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What changed in RAPID MICRO BIOSYSTEMS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of RAPID MICRO BIOSYSTEMS, 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.

+438 added−585 removedSource: 10-K (2024-03-01) vs 10-K (2023-03-10)

Top changes in RAPID MICRO BIOSYSTEMS, INC.'s 2023 10-K

438 paragraphs added · 585 removed · 347 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

106 edited+18 added−46 removed76 unchanged
Biggest changeThe overall workflow of the automated Growth Direct method mirrors the traditional visual plate counting assays, allowing for operator familiarity of use, ease of integration into existing MQC protocols, and a streamlined regulatory validation process. 12 Table of Contents Growth Direct system components The Growth Direct workflow begins when microbial organisms are collected on proprietary growth media plates using the same collection methods as the traditional method—via direct contact, air settling or air filtration for environmental monitoring testing, or via funnel filtration of liquid samples onto the membrane of the consumable for water or bioburden testing.
Biggest changeThe overall workflow of the automated Growth Direct method mirrors traditional visual plate counting assays, allowing for operator familiarity of use, ease of integration into existing MQC protocols, and a streamlined regulatory validation process.
Overview We are an innovative life sciences technology company providing mission critical automation solutions to facilitate the efficient manufacturing and fast, safe release of healthcare products such as biologics, vaccines, cell and gene therapies, and sterile injectables.
Overview We are an innovative life sciences technology company providing mission critical automation solutions to facilitate the efficient manufacturing and fast, safe release of healthcare products such as biologics and cell and gene therapies, vaccines, and sterile injectables.
Our platform delivers the robust and scalable automation necessary to support rapidly expanding demand for novel and complex therapeutic modalities, such as biologics, vaccines, cell and gene therapies, and sterile injectables.
Our platform delivers the robust and scalable automation necessary to support rapidly expanding demand for novel and complex therapeutic modalities, such as biologics and cell and gene therapies, vaccines, and sterile injectables.
We seek to establish Growth Direct as the trusted global standard in automated MQC by delivering the speed, accuracy, security, and data integrity and regulatory compliance that our customers depend on to ensure patient safety and consistent drug supply.
We seek to establish Growth Direct as the trusted global standard in automated MQC by delivering the speed, accuracy, security, data integrity and regulatory compliance that our customers depend on to ensure patient safety and consistent drug supply.
Two bar codes are used—one applied during our manufacturing process to define the media type and expiration dates, and a second that is generated by the Growth Direct system at time of testing that defines the sample ID and LIMS number. The consumables incorporate multiple standard media for each application as both products are based on the traditional growth method.
Two bar codes are used—one applied during our manufacturing process to define the media type and expiration dates, and a second that is generated by the Growth Direct system at time of testing that defines the sample ID and LIMS number. The consumables incorporate multiple standard media for each application as both products are based on the traditional growth-based method.
We have a long history engaging with the major regulatory bodies in our industry, such as the FDA and the European Medicines Agency, or the EMA, some of whom are also our customers.
We have a long history engaging with the major regulatory bodies in our industry, such as the FDA and the European Medicines Agency, or EMA, some of whom are also our customers.
These competitors also compete with us in recruiting and retaining qualified engineering, sales, marketing and management personnel, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage companies may also prove to be significant competitors, particularly if they establish collaborative arrangements with large companies.
Smaller or early-stage companies may also prove to be significant competitors, particularly if they establish collaborative arrangements with large companies. These competitors also compete with us in recruiting and retaining qualified engineering, sales, marketing and management personnel, as well as in acquiring technologies complementary to, or necessary for, our programs.
However, colonies can grow together or overlap completely, or can be mistaken for other artifacts, confounding operators’ ability to generate an accurate, subjective count, especially given the fact that human operators can only check plates a few times during the incubation cycle. • Vulnerability to errors — Operators must manually categorize, label, track and manage numerous plates through a complex multi-step, multi-day process of incubation and analysis, risking the loss or mishandling of samples.
However, colonies can grow together or overlap completely, or can be mistaken for other artifacts, confounding operators’ ability to generate an accurate, subjective count, especially given the fact that human operators typically only check plates a few times during the incubation cycle. • Vulnerability to errors — Operators must manually categorize, label, track and manage numerous plates through a complex multi-step, multi-day process of incubation and analysis, risking the loss or mishandling of samples.
We intend to capitalize on our first-mover advantage to define the standard of MQC automation in this growing market by moving upstream in the cell and gene therapy manufacturing design practice, creating thought leadership on MQC automation in cell and gene therapy manufacturing, partnering with facility design firms who specialize in manufacturing infrastructure for these modalities, and targeting CDMOs, contract manufacturing organizations, or CMOs, and contract research organizations, or CROs, with significant exposure to this segment.
We intend to capitalize on our first-mover advantage to define the standard of MQC automation in this growing market by moving upstream in the cell and gene therapy manufacturing design practice, creating thought leadership on MQC automation in cell and gene therapy manufacturing, partnering with facility design firms who specialize in manufacturing infrastructure for these modalities, and targeting contract development and manufacturing organizations, or CDMOs, contract manufacturing organizations, or CMOs, and contract research organizations, or CROs, with significant exposure to this segment.
The Growth Direct platform brings the quality control lab to the manufacturing floor, unlocking the power of MQC automation to deliver the faster results, greater accuracy, increased operational efficiency, better compliance with data integrity regulations, and quicker decision making that our customers rely on to ensure safe and consistent supply of important healthcare products.
The Growth Direct platform brings the quality control lab to the manufacturing floor, unlocking the power of MQC automation to deliver the faster results, greater accuracy, increased operational efficiency, better compliance with data integrity regulations, and quicker decision making that our customers rely on to ensure safe, consistent and timely supply of important healthcare products.
These products are manufactured in a highly modularized fashion where each manufacturing batch often represents an individual dose to a specific patient. These therapies are therefore exceedingly valuable, and the manufacturing methods to produce them are time-sensitive and exposed to outsized risk of contamination given the amount of material handling and process change-over.
Some of these products are manufactured in a highly modularized fashion where each manufacturing batch often represents an individual dose to a specific patient. These therapies are therefore exceedingly valuable, and the manufacturing methods to produce them are time-sensitive and exposed to outsized risk of contamination given the amount of material handling and process change-over.
Increase the value of our platform by innovating and launching new applications, hardware, and software products that deliver the power of integrated automation across our customers’ QC workflows — We believe the depth, scalability and robust capabilities of our Growth Direct platform allow us to address key challenges facing MQC testing in the pharmaceutical industry.
Increase the value of our platform by innovating and launching new applications, hardware, and software products that deliver the power of integrated automation across our customers’ QC workflows — We believe the depth, scalability and robust capabilities of our Growth Direct platform allow us to uniquely address key challenges facing MQC testing in the pharmaceutical industry.
Biologics, cell, and gene therapies require complex multi-step manufacturing processes which demand efficient automated MQC processes. • Greater efficiency and focus on six sigma lean manufacturing principles — The pharmaceutical industry is under significant pressure to commercialize products faster in order to maximize their patent life.
Biologics and cell and gene therapies require complex multi-step manufacturing processes which demand rapid, efficient automated MQC processes. • Greater efficiency and focus on six sigma lean manufacturing principles — The pharmaceutical industry is under significant pressure to commercialize products faster in order to maximize their patent life.
We supplement these traditional marketing efforts by fostering an active community of users of our products through user groups, customer advisory board meetings, forums and blogs with internally generated and user-generated content. We employ a high-touch, customer-centric commercial approach focused on maximizing customer success.
We supplement these traditional marketing efforts by fostering an active community of users of our products through user groups, our customer advisory board, forums and blogs with internally generated and user-generated content. We employ a high-touch, customer-centric commercial approach focused on maximizing customer success.
The manufacture of our Growth Direct system and our consumables is subject to compliance with regulatory systems, standards, guidance and other requirements, as appropriate, including, but not limited to, laws and regulations for safe working conditions and certifications from the International Organization for Standardization.
The manufacture of our Growth Direct system and our consumables is subject to compliance with regulatory systems, standards, guidance and other requirements, as appropriate, including, but not limited to, laws and regulations for safe working conditions and certifications from the International Organization for Standardization (ISO).
By expanding and continuously enhancing the Growth Direct platform, we believe we can drive incremental revenue from existing clients as well as broaden the appeal of our solutions to potential new customers.
By expanding and continuously enhancing the Growth Direct platform, we believe we can drive incremental revenue from existing customers as well as broaden the appeal of our solutions to potential new customers.
The system is designed to enable compliance with industry data integrity standards such as 21 CFR Part 11, which set forth the FDA’s standards for electronic records and electronic signatures. • High Reliability with Clear Path to Validation — The Growth Direct platform delivers the reliability that customers need for their mission-critical manufacturing processes, with a consistent record of uptime in live production use.
The system is designed to enable compliance with industry data integrity standards such as 21 CFR Part 11, which sets forth the FDA’s standards for electronic records and electronic signatures. • High Reliability with Clear Path to Validation — The Growth Direct platform delivers the reliability that customers need for their mission-critical manufacturing processes, with a consistent record of uptime in live production use.
To guarantee the quality of the end products and the safety of patients who receive them, manufacturers must ensure that their products are free of potentially harmful microbial contamination.
To guarantee the quality of the end products and the safety of patients who receive them, pharmaceutical manufacturers must ensure that their products are free of potentially harmful microbial contamination.
Meanwhile, elimination of unnecessary manual labor allows skilled MQC specialists to spend time on test design, interventions, standard operating procedure, or SOP, updates and other critical tasks. 17 Table of Contents • Robust Security and Connectivity — The Growth Direct platform can integrate with existing LIMS, allowing for seamless data transfer from the system to the LIMS.
Meanwhile, elimination of unnecessary manual labor allows skilled MQC specialists to spend time on test design, interventions, standard operating procedure, or SOP, updates and other critical tasks. 13 Table of Contents • Robust Security and Connectivity — The Growth Direct platform can integrate with existing LIMS, allowing for seamless data transfer from the system to the LIMS.
Our issued patents and pending patent applications cover our technologies and products, including machines, manufactures, compositions of matter, and methods of use with respect thereto, related to the Growth Direct platform. Additionally, as of December 31, 2022, we license three issued patents in the United States, Canada and Europe from Thermo Fisher relating to a robotic carousel workstation.
Our issued patents and pending patent applications cover our technologies and products, including machines, manufactures, compositions of matter, and methods of use with respect thereto, related to the Growth Direct platform. Additionally, as of December 31, 2023, we license three issued patents in the United States, Canada and Europe from Thermo Fisher relating to a robotic carousel workstation.
Moreover, the LIMS connection eliminates the need to use paper in the lab and delivers information to stakeholders in a secure manner, designed to enable compliance with data integrity regulations. 16 Table of Contents Our service team works directly with customers’ IT teams to help integrate Growth Direct software into their LIMS for seamless connectivity.
Moreover, the LIMS connection eliminates the need to use paper in the lab and delivers information to stakeholders in a secure manner, designed to enable compliance with data integrity regulations. 12 Table of Contents Our service team works directly with customers’ IT teams to help integrate Growth Direct software into their LIMS for seamless connectivity.
Our Growth Direct system is a fully automated, high throughput instrument for daily processing of MQC samples on our proprietary consumables—a microbiology quality control lab in a box. We have achieved an automated method that is faster and produces more accurate, reliable and accessible data than the traditional method.
Our Growth Direct system is a fully automated, high throughput instrument for daily processing of MQC samples using our proprietary consumables—a microbiology quality control lab "in a box." We have achieved an automated method that is faster and produces more accurate, reliable and accessible data than the traditional method.
This allows Growth Direct to offer a large volume automated testing solution that allows for fewer investigations, more targeted interventions, and more uptime for manufacturers, therefore saving time and money. • Increased Accuracy through Automation — The automation of both sample handling and enumeration virtually eliminates human errors from the MQC process.
This allows Growth Direct to offer a large-volume automated testing solution that allows for fewer investigations, more targeted interventions, and more uptime for manufacturers, thereby saving time and money. • Increased Accuracy through Automation — The automation of both sample handling and enumeration virtually eliminates human errors from the MQC process.
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. 25 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. 20 Table of Contents
We completed our initial public offering of our Class A common stock in July 2021. Our Internet address is www.rapidmicrobio.com .
We completed the initial public offering of our Class A common stock in July 2021. Our Internet address is www.rapidmicrobio.com .
We continue to invest in our manufacturing capabilities to increase capacity ahead of future growth, to ensure continuity of supply, and to make order fulfillment consistent and convenient for our customers. Our future manufacturing plans may include expansion of our existing facilities, additional global sites, additional automation lines, and further manufacturing redundancy plans.
We continue to invest in our manufacturing capabilities to enhance our current capabilities, to increase capacity ahead of future growth, to ensure continuity of supply, and to make order fulfillment consistent and convenient for our customers. Our future manufacturing plans may include expansion of our existing facilities, additional global sites, additional automation lines, and further manufacturing redundancy plans.
Our platform comprises the Growth Direct system, proprietary consumables, LIMS connection software, and comprehensive customer support and validation services.
Our platform comprises the Growth Direct system, proprietary consumables, LIMS connection and other software, and comprehensive customer support and validation services.
Examples of program content organized by this ERG include professional career panel discussions with company leaders, attendance sponsorship to leadership conferences such as Massachusetts Conference for Women, company-wide charity drives for local Women’s shelters, and celebration of global events such as International Women’s Day. 24 Table of Contents Additional information Rapid Micro Biosystems, Inc., a Delaware corporation, was incorporated in December 2006.
Examples of program content organized by this ERG include professional career panel discussions with company leaders, attendance sponsorship to leadership conferences such as Massachusetts Conference for Women, company-wide charity drives for local Women’s shelters, and celebration of global events such as International Women’s Day. Additional information Rapid Micro Biosystems, Inc., a Delaware corporation, was incorporated in December 2006.
We accomplish this expansion via direct peer-to-peer selling facilitated by our commercial team, and by partnering with executive decision makers to execute global customer rollout agreements. We simultaneously drive increased utilization on a system-by-system basis by providing our customers our full suite of applications that can be validated and used on the Growth Direct platform.
We accomplish this expansion via direct peer-to-peer selling facilitated by our commercial team, and seek to partner with executive decision makers to execute global customer rollout agreements. We simultaneously drive increased utilization on a system-by-system basis by providing our customers our full suite of applications that can be validated and used on the Growth Direct platform.
We have demonstrated the value of our platform in cell and gene therapy manufacturing with our early success in converting customers in this segment. Furthermore, companies in this space are developing new approaches to manufacture these complex products, including novel facility layouts, new processes and workflows, and new quality and risk management frameworks.
We have demonstrated the value of our platform in cell 15 Table of Contents and gene therapy manufacturing with our early success in converting customers in this segment. Furthermore, companies in this space are developing new approaches to manufacture these complex products, including novel facility layouts, new processes and workflows, and new quality and risk management frameworks.
Customer support We offer full 24/7 maintenance support via our annual service contract. Purchase of the Growth Direct system comes with a one-year warranty, after which customers may purchase annual service contracts.
