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What changed in EXAGEN INC.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of EXAGEN INC.'s 2023 and 2024 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 2024 report.

+550 added−575 removedSource: 10-K (2025-03-11) vs 10-K (2024-03-18)

Top changes in EXAGEN INC.'s 2024 10-K

550 paragraphs added · 575 removed · 402 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

167 edited+89 added−104 removed187 unchanged
Biggest changeWe may become subject to such reporting requirements under the terms of current CMS regulations, however, if enacted federal legislation renders our tests regulated by FDA, or if FDA finalizes its recently initiated notice-and-comment rulemaking to exercise authority over LDTs as medical devices or otherwise requires us to obtain premarket clearance or approval for one or more of our tests.
Biggest changeWe may become subject to such reporting requirements under the terms of current CMS regulations, however, if the FDA requires us to obtain marketing authorizations for our diagnostic tests as medical devices (whether because the agency determines that one or more of such tests do not fall within the scope of the agency’s existing LDT definition or because of its recently issued final rule to exercise authority over LDTs as medical devices) or Congress enacts legislative reforms to the federal oversight of LDTs to subject them to FDA regulation and/or the reporting requirements of the Sunshine Act.
We also face competition from commercial laboratories, such as Laboratory Corporation of America Holdings, Quest Diagnostics Incorporated, ARUP Laboratories, Inc. and the Mayo Clinic, all of which have existing infrastructures to support the commercialization of diagnostic services.
We also face competition from commercial laboratories, such as ARUP Laboratories, Inc.; Laboratory Corporation of America Holdings; the Mayo Clinic; and Quest Diagnostics Incorporated, all of which have existing infrastructures to support the commercialization of diagnostic services.
Under the Federal Trade Commission Act (FTC Act), the FTC is empowered, among other things, to (a) prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; and (c) gather and compile information and conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce.
Under the Federal Trade Commission Act (the FTC Act), the FTC is empowered, among other things, to (a) prevent unfair methods of competition and unfair or deceptive acts or practices in or affecting commerce; (b) seek monetary redress and other relief for conduct injurious to consumers; and (c) gather and compile information and conduct investigations relating to the organization, business, practices, and management of entities engaged in commerce.
In January 2019, we changed our name to Exagen Inc. Our principal executive offices are located at 1261 Liberty Way, Vista, California 92081. Our telephone number is (760) 560-1501. Our website address is www.exagen.com. The information 31 contained in, or accessible through, our website is not part of, and is not incorporated by reference into, this Annual Report.
In January 2019, we changed our name to Exagen Inc. Our principal executive offices are located at 1261 Liberty Way, Vista, California 31 92081. Our telephone number is (760) 560-1501. Our website address is www.exagen.com. The information contained in, or accessible through, our website is not part of, and is not incorporated by reference into, this Annual Report.
The Federal Food, Drug and Cosmetic Act (FDCA) defines a medical device as "an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory, which is, among other things: intended for use in the 19 diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes." By this definition, in vitro reagents and diagnostic tests are considered medical devices.
The Federal Food, Drug and Cosmetic Act (FDCA) defines a medical device as "an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory, which is, among other things: intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes." By this definition, in vitro reagents and diagnostic tests are considered medical devices.
For example, California has an anti-markup statute with which we must comply, which prohibits a provider from charging for any laboratory test that it did not perform unless the provider (a) notifies the patient, client or customer of the name, address and charges of the laboratory performing the test, and (b) charges no more than what the provider was charged by the clinical laboratory that performed the test except for any other service actually rendered to the patient by the provider (for example, specimen collection, processing and handling).
For example, California has an anti-markup statute with which we must comply, which prohibits a provider from charging for any laboratory test that it did not perform unless the provider (a) notifies the patient, client 25 or customer of the name, address and charges of the laboratory performing the test, and (b) charges no more than what the provider was charged by the clinical laboratory that performed the test except for any other service actually rendered to the patient by the provider (for example, specimen collection, processing and handling).
