institute of Oncology (VHIO); Duke University; the Dana-Farber Cancer Institute; University Medical Center Hamburg-Eppendorf (also known as UKE); and Criterium and the Academic Breast Cancer Consortium that will focus on building the evidence-base for our technology and these indications.
Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. • Expected Term —The expected term assumption represents the weighted-average period that the stock-based awards are expected to be outstanding.
Changes in the assumptions can materially affect the fair value and ultimately how much other income (or expense) is recognized.
Material Cash Requirements Our material cash requirements in the short- and long-term consist primarily of variable costs of revenue, operating expenditures, capital expenditures, property leases, and other.
The $9.7 million increase in cash provided by financing activities during 2023 as compared to 2022 was driven by $6 million in proceeds from issuance of warrants to Tempus and $3.5 million in net proceeds from sales of common stock under our ATM facility, both of which did not occur during 2022. 62 Table of Contents Material Cash Requirements Our material cash requirements in the short- and long-term consist primarily of variable costs of revenue, operating expenditures, capital expenditures, property leases, and other.
Revenue from pharma tests, enterprise, and other customers was $56.6 million in 2022 compared to $39.8 million in 2021, an increase of 42%, driven by higher sales to Natera under our partnership to provide advanced tumor analysis for use in Natera's MRD testing offerings.
Revenue from enterprise sales was $31.7 million in 2023 compared to $26.6 million in 2022, an increase of 19%. Revenue from pharma tests was $31.9 million in 2023 compared to $29.6 million in 2022, an increase of 8%.
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Overview We strive to develop some of the most comprehensive and actionable cancer genomic tests in the world to help patients live better and longer lives.
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Overview We develop and market advanced cancer genomic tests and analytics. Our tests and analytics are used by pharmaceutical companies for translational research, biomarker discovery, the development of personalized cancer therapies, and we expect in the near future, for clinical trial enrollment.
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We believe we have one of the most discerning technologies to both characterize and monitor cancer – with the aim of driving a new paradigm for cancer management and guiding care from biopsy through the life of the patient. Our assays combine tumor-and-normal profiling with proprietary algorithms to deliver advanced insights even as cancer evolves over time.
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In addition, we partner with diagnostics companies by providing our advanced tumor profiling and analysis capabilities as an input to their products. More recently, we launched new diagnostic offerings for the clinical setting and, in November 2023, entered into an agreement with Tempus AI, Inc.
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To date, we have sequenced more than 300,000 human samples, of which more than 160,000 were whole human genomes. In October 2022, we relocated our corporate headquarters from Menlo Park, California to a new facility in Fremont, California.
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Because of the ultra-high analytical sensitivity of our technology, we are initially focusing on three indications: breast cancer, lung cancer, and immunotherapy (IO) monitoring.
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We signed a 13.5-year lease that extends to 2036 for the 100,000 square foot facility, which is approximately triple the amount of space than our Menlo Park location. The new facility allows for expansion of our laboratory for testing to support pharmaceutical customers and clinical diagnostic testing.
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To date, we have sequenced more than 385,000 human samples, of which more than 175,000 were whole human genomes. 2023 Highlights Total revenue increased 13%, or $8.4 million, during 2023 compared to 2022, primarily driven by higher revenue from enterprise sales and pharma tests.
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In addition, the new space is intended to support the expansion of research and development efforts to bring leading edge products and services to the marketplace.
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Key business accomplishments and financial updates in 2023 and early 2024 include: • Received Medicare coverage for NeXT Dx. • Amended Natera agreement to extend volume commitments through the end of 2024. • Signed key partnership agreement with Tempus to commercialize NeXT Personal Dx in clinics or with oncologists. • Established a partnership with Myriad to market ImmunoID NeXT. • Completed the NeXT Personal Dx (LDT) early access launch. • Presented compelling early-stage lung cancer clinical MRD data with TRACERx for NeXT Personal. • Signed commercial agreement with Moderna to leverage NeXT platform in personalized mRNA cancer vaccine clinical trials. • Reduced cash burn through headcount reduction of nearly 50%, resulting in an estimated $35 million in annual cost savings.