Customer support We offer full 24/7 maintenance support via annual service contracts. Purchase of the Growth Direct system comes with a one-year warranty, after which customers may purchase annual service contracts.
Our consumables manufacturing operation, in particular, is designed to meet the demands of high-volume media supply necessary to serve our market. It is centered around a state-of-the-art automated production line that we 21 Table of Contents believe has enough capacity to support near and medium-term growth.
Our consumables manufacturing operation, in particular, is designed to meet the demands of high-volume media supply necessary to serve our market. It is centered around a state-of-the-art automated production line that we believe has enough capacity to support near and medium-term growth.
Moreover, our customers’ strong desire to globally standardize and harmonize their MQC operations provides us a direct opportunity to grow with them, and after validating their first system we are able to install and validate more systems globally for them in a much faster time period given the initial validation process.
Moreover, our customers’ strong desire to globally standardize and harmonize their MQC operations provides us a direct opportunity to grow with them, and after validating their first system we are able to install and validate more systems globally for them much faster given the initial validation process.
Consequently, pharmaceutical companies must maintain strict sterility control in their manufacturing facilities by vigilantly monitoring their sites, equipment, and finished drugs, and responding quickly to any microbial contamination.
Consequently, pharmaceutical companies must maintain strict sterility control in their manufacturing facilities by vigilantly monitoring their sites, equipment, drug inputs and finished drugs, and responding quickly to any microbial contamination.
Our products are also subject to various federal, state, local, and foreign laws, regulations and recommendations, relating to the safe and proper use, 23 Table of Contents transportation and disposal of hazardous or potentially hazardous substances. In addition, U.S. and international import and export laws and regulations, including those enforced by the U.S.
Our products are also subject to various federal, state, local, and foreign laws, regulations and recommendations, relating to the safe and proper use, transportation and disposal of hazardous or potentially hazardous substances. In addition, U.S. and international import and export laws and regulations, including those enforced by the U.S.
Leverage our first-mover advantage and our industry leadership to cement Growth Direct as the new standard of MQC automation in the rapidly growing bioprocessing market, including biologics, cell, and gene therapy manufacturing — Our MQC process automation platform is particularly well-suited to the manufacturing of biologics, 19 Table of Contents cell, and gene therapies.
Leverage our first-mover advantage and our industry leadership to cement Growth Direct as the new standard of MQC automation in the rapidly growing bioprocessing market, including biologics and cell and gene therapy manufacturing — Our MQC process automation platform is particularly well-suited to the manufacturing of biologics and cell and gene therapies.
Pursue opportunistic strategic investments, partnerships, and acquisitions — Our strong growth to date has been entirely organic as we continue to add customers to our growing install base of Growth Direct users, while also expanding 20 Table of Contents our consumables and product offering to those customers.
Pursue opportunistic strategic investments, partnerships, and acquisitions — Our strong growth to date has been entirely organic as we continue to add customers to our growing install base of Growth Direct users, while also expanding our consumables and product offering to those customers.
As part of our commitment to diversity and inclusion, RMB proudly supports employee-initiated and led employee resource groups, or ERGs, to provide business insights, solve unique business problems, build leadership skills, and represent the company within the communities we serve.
As part of our commitment to diversity and inclusion, we proudly support employee-initiated and -led employee resource groups, or ERGs, to provide business insights, solve unique business problems, build leadership skills, and represent the company within the communities we serve.
Through these efforts, we deliver high quality experiences at every step of the customer journey which creates and strengthens our customer loyalty. • Deep integration into heavily regulated pharmaceutical manufacturing processes — Our products are entrenched within our customers’ workflow and the majority of our customers have purchased multiple systems and at multiple locations.
Through these efforts, we deliver high quality experiences at every step of the customer journey which creates and strengthens our customer loyalty. • Deep integration into heavily regulated pharmaceutical manufacturing processes — Our products are entrenched within our customers’ workflows and the majority of our customers have purchased multiple systems and 40% have them at multiple locations.
Our approach begins by placing initial systems within our customers’ global manufacturing network. The majority of our customers, which comprise over 50% of the top twenty global pharmaceutical companies as measured by revenue, have global operations with multiple manufacturing facilities.
Our approach begins by placing initial systems within our customers’ global manufacturing network. The majority of our customers, which comprise 70% of the top twenty global pharmaceutical companies as measured by revenue, have global operations with multiple manufacturing facilities.
The validation teams offer a complete array of documents and services to support validation efforts, including: • Installation Qualification • Operational Qualification • Performance Qualification • Time-To-Results Qualification • 21 CFR Part 11 Assessment • Method Qualification/Method Suitability Once initial systems are validated, our customized validation approach allows customers to quickly validate follow-on systems through a Technical Transfer Method, facilitating faster adoption throughout their site network.
Our validation team offers a complete array of documents and services to support validation efforts, including: • Installation Qualification • Operational Qualification • Performance Qualification • Time-To-Results Qualification • 21 CFR Part 11 Assessment • Method Qualification/Method Suitability Once initial systems are validated, our customized validation approach allows customers to quickly validate follow-on systems through a Technical Transfer Method, facilitating faster adoption throughout their site network.
We believe that our first mover advantage has further enabled us to become deeply rooted within our customer’s facilities and provide for ongoing opportunity with our existing customer base. • Our highly attractive business model that leverages our growing installed base of systems to generate persistent recurring revenues through consumables and service contracts — Once embedded and validated in our customers’ facilities, our Growth Direct provides for recurring revenues through ongoing consumables and service contracts.
We believe that our first-mover advantage has further enabled us to become deeply rooted within our customer’s facilities and provide for ongoing opportunity with our existing customer base. • Our highly attractive business model that leverages our growing installed base of systems to generate persistent recurring revenues through consumables and service contracts — Our Growth Direct provides for recurring revenues through ongoing consumables and service contracts.
We provide our employees with a competitive employment opportunity through market-based compensation, equity ownership at all levels across the Company, competitive health and welfare benefits including: short-term disability, long-term disability insurance, 401k, ESPP, pet insurance and paid time off.
We provide our employees with a competitive employment opportunity through market-based compensation, equity ownership at all levels across the Company, competitive health and welfare benefits including: short-term disability, long-term disability insurance, 401k, employee stock purchase plan (ESPP), pet insurance and paid time off.
Through multiple years of development and investments from both investors and institutional partners, such as BARDA, we have amassed a set of technologies that form the foundation of our growing suite of products and solutions.
Through multiple years of development and investments from both investors and institutional partners, we have amassed a set of technologies that form the foundation of our growing suite of products and solutions.
Key advantages of our Growth Direct platform We believe that several factors differentiate our technology and will continue to be significant drivers of customer adoption of Growth Direct: • Faster Results at Higher Testing Throughputs and Capacity — The Growth Direct platform uniquely combines superior detection and enumeration capabilities—translating to a 50% reduction in detection time compared to the traditional method—with a high-throughput, 700-sample total capacity form factor.
Key advantages of our Growth Direct platform We believe that several factors differentiate our technology and will continue to be significant drivers of customer adoption of Growth Direct: • Faster Results at Higher Testing Throughputs and Capacity — The Growth Direct platform uniquely combines superior detection and enumeration capabilities—translating to accurate results in half the time or less compared to the traditional method—with a high-throughput, 700-sample total capacity form factor.
For every drug product manufactured or in development, our customers are required to establish a validated QC process that they can execute consistently and reliably. Customers 18 Table of Contents typically dismantle manual testing infrastructure after switching to our platform, creating enormous switching costs that get amplified by the network effect of linked systems and data aggregation across customer sites.
For every drug product manufactured or in development, our customers are required to establish a validated QC process that they can execute consistently and reliably. 14 Table of Contents Customers typically dismantle manual testing infrastructure after switching to our platform, creating enormous costs to switch away from our systems that are amplified by the network effect of linked systems and data aggregation across customer sites.
The Thermo Fisher license agreement will remain in effect until the last to expire of the licensed patent rights.
The Thermo Fisher license agreement will remain in effect until the last to expire of the licensed patent rights in April 2024.
We then successfully sell additional systems to support additional suites at existing sites as well as leverage our high customer satisfaction at existing facilities to drive adoption at new sites within our customers’ global manufacturing network. The majority of our customers have multiple Growth Direct systems per site and across different facility locations.
We then sell additional systems to support additional suites at existing sites as well as leverage our high customer satisfaction at existing facilities to drive adoption at new sites within our customers’ global manufacturing network. The majority of our customers have multiple Growth Direct systems and have deployed Growth Direct across multiple facility locations.
Key MQC automation growth drivers We believe several industry trends are driving the need for MQC automation, including: • Increasing regulatory scrutiny — Regulatory compliance pressures in the pharmaceutical industry have increased over the past decade, as mentioned above. • Increasing data integrity scrutiny and need for remote, real-time monitoring of facilities — Facing increased data integrity scrutiny from regulatory authorities in their quality control lab and manufacturing areas, pharmaceutical manufacturers must focus on meeting these regulatory requirements as defined by the FDA and other international regulatory bodies. • Expansion of high growth biologics and advent of new, more complex therapeutic modalities such as cell and gene therapies — The global prescription drug market is large and growing, driven in part by the rise in the burden of chronic diseases and the growing demand for innovative therapies such as biologics and cell and gene therapies.
We expect there to be continued regulatory scrutiny as the industry shifts to more complex biological manufacturing and manufacturing returns domestically. 9 Table of Contents Key MQC automation growth drivers We believe several industry trends are driving the need for MQC automation, including: • Increasing regulatory scrutiny — Regulatory compliance pressures in the pharmaceutical industry have increased over the past decade, as mentioned above. • Increasing data integrity scrutiny and need for remote, real-time monitoring of facilities — Facing increased data integrity scrutiny from regulatory authorities in their quality control lab and manufacturing areas, pharmaceutical manufacturers must focus on meeting these regulatory requirements as defined by the FDA and other international regulatory bodies. • Expansion of high-growth biologics and advent of new, more complex therapeutic modalities such as cell and gene therapies — The global prescription drug market is large and growing, driven in part by the rise in the burden of chronic diseases and the growing demand for innovative therapies such as biologics and cell and gene therapies.
Customers depend on Growth Direct’s robust security, connectivity, and data integrity capabilities, reinforced by its high reliability. We believe we are the first company to solve the existing barriers to MQC automation.
Customers depend on Growth Direct’s robust security, connectivity, and data integrity capabilities, reinforced by its high reliability. 7 Table of Contents We believe we are the first company to solve the existing barriers to MQC automation.
As such, we are subject to certain laws and regulations applicable to companies doing business with the government, as well as with those concerning government contracts, including being subject to potential investigation for compliance with government contract regulations.
As such, we are subject to certain laws and regulations applicable to companies 19 Table of Contents doing business with the government, as well as with those concerning government contracts, including being subject to potential investigation for compliance with government contract regulations.
In the last several years alone, there have been numerous publicized incidents involving leading pharmaceutical companies that highlight the risk of poorly controlled, manual MQC testing and protocols, resulting in lengthy site closures, CRLs, and delays to product approvals. 10 Table of Contents Furthermore, regulatory compliance pressures in the pharmaceutical industry have generally increased over the past decade.
In the last several years alone, there have been numerous publicized incidents involving leading pharmaceutical companies that highlight the risk of poorly controlled, manual MQC testing and protocols, resulting in lengthy site closures, and complete response letters, or CRLs, resulting in delays to product approvals. Furthermore, regulatory compliance pressures in the pharmaceutical industry have generally increased over the past decade.
Our customer base includes over half of the top twenty largest pharmaceutical companies as measured by revenue and the manufacturers of 25% of globally approved cell and gene therapies, including approximately 60% of approved gene-modified autologous CAR-T cell therapies. Once installed and validated in our customers’ facilities, Growth Direct provides for recurring revenues through ongoing consumables and service contracts.
Our customer base includes 70% of the top twenty largest pharmaceutical companies as measured by revenue and the manufacturers of approximately 24% of globally approved cell and gene therapies, including 100% of approved gene-modified autologous CAR-T cell therapies. Once installed and validated in our customers’ facilities, Growth Direct provides for recurring revenues through ongoing consumables and service contracts.
We intend to expand our sales, support, and marketing efforts in the future by expanding our direct footprint in North America and Europe as well as developing a comprehensive distribution and support network in Asia where new market opportunities exist.
We intend to expand our sales, support, and marketing efforts in the future by expanding our direct footprint in North America and Europe as well as developing a comprehensive distribution and support network in the Asia-Pacific region and other markets where new opportunities exist.
Compared to the traditional method, our Growth Direct platform accelerates time to results by several days, a 50% improvement over the traditional method, and reduces MQC testing to a simple two-step workflow, eliminating 85% of the manual steps of traditional MQC, generating significant time, operational, and cost savings for our customers.
Compared to the traditional method, our Growth Direct platform accelerates time to results by 50% or more, and reduces MQC testing to a simple two-step workflow, eliminating 85% of the manual steps of traditional MQC, generating significant time, operational, and cost savings for our customers.
Drive new customer adoption of the Growth Direct platform by converting the leading manufacturers in our core markets, including but not limited to top 50 pharmaceutical companies and leading CDMOs — With the launch of our latest generation Growth Direct in 2017, approximately 40 global customers have adopted the Growth Direct platform to automate MQC testing in over 75 manufacturing facilities.
Drive new customer adoption of the Growth Direct platform by converting the leading manufacturers in our core markets, including top 50 pharmaceutical companies and leading CDMOs — With the launch of our latest generation Growth Direct in 2017, 40 global customers have adopted the Growth Direct platform to automate MQC testing in 85 manufacturing facilities.
Our Growth Direct platform improves the traditional MQC process, maintaining the fundamental trusted method of growth promotion, but applying advanced robotic automation, powerful optical imaging, algorithmic vision analysis, and data management to render it more scalable and efficient for the future of advanced pharmaceutical manufacturing.
Our Growth Direct platform improves the traditional MQC process, maintaining the fundamental trusted method of MQC testing involving growth-based detection of viable organisms, but applying advanced robotic automation, powerful optical imaging, algorithmic vision analysis, and data management to render it more scalable and efficient for the future of advanced pharmaceutical manufacturing.
MQC is a critical component of the bioprocess and pharmaceutical production process and is regulated and mandated by the FDA under current good manufacturing practice, or cGMP, and by other international regulatory agencies. Current MQC testing methods are manual, laborious, have lacked innovation over the past several decades.
MQC is a critical component of the bioprocess and pharmaceutical production process and is regulated and mandated by the U.S. Food and Drug Administration, or the FDA, under current good manufacturing practices, or cGMP, and by other international regulatory agencies. Current MQC testing methods are manual, laborious, and have lacked innovation over the past several decades.
Our Growth Direct platform accelerates time to results by several days, a 50% improvement over the traditional method, and reduces MQC testing to a simple two-step workflow, eliminating up to 85% of the manual steps of traditional MQC, generating significant time, operational, and cost savings for our customers.
Our Growth Direct platform accelerates time to results by 50% or more compared to the traditional method, and reduces MQC testing to a simple two-step workflow, eliminating up to 85% of the manual steps of traditional MQC, generating significant time, operational, and cost savings for our customers.