Federal and State Anti-Kickback Laws The Federal Anti-Kickback Statute makes it a felony for a person or entity, including a clinical laboratory, to knowingly and willfully offer, pay, solicit or receive any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in order to induce or in return for the referral of an individual for the furnishing of, or the recommending or arranging for the furnishing of, purchasing, leasing, ordering or arranging for or recommending purchasing, leasing or ordering of any item or service that is reimbursable in whole or in part, under any federal healthcare program.
Federal and State Anti-Kickback Laws 23 The Federal Anti-Kickback Statute makes it a felony for a person or entity, including a clinical laboratory, to knowingly and willfully offer, pay, solicit or receive any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in order to induce or in return for the referral of an individual for the furnishing of, or the recommending or arranging for the furnishing of, purchasing, leasing, ordering or arranging for or recommending purchasing, leasing or ordering of any item or service that is reimbursable in whole or in part, under any federal healthcare program.
The GDPR implements stringent operational requirements for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is collected and used, limitations on retention of information, increased requirements pertaining to health data and pseudonymized (i.e., key-coded) data, mandatory data breach notification requirements, more robust rights for individuals in regard to their personal data and higher standards for controllers to demonstrate that they have obtained valid consent for certain data processing activities.
The GDPR implements stringent operational requirements for processors and controllers of personal data, including, for example, expanded disclosures about how personal information is collected and used, limitations on retention of information, increased requirements pertaining to health 28 data and pseudonymized (i.e., key-coded) data, mandatory data breach notification requirements, more robust rights for individuals in regard to their personal data and higher standards for controllers to demonstrate that they have obtained valid consent for certain data processing activities.
Advertising of Laboratory Services or LDTs Advertising for laboratory services and diagnostic testing products is subject to federal truth-in-advertising laws enforced by the Federal Trade Commission (FTC), as well as comparable state consumer protection laws, whether or not such services are regulated by the FDA as Class I or Class II devices or not directly subject to enforcement 21 discretion with respect to the FDA’s device requirements as LDTs.
Advertising of Laboratory Services or LDTs Advertising for laboratory services and diagnostic testing products is subject to federal truth-in-advertising laws enforced by the Federal Trade Commission (FTC), as well as comparable state consumer protection laws, whether or not such services are regulated by the FDA as Class I or Class II devices or not directly subject to enforcement discretion with respect to the FDA’s device requirements as LDTs.
With the recent increase in publicity regarding data breaches resulting in improper dissemination of consumer information, all 50 states have passed laws regulating the actions that a business must take if it experiences a data breach, as defined by state law, including prompt disclosure within a specified amount 26 of time to affected individuals.
With the recent increase in publicity regarding data breaches resulting in improper dissemination of consumer information, all 50 states have passed laws regulating the actions that a business must take if it experiences a data breach, as defined by state law, including prompt disclosure within a specified amount of time to affected individuals.
An arrangement must fully comply with each element of an applicable safe harbor in order to qualify for protection. 22 Failure to meet the requirements of an exception or a safe harbor does not render an arrangement illegal. Rather, the government may evaluate such arrangements on a case-by-case basis, taking into account all facts and circumstances.
An arrangement must fully comply with each element of an applicable safe harbor in order to qualify for protection. Failure to meet the requirements of an exception or a safe harbor does not render an arrangement illegal. Rather, the government may evaluate such arrangements on a case-by-case basis, taking into account all facts and circumstances.
Exclusive License Agreement Johns Hopkins University In November 2023, we entered into an exclusive license agreement with Johns Hopkins University, under which we obtained an exclusive, worldwide license to JHU’s patent rights in certain inventions (the JHU Patent Rights) related to methods of using urinary protein biomarkers as a means of risk stratifying lupus nephritis patients and predicting treatment response.
Exclusive License Agreement Johns Hopkins University In November 2023, we entered into an exclusive license agreement with JHU, under which we obtained an exclusive, worldwide license to JHU’s patent rights in certain inventions (the JHU Patent Rights) related to methods 18 of using urinary protein biomarkers as a means of risk stratifying lupus nephritis patients and predicting treatment response.