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Our Menlo Park office currently continues to house our Clinical Laboratory Improvement Amendments of 1988 (“CLIA”)-certified and College of American Pathologists (“CAP”)-accredited laboratory and we expect to move our laboratory operations from Menlo Park to the new facility in 2023. 2022 Highlights Total revenue decreased 24%, or $20.4 million, during 2022 compared to 2021, due primarily to expected lower population sequencing revenue from the VA MVP.
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We expect to grow our revenue and spread our costs over a larger volume of services.
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Revenue from population sequencing was $8.4 million in 2022 compared to $45.7 million in 2021, due to a reduction in the value of annual task orders received from the VA MVP in the past two years. We announce new product offerings, business developments, and research collaborations at various times during the year.
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Selling, general and administrative expenses have decreased significantly since the completion of our first quarter 2023 reduction in workforce. We expect expenses to remain around this lower level over the next couple of years.
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Significant announcements during 2022 included the following: First Quarter 2022: • Received our first customer order for NeXT Personal from a large global pharmaceutical customer and processed samples for initial order. • Announced a collaboration with the Moores Cancer Center at UC San Diego Health, a National Cancer Institute-designated Comprehensive Cancer Center, to support clinical diagnostic testing in patients with advanced solid tumors and hematological malignancies. 62 Table of Contents Second Quarter 2022: • Received a new US patent relating to NeXT Personal, signifying its unique place among MRD assays as it combines a highly sensitive measurement of tumor burden with the ability to simultaneously track thousands of tumor variants, both tumor-informed and prespecified, in a single panel.
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Lease Impairment We recognized an impairment loss for operating lease right-of-use assets as a result of the change in use of our Menlo Park facility during the third quarter of 2023.
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Third Quarter 2022: • Launched a research collaboration with BC Cancer using NeXT Personal to determine the optimal time for ctDNA sampling for MRD detection in colorectal and pancreatic cancers, with the aim of identifying cancer progression before current standard of care tests. • Announced a research collaboration with Duke University, deploying NeXT Personal to profile and accurately track MRD in patients with advanced gastroesophageal cancer over the course of therapy with the aim of better predicting a patient’s immune response to therapy. • Added two additional patents to our MRD-related IP portfolio, both with priority to January 2013; the new patents describe the detection of cancer and its recurrence by using WGS of a patient’s tumor to identify variants for a subsequently used personalized liquid biopsy assay as well as the design of the liquid biopsy assay. • Appointed Christopher Hall as SVP (subsequently promoted to President) who will lead the company’s diagnostic business, bringing 20 years of experience including leading the commercial organization at Veracyte and growing its business to nearly $100M in diagnostic revenue. • Launched marketing and sales outreach to oncologists to begin generating demand for NeXT Dx, the company’s tissue-based clinical test that covers the whole exome and transcriptome and assesses genomic alterations in matched tumor and normal specimens to report variants and help oncologists with decision-making for therapy selection. • Won an exclusive five-year contract and received the initial order from the VA MVP.
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Growth from new customers drove the revenue increase. Notably, three customers that were either new in 2023 or 2022, accounted for an increase of $3.8 million in revenue as these customers selected our advanced genomic tests for their clinical trials and research projects. Additionally, revenue from one of our customers developing personalized cancer therapies increased by $2.3 million.
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Fourth Quarter 2022: • Initiated a research collaboration with University Medical Center Hamburg-Eppendorf ("UKE") and its new Fleur-Hiege Center for Skin Cancer Research, where Dr. Klaus Pantel, Dr.
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Those increases were partially offset by decreases in revenue from multiple customers due to non-recurring projects and variability in timing and spending levels on clinical trial projects in general. Enterprise sales Revenue from enterprise sales increased 19%, or $5.1 million, in 2023.
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Christoffer Gebhardt, and team are using NeXT Personal to track tumor response to immunotherapy ("IO") in patients with melanoma, with the aim of gathering evidence to advance the use of ultra-sensitive MRD detection in routine clinical practice for IO therapy monitoring.
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This was due to an increase in the volume of samples we tested for Natera, partially offset by lower selling prices. The number of samples we processed for Natera increased by over 55% in 2023. We amended our agreement with Natera during the fourth quarter of 2023 to extend minimum volume commitments through the end of 2024.

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