Moreover, we have a strong intellectual property portfolio, including at least eighty-five granted and pending patents globally with eight unexpired U.S. granted patents and ten U.S. pending patent applications as of December 31, 2022. • Top-tier customer partners establishing Growth Direct as an industry standard globally — We have cultivated long-standing and collaborative relationships with our significant and growing customer base.
Moreover, we have a strong intellectual property portfolio, including at least 95 granted and pending patents globally with eight unexpired U.S. granted patents and 14 U.S. pending patent applications as of December 31, 2023. • Top-tier customers establishing Growth Direct as an industry standard globally — We have cultivated long-standing and collaborative relationships with our significant and growing customer base.
As of December 31, 2022, we own eight granted unexpired patents in the United States, forty issued patents in foreign jurisdictions, including Australia, Canada, China, countries in Europe, India, Japan and Mexico, and ten pending patent applications in the United States.
As of December 31, 2023, we own eight granted unexpired patents in the United States, 50 issued patents in foreign jurisdictions, including Australia, Canada, China, countries in Europe, India, Japan and Mexico, and 14 pending patent applications in the United States.
The Growth Direct platform delivers faster results in half the time, and with its higher testing throughputs and capacity can absorb the vast majority of daily MQC testing in any facility. Our system increases accuracy and efficiency through full automation of the MQC process.
The Growth Direct platform delivers results in half the time or less compared to the traditional method, and with its higher testing throughputs and capacity can absorb the vast majority of daily MQC testing in any facility. Our system increases accuracy and efficiency through full automation of the MQC process.
In studies of environmental monitoring plates incubated for five days, which compared Growth Direct’s vision-based detection and enumeration to visual counting conducted by technicians, the Growth Direct regularly identified and counted colonies that technicians missed, as shown by the counts in the shaded area in the figure below.
In studies of environmental monitoring plates incubated for five days, which compared Growth Direct’s vision-based detection and enumeration to visual counting conducted by technicians, the Growth Direct regularly identified and counted colonies that technicians missed.
Our regulatory strategy has benefited our business in several ways, including: 1) by achieving the definition of the Growth Direct Technology as an “automated compendial validation” in key trade group and regulatory issuances, such as the Parenteral Drug Association, or PDA, Technical Report 33, and USP chapter ; 2) by working with industry and regulatory forums to define a fast validation strategy that allows a short timeline routine testing implementation; 3) and by helping our customers obtain regulatory acceptance from the EMA and the FDA for the use of our technology and validation strategy for new drug applications with the Bioburden application (environmental modeling and water do not need regulatory license change).
Our regulatory strategy has benefited our business in several ways, including: 1) by achieving the definition of the Growth Direct Technology as an “automated compendial validation” in key trade group and regulatory issuances, such as the Parenteral Drug Association, or PDA, Technical Report 33, and USP chapter ; 2) by working with industry and regulatory forums to define a fast validation strategy that allows a short timeline routine testing implementation, which is described in a case study written by us and several of our customers and published in the PDA Journal of Pharmaceutical Science and Technology in November 2022; and 3) and by helping our customers obtain regulatory acceptance from the FDA and EMA for the use of our technology and validation strategy for new drug applications with the bioburden application (environmental monitoring and water do not need regulatory license changes).
Support begins prior to system purchase when our sales representative brings in a validation expert for consultation about specific application requirements.
Support begins prior to system purchase when our sales representative brings in one of our validation experts for consultation about specific application requirements.
This infrastructure ensures successful on-boarding of the Growth Direct through both initial validation and follow-on purchases throughout the entire customer site network, where the highest volume sites may require dozens of Growth Direct systems.
This is supplemented with an extensive and highly specialized customer service and validation infrastructure. This infrastructure ensures successful on-boarding of the Growth Direct through both initial validation and follow-on purchases throughout the entire customer site network, where the highest volume sites may require dozens of Growth Direct systems.
Employees As of December 31, 2022, we had 177 full-time employees across the globe, of which 39 were engaged in sales and marketing, 32 in research and development, 76 in manufacturing and service, and 30 in general and administrative. None of our employees are covered by a collective bargaining agreement. We consider our relationships with our employees to be good.
Employees As of December 31, 2023, we had 193 full-time employees across the globe, of which 41 were engaged in sales and marketing, 37 in research and development, 84 in manufacturing and service, and 31 in general and administrative. None of our employees are covered by a collective bargaining agreement. We consider our relationships with our employees to be good.
Our manufacturing strategy includes direct manufacturing of certain products, and third-party outsourcing for certain components and subassemblies. We obtain components and subassemblies for our Growth Direct systems from multiple third-party suppliers and contract manufacturers. While some of these components are sourced from a single supplier, we have qualified second sources for several of our critical parts.
We obtain components and subassemblies for our Growth Direct systems from multiple third-party suppliers and contract manufacturers. While some of these components are sourced from a single supplier, we have qualified second sources for most of our parts.
This is accomplished through MQC testing, which generally encompasses four specific applications for testing of microbial contamination: • Environmental Monitoring (EM) —tests the manufacturing environment, including circulating air, exposed surfaces, and personnel, and represents approximately 65-70% of global MQC test volume; • Water (W) —tests any purified water used at any stage of the drug production process, including water for injection, or WFI, and represents approximately 15% of global MQC test volume; • In-Process Bioburden (BB) —tests raw materials, drug substance and in-process product, and represents approximately 15% of global MQC test volume; and • Sterility Release (ST) —final testing of finished product to ensure sterility before the product is released for commercial sale, and represents less than 5% of global MQC test volume.
This is accomplished through MQC testing, which generally encompasses four specific applications for testing of microbial contamination: • Environmental Monitoring (EM) —tests the manufacturing environment, including circulating air, exposed surfaces, and personnel, and represents approximately 65-70% of global MQC test volume; • Water (W) —tests any purified water used at any stage of the drug production process, including water for injection, or WFI, and represents approximately 15% of global MQC test volume; • In-Process Bioburden (BB) —tests raw materials, drug substance and in-process product, and represents approximately 15% of global MQC test volume; and • Sterility Release (ST) —final testing of finished product to ensure sterility before the product is released for commercial sale, and represents less than 5% of global MQC test volume. 8 Table of Contents MQC testing occurs at high volumes due to its importance across all dimensions of a pharmaceutical manufacturing operation and must be executed daily and implemented across all production lines.
We currently have customers across approximately 75 sites in 14 countries and the majority of our customers have multiple Growth Direct systems and have deployed Growth Direct across multiple facility locations. 8 Table of Contents We launched our current, second generation Growth Direct system in 2017 and have placed 125 systems and sold over 3 million consumables globally.
We currently have customers across approximately 85 sites in 14 countries and the majority of our customers have multiple Growth Direct systems and have deployed Growth Direct across multiple facility locations. We launched our current, second generation Growth Direct system in 2017 and have placed 141 systems and sold over 4.5 million consumables globally.
We expect this volatility to continue for the foreseeable future, which may cause fluctuations in our operating results and financial metrics. In addition, trends may vary in the future as our revenue mix shifts from non-recurring to recurring revenues. Government regulation We provide products and services used for quality-control testing in pharmaceutical product and medical device manufacturing.
We expect this volatility to continue for the foreseeable future, which may cause fluctuations in our operating results and financial metrics. Government regulation We provide products and services used for quality-control testing in pharmaceutical product and medical device manufacturing.
We intend to drive global adoption by broadly seeking new customers in our core pharmaceutical manufacturing end markets. Our initial focus is on influential high-volume top 50 pharmaceutical companies as measured by revenue and global contract manufacturing organizations, which provide manufacturing services directly to pharmaceutical companies.
We intend to drive global adoption by broadly seeking new customers in our core pharmaceutical manufacturing end markets. Our primary focus is on influential high-volume top 50 pharmaceutical companies as measured by revenue and global contract manufacturing organizations, which provide manufacturing services directly to pharmaceutical companies. Our target geographies include North America, Europe, and the Asia-Pacific region.
We have also succeeded in securing a substantial long-term government contract from BARDA to support development of new products as part of an ongoing partnership concerning areas of shared strategic interest regarding accelerated pandemic vaccine release. • Our experienced management team and workforce with deep domain knowledge — Our management team combines strong subject matter expertise with a demonstrated history of commercial and operational execution.
Historically, we also secured substantial long-term government contracts from BARDA to support development of our rapid sterility kit as part of a partnership concerning areas of shared strategic interest regarding accelerated pandemic vaccine release. • Our experienced management team and workforce with deep domain knowledge — Our management team combines strong subject matter expertise with a demonstrated history of commercial and operational execution.
We believe that having dual sources for our critical components helps reduce the risk of a production delay caused by a disruption in the supply of a critical component. We perform final assembly, commissioning, and inspection of the systems in our Lowell facility before shipping to customers.
We believe that having dual sources for our components helps reduce the risk of a production delay caused by a disruption in the supply of those components. We perform final assembly, commissioning, and inspection of the systems in our Lowell facility before shipping to customers. Our consumable plate assemblies and lids are manufactured to our specifications by manufacturing partners.
We believe the MQC market is poised for disruption and modernization via the widespread deployment of our Growth Direct platform, and we have embarked on the mission of transforming the MQC test market to standardize on our fully automated solution.
We believe the MQC market is poised for disruption and modernization via the widespread deployment of our Growth Direct platform, and we are on a mission to transform the MQC test market by standardizing on our fully automated solution.
This staff is primarily located in North America and Europe, and we also maintain direct customer support teams providing both validation and field service capabilities in the same territories.
This staff is located in North America, Europe and the Asia-Pacific region, and we also maintain direct customer support teams providing validation and/or field service capabilities in these territories.
Final results are automatically uploaded to the LIMS. This eliminates the risk of human error that could arise from manually entering the results, while improving efficiency.
This eliminates the risk of human error that could arise from manually entering the results, while improving efficiency.
We also provide our employees career development and career paths through internal promotional opportunities, tuition reimbursement and annual performance management processes. For our global managers and directors, we offer training in leadership essentials.
We strive to provide learning opportunities for all our employees through the development of new learning paths, technical on-the-job training, and leadership training. We also provide our employees career development and career paths through internal promotional opportunities, tuition reimbursement and annual performance management processes. For our global managers and directors, we offer training in leadership essentials.
To support continuous supply for our customers, we have manufacturing redundancies and maintain inventory in multiple locations, including our Lowell headquarters, a second redundant storage location in the metropolitan Boston area, and at our third-party logistics, or 3PL, warehouses in Schiphol, Netherlands and Frankfurt, Germany.
To support continuous supply for our customers, we have manufacturing redundancies and maintain inventory in multiple locations, including our Lowell facility, a second redundant storage location in the metropolitan Boston area, and at our third-party logistics, or 3PL, warehouses in Schiphol, Netherlands and Frankfurt, Germany. 17 Table of Contents Our manufacturing strategy includes direct manufacturing of certain products, and third-party outsourcing for certain components and subassemblies.
The facility has over 52,000 square feet, with 20,000 square feet of manufacturing floor space that houses multiple manufacturing spaces and functions, including assembly of Growth Direct systems, an ISO-8 cleanroom with ISO-5 laminar flow hoods for consumable manufacturing, dedicated areas for media preparation. The facility has robust quality control from materials receiving to product distribution.
The facility has over 67,000 square feet, with 20,000 square feet of manufacturing floor space that houses multiple manufacturing spaces and functions, including assembly of Growth Direct systems, an International Organization for Standardization (ISO)-8 cleanroom with ISO-5 laminar flow hoods for consumable manufacturing, and dedicated areas for media preparation.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur present and future funding requirements will depend on many factors, including: • our ability to achieve revenue growth; • the cost of expanding our operations, including our manufacturing facilities, and our offerings, including our sales and marketing efforts; • our rate of progress in launching and commercializing new products, and the cost of the sales and marketing activities associated with, establishing adoption of our Growth Direct system; • our rate of progress in, and cost of research and development activities associated with, products in research and development; • the effect of competing technological and market developments; • the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; and • costs related to domestic and international expansion.
Biggest changeOur present and future funding requirements will depend on many factors, including: • our ability to achieve revenue growth; • the costs of manufacturing and shipping our products or of providing services to our customers, which may impact our operating gross margins in any given period; • the cost of expanding our operations, including our manufacturing facilities, and our offerings, including our sales and marketing efforts; • our rate of progress in launching and commercializing new products, and the cost of the sales and marketing activities associated with, establishing adoption of our Growth Direct system; • our rate of progress in, and cost of research and development activities associated with, products in research and development; • the effect of competing technological and market developments; • the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; and • costs related to domestic and international expansion. 24 Table of Contents To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders.
We, like all companies storing business-critical information, face a number of risks relative to protecting this critical information, including loss of access risk, inappropriate use or disclosure, unauthorized access or exfiltration, inappropriate modification, inappropriate destruction, and the risk of our being unable to adequately monitor and audit and modify our controls over our critical information.
We, like all companies storing business-critical information, face a number of risks relative to protecting this critical information, including loss of access, inappropriate use or disclosure, unauthorized access or exfiltration, inappropriate modification, inappropriate destruction, and the risk of our being unable to adequately monitor and audit and modify our controls over our critical information.
In any lawsuit we bring to enforce our intellectual property rights, a court may refuse to the stop the other party from using the technology at issue on grounds that our intellectual property rights do not cover the technology in question.
In any lawsuit we bring to enforce our intellectual property rights, a court may refuse to stop the other party from using the technology at issue on grounds that our intellectual property rights do not cover the technology in question.
The market price for our Class A common stock may be influenced by many factors, including: • actual or anticipated fluctuations in our financial condition and operating results, including fluctuations in our quarterly and annual results; • the introduction of new products or product enhancements by us or others in our industry; • variances in product and system reliability; • overall conditions in our industry and the markets in which we operate; • disputes or other developments with respect to our or others’ intellectual property rights; • actual or anticipated changes in our operating results or growth rate as a result of our competitors’ operating results; • our ability to develop and market new and enhanced products and expand into new markets on a timely basis; • fluctuations in the valuation of companies perceived by investors to be comparable to us; 52 Table of Contents • product liability claims or other litigation; • announcement or expectation of additional financing effort; • sales of our common stock by us or our stockholders; • share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; • media exposure of our products or of those of others in our industry; • changes in earnings estimates or recommendations by securities analysts; • general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors; and • the other factors described in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K.
The market price for our Class A common stock may be influenced by many factors, including: • actual or anticipated fluctuations in our financial condition and operating results, including fluctuations in our quarterly and annual results; • the introduction of new products or product enhancements by us or others in our industry; • variances in product and system reliability; 43 Table of Contents • overall conditions in our industry and the markets in which we operate; • disputes or other developments with respect to our or others’ intellectual property rights; • actual or anticipated changes in our operating results or growth rate as a result of our competitors’ operating results; • our ability to develop and market new and enhanced products and expand into new markets on a timely basis; • fluctuations in the valuation of companies perceived by investors to be comparable to us; • product liability claims or other litigation; • announcement or expectation of additional financing effort; • sales of our common stock by us or our stockholders; • share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; • media exposure of our products or of those of others in our industry; • changes in earnings estimates or recommendations by securities analysts; • general market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors; and • the other factors described in this “Risk Factors” section and elsewhere in this Annual Report on Form 10-K.