We have policies and procedures in place to ensure that we source such materials from suppliers that are in compliance with any applicable medical device regulatory requirements. The FDCA classifies medical devices into one of three categories based on the risks associated with the device and the level of control necessary to provide reasonable assurance of safety and effectiveness.
We have policies and procedures in place to ensure that we source such materials from suppliers that are in compliance with any applicable medical device regulatory requirements. 20 The FDCA classifies medical devices into one of three categories based on the risks associated with the device and the level of control necessary to provide reasonable assurance of safety and effectiveness.
SLE is characterized by a rise in symptoms and/or abnormal laboratory test results. SLE 3 varies in severity, from mild cases to those in which significant and potentially fatal damage occurs to vital organs such as the brain, heart, kidneys and lungs. Detection of these autoantibodies can assist rheumatologists in the diagnosis of SLE.
SLE is characterized by a rise in symptoms and/or abnormal laboratory test results. SLE varies in severity, from mild cases to those in which significant, and potentially fatal, damage occurs to vital organs such as the brain, heart, kidneys and lungs. Detection of these autoantibodies can assist rheumatologists in the diagnosis of SLE.
Violation of the federal False Claims Act may result payment of up to three times the actual damages sustained by the government, plus significant per-claim civil penalties, as well as mandatory exclusion from government healthcare programs. Several states, including California, have enacted comparable false claims laws that may apply regardless of payor.
Violation of the federal False Claims Act may result payment of up to three times the actual damages sustained by the government, plus 24 significant per-claim civil penalties, as well as mandatory exclusion from government healthcare programs. Several states, including California, have enacted comparable false claims laws that may apply regardless of payor.
Environmental and Other Regulatory Requirements Our laboratory is subject on an ongoing basis to federal, state and local laws and regulations governing the use, storage, handling and disposal of regulated medical waste, hazardous waste and biohazardous waste, including 29 chemicals, biological agents and compounds and blood and other tissue specimens.
Environmental and Other Regulatory Requirements Our laboratory is subject on an ongoing basis to federal, state and local laws and regulations governing the use, storage, handling and disposal of regulated medical waste, hazardous waste and biohazardous waste, including chemicals, biological agents and compounds and blood and other tissue specimens.
AVISE ® Vasculitis AAV AVISE ® Vasculitis AAV utilizes a testing panel of individual analytes designed to provide physicians with rapid and reliable results in the assessment and monitoring of anti-neutrophil cytoplasmic antibody (ANCA) associated vasculitis (AAV). AAV is a group of autoimmune diseases characterized by vascular inflammation and damage.
Diagnostic AVISE ® Vasculitis AAV AVISE ® Vasculitis AAV utilizes a testing panel of individual analytes designed to provide physicians with rapid and reliable results in the assessment and monitoring of anti-neutrophil cytoplasmic antibody (ANCA) associated vasculitis (AAV). AAV is a group of autoimmune diseases characterized by vascular inflammation and damage.
The final results of this study showed that AVISE ® Lupus demonstrated 86% specificity and 80% sensitivity in distinguishing SLE from other CTDs and fibromyalgia. Additionally, the results showed that AVISE ® Lupus was 33% more specific than ANA (53% specificity/89% sensitivity) and 48% more sensitive than anti-dsDNA (32% sensitivity/97% specificity).
The final results of this study showed that AVISE ® Lupus demonstrated 86% specificity and 80% sensitivity in distinguishing SLE from other CTDs and fibromyalgia. Additionally, the results showed that AVISE ® Lupus was 13 33% more specific than ANA (53% specificity/89% sensitivity) and 48% more sensitive than anti-dsDNA (32% sensitivity/97% specificity).
We will need to continually review our practices for conduct that could be considered as likely to interfere with access, exchange or use of electronic health information, as those practices are prohibited by the Information Blocking Rule, unless one of the exceptions outlined in the Information Blocking Rule applies.
We need to continually review our practices for conduct that could be considered as likely to interfere with access, exchange or use of electronic health information, as those practices are prohibited by the Information Blocking Rule, unless one of the exceptions outlined in the Information Blocking Rule applies.