Among other things, these provisions include those establishing: • a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from filling vacancies on our board of directors; • the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the ability of our board of directors to alter our bylaws without obtaining stockholder approval; • the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our restated certificate of incorporation regarding the election and removal of directors; • the required approval of the holders of at least two-thirds of the shares entitled to vote thereon to (i) effect a reorganization, recapitalization, share exchange, share classification, consolidation, conversion or merger, (ii) sell, lease, exchange, transfer or otherwise dispose of all or substantially all of our assets, or (iii) dissolve our company or revoke a dissolution of our company; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; • the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and • advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
Among other things, these provisions include those establishing: • a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of a majority of our board of directors; • no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from filling vacancies on our board of directors; • the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer; • the ability of our board of directors to alter our bylaws without obtaining stockholder approval; • the required approval of the holders of at least two-thirds of the shares entitled to vote at an election of directors to adopt, amend or repeal our bylaws or repeal the provisions of our restated certificate of incorporation regarding the election and removal of directors; 47 Table of Contents • the required approval of the holders of at least two-thirds of the shares entitled to vote thereon to (i) effect a reorganization, recapitalization, share exchange, share classification, consolidation, conversion or merger, (ii) sell, lease, exchange, transfer or otherwise dispose of all or substantially all of our assets, or (iii) dissolve our company or revoke a dissolution of our company; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; • the requirement that a special meeting of stockholders may be called only by the chairman of the board of directors, the chief executive officer, the president or the board of directors, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and • advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.
Our ability to achieve and maintain commercial market acceptance of our Growth Direct platform will depend on a number of factors, including: • significant acceptance by drug manufacturers of automated microbial quality control, or MQC, testing; • our ability to increase awareness of the capabilities of automated MQC testing and our technology and solutions; • our customers’ willingness to adopt new technologies and workflows; • our ability to integrate our platform with our customers’ existing workflows, including related to regulatory validation processes; 26 Table of Contents • whether our platform reliably provides advantages over the conventional, manual method of MQC testing and other automated technologies and is perceived by customers to be cost effective; • the continued growth of the pharmaceutical and biopharmaceutical industry, in particular biologics, cell and gene therapies; • our ability to execute on our business strategy, including continuing to expand in the market for cell and gene therapies; • the rate of adoption of our platform and solutions by drug manufacturers; • prices we charge for our systems and consumables; • the relative reliability and robustness of our platform as a whole and the components of our platform; • our ability to develop new products for existing customers and to expand our capabilities within the MQC testing workflow; • our ability to expand the use of our platform with existing customers; • other competitive automated MQC testing platforms; and • the impact of our investments in product innovation and commercial growth.
Our ability to achieve and maintain commercial market acceptance of our Growth Direct platform will depend on a number of factors, including: • significant acceptance by drug manufacturers of automated microbial quality control, or MQC, testing; • our ability to increase awareness of the capabilities of automated MQC testing and our technology and solutions; • our customers’ willingness to adopt new technologies and workflows; 21 Table of Contents • our ability to integrate our platform with our customers’ existing workflows, including related to regulatory validation processes; • whether our platform reliably provides advantages over the conventional, manual method of MQC testing and other automated technologies and is perceived by customers to be cost effective; • the continued growth of the pharmaceutical and biopharmaceutical industry, in particular biologics and cell and gene therapies; • our ability to execute on our business strategy, including continuing to expand in the market for cell and gene therapies; • the rate of adoption of our platform and solutions by drug manufacturers; • prices we charge for our systems and consumables; • the relative reliability and robustness of our platform as a whole and the components of our platform; • our ability to develop new products for existing customers and to expand our capabilities within the MQC testing workflow; • our ability to expand the use of our platform with existing customers; • other competitive automated MQC testing platforms; and • the impact of our investments in product innovation and commercial growth.
Doing business internationally involves a number of risks, including: • multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, tariffs, economic sanctions and embargoes, employment laws, regulatory requirements and other governmental approvals, permits and licenses; • failure by us or our distributors to obtain approvals to conduct our business in various countries; • differing intellectual property rights; • complexities and difficulties in obtaining intellectual property protection, enforcing our intellectual property and defending against third-party intellectual property claims; • difficulties in staffing and managing foreign operations; • logistics and regulations associated with shipping systems and parts and components for systems and consumables, as well as transportation delays; • travel restrictions that limit the ability of marketing, presales, sales, services and support teams to service customers; • financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations; • international trade disputes that could result in tariffs and other protective measures; • natural disasters, the severity and frequency of which may be amplified by global climate change, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions; and • regulatory and compliance risks, including severe penalties such as criminal and civil penalties, disgorgement and other remedial measures, that relate to the U.S.
Doing business internationally involves a number of risks, including: • multiple, conflicting and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, tariffs, economic sanctions and embargoes, employment laws, regulatory requirements and other governmental approvals, permits and licenses; • failure by us or our distributors to obtain approvals to conduct our business in various countries; • differing intellectual property rights; • complexities and difficulties in obtaining intellectual property protection, enforcing our intellectual property and defending against third-party intellectual property claims; • difficulties in staffing and managing foreign operations; • logistics and regulations associated with shipping systems and parts and components for systems and consumables, as well as transportation delays; 34 Table of Contents • travel restrictions that limit the ability of marketing, presales, sales, services and support teams to service customers; • financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and exposure to foreign currency exchange rate fluctuations; • international trade disputes that could result in tariffs and other protective measures; • natural disasters, the severity and frequency of which may be amplified by global climate change, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions; and • regulatory and compliance risks, including severe penalties such as criminal and civil penalties, disgorgement and other remedial measures, that relate to the U.S.
If there are delays in delivering our products to our customers, or if our products fail to perform as well as or better than traditional MQC testing or fail to generate reliable results for our customers, our revenue could be reduced or delayed, which could adversely affect our business, financial condition, results of operations and prospects.
If there are delays in delivering our products to our customers, or if our products fail to perform as well as or better than traditional MQC testing and competitive products or fail to generate reliable results for our customers, our revenue could be reduced or delayed, which could adversely affect our business, financial condition, results of operations and prospects.
We are a “smaller reporting company” and are therefore entitled to rely on certain reduced disclosure requirements for as long as we remain a smaller reporting company, such as presenting two years of audited financial statements in our annual Form 10-K or reduced disclosure requirements for executive compensation.
We are also a “smaller reporting company” and are therefore entitled to rely on certain reduced disclosure requirements for as long as we remain a smaller reporting company, such as presenting two years of audited financial statements in our annual Form 10-K or reduced disclosure requirements for executive compensation.
We have limited experience in marketing and sales, and if we are unable to improve the effectiveness of our marketing and sales organization to adequately expand our business with new and existing customers and address our customers’ needs or to expand our customer base, our business may be adversely affected.
We have limited experience in marketing and sales, and if we are unable to improve the effectiveness of our marketing and sales organization with new and existing customers and address our customers’ needs or to expand our customer base, our business may be adversely affected.
Additionally, we may be subject to legal claims arising from any defects or errors in our platform, and in the systems, consumables and software that comprise our platform. In the past, we have repaired, and in exceptional cases, replaced Growth Direct systems under warranty.
Additionally, we may be subject to legal claims arising from any defects or errors in our platform, and in the systems, consumables and software that comprise our platform. In the past, we have repaired, and in exceptional cases, replaced or reacquired Growth Direct systems under warranty.
In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and we may encounter difficulties in protecting and defending such rights in foreign jurisdictions.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States, and we may encounter difficulties in protecting and defending such rights in foreign jurisdictions.
We may need to raise additional capital to fund our existing operations, improve our platform or develop and commercialize new products or expand our operations. We expect to spend significant amounts to expand our existing operations, to continue to improve our Growth Direct platform and to develop new products and consumables.
We may need to raise additional capital to fund our existing operations, improve our platform or develop and commercialize new products or expand our operations. We expect to spend significant amounts to expand our existing operations, to continue to improve our Growth Direct platform and to develop new products.
Any failure to successfully implement our business strategy or the occurrence of any of the events or circumstances set forth in this Risk Factors section in this Annual Report on Form 10-K 28 Table of Contents could result in the actual operating results being different from our guidance, and the differences may be adverse and material.
Any failure to successfully implement our business strategy or the occurrence of any of the events or circumstances set forth in this Risk Factors section in this Annual Report on Form 23 Table of Contents 10-K could result in the actual operating results being different from our guidance, and the differences may be adverse and material.
Any future acquisitions also could result in the incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects. We cannot guarantee that we will be able to fully recover the costs of any acquisition.
Any future acquisitions also could result in contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a material adverse effect on our business, financial condition, results of operations and prospects. We cannot guarantee that we will be able to fully recover the costs of any acquisition.
Our executive officers, directors and principal stockholders, if they choose to act together, will have the ability to control all matters submitted to stockholders for approval.
Our executive officers, directors and principal stockholders, if they choose to act together, have the ability to control all matters submitted to stockholders for approval.
This reduced disclosure in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict if investors will find our Class A common stock less attractive because we may rely on these exemptions.
This reduced disclosure in our SEC filings due to our status as a smaller reporting company may make it harder for investors to analyze our results of operations and financial prospects. We cannot predict whether investors will find our Class A common stock less attractive if we rely on these exemptions.
In addition, perceived uncertainties as to our future direction, strategy or leadership created as a consequence of new activist shareholder initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, customers, and employees, and cause our stock price to experience periods of volatility or stagnation.
In addition, perceived uncertainties as to our future direction, strategy or leadership created as a consequence of activist stockholder initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, customers, and employees, and cause our stock price to experience periods of volatility or stagnation.
For additional information on our use of NOLs, see the section entitled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of results of operations—Income tax (benefit) expense ” and Note 14— Income taxes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
For additional information on our use of NOLs, see the section entitled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Components of results of operations—Income tax (benefit) expense ” and Note 11— Income taxes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
We rely heavily on trade secrets and confidentiality agreements to protect our unpatented know-how, technology and other proprietary information, including parts of our technology platform, and to maintain our competitive position and we expect our reliance to increase in the near term as the terms for certain of our patents expire.
We rely on trade secrets and confidentiality agreements to protect our unpatented know-how, technology and other proprietary information, including parts of our technology platform, and to maintain our competitive position and we expect our reliance to increase in the near term as the terms for certain of our earliest patents expire.
In addition, our compensation arrangements, such as our equity award programs, may not always be successful in attracting new employees and retaining and motivating our existing employees. We may need to issue additional equity securities to attract job candidates or issue additional securities and reprice existing options to retain personnel.
In addition, our compensation arrangements, such as our equity award programs, may not always be successful in attracting new employees and retaining and motivating our existing employees. We may need to issue additional equity securities to attract job candidates or issue additional securities to retain personnel.
In addition, regardless of merit or eventual outcome, product liability claims may result in: • impairment of our business reputation and significant negative media attention; • withdrawal of customers; • significant costs to defend the litigation; • distraction of management’s attention from our primary business; • substantial monetary awards to claimants; • inability to commercialize a product; • product recalls or withdrawals; • decreased market demand for any product; and • loss of revenue.
In addition, regardless of merit or eventual outcome, product liability claims may result in: • impairment of our business reputation and significant negative media attention; 30 Table of Contents • withdrawal of customers; • significant costs to defend the litigation; • distraction of management’s attention from our primary business; • substantial monetary awards to claimants; • inability to commercialize a product; • product recalls or withdrawals; • decreased market demand for any product; and • loss of revenue.
Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Any disruption or loss of information technology or telecommunications systems on which critical aspects of our operations depend could have an adverse effect on our business and our reputation.
Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Any disruption or loss of information technology or 31 Table of Contents telecommunications systems on which critical aspects of our operations depend could have an adverse effect on our business and our reputation.
If we are unable to expand or continue to expand our customers in new areas of drug manufacturing, such as cell and gene therapies, continue to grow market adoption of our Growth Direct platform, and maintain our position as the industry leader in automated MQC testing, our business, prospects, financial condition and results of operation could be adversely affected.
If we are unable to expand or continue to expand our customers in growing areas of drug manufacturing, such as biologics and cell and gene therapies, continue to grow market adoption of our Growth Direct platform, and maintain our position as the industry leader in automated MQC testing, our business, prospects, financial condition and results of operation could be adversely affected.
Moreover, as the automated MQC testing industry expands and more patents are issued, the risk increases that our products may be subject to claims of infringement of the patent rights and other proprietary rights of third parties.
Moreover, as the automated MQC testing industry expands and more patents are issued, the risk increases that our products may be subject to claims of infringement of third party patent and other proprietary rights.
As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours, which would have a material adverse effect on our business. The United States government may exercise certain rights with regard to certain of our inventions developed using government funding.
As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing similar or identical products to ours, which would have a material adverse effect on our business. 39 Table of Contents The United States government may exercise certain rights with regard to certain of our inventions developed using government funding.
If a court were to find the choice of forum provision contained in our restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition or results of operations.
If a court were to find the choice of forum 48 Table of Contents provision contained in our restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business, financial condition or results of operations.
The training requirement may also deter some customers from utilizing our products. Any of these results could adversely affect our business, financial condition, results of operations and prospects. 36 Table of Contents Potential product liability lawsuits against us could cause us to incur substantial liabilities and limit commercialization of any products that we may develop.
The training requirement may also deter some customers from utilizing our products. Any of these results could adversely affect our business, financial condition, results of operations and prospects. Potential product liability lawsuits against us could cause us to incur substantial liabilities and limit commercialization of any products that we may develop.
In the event of contamination or injury, we could be liable for damages or penalized with fines in an amount exceeding our resources and our operations could be suspended or otherwise adversely affected. Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent.
In the event of contamination or injury, we could be liable for damages or penalized with fines in an amount exceeding our resources and our operations could be suspended or otherwise adversely affected. 38 Table of Contents Furthermore, environmental laws and regulations are complex, change frequently and have tended to become more stringent.
These estimates, forecasts and key performance indicators are based on a number of complex assumptions, internal and third-party estimates and market studies, and other business data, including assumptions and estimates relating to our ability to generate revenue from the expansion of our platform 31 Table of Contents into new drug manufacturing areas and new industries.
These estimates, forecasts and key performance indicators are based on a number of complex assumptions, internal and third-party estimates and market studies, and other business data, including assumptions and estimates relating to our ability to generate revenue from the expansion of our platform into new drug manufacturing areas and new industries.
Any infringement claim, regardless of its validity, could harm our business by, among other things, resulting in time consuming and costly litigation, diverting management’s time and attention from the development of the business, requiring the payment of monetary damages (including treble damages, attorneys’ fees, costs and expenses) or royalty payments, or result in potential or existing customers delaying purchases of our products or entering into engagements with us pending resolution of the dispute.
Any infringement claim, regardless of its validity, could harm our business by, among other things, resulting in time consuming and costly litigation, diverting management’s time and attention from the development of the business, requiring the payment of monetary damages, fees and expenses or royalty payments, or result in potential or existing customers delaying purchases of our products or entering into engagements with us pending resolution of the dispute.