State Laboratory Licensing Our Vista facility also holds a state license issued by the California Department of Public Health (DPH). California law and regulations establish standards for the day-to-day operation of a clinical laboratory, including the training and skills required of laboratory personnel and quality control.
State Laboratory Licensing 19 Our Vista facility also holds a state license issued by the California Department of Public Health (DPH). California law and regulations establish standards for the day-to-day operation of a clinical laboratory, including the training and skills required of laboratory personnel and quality control.
AVISE ® HCQ AVISE ® HCQ is a blood test designed to help rheumatologists objectively monitor levels of hydroxychloroquine (HCQ), in whole blood as they treat patients with SLE and other CTDs, including RA. HCQ is typically prescribed to patients to control SLE disease activity and prevent flares.
Monitoring AVISE ® HCQ AVISE ® HCQ is a blood test designed to help rheumatologists objectively monitor levels of hydroxychloroquine (HCQ), in whole blood as they treat patients with SLE and other CTDs, including RA. HCQ is typically prescribed to patients to control SLE disease activity and prevent flares.
Even when HIPAA does not apply, according to the FTC, failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices in or affecting commerce in violation of Section 5(a) of the FTC Act.
Even when HIPAA does not apply, according to the FTC, failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair or deceptive acts or practices in or affecting commerce in violation of Section 5(a) of the FTC Act.
Typically, we use licensed or otherwise qualified outside vendors to dispose of this waste. However, many of these laws and regulations provide for strict liability, holding a party potentially liable without regard to fault or negligence.
Typically, we use licensed or otherwise qualified outside vendors to dispose of this waste. However, many of these laws and regulations provide 30 for strict liability, holding a party potentially liable without regard to fault or negligence.
Breaches must be reported as soon as reasonably practicable, but no later than sixty days following discovery of the breach. Reports must be made to affected individuals, the Secretary, and depending on the size of the breach, the local and national media.
Breaches must be reported as soon as reasonably practicable, but no later than sixty days following discovery of the breach. Reports must be made to affected individuals, the 26 Secretary, and depending on the size of the breach, the local and national media.
By focusing on employee retention and engagement, we also improve our ability to support our business and operations, our pipeline, and also protect the long-term interests of our securityholders. Our success also depends on our ability to attract, engage and retain a diverse group of employees.
By focusing on employee retention and engagement, we improve our ability to support our business operations and protect the long-term interests of our securityholders. Our success also depends on our ability to attract, engage and retain a diverse group of employees.
In addition, the agreement is subject to the rights of the U.S. government with respect to the AHN Patent Rights, including under a funding agreement between AHN and the U.S. government and under the Bayh-Dole Act (35 U.S.C. §200, et seq.).
In addition, the agreement is subject to the rights of the U.S. government with respect to the AHN Patent Rights, including under a funding agreement between AHN and the U.S. government and under the Bayh-Dole Act of 1980 (Bayh-Dole Act) (35 U.S.C. §200, et seq.).
Covered Entities like us are also 25 subject to the HHS HIPAA audit program and may be investigated in connection with a privacy or data security complaint.
Covered Entities like us are also subject to the HHS HIPAA audit program and may be investigated in connection with a privacy or data security complaint.
We are committed to providing a competitive and comprehensive benefits package to our employees. Our benefits package provides a balance of protection along with the flexibility to meet the individual health and wellness needs of our employees.
We are committed to providing a competitive and comprehensive benefits package to our employees. Our benefits package provides a balance of protection along with the flexibility to meet the individual health and wellness needs of our 16 employees.
A sample of the full AVISE ® CTD report is shown below: 8 AVISE ® CTD Report 9 10 Our Pipeline and Growth Opportunities We regularly confer with national experts in the clinical management of rheumatic autoimmune diseases to help guide the organization’s leadership team on the design and execution of research projects, as well as weigh-in on known and anticipated advances in technologies affecting clinical management of autoimmune diseases.
A sample of the full AVISE ® CTD report is shown below: 7 AVISE ® CTD Report 8 9 10 Our Pipeline and Growth Opportunities We regularly confer with national experts in the clinical management of rheumatic autoimmune diseases to help guide the organization’s leadership team on the design and execution of research projects, as well as weigh-in on known and anticipated advances in technologies affecting clinical management of rheumatic and other autoimmune diseases.