While under our agreements with our customers we are not liable for non-compliance of our Growth Direct platform, if a customer experienced a compliance 32 Table of Contents failure due to our Growth Direct platform, or that the customer attributes to our Growth Direct platform, our reputation could be harmed and our business prospects adversely affected.
While under our agreements with our customers we are not liable for non-compliance of our Growth Direct platform, if a customer experienced a compliance failure due to our Growth Direct platform, or that the customer attributes to our Growth Direct platform, our reputation could be harmed and our business prospects adversely affected.
There can be no guarantee that our platform will meet the expectations of these companies or CMOs. The complexity of our products and the amount of lead time required to deliver products to our customers have caused in the past, and may cause in the future, delays in releasing new products and workflows.
There can be no guarantee that our platform will meet the expectations or needs of these companies or CDMOs. The complexity of our products and the amount of lead time required to deliver products to our customers have caused in the past, and may cause in the future, delays in releasing new products and workflows.
While we have experience providing automated MQC testing for customers that manufacture a number of these approved therapies, we may encounter challenges or unexpected issues as we apply our Growth Direct platform to testing a greater number of therapies as they are approved in future.
While we have experience providing automated MQC testing for customers that manufacture a number of these approved therapies, we may encounter 25 Table of Contents challenges or unexpected issues as we apply our Growth Direct platform to testing a greater number of therapies as they are approved in future.
We believe our platform has potential applications across a wide range of markets and we have targeted certain markets in which we believe our technology has significant advantages or a higher probability of success or greater revenue opportunity, such as the manufacture of cell and gene therapies.
We believe our platform has potential applications across a wide range of markets and we have targeted certain markets in which we believe our technology has significant advantages or a higher probability of success or greater revenue 29 Table of Contents opportunity, such as the manufacture of cell and gene therapies.
Any of the foregoing could harm our business, financial condition, results of operations and prospects. We may be involved in litigation claiming that we have infringed on a third party’s intellectual property, which could be time consuming and costly and may adversely affect our business, financial condition, results of operations and prospects.
Any of the foregoing could harm our business, financial condition, results of operations and prospects. 41 Table of Contents We may be involved in litigation claiming that we have infringed on a third party’s intellectual property, which could be time consuming and costly and may adversely affect our business, financial condition, results of operations and prospects.
Any inability to meaningfully enforce our intellectual property rights could harm our ability to compete and reduce demand for our products and services. Litigation may be necessary for us to enforce our patent and proprietary rights or to determine the scope, coverage and validity of the proprietary rights of others.
Any inability to meaningfully enforce our intellectual property rights could harm our ability to compete and reduce demand for our products and services. 42 Table of Contents Litigation may be necessary for us to enforce our patent and proprietary rights or to determine the scope, coverage and validity of the proprietary rights of others.
The use of any product we may develop and the sale of any products exposes us to the risk of product liability claims. Product liability claims might be brought against us by pharmaceutical companies, CMOs or others selling or otherwise coming into contact with our products.
The use of any product we may develop and the sale of any products exposes us to the risk of product liability claims. Product liability claims might be brought against us by pharmaceutical companies, contract organizations or others selling or otherwise coming into contact with our products.
We do not have supply agreements with most of our suppliers beyond purchase orders and, although we maintain an inventory of 43 Table of Contents components, forecasted amounts may be inaccurate and we may experience shortages as a result of serious supply problems with these suppliers.
We do not have supply agreements with most of our suppliers beyond purchase orders and, although we maintain an inventory of components, forecasted amounts may be inaccurate and we may experience shortages as a result of serious supply problems with these suppliers.
In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts 55 Table of Contents by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors.
In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors.
These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to: • our customers’ tendency to purchase our Growth Direct system, including multiple systems, in a single transaction, resulting in significant variations in sales of our systems over time; • the level of demand for our platform and solutions, which may vary significantly; • the length of time of the sales cycle for purchases of our systems; • seasonality in our business due to our customers’ budgetary cycles and time off during the summer vacation; • lead time needed for validation prior to our customers’ using and purchasing our consumables; • changes in demand for our consumables; • the timing and cost of, and level of investment in, technology development and commercialization activities, which may change from time to time; • the start and completion of manufacturing runs; • system repairs or replacements that may impact our customers’ confidence in us and our products and our reputation in the market; • the relative reliability and robustness of our platform; 27 Table of Contents • the introduction of new products or product enhancements by us or others in our industry; • expenditures that we may incur to acquire, develop or commercialize additional products and technologies; • expenditures involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; • future accounting pronouncements or changes in our accounting policies; • the ability of our sales organization to design and execute effective sales processes; and • general market conditions and other factors, including factors, such as inflation, unrelated to our operating performance or the operating performance of our competitors.
These fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to: • our customers’ tendency to purchase our Growth Direct system, including multiple systems, in a single transaction, resulting in significant variations in sales of our systems over time; • the level of demand for our platform and solutions, which may vary significantly; • the length of time of the sales cycle for purchases of our systems; • seasonality in our business due to our customers’ budgetary cycles and time off during the summer vacation; • lead time needed for validation prior to our customers’ using and purchasing our consumables; • changes in demand for our consumables; • the timing and cost of, and level of investment in, technology development and commercialization activities, which may change from time to time; • the start, completion, and output of manufacturing runs; 22 Table of Contents • the costs of manufacturing and shipping our products or of providing services to our customers, which may impact our operating gross margin in any given period; • system repairs or replacements that may impact our customers’ confidence in us and our products and our reputation in the market; • the relative reliability and robustness of our platform; • the introduction of new products or product enhancements by us or others in our industry; • expenditures that we may incur to acquire, develop or commercialize additional products and technologies; • expenditures involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; • future accounting pronouncements or changes in our accounting policies; • the ability of our sales organization to design and execute effective sales processes; and • general market conditions and other factors, including factors, such as inflation, unrelated to our operating performance or the operating performance of our competitors.
Inventorship disputes may arise from conflicting views regarding the contributions of different individuals named as inventors, the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations of third parties involved in developing our product candidates or as a result of questions regarding co-ownership of potential joint inventions.
Inventorship disputes may arise from conflicting views regarding the contributions of different individuals named as inventors, the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations of third parties involved in our development activities or as a result of questions regarding co-ownership of potential joint inventions.
We may not successfully implement our strategy to expand our Growth Direct platform to customers who manufacture cell and gene therapies. Our ability to execute our growth strategy to expand our Growth Direct platform to customers who manufacture cell and gene therapies depends upon our ability to integrate our platform with the novel manufacturing processes being developed for these therapies.
We may not successfully expand our Growth Direct platform to customers who manufacture cell and gene therapies. Our ability to expand our Growth Direct platform to customers who manufacture cell and gene therapies depends upon our ability to integrate our platform with the novel manufacturing processes being developed for these therapies.
As a result of their combined voting power, if our executive officers, directors and stockholders who own more than 5% of our outstanding common stock choose to act together, they would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs.
As a result of their combined voting power, if our executive officers, directors and stockholders who own more than 5% of our outstanding common stock choose to act together, they would be able to control all matters submitted to our stockholders for approval that require a majority vote, as well as our management and affairs.
Unlike traditional “small molecule” drug manufacturing, the manufacture of biologics, such as cell and gene therapies, is more time sensitive and subject to increased risk of contamination due to material handling and process change-over. There are also currently a small number of cell and gene therapies approved by the FDA.
Unlike traditional “small molecule” drug manufacturing, the manufacture of biologics, and cell and gene therapies in particular, is more time sensitive and subject to increased risk of contamination due to material handling and process change-over. There are also currently a small number of cell and gene therapies approved by the FDA.
Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may in the future conclude that there are material weaknesses with respect to our internal controls or the level at which our internal controls are documented, designed, implemented or reviewed.
Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may in the future conclude that there are material 46 Table of Contents weaknesses with respect to our internal controls or the level at which our internal controls are documented, designed, implemented or reviewed.
In addition, changes in global shipping capacity and demand as well as the cost of raw materials and commodities such as oil (including derivative products including fuel and plastics) could negatively impact our freight and materials costs.
In addition, changes in global shipping 35 Table of Contents capacity and demand as well as the cost of raw materials and commodities such as oil (including derivative products including fuel and plastics) could negatively impact our freight and materials costs.
However, we cannot be certain that such agreements have been entered into with all 47 Table of Contents relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques.
However, we cannot be certain that such agreements have been entered into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques.
Even if we are successful in defending against such claims, litigation could result in substantial 49 Table of Contents costs and be a distraction to management and other employees, and certain customers or partners may defer engaging with us until the particular dispute is resolved.
Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees, and certain customers or partners may defer engaging with us until the particular dispute is resolved.
If any such in-license agreement is terminated, or if the licensed patents fail to provide the intended exclusivity, competitors or other third parties might have the freedom to market or develop products similar to ours.
If any such in-license agreement is terminated, or if licensed intellectual property fail to provide the intended exclusivity, competitors or other third parties might have the freedom to market or develop products similar to ours.
We intend to utilize the extended transition period and, as a result, we will not be required to comply with new or revised accounting standards on the same time line as other public companies.
We intend to utilize the extended transition period and, as a result, we will not be required to comply with new or revised accounting standards on the same timeline as other public companies.
The time and resources required to improve our existing systems and procedures, implement new systems and procedures and to adequately staff such existing and new systems and procedures is uncertain, 34 Table of Contents and failure to complete such activities in a timely and efficient manner could adversely affect our operations and negatively impact our business and financial results.
The time and resources required to improve our existing systems and procedures, implement new systems and procedures and to adequately staff such existing and new systems and procedures is uncertain, and failure to complete such activities in a timely and efficient manner could adversely affect our operations and negatively impact our business and financial results.
In addition, debt financing and preferred equity 29 Table of Contents financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
In addition, debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
For example, while our patents and, if issued, our patent applications have terms that will expire through 2042, certain of our unexpired U.S. patents covering the Growth Direct system and its use are scheduled to expire in 2023 and 2024.
For example, while our patents and, if issued, our patent applications have terms that will expire through 2043, certain of our earliest unexpired U.S. patents covering the Growth Direct system and its use are scheduled to expire in 2024.
Litigation may be necessary to defend against these and other claims challenging inventorship of our or our licensors’ ownership of our owned or in-licensed patents, trade secrets or other intellectual property. Alternatively, or additionally, we may enter into agreements to clarify the scope of our rights in such intellectual property.
Litigation may be necessary to defend against these and other claims challenging inventorship of patents, trade secrets or other intellectual property. Alternatively, or additionally, we may enter into agreements to clarify the scope of our rights in such intellectual property.
Risks Related to Manufacturing and Supply If our sole manufacturing and development facility becomes damaged or inoperable or we are required to vacate our existing facility, our ability to conduct and pursue our manufacturing and development efforts will be jeopardized. We currently conduct our development and manufacturing at a single facility located in Lowell, Massachusetts.
Risks Related to Manufacturing and Supply If our primary manufacturing and development facility becomes damaged or inoperable or we are required to vacate our existing facility, our ability to conduct and pursue our manufacturing and development efforts will be jeopardized. We currently conduct our primary development and manufacturing at our facility located in Lowell, Massachusetts.
Since our inception, we have financed our operations primarily from private placements of our convertible preferred stock, the incurrence of indebtedness, our initial public offering, and to a lesser extent, revenue derived from our Growth Direct platform and non-commercial contracts.
Since our inception, we have financed our operations primarily from private placements of equity, the incurrence of indebtedness, our initial public offering, and to a lesser extent, revenue derived from our Growth Direct platform and non-commercial contracts.
We were established in 2006 and launched our current second-generation Growth Direct platform in 2017 for which we are continuing to grow our manufacturing and sales and marketing capabilities. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history.
We launched our current second-generation Growth Direct platform in 2017 for which we are continuing to grow our manufacturing and sales and marketing capabilities. Consequently, predictions about our future success or viability may not be as accurate as they could be if our products had a longer commercial history.
Such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure, which could materially adversely impact our business and financial position.
Such agreements may not be enforceable or may not provide meaningful protection in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure, which could materially adversely impact our business and financial position.
Following our IPO, based on the number of shares of Class A common stock outstanding as of December 31, 2022, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock before the IPO and their respective affiliates hold, in the aggregate, a majority of our outstanding voting stock.
Based on the number of shares of Class A common stock outstanding as of December 31, 2023, our executive officers, directors and stockholders who owned more than 5% of our outstanding common stock and their respective affiliates hold, in the aggregate, a majority of our outstanding voting stock.
We are party to a non-exclusive, royalty-bearing license agreement with Thermo CRS, Ltd., or Thermo Fisher, that grants us rights to exploit certain patent rights that are related to our Growth Direct platform. We may need to obtain additional licenses from others to advance our research, development and commercialization activities.
We are party to a non-exclusive, royalty-bearing license agreement with Thermo CRS, Ltd., or Thermo Fisher, that grants us rights to exploit certain patent rights that are related to our Growth Direct platform, which expires in April 2024. In the future, we may need to obtain additional licenses from others to advance our research, development and commercialization activities.
Though we believe customers in our markets display a significant amount of loyalty to their supplier of a particular product, we also believe that because of the initial time investment required by many of our customers to reach a purchasing decision for a new product, it may be difficult to regain that customer once the customer purchases a product from a competitor.
Although we believe customers in our markets display a significant amount of loyalty to their supplier of a particular product, we also believe that because of the initial time investment required by many of our customers to reach a purchasing decision for a new product, it may be difficult to regain that customer once the customer migrates away from using our solutions to that of a competitor.
Our reliance on these suppliers subjects us to a number of risks that could harm our business, including: • interruption of supply resulting from modifications to or discontinuation of a supplier’s operations; • delays in product shipments resulting from uncorrected defects, reliability issues, or a supplier’s variation in a component; • a lack of long-term supply arrangements for key components with our suppliers; • inability to obtain adequate supply in a timely manner, or to obtain adequate supply on commercially reasonable terms; • difficulty and cost associated with locating and qualifying alternative suppliers for our components in a timely manner; • a modification or change in a manufacturing process or part that unknowingly or unintentionally negatively impacts the operation of our products; • production delays related to the evaluation and testing of products from alternative suppliers, and corresponding regulatory qualifications; • delay in delivery due to our suppliers prioritizing other customer orders over ours; • damage to our brand reputation caused by defective components produced by our suppliers; • increased cost of our warranty program due to product repair or replacement based upon defects in components produced by our suppliers; and • fluctuation in delivery by our suppliers due to changes in demand from us or their other customers. 44 Table of Contents Any interruption in the supply of components or materials, or our inability to obtain substitute components or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers, which would have an adverse effect on our business.
Our reliance on these suppliers subjects us to a number of risks that could harm our business, including: • interruption of supply resulting from modifications to or discontinuation of a supplier’s operations; • delays in product shipments resulting from uncorrected defects, reliability issues, or a supplier’s variation in a component; • a lack of long-term supply arrangements for key components with our suppliers; • inability to obtain adequate supply in a timely manner, or to obtain adequate supply on commercially reasonable terms; • difficulty and cost associated with locating and qualifying alternative suppliers for our components in a timely manner; • a modification or change in a manufacturing process or part that unknowingly or unintentionally negatively impacts the operation of our products; • production delays related to the evaluation and testing of products from alternative suppliers, and corresponding regulatory qualifications; • delay in delivery due to our suppliers prioritizing other customer orders over ours; 37 Table of Contents • damage to our brand reputation caused by defective components produced by our suppliers; • increased cost of our warranty program due to product repair or replacement based upon defects in components produced by our suppliers; and • fluctuation in delivery by our suppliers due to changes in demand from us or their other customers.