Finally, in the group of patients randomized to the AVISE ® Lupus group, a positive test result associated with an increase in patient-reported outcomes measuring health-related quality of life using five-level EQ-5D (EQ5D-5L index score) from enrollment to visit 2 (p=0.028), and greater improvements were detectable when compared to the group of patients positive for AVISE ® Lupus and randomized to the SDLT arm (p=0.049). 13 In July 2021, a real-world retrospective analysis of patients tested with the AVISE ® Lupus test was published in the journal Lupus Science & Medicine, titled "A multianalyte assay panel with cell-bound complement activation products demonstrates clinical utility in systemic lupus erythematosus clinical utility study summary." A cohort of 161 AVISE ® Lupus tested patients from 12 rheumatology centers across the United States provided clinical outcome data on diagnosis and treatment decisions following AVISE ® Lupus testing.
Finally, in the group of patients randomized to the AVISE ® Lupus group, a positive test result associated with an increase in patient-reported outcomes measuring health-related quality of life using five-level EQ-5D (EQ5D-5L index score) from enrollment to visit two (p=0.028), and greater improvements were detectable when compared to the group of patients positive for AVISE ® Lupus and randomized to the SDLT arm (p=0.049). 14 In July 2021, a real-world retrospective analysis of patients tested with the AVISE ® Lupus test was published in the journal Lupus Science & Medicine, titled "A multianalyte assay panel with cell-bound complement activation products demonstrates clinical utility in systemic lupus erythematosus clinical utility study summary." A cohort of 161 AVISE ® Lupus tested patients from 12 rheumatology centers across the United States provided clinical outcome data on diagnosis and treatment decisions following AVISE ® Lupus testing.
HITECH amended HIPAA and, among other things, expanded and strengthened HIPAA, created new targets for enforcement, imposed new penalties for noncompliance and established new breach notification requirements.
HITECH, among other things, expanded and strengthened HIPAA, created new targets for enforcement, imposed new penalties for noncompliance, and established new breach notification requirements.
Financial Information We manage our operations and allocate resources as a single reporting segment. Financial information regarding our operations, assets and liabilities, including our net loss for the years ended December 31, 2023 and 2022 and our total assets as of December 31, 2023 and 2022, is included in our Financial Statements in Item 8 of this Annual Report.
Financial Information We manage our operations and allocate resources as a single reporting segment. Financial information regarding our operations, assets and liabilities, including our net loss for the years ended December 31, 2024 and 2023 and our total assets as of December 31, 2024 and 2023, is included in our Financial Statements in Item 8 of this Annual Report.
Under Medicare, payment for our laboratory tests are generally made under the Clinical Laboratory Fee Schedule (CLFS) with payment amounts assigned to specific procedure billing codes. In April 2014, Congress passed the Protecting Access to Medicare Act (PAMA), which substantially changed the way in which Medicare sets the payment amounts for clinical laboratory services.
Under Medicare, payment for our laboratory tests is generally made under the Clinical Laboratory Fee Schedule (CLFS) with payment amounts assigned to specific procedure billing codes. In April 2014, Congress passed the Protecting Access to Medicare Act (PAMA), which substantially changed the way in which Medicare sets the payment amounts for clinical laboratory services.
Many states also have "direct-bill" laws, which require the party that performed the service to bill for the service, with certain exceptions.
Many states also have "direct-bill" laws, that require the party that performed the service to bill for the service, with certain exceptions.
We are also required to pay AHN a low single-digit royalty on net sales of products utilizing the AHN Patent Rights through the first quarter of 2024 sold by us or our affiliates, subject to adjustment in certain circumstances.
We were also required to pay AHN a low single-digit royalty on net sales of products utilizing the AHN Patent Rights through the first quarter of 2024 sold by us or our affiliates, subject to adjustment in certain circumstances.
CTDs are a sub-category of autoimmune diseases involving inflammation of the joints, tissues and internal organs. Persons with CTDs often present to their rheumatologist with complaints of joint pain, fatigue, unexplained fever, inflammation, rash, stiffness and muscle aches.
Connective Tissue Diseases CTDs are a sub-category of autoimmune diseases involving inflammation of the joints, tissues and internal organs. Persons with CTDs often present to their rheumatologist with complaints of joint pain, fatigue, unexplained fever, inflammation, rash, stiffness and muscle aches.
Prognosis AVISE ® SLE Prognostic AVISE ® SLE Prognostic is a panel of autoantibodies that have established predictive value for assessing the potential for complications affecting the kidney, brain and cardiovascular system, including lupus nephritis, lupus psychosis, strokes and heart attacks related to lupus.
Diagnostic AVISE ® SLE Prognostic AVISE ® SLE Prognostic is a panel of autoantibodies that have established predictive value for assessing the potential for complications affecting the kidney, brain and cardiovascular system, including lupus nephritis, lupus psychosis, strokes and heart attacks related to lupus.
The objective of this study was to evaluate the frequency of AVISE ® Lupus and CB-CAPs as a marker of complement activation in patients with pSLE and the usefulness of the AVISE ® Lupus test as a predictor of the evolution of pSLE into classified SLE by the ACR criteria.
The objective of this study was to evaluate the frequency of AVISE ® Lupus and CB-CAPs as a marker of complement activation in patients with pSLE and the usefulness of the AVISE ® Lupus platform as a predictor of the evolution of pSLE into classified SLE by the ACR criteria.
If premarket review is required for some or all of our tests, the FDA could require that we stop selling our products pending clearance or approval and conduct clinical testing prior to making submissions to the FDA to obtain premarket clearance or approval.
If premarket review is required for some or all of our tests, the FDA could require that we stop selling our tests and testing services pending clearance or approval and conduct clinical testing prior to making submissions to FDA to obtain premarket clearance or approval.
MTX Exposure Assessment Products and Services We own two patents that relate to our AVISE ® MTX product and methods for monitoring methotrexate therapy using red blood cell MTXPG exposure assessments. These patents include U.S. Patent Nos. 7,582,282 and 7,695,908, which are expected to expire between 2026 and 2027.
MTX Exposure Assessment Products and Services We own two patents that relate to our AVISE ® MTX product and methods for monitoring methotrexate therapy using red blood cell MTXPG exposure assessments. These patents include U.S. Patent Nos. 7,582,282 and 7,695,908, which are expected to expire in 2026 and 2027, respectively.
We intend to leverage our protein and molecular assay development capabilities, bioinformatic team and proprietary technologies to pursue the development of additional testing products designed to have superior clinical utility for CTDs. We undertake research projects that have the potential for impactful results and address the top consumer needs in the rheumatology space.
We intend to leverage our protein and molecular assay development capabilities, bioinformatic team and proprietary technologies to pursue the development of additional testing products designed to have superior clinical utility for rheumatic conditions. We undertake research projects that have the potential for impactful results and address the top consumer needs in the rheumatology space.
AVISE ® Lupus begins by quantifying the level of CB-CAPs biomarkers (EC4d and BC4d) in the patient’s blood. These biomarkers are elevated in patients with SLE compared to patients with other CTDs. Next, the AVISE ® Lupus test integrates these cell-bound complement products with 8 autoantibodies to yield a quantitative and qualitative assessment of SLE risk.
AVISE ® Lupus begins by quantifying the level of CB-CAPs biomarkers (EC4d and BC4d) in the patient’s blood. These biomarkers are elevated in patients with SLE compared to patients with other CTDs. Next, the AVISE ® Lupus 5 platform integrates these cell-bound complement products with 8 autoantibodies to yield a quantitative and qualitative assessment of SLE risk.
We believe the availability of novel complement biomarkers combined with algorithmic interpretations, as a support or replacement of standard C3 and C4 measures, is of great value for rheumatologists and their patients. CB-CAPs technology directly measures protein products of complement activation, such as C4d, the product of C4 activation.
We believe the availability of complement biomarkers combined with our proprietary algorithmic interpretations, as a support or replacement of standard C3 and C4 measures, is of great value for rheumatologists and their patients. CB-CAPs technology directly measures protein products of complement activation, such as C4d, the product of C4 activation.