However, if competitors develop and commercialize an automated MQC testing platform that is comparable to ours and are able to obtain traction with customers, we may not be able to maintain our lead position and execute our business strategy, which could adversely affect our financial position and prospects.
However, if competitors develop and commercialize an automated MQC testing platform that is comparable to ours and are able to obtain traction with customers, we may not be able to maintain our lead position and execute our business strategy.
In addition, our customers may also elect to continue to use the traditional MQC testing method rather than our platform and may decide to stop using our platform.
In addition, our 28 Table of Contents customers may also elect to continue to use the traditional MQC testing method rather than our platform and may decide to stop using our platform.
We have been, and may continue to be, subject to the actions of activist shareholders, which could cause us to incur substantial costs, divert management’s and the board’s attention and resources, and have an adverse effect on our business and stock price.
We have been, and may continue to be, subject to the actions of activist stockholders or unsolicited acquisition proposals, which could cause us to incur substantial costs, divert management’s and the board’s attention and resources, and have an adverse effect on our business and stock price.
As we commercialize additional products, we will need to incorporate new equipment, implement new technology systems and processes, and hire new personnel, possibly with supplemental or different qualifications as compared to our current personnel.
In addition, if we commercialize additional products in the future, we will need to incorporate new equipment, implement new technology systems and processes, and hire new personnel, possibly with supplemental or different qualifications as compared to our current personnel.
If we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property that is important to our products.
If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, important intellectual property.
Based upon our current operating plan, we believe our existing cash, cash equivalents, and investments of $138.4 million, and anticipated cash flow from operations, will enable us to fund our operating expenses and capital expenditure requirements for at least twelve months following the date these consolidated financial statements were issued.
Based upon our current operating plan, we believe our existing cash, cash equivalents, and investments as of December 31, 2023 of $95.0 million, and anticipated cash flow from operations, will enable us to fund our operating expenses and capital expenditure requirements for at least twelve months following the date these consolidated financial statements were issued.
If we delay in filing a patent application, and a competitor files a patent application on the same or a similar technology before we do, we may face a limited ability to secure patent rights. We may not be able to patent the technology at all.
If we delay in filing a patent application, and a competitor files a patent application on the same or a similar technology before we do, we may face a limited ability to secure patent rights.
Any disclosure, either intentional or unintentional, by our employees, consultants and vendors that we engage to perform research or manufacturing activities, or misappropriation by third parties (such as through a cybersecurity breach) of our trade secrets or proprietary information could enable competitors to duplicate or surpass our technological achievements, thus eroding our competitive position in our market.
Any disclosure, either intentional or unintentional, by our employees, consultants or vendors, or misappropriation by third parties (such as through a cybersecurity breach) of our trade secrets or proprietary information could enable competitors to duplicate or surpass our technological achievements, thus eroding our competitive position in our market.
If that occurs, we may also incur significant costs, the attention of our key personnel could be diverted, or other significant customer relations problems may arise. We may also be subject to warranty claims or breach of contract for damages related to errors or defects in our products.
If such challenges occur, the attention of our key personnel could be diverted, or other significant customer relations problems may arise. We may also be subject to warranty claims or breach of contract for damages related to errors or defects in our products.
Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts.
Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts. Such laws may have potentially conflicting requirements that would make compliance challenging.
We or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our owned or in-licensed patents, trade secrets or other intellectual property as an inventor or co-inventor.
We may be subject to claims that former employees, collaborators or other third parties have an interest in our patents, trade secrets or other intellectual property as an inventor or by contract.
For the years ended December 31, 2022 and 2021, we incurred net losses of $60.8 million and $73.5 million, respectively. As of December 31, 2022, we had an accumulated deficit of $375.9 million. We expect that our operating expenses will continue to increase as we grow our business.
For the years ended December 31, 2023 and 2022, we incurred net losses of $52.5 million and $60.8 million, respectively. As of December 31, 2023, we had an accumulated deficit of $428.4 million. We expect that our operating expenses will continue to increase as we grow our business.
If we see additional pressure on our labor, materials and freight costs, we could see negative effects on our results of operations (including product costs), cash flows and overall financial condition. Global economic and political instability and conflicts, such as the conflict between Russia and Ukraine, could adversely affect our business, financial condition or results of operations.
If we see additional pressure on our labor, materials and freight costs, we could see negative effects on our results of operations (including product costs), cash flows and overall financial condition. Global economic and political instability and geopolitical conflicts could adversely affect our business, financial condition or results of operations.
We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain all available funds and future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future.
We currently anticipate that we will retain all available funds and future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future.
We cannot predict the impact of such changes and cannot be certain of our future compliance. 45 Table of Contents Risks Related to Our Intellectual Property If we are unable to obtain and maintain sufficient intellectual property protection for our technology, including the Growth Direct platform, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be impaired.
Risks Related to Our Intellectual Property If we are unable to obtain and maintain sufficient intellectual property protection for our technology, including the Growth Direct platform, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be impaired.
Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.
A number of other states have proposed their own comprehensive privacy laws. Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.
Our failure to adequately address any of foregoing risks related to errors or defects with our platform could have a material adverse effect on our business, operating results and financial condition.
Our failure to prevent or adequately address any of foregoing risks could have a material adverse effect on our business, operating results and financial condition.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn June 2021, we entered into a sublease agreement for 33,339 square feet of office and back-up manufacturing space in Lexington, Massachusetts, which expires in June 2029. Further, we maintain inventory at storage a warehouse in Noord-Brabant, Netherlands as well as various offsite warehouses in the United States and Europe.
Biggest changeIn June 2021, we entered into a sublease agreement for 33,339 square feet of office, back-up manufacturing, sales demonstration lab and research and development innovation space in Lexington, Massachusetts, which expires in June 2029. Further, we maintain inventory at storage a warehouse in Noord-Brabant, Netherlands as well as various offsite warehouses in the United States and Europe.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeRegardless of outcome, litigation can have an adverse impact on our business, financial condition, results of operations and prospects because of defense and settlement costs, diversion of management resources and other factors. Item 4. Mine Safety Disclosures. Not Applicable. 59 Table of Contents PART II
Biggest changeRegardless of outcome, litigation can have an adverse impact on our business, financial condition, results of operations and prospects because of defense and settlement costs, diversion of management resources and other factors. Item 4. Mine Safety Disclosures. Not Applicable. 51 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 changeWe currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future.
Biggest changeWe currently intend to retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring or paying any dividends in the foreseeable future. Recent Sales of Unregistered Securities; Purchases of Equity Securities by the Issuer or Affiliated Purchaser None.
There has been no material change in the expected use of the net proceeds from our IPO as described in our final prospectus filed with the SEC pursuant to Rule 424(b) of the Securities Act and other periodic reports previously filed with the SEC. Item 6. Reserved 60 Table of Contents
There has been no material change in the expected use of the net proceeds from our IPO as described in our final prospectus filed with the SEC pursuant to Rule 424(b) of the Securities Act and other periodic reports previously filed with the SEC. Item 6. Reserved 52 Table of Contents
There is no established public trading market for our Class B common stock. Holders As of March 7, 2023, there were 34 holders of record of our Class A common stock and 2 holders of record of our Class B common stock. Dividend Policy We have never declared or paid any cash dividends on our capital stock.
There is no established public trading market for our Class B common stock. Holders As of February 28, 2024, there were 35 holders of record of our Class A common stock and 1 holder of record of our Class B common stock. Dividend Policy We have never declared or paid any cash dividends on our capital stock.
Removed
Recent Sales of Unregistered Securities; Purchases of Equity Securities by the Issuer or Affiliated Purchaser Other than as disclosed in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, the Company did not sell any equity securities during the years ended December 31, 2021 and 2022 that were not registered under the Securities Act.
Removed
On July 16, 2021, we filed a registration statement on Form S-8 under the Securities Act to register all of the shares of our Class A common stock subject to outstanding options and all shares of our Class A common stock otherwise issuable pursuant to our equity compensation plans.

Item 7. Management's Discussion & Analysis

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

65 edited+29 added−82 removed62 unchanged
Biggest changeThese increases were partially offset by lower consulting fees, which decreased by $1.9 million due to lower spending on strategy and market analysis projects as well as a reduction in marketing consulting due to the expansion of our in-house marketing team. 71 Table of Contents General and administrative Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) General and administrative $ 26,819 $ 17,895 $ 8,924 49.9 % Percentage of total revenue 156.5 % 77.0 % General and administrative expenses increased by $8.9 million, or 49.9%.
Biggest changeGeneral and administrative Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) General and administrative $ 24,936 $ 26,819 $ (1,883) (7.0) % Percentage of total revenue 110.7 % 156.5 % General and administrative expenses decreased by $1.9 million, or 7.0%.
We develop, manufacture, market and sell the Growth Direct system and related proprietary consumables, and value-added services to enable rapid MQC testing in the manufacture of biologics, cell and gene therapies, vaccines, sterile injectables, and other healthcare products. Our system delivers the power of industrial automation to bioprocessing and pharmaceutical manufacturing firms by modernizing and digitizing their MQC operations.
We develop, manufacture, market and sell the Growth Direct system and related proprietary consumables, and value-added services to enable rapid MQC testing in the manufacture of biologics and cell and gene therapies, vaccines, sterile injectables, and other healthcare products. Our system delivers the power of industrial automation to bioprocessing and pharmaceutical manufacturing firms by modernizing and digitizing their MQC operations.
However, we did record an immaterial amount of foreign income tax expense during each of those periods. Additionally, as a result of a favorable outcome related to the tax examination for our German subsidiary, Rapid Micro Biosystems Europe GmbH, we recorded an income tax benefit of $0.6 million during the year ended December 31, 2022.
However, we did record an immaterial amount of foreign income tax expense during each of those periods. Additionally, as a result of a favorable outcome related to a tax examination for our German subsidiary, Rapid Micro Biosystems Europe GmbH, we recorded an income tax benefit of $0.6 million during the year ended December 31, 2022.
We believe that our cash, cash equivalents and short and long-term investments will enable us to fund our operating expenses and capital expenditure requirements for at least twelve months following the date the consolidated financial statements contained in this Annual Report on Form 10-K for the year ended December 31, 2022 were issued.
We believe that our cash, cash equivalents and short and long-term investments will enable us to fund our operating expenses and capital expenditure requirements for at least twelve months following the date the consolidated financial statements contained in this Annual Report on Form 10-K for the year ended December 31, 2023 were issued.
Our recurring revenue as a percentage of the total product and service revenue will generally vary based upon the number of Growth Direct systems placed and the cumulative number of systems validated in the period, as well as other variables such as the volume of tests being conducted, and the test application(s) being used on those Growth Direct systems.
Our recurring revenue as a percentage of the total product and service revenue will generally vary based upon the number of Growth Direct systems placed and the cumulative number of systems validated and in routine use in the period, as well as other variables such as the volume of tests being conducted, and the test application(s) being used on those Growth Direct systems.
Other income (expense), net Other income (expense), net primarily consists of other miscellaneous income and expense unrelated to our core operations. Income tax (benefit) expense We generated significant taxable losses during the years ended December 31, 2022 and 2021, and, therefore, have not recorded any U.S. federal or state income tax expense during those periods.
Other (expense) income, net Other (expense) income , net primarily consists of other miscellaneous income and expense unrelated to our core operations. Income tax expense (benefit) We generated significant taxable losses during the years ended December 31, 2023 and 2022, and, therefore, have not recorded any U.S. federal or state income tax expense during those periods.
We believe that our cash, cash equivalents and investments as of December 31, 2022 will enable us to fund our operating expenses and capital expenditure requirements for at least twelve months following the date these consolidated financial statements were issued.
We believe that our cash, cash equivalents and investments as of December 31, 2023 will enable us to fund our operating expenses and capital expenditure requirements for at least twelve months following the date these consolidated financial statements were issued.
The number of Growth Direct system placements and rate of growth varies from period-to-period due to factors including, but not limited to, Growth Direct system order volume and timing, and access to customer sites (including coronavirus related restrictions and the timing of customer site construction activities).
The number of Growth Direct system placements and rate of growth varies from period-to-period due to factors including, but not limited to, Growth Direct system order volume and timing, and access to customer sites (including coronavirus related restrictions in 2022 and the timing of customer site construction activities).
The study determined that ownership changes materially limited the NOL carryforwards and research and development tax credits available to offset future tax liabilities and the limitations have been reflected in the amounts of NOL carryforwards, research and development tax credits, and deferred tax assets disclosed above.
The study determined that ownership changes materially limited the NOL carryforwards and research and development tax credits available to offset future tax liabilities and the limitations have been reflected in the amounts of NOL carryforwards, research and development tax credits, and deferred tax assets disclosed above through that date.
Research and development Research and development expenses consist primarily of costs incurred for our research activities, product development, hardware and software engineering and consultant services and other costs associated with our technology Growth Direct platform and products, which include: • employee-related expenses, including costs for salaries, bonuses and other personnel costs including stock-based compensation expense, for employees engaged in research and development functions; • the cost of developing, maintaining and improving new and existing product designs; • the cost of hardware and software engineering; • research materials and supplies; • external costs of outside consultants engaged to conduct research and development associated with our technology and products; and 67 Table of Contents • allocated information technology and facility-related costs, which include direct and allocated expenses for rent, maintenance of facilities and insurance as well as related depreciation and amortization.
Research and development Research and development expenses consist primarily of costs incurred for our research activities, product development, hardware and software engineering and consultant services and other costs associated with our technology Growth Direct platform and products, which include: • employee-related expenses, including costs for salaries, bonuses and other personnel costs including stock-based compensation expense, for employees engaged in research and development functions; • the cost of developing, maintaining and improving new and existing product designs; • the cost of hardware and software engineering; • research materials and supplies; 58 Table of Contents • external costs of outside consultants engaged to conduct research and development associated with our technology and products; and • allocated information technology and facility-related costs, which include headcount-related costs for those functions as well as expenses for information technology systems and services, software, rent, facilities maintenance, and insurance as well as related depreciation and amortization.
Our main performance obligations in customer arrangements are Growth Direct systems, LIMS connection software, proprietary consumables, validation services, field service and services due under service contracts.
Our main performance obligations in customer arrangements are Growth Direct systems, LIMS connection software, proprietary consumables, validation services, field service (including installation services) and services due under service contracts.
For Growth Direct systems and consumables sold by us, control transfers to the customer at a point in time. 75 Table of Contents Service revenue We derive service revenue primarily from the sale of validation services, service contracts and field service (including installation).
For Growth Direct systems and consumables sold by us, control transfers to the customer at a point in time. Service revenue We derive service revenue primarily from the sale of validation services, service contracts and field service (including installation).