The study findings revealed a 7 to 15-fold increased risk of Lupus diagnosis in AVISE ® Lupus Positive and anti-dsDNA negative patients relative to patients negative for both tests.
The study findings revealed a seven to 15-fold increased risk of Lupus diagnosis in AVISE ® Lupus Positive and anti-dsDNA negative patients relative to patients negative for both tests.
The AVISE ® Lupus test was designed to improve upon the diagnostic sensitivity of conventional biomarkers used to diagnose SLE while maintaining a high degree of specificity.
The AVISE ® Lupus platform was designed to improve upon the diagnostic sensitivity of conventional biomarkers used to diagnose SLE while maintaining a high degree of specificity.
The Physician Payments Sunshine Act imposes annual reporting requirements on manufacturers of certain devices, drugs and biologics for certain payments and transfers of value by them and in some cases their distributors to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other healthcare providers (such as nurse practitioners), and teaching hospitals, as well as ownership and investment interests held by physicians (as defined under the statute) and their immediate family members.
The Physician Payments Sunshine Act imposes annual reporting requirements on manufacturers of certain devices, drugs and biologics for certain payments and transfers of value by them and in some cases their distributors to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other advanced non-physician healthcare practitioners (such as nurse practitioners), and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.
(the 2014 Study), EC4d and BC4d showed 22% higher sensitivity (66%) than C3 and C4 (44%) in diagnosing SLE, with specificity fixed at 91%. Our proprietary AVISE ® Lupus test integrates EC4d and BC4d with 8 autoantibodies to yield a quantitative and qualitative assessment of SLE risk.
(the 2014 Study), EC4d and BC4d showed 22% higher sensitivity (66%) than C3 and C4 (44%) in diagnosing SLE, with specificity fixed at 91%. Our proprietary AVISE ® Lupus platform integrates EC4d and BC4d with eight autoantibodies to yield a quantitative and qualitative assessment of SLE risk.
AVISE ® Lupus Test Our AVISE ® Lupus test, which we offer as a stand-alone test and as part of our AVISE ® CTD test panel, is a proprietary, clinically validated method to aid in the diagnosis of SLE that provides a significant improvement in sensitivity, relative to the current standard of care.
AVISE ® Lupus Our AVISE ® Lupus platform, which we offer as a stand-alone test and as part of our AVISE ® CTD test platform, is a proprietary, patent-protected and clinically validated method to aid in the diagnosis of SLE that provides a significant improvement in sensitivity, relative to the current standard of care.
They also set forth certain rights that an individual has with respect to his or her PHI maintained by a covered entity, including the right to access or amend certain records containing PHI, request an accounting of disclosures of PHI or to request restrictions on the use or disclosure of PHI.
They also set forth certain rights that an individual has with respect to an individual’s PHI maintained by a covered entity, including the right to access or amend certain records containing PHI, request an accounting of disclosures of PHI, and to request restrictions on the use or disclosure of PHI.
In addition to statutory exceptions to the Anti-Kickback Statute, regulations provide for a number of safe harbors. If an arrangement meets the provisions of a safe harbor or exception, it is deemed not to violate the Anti-Kickback Statute, and the parties are immune from prosecution.
In addition to statutory exceptions to the Anti-Kickback Statute, regulations provide for a number of safe harbors. If an arrangement meets the provisions of a safe harbor or exception, it is deemed to comply with the Anti-Kickback Statute, and the parties are immune from prosecution.
Other potential competitors include companies that might develop diagnostic, disease or drug monitoring products, such as Progentec Diagnostics Inc., Scipher Medicine Corporation, Genalyte Inc., Oncimmune plc, DxTerity Diagnostics Inc., AMPEL BioSolutions, and Immunovia AB. In the future, we may also face competition from companies developing new products or technologies.
Other potential competitors include companies that might develop diagnostic, disease or drug monitoring products, such as AMPEL BioSolutions, LLC; DxTerity Diagnostics, Inc.; Genalyte Inc.; Immunovia AB; Oncimmune Holdings plc; and Progentec Diagnostics Inc. In the future, we may also face competition from companies developing new products or technologies.