As a result, we expect to experience continued variability in our period-to-period number of Growth Direct system placements due to the aforementioned factors. 64 Table of Contents Validated systems We regularly review the number of Growth Direct systems validated and cumulative Growth Direct systems validated in each period as indicators of our business performance.
As a result, we expect to experience continued variability in our period-to-period number of Growth Direct system placements due to the aforementioned factors. Validated systems We regularly review the number of Growth Direct systems validated and cumulative Growth Direct systems validated in each period as indicators of our business performance.
These additional systems will allow our existing customers to convert more of their test volume at existing locations, to support multiple locations, to meet redundancy requirements, or to increase capacity. As of December 31, 2022, approximately 45% of our customers have purchased Growth Direct systems for multiple sites, and approximately 55% of our customers have purchased multiple Growth Direct systems.
These additional systems will allow our existing customers to convert more of their test volume at existing locations, to support multiple locations, to meet redundancy requirements, or to increase capacity. As of December 31, 2023, approximately 40% of our customers have purchased Growth Direct systems for multiple sites, and approximately 55% of our customers have purchased multiple Growth Direct systems.
We believe that the following metrics are representative of our current business; however, we anticipate these may change or be substituted for additional or different metrics as our business grows and evolves.
We believe that the following 55 Table of Contents metrics are representative of our current business; however, we anticipate these may change or be substituted for additional or different metrics as our business grows and evolves.
During the year ended December 31, 2022, we adjusted an uncertain tax liability we had recorded for that subsidiary as a result of the favorable outcome of an examination for the tax years 2016 through 2018, resulting in the favorable income tax benefit in the period. 72 Table of Contents Liquidity and capital resources Since our inception, we have incurred significant operating losses.
During the year ended December 31, 2022, we adjusted an uncertain tax liability we had recorded for that subsidiary as a result of the favorable outcome of an examination for the tax years 2016 through 2018, resulting in an income tax benefit in that year. Liquidity and capital resources Since our inception, we have incurred operating losses.
We plan to further invest in research and development to support the expansion of our Growth Direct platform through development and launch of new applications to capture greater share of customer testing volume, new product formats to broaden our ability to serve different market segments and launch of new products and technologies to address adjacent segments of the overall MQC workflow.
We plan to further invest in research and development to support the expansion of our Growth Direct platform through development and launch of new applications, such as our rapid sterility application, to capture greater share of customer testing volume, new product formats to broaden our ability to serve different market segments and launch of new products and technologies to address adjacent segments of the overall MQC workflow.
The number of validated Growth Direct systems and rate of growth varies from period-to-period due to factors including, but not limited to, Growth Direct system order volume and timing, whether customers have previously validated Growth Direct systems within their site or network, access to customer sites (including as a result of coronavirus related restrictions), customer site readiness and the time to install and validate each individual system.
The number of validated Growth Direct systems and rate of growth varies from period-to-period due to factors including, but not limited to, Growth Direct system order volume and timing, whether customers have previously validated Growth Direct systems within their site or network, access to customer sites, customer site readiness and the time to install and validate each individual system.
Examples of these investments include new tools and training for the sales organization, targeted marketing, expanding lead generation capabilities and hosting customer-related Growth Direct demonstrations. Expansion within our existing customer base There is an opportunity to increase broader adoption and utilization of our Growth Direct platform throughout our existing customers’ organizations by existing customers purchasing more systems.
Examples of these investments include new tools and training for our sales organization, targeted marketing, expanding lead generation capabilities and hosting customer-related Growth Direct demonstrations and other customer-focused events. 54 Table of Contents Expansion within our existing customer base There is an opportunity to increase broader adoption and utilization of our Growth Direct platform throughout our existing customers’ organizations by existing customers purchasing more systems.
We expect consumable revenue to increase in future periods as our base of cumulative validated Growth Direct systems grows and those systems utilize our consumables on a recurring, ongoing basis. LIMS Connection Software Our LIMS connection software is a non-recurring product revenue stream.
We expect consumable revenue to increase in future periods as our base of cumulative validated Growth Direct systems grows and those systems enter routine use and utilize our consumables on a recurring, ongoing basis. 57 Table of Contents LIMS Connection Software Our LIMS connection software is a non-recurring product revenue stream.
Our Growth Direct platform accelerates time to results by several days, a 50% improvement over the traditional method, and reduces MQC testing to a simple two-step workflow, eliminating up to 85% of the manual steps of traditional MQC, generating significant time, operational, and cost savings for our customers.
Our Growth Direct platform accelerates time to results by 50% or more compared to the traditional method, and reduces MQC testing to a simple two-step workflow, eliminating up to 85% of the manual steps of traditional MQC, generating significant time, operational, and cost savings for our customers.
By expanding and continuously enhancing the Growth Direct platform, we believe we can drive incremental revenue from existing clients as well as broaden the appeal of our solutions to potential new customers. 63 Table of Contents Revenue mix Our revenue is derived from sales of our Growth Direct systems, our LIMS connection software, proprietary consumables, services and our cost-reimbursement contract with BARDA.
By expanding and continuously enhancing the Growth Direct platform, we believe we can drive incremental revenue from existing clients as well as broaden the appeal of our solutions to potential new customers. Revenue mix Our revenue is derived from sales of our Growth Direct systems, our LIMS connection and other software, proprietary consumables, and services.
Recurring revenue We regularly assess trends relating to recurring revenue, which is the revenue from consumables and service contracts, based on our product offerings, our customer base and our understanding of how our customers use our products. Recurring revenue was 64.1% and 33.7% of our total revenue for the years ended December 31, 2022 and 2021, respectively.
Recurring revenue We regularly assess trends relating to recurring revenue, which is the revenue from consumables and service contracts, based on our product offerings, our customer base and our understanding of how our customers use our products. 56 Table of Contents Recurring revenue was 60.2% and 64.1% of our total revenue for the years ended December 31, 2023 and 2022, respectively.
We recognize revenue from the sale of service contracts over time as these services are provided over the respective contract term. 66 Table of Contents We also offer our customers field service which primarily consists of services provided by our field service engineers to install Growth Direct systems at customer sites.
We also offer our customers field service which primarily consists of services provided by our field service engineers to install Growth Direct systems at customer sites. We recognize revenue from field service over time as these services are provided to the customer.
Increased utilization amongst existing customers can also occur as customers advance through the Growth Direct platform adoption cycle from early validation of initial applications to validation and conversion of multiple applications on the Growth Direct platform or as the result of increasing manufacturing volumes.
Increased utilization amongst existing customers can also occur as customers advance through the Growth Direct platform adoption cycle, from early validation of initial applications to validation and conversion of multiple applications on the Growth Direct platform, or as the result of new product approvals or increases in their manufacturing volumes for existing products.
As of December 31, 2022, we also had U.S. federal and state research and development tax credit carryforwards of $1.5 million and $2.9 million, respectively, which may be available to offset future tax liabilities and begin to expire in 2038 and 2024, respectively.
As of December 31, 2023, we also had U.S. federal and state research and development tax credit carryforwards of $2.2 million and $3.2 million, respectively. These tax credits may be available to offset future tax liabilities and begin to expire in 2038 and 2024, respectively.
General and administrative expenses also include direct and allocated information technology and facility-related costs. General and administrative expenses are expected to increase in future periods as the number of administrative personnel grows to support increasing business size and complexity.
General and administrative expenses also include direct and allocated information technology and facility-related costs. General and administrative expenses are expected to increase in future periods as the number of administrative personnel grows to support increasing business size and complexity. Other income (expense) Interest income, net Interest income, net is comprised of interest income from investments.
General and administrative General and administrative expenses consist primarily of salaries, bonuses and other personnel costs including stock-based compensation expense for our finance, legal, human resources and general management employees and most of our executive leadership team, as well as professional fees for legal, patent, accounting, audit, corporate governance, investor relations, recruiting, consulting and other services.
General and administrative General and administrative expenses consist primarily of salaries, bonuses and other personnel costs including stock-based compensation expense for our executive, finance, legal, human resources and general management employees, as well as director and officer insurance costs and professional fees for legal, patent, accounting, audit, investor relations, recruiting, consulting, regulatory, compliance, board of directors' fees and other services.
As a result of the process, our board of directors determined that the best path to deliver shareholder value is for us to continue executing our strategy to improve our commercial execution to drive system placement growth, advance our new product development programs and expand the market for our Growth Direct system.
As a result of the process, our board of directors determined that the best path to deliver shareholder value is for us to continue executing our strategy to improve our commercial execution to drive system placement growth, advance our new product development programs and expand the market for our Growth Direct system. 53 Table of Contents Since our inception, we have incurred net losses in each year.
Any write-down of inventory to net realizable value creates a new cost basis. 76 Table of Contents Recently issued accounting pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 — Summary of Significant Accounting Policies to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
Recently issued accounting pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 — Summary of Significant Accounting Policies to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
The fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model, which uses inputs such as the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our common stock options, the risk-free interest rate for a period that approximates the expected term of our common stock options, and our expected dividend yield.
The straight-line method of expense recognition is applied to all awards with service-only conditions. 64 Table of Contents The fair value of each stock option is estimated on the grant date using the Black-Scholes option-pricing model, which uses inputs such as the fair value of our common stock and assumptions we make for the volatility of our common stock, the expected term of our common stock options, the risk-free interest rate for a period that approximates the expected term of our common stock options, and our expected dividend yield.
Monthly rent payments are fixed and future minimum lease payments over the term of the sublease are $5.6 million, including $0.7 million in short-term obligations.
Monthly rent payments are fixed and future minimum lease payments over the term of the sublease are $4.2 million as of December 31, 2023, including $0.7 million in short-term obligations.
Growth Direct system revenue involves a capital selling process and tends to be somewhat concentrated within a small (but varied) group of customers each year, so it is subject to variability from quarter to quarter.
Growth Direct system revenue involves a capital selling process and tends to be somewhat concentrated within a relatively small (but varied) group of customers each year, so it is subject to variability from quarter to quarter. Gross margin improvement The majority of our customers are large global pharmaceutical manufacturers and CDMOs.
Other income (expense) Interest income (expense), net Interest income (expense) for the years ended December 31, 2022 and 2021 was income of $1.8 million compared to expense of $2.6 million, respectively.
Other income (expense) Interest income Interest income for the years ended December 31, 2023 and 2022 was $4.2 million and $1.8 million, respectively.
Under these contracts, they are entitled to receive phone support, emergency on-site maintenance support and two preventative maintenance visits per year. These service contracts generally have fixed fees and a term of one year.
Under these contracts, they are entitled to receive phone support, emergency on-site maintenance support and two preventative maintenance visits per year. These service contracts generally have fixed fees and a term of one year. We recognize revenue from the sale of service contracts over time as these services are provided over the respective contract term.
As of December 31, 2022, we had the following cash and investment-related assets on our consolidated balance sheet (in thousands): December 31, 2022 Cash and cash equivalents $ 27,064 Short-term investments 81,584 Long-term investments 29,790 Restricted cash 284 Total $ 138,722 Contractual obligations and commitments In October 2013, we entered into an operating lease for office and manufacturing space in Lowell, Massachusetts, which expires in July 2026.
As of December 31, 2023, we had the following cash and investment-related assets on our consolidated balance sheet (in thousands): December 31, 2023 Cash and cash equivalents $ 24,285 Short-term investments 67,768 Long-term investments 2,911 Restricted cash 284 Total $ 95,248 Contractual obligations and commitments In October 2013, we entered into an operating lease for office and manufacturing space in Lowell, Massachusetts.
Concurrent with entering into the sublease agreement, we executed an option agreement with the property owner which provides us the option to enter into a new direct lease for the Lexington facility for an additional five years following expiration of the sublease. 73 Table of Contents For additional information on our contractual obligation and commitments please see Note 16 — Commitments and Contingencies to our consolidated financial statements.
Concurrent with entering into the sublease agreement, we executed an option agreement with the property owner which provides us the 62 Table of Contents option to enter into a new direct lease for the Lexington facility for an additional five years following expiration of the sublease.
Year Ended December 31, Change Amount % 2022 2021 (dollars in thousands) Systems placed: Systems placed in period 9 29 -20 (69.0 %) Cumulative systems placed 125 116 9 7.8 % Systems validated: Systems validated in period 19 33 -14 (42.4 %) Cumulative systems validated 103 84 19 22.6 % Product and service revenue — total $ 17,133 $ 21,637 $ (4,504) (20.8 %) Product and service revenue — recurring $ 10,983 $ 7,819 $ 3,164 40.5 % Growth Direct system placements We consider a Growth Direct system to be “placed” upon transfer of control of the system to the customer, at which point the revenue for that system is recognized.
Year Ended December 31, Change Amount % 2023 2022 (dollars in thousands) Systems placed: Systems placed in period 16 9 7 77.8 % Cumulative systems placed 141 125 16 12.8 % Systems validated: Systems validated in period 18 19 (1) (5.3 %) Cumulative systems validated 121 103 18 17.5 % Product and service revenue — total $ 22,519 $ 17,133 $ 5,386 31.4 % Product and service revenue — recurring $ 13,546 $ 10,983 $ 2,563 23.3 % Growth Direct system placements We consider a Growth Direct system to be “placed” upon transfer of control of the system to the customer, at which point the revenue for that system is recognized.
We plan to drive global customer adoption through both direct and indirect sales and marketing organizations in North America, Europe, Asia, and Australia. Our focus is on enhancing customer engagement and experience and improving the efficiency and effectiveness of our sales team. We are making targeted investments in these organizations and expect to continue to do so in the future.
We plan to drive global customer adoption through both direct and indirect sales and marketing organizations in North America, Europe, and the Asia-Pacific region. We are focused on enhancing customer engagement and experience and continuing to improve the efficiency and effectiveness of our sales team.
Utilization of the U.S. federal and state NOL carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation due to ownership changes that have occurred previously or that could occur in the future.
Utilization of the U.S. federal and state NOL carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation due to ownership changes that have occurred previously or that could occur in the future. 59 Table of Contents We completed a Section 382 study through July 31, 2020 to assess whether a change of control has occurred or whether there have been multiple changes of control.
Sales and marketing Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Sales and marketing $ 14,994 $ 11,815 $ 3,179 26.9 % Percentage of total revenue 87.5 % 50.9 % Sales and marketing expenses increased by $3.2 million, or 26.9%.
Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) Sales and marketing $ 13,322 $ 14,994 $ (1,672) (11.2) % Percentage of total revenue 59.2 % 87.5 % Sales and marketing expenses decreased by $1.7 million, or 11.2%.
As of December 31, 2022, we had U.S. federal and state NOL carryforwards of $189.3 million and $87.1 million, respectively, which may be available to offset future taxable income and begin to expire in 2038 and 2032, respectively. Additionally, we had a federal NOL carryforward of $176.6 million generated since 2018 that will not expire.
These NOLs may be available to offset future taxable income and begin to expire in 2038 and 2032, respectively. Additionally, we had a U.S. federal NOL carryforward of $216.5 million generated since 2018, which do not expire.
Since our inception, we have incurred net losses in each year. We generated revenue of $17.1 million and $23.2 million for the years ended December 31, 2022 and 2021, respectively, and incurred net losses of $60.8 million and $73.5 million for those same years. As of December 31, 2022, we had an accumulated deficit of $375.9 million.
We generated revenue of $22.5 million and $17.1 million for the years ended December 31, 2023 and 2022, respectively, and incurred net losses of $52.5 million and $60.8 million for those same years. As of December 31, 2023, we had an accumulated deficit of $428.4 million.
We have not recorded any U.S. federal or state income tax benefits for the NOLs we have incurred in each year or for the research and development tax credits we generated in the United States.
We have not recorded any U.S. federal or state income tax benefits for the net operating losses, or NOLs, we have incurred in each year or for the research and development tax credits we have generated in the United States. As of December 31, 2023, we had U.S. federal and state NOL carryforwards of $229.3 million and $100.4 million, respectively.
To date, we have funded our operations primarily through proceeds from sales of redeemable convertible preferred stock, borrowings under loan agreements, revenue from sales of our products, services and contracts and proceeds from our IPO. On August 11, 2022, our board of directors approved the Restructuring Plan to right-size our cost structure based on our lowered 2022 outlook.
To date, we have funded our operations primarily through proceeds from sales of redeemable convertible preferred stock, borrowings under loan agreements, revenue from sales of our products, services and contracts and proceeds from our IPO.
As of December 31, 2022, we had placed 125 Growth Direct systems to over thirty-five customers globally, including over half of the top twenty pharmaceutical companies as measured by revenue and the manufacturers of 25% of globally approved cell and gene therapies.
As of December 31, 2023, we had placed 141 Growth Direct systems to forty customers globally, including 70% of the top twenty pharmaceutical companies as measured by revenue and the manufacturers of approximately 24% of globally approved cell and gene therapies, including manufacturers of 100% of approved gene-modified autologous CAR-T cell therapies..
The amendment increased the amount of facility space subject to the lease and extended the expiration of the lease from July 2026 to July 2029.
In March 2022, we amended the lease to increase the amount of facility space subject to the lease and extend the expiration of the lease from July 2026 to July 2029.
We have not completed a Section 382 study for post July 31, 2020 transactions which could create an additional limitation although materially all of the current federal NOL carryforwards can be carried forward indefinitely.For additional information, see the risk factor entitled “ Our ability to use our net operating losses and research and development tax credits to offset future taxable income or income tax liabilities are subject to certain limitations ” and Note 14— Income taxes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
For additional information, see the risk factor entitled “ Our ability to use our net operating losses and research and development tax credits to offset future taxable income or income tax liabilities are subject to certain limitations ” and Note 11— Income taxes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Components of results of operations Revenue We generate revenue from sales of our Growth Direct system (including our LIMS connection software), consumables, validation services, service contracts and field service as well as our contractual arrangement with BARDA, which we completed in the fourth quarter of 2021. We primarily sell our products and services through direct sales representatives.
Components of results of operations Revenue We generate revenue from sales of our Growth Direct system (including our LIMS connection and other software), consumables, validation services, service contracts and field service. We primarily sell our products and services through direct sales representatives. The arrangements are noncancellable and nonrefundable after ownership passes to the customer.
As a result, we expect to experience continued fluctuations in our period-to-period number of Growth Direct systems validated due to the aforementioned factors. Product and service revenue We regularly assess trends relating to our combined product and service revenue as an indicator of our business performance. Product and service revenue represents all of our commercial revenue for the business.
As a result, we expect to experience continued fluctuations in our period-to-period number of Growth Direct systems validated due to the aforementioned factors.
The terms of the amendment include options for a one-time, five-year extension of the lease and early termination of the lease in July 2026 (subject to an early termination fee), as well as a $0.3 million tenant improvement allowance.
The terms of the amendment include options for a one-time, five-year extension of the lease and early termination of the lease in July 2026 (subject to an early termination fee). Monthly rent payments are fixed and future minimum lease payments under the lease (as amended) are $3.7 million as of December 31, 2023, including $0.6 million in short-term obligations.
Key business metrics We regularly review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
We have experienced positive trends in gross margin, improving from (49.8)% to (24.4)% for the years ended December 31, 2022 and 2023, respectively. Key business metrics We regularly review the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make strategic decisions.
Research and development Year Ended December 31, Change 2022 2021 Amount % (dollars in thousands) Research and development $ 12,866 $ 9,781 $ 3,085 31.5 % Percentage of total revenue 75.1 % 42.1 % Research and development expenses increased by $3.1 million, or 31.5%.
Research and development Year Ended December 31, Change 2023 2022 Amount % (dollars in thousands) Research and development $ 12,820 $ 12,866 $ (46) (0.4) % Percentage of total revenue 56.9 % 75.1 % Research and development expenses remained relatively flat year over year.
Critical accounting policies and significant judgments and estimates Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States.
We expect this volatility to continue for the foreseeable future, which may cause fluctuations in our operating results and financial metrics. 63 Table of Contents Critical accounting policies and significant judgments and estimates Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States.
This increase was primarily due to higher employee-related costs of $0.7 million due to increases in headcount in the latter part of 2021 and 2022. We also incurred additional travel costs of $0.3 million and increased material cost of $0.5 million due to the higher number of Growth Direct systems under service contracts.
Cost of service revenue increased by $0.7 million, or 10.4%. This increase was primarily due to higher employee-related costs due to increases in headcount to support the growing number of Growth Direct systems placed and validated.
Cash flows The following table summarizes our sources and uses of cash for each of the periods presented: Year Ended December 31, 2022 2021 Net cash used in operating activities $ (58,547) $ (54,964) Net cash used in investing activities (93,469) (13,289) Net cash provided by financing activities 693 216,745 Net (decrease) increase in cash and cash equivalents and restricted cash $ (151,323) $ 148,492 Operating activities During the year ended December 31, 2022, operating activities used $58.5 million of cash, primarily resulting from our net loss of $60.8 million and net cash used by changes in our operating assets and liabilities of $5.3 million, partially offset by non-cash charges of $7.6 million.
Cash flows The following table summarizes our sources and uses of cash for each of the periods presented: Year Ended December 31, 2023 2022 Net cash used in operating activities $ (45,081) $ (58,547) Net cash provided by (used in) investing activities 42,153 (93,469) Net cash provided by financing activities 149 693 Net decrease in cash and cash equivalents and restricted cash $ (2,779) $ (151,323) Operating activities During the year ended December 31, 2023, net cash used in operating activities was $45.1 million, a decrease of $13.5 million compared to the prior year.
Such charges are classified as cost of product revenue in the statements of operations.
Such charges are classified as cost of product revenue in the statements of operations. Any write-down of inventory to net realizable value creates a new cost basis.
The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. Stock-based compensation We measure stock-based option awards granted to employees, officers and directors based on their fair value on the date of grant using the Black-Scholes option-pricing model.
Stock-based compensation We measure stock-based option awards granted to employees, officers and directors based on their fair value on the date of grant using the Black-Scholes option-pricing model. Compensation expense for those awards is recognized over the requisite service period, which is generally the vesting period of the respective award. We account for forfeitures as they occur.
We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.
We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “Liquidity and Capital Resources.” Effects of inflation and interest rates The current inflationary environment and rising interest rates could have a negative impact on our results of operations, cash flows and overall financial condition.
The IPO was deemed to be a “qualifying event” and we expensed and paid the Exit Fee in July 2021. Income tax (benefit) expense Income tax (benefit) expense was a benefit of $0.6 million and expense of $0.1 million for the years ended December 31, 2022 and 2021, respectively.
Income tax expense (benefit) Income tax expense (benefit) was an expense of $0.1 million and a benefit of $0.6 million for the years ended December 31, 2023 and 2022, respectively. Both the expense and the benefit recorded related to our German subsidiary.
Investing activities During the year ended December 31, 2022, net cash used in investing activities was $93.5 million, consisting of $179.2 million in purchases of investments and $6.7 million of capital expenditures, partially offset by investment maturities of $92.5 million.
Investing activities During the year ended December 31, 2023, net cash provided by investing activities was $42.2 million, compared to net cash used in investing activities of $93.5 million during the year ended December 31, 2022. The change was largely attributable to an increase in investment maturities as well as fewer purchases of both investments and property and equipment.
The Restructuring Plan involved an approximately 20% reduction in our workforce, including employees, contractors and temporary employees, which was focused on non-commercial functions. We recorded a restructuring charge of $1.1 million in the third quarter of 2022 primarily related to severance, employee benefits, outplacement and related costs under the Restructuring Plan.
We recorded a restructuring charge of $1.1 million in the third quarter of 2022 primarily related to severance, employee benefits, outplacement and related costs under the Restructuring Plan. We had no remaining payments under the Restructuring Plan as of December 31, 2023.
As of December 31, 2021, no shares of our preferred stock remained outstanding. On August 11, 2022, our board of directors approved an organizational restructuring plan, or the Restructuring Plan, to right-size our cost structure based on our lowered 2022 outlook.
On August 11, 2022, our board of directors approved an organizational restructuring plan, or the Restructuring Plan, to right-size our cost structure based on our lowered 2022 outlook. The Restructuring Plan involved an approximately 20% reduction in our workforce, including employees, contractors and temporary employees, which was focused on non-commercial functions.
We expect to return to commercial revenue growth and to continue growing our recurring revenues in 2023. Product revenue We derive product revenue primarily from the sale of our Growth Direct systems and related consumables as well as our LIMS connection software, which the majority of our customers purchase.
Year Ended December 31, 2023 Percentage of total revenue Year Ended December 31, 2022 Percentage of total revenue (in thousands) (in thousands) Product revenue $ 14,805 65.7 % $ 11,056 64.5 % Service revenue 7,714 34.3 % 6,077 35.5 % Total revenue $ 22,519 100.0 % $ 17,133 100.0 % Product revenue We derive product revenue primarily from the sale of our Growth Direct systems and related consumables as well as our LIMS connection software, which the majority of our customers purchase.
Costs of revenue Cost of product revenue decreased by $5.0 million, or 21.2%. The decrease was driven by $2.1 million in costs related to fewer placements of Growth Direct systems, partially offset by the increase in consumables sold.
The increase was driven by costs related to higher volume of both Growth Direct system placements and consumable shipments. This increase was partially offset by a net 60 Table of Contents improvement in production costs driven in part by higher production volumes in systems and the benefit of cost reduction activities in consumables.
Removed
All funding under this contract was fully earned by the fourth quarter of 2021. On July 19, 2021, we closed an initial public offering of our Class A common stock, or the IPO, which resulted in the sale of 7,920,000 shares of our Class A common stock at a public offering price of $20.00 per share, before underwriting discounts.
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We are making targeted investments in these organizations and expect to continue to do so in the future.
Removed
The IPO resulted in gross proceeds of $158.4 million and net proceeds of approximately $143.8 million after deducting underwriting discounts, commissions and estimated offering expenses payable by us.
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In order to meet the expectations of our customers, we have made significant investments to build infrastructure and develop capabilities in areas such as procurement, manufacturing, distribution, quality and after sales service. Given our current business scale, our revenues are not yet sufficient to fully cover these costs, impacting our current gross margin profile.
Removed
Additionally, on August 4, 2021, the underwriters exercised their overallotment option in part and purchased 1,086,604 shares of Class A common stock at the initial public offering price of $20.00 per share less discounts and commissions. The overallotment option exercise resulted in net proceeds of approximately $20.2 million.
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In order to improve our gross margins, we are actively targeting numerous areas including: • Reducing instrument and consumable product costs (materials and labor) through activities including strategic sourcing and product redesign; • Increasing product manufacturing efficiency through activities including increased throughput on our automated consumables manufacturing line and manufacturing process optimization; and • Increasing productivity and efficiency in our service organization.
Removed
Immediately prior to the completion of the IPO, all of the outstanding shares of our Series A1, Series B1, Series C1 and Series D1 preferred stock converted into 24,200,920 shares of Class A common stock and all of the outstanding shares of our Series C2 and Series D2 converted into 6,903,379 shares of Class B common stock.
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At the same time, we also expect future revenues from both products and services to grow at rates significantly higher than the costs related to provide and support those products and services. As a result, we also expect increasing revenues from both products and services to contribute significantly to future gross margin expansion.
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When it was announced, we 61 Table of Contents expected the Restructuring Plan to result in approximately $8.0 - $9.0 million in annualized cost savings by year end in 2023, with cost savings beginning in the first quarter of 2023.
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In addition, in exceptional cases, we have reacquired Growth Direct systems from customers that were previously placed and, in some cases, previously validated. Our metrics showing cumulative systems placed and cumulative systems validated are not reduced to reflect these reacquired systems.
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We are investing, and expect to continue to invest, a portion of these savings in key growth initiatives including enhancing commercial execution and key product development programs that are expected to drive future revenue growth.
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We have not completed a Section 382 study of transactions subsequent to July 31, 2020 which may have created additional limitations although materially all of the current U.S. federal NOL carryforwards can be carried forward indefinitely.
Removed
See “Liquidity and Capital Resources.” Coronavirus update In response to the coronavirus pandemic and various resulting government directives, we took proactive measures to protect the health and safety of our employees, customers, and partners, while maintaining our ability to supply and service our customers.
Added
We have recorded a full valuation allowance against our net deferred tax assets at each balance sheet date because of uncertainty about future taxable income to permit use of the assets.
Removed
We continue to monitor the implications of the ongoing coronavirus pandemic on our business, as well as our customers’ and suppliers’ businesses. As access to customer sites and in-person engagement continued to gradually improve in the second half of 2022, we gained deeper insight into the challenges the pandemic created for our customers in advancing capital purchasing decisions.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeInflation risk While we have experienced some impact from inflation related mainly to our materials, labor and freight costs, we have been able to mitigate further impacts through the maintenance of increased inventory levels and long-term contracts and commitments with key suppliers, some of which was implemented under our coronavirus risk mitigation strategy.
Biggest changeOur operations may be subject to fluctuations in foreign currency exchange rates in the future. Inflation risk While we have experienced some impact from inflation related mainly to our materials, labor and freight costs, we have been able to mitigate further impacts through the maintenance of increased inventory levels and long-term contracts and commitments with key suppliers.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Interest rate risk As of December 31, 2022, we had cash, cash equivalents and short- and long-term investments of $138.4 million, which consisted of cash, money market funds, U.S. treasury bills, certificates of deposit, and U.S. treasury notes.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Interest rate risk As of December 31, 2023, we had cash, cash equivalents and short- and long-term investments of $95.0 million, which consisted of cash, money market funds, U.S. treasury bills, certificates of deposit, and U.S. treasury notes.
Interest income is sensitive to changes in the general level of interest rates; however, due to the nature of these investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our investment portfolio.
Interest income is sensitive to changes in the general level of interest rates; however, due to the nature of these investments, an immediate 10% change in interest rates would not have a material effect on the fair market value of our investment portfolio. 65 Table of Contents Foreign currency exchange risk We are not currently exposed to significant market risk related to changes in foreign currency exchange rates.
Removed
Foreign currency exchange risk We are not currently exposed to significant market risk related to changes in foreign currency exchange rates. Our operations may be subject to fluctuations in foreign currency exchange rates in the future.

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