It also creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.
It also created individual privacy rights for California consumers and increased the privacy and security obligations of entities handling certain categories of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation.
When studies with such evidence are published in peer-reviewed journals, the authors of clinical guidelines may assess the level of evidence and determine whether modifying existing guidelines to include new technology is warranted. 12 ▪ Execute an internal managed care policy and claims adjudication function as part of our core business operations.
When studies with such evidence are published in peer-reviewed journals and demonstrate performance superior to standard of care testing, the authors of clinical guidelines may assess the level of evidence and determine whether modifying existing guidelines to include new technology is warranted. ▪ Execute an internal managed care policy and claims adjudication function as part of our core business operations .
When marketing our testing products outside of the United States, we may be subject to foreign regulatory requirements governing human clinical testing, prohibitions on the import of tissue necessary for us to perform our testing products or restrictions on the export of tissue imposed by countries outside of the United States or the import of tissue into the United States, and marketing approval.
International Regulations If we market our testing products outside of the United States, we may be subject to foreign regulatory requirements governing human clinical testing, prohibitions on the import of tissue necessary for us to perform our testing products or restrictions on the export of tissue imposed by countries outside of the United States or the import of tissue into the United States, and marketing approval.
The Further Continuing Appropriations and Other Extensions Act of 2024 further applied a 0.0% reduction limit for CY 2024. Consequently, payment may not be reduced by more than 15% per year for CYs 2025 through 2027 as compared to the payment amounts established for a test the prior year.
The Further Continuing Appropriations and Other Extensions Act, 2025, further applied a 0.0% reduction limit for CY 2025. Consequently, payment may not be reduced by more than 15% per year for CYs 2026 through 2028 as compared to the payment amounts established for a test the prior year.
These requirements vary by jurisdiction, differ from those in the United States and may in some cases require us to perform additional pre-clinical or clinical testing. In many countries outside of the United States, coverage, pricing and reimbursement approvals are also required. Privacy and Security Laws U.S.
These requirements vary by jurisdiction, differ from those in the United States and may in some cases require us to perform additional pre-clinical or clinical testing. In many countries outside of the United States, coverage, pricing and reimbursement approvals are also required.
Although the FDA has statutory authority to assure that medical devices, including IVDs, are safe and effective for their intended uses, the FDA has generally exercised its enforcement discretion and not enforced applicable device regulations with respect to IVDs that are designed, manufactured and used within a single high-complexity CLIA-certified laboratory for use only in that laboratory.
Although the FDA had historically statutory authority to assure that medical devices, including IVDs, are safe and effective for their intended uses, the FDA has generally exercised its enforcement discretion and not enforced applicable device regulations with respect to LDTs, which are IVDs that are designed, manufactured and used within a single high-complexity CLIA-certified laboratory.
The patent families comprising our patent portfolio are primarily focused on our AVISE ® testing products for the diagnosis, prognosis and monitoring of autoimmune and autoimmune-related diseases, and red blood cell MTXPG exposure assessments. We intend to leverage the intellectual property surrounding our AVISE ® testing products as an important component of our business strategy.
The patent families comprising our patent portfolio are primarily focused on our AVISE ® testing products for the diagnosis, prognosis and monitoring of autoimmune and autoimmune-related diseases. We intend to leverage the intellectual property surrounding our AVISE ® testing products as an important component of our business strategy.
Such tests are referred to as LDTs. We believe that all of our AVISE ® test products are LDTs, as are our near-term pipeline candidate tests.
We believe that all of our AVISE ® test products are LDTs, as are our near-term pipeline candidate tests.
Patent Protection for our AVISE ® Testing Products Our portfolio of patents and patent applications related to our AVISE ® testing products generally relates to two aspects: the AVISE ® Lupus test and the AVISE ® MTX test.
Patent Protection for our AVISE ® Testing Products Our portfolio of patents and patent applications related to our AVISE ® testing products generally relates to three aspects: the AVISE ® Lupus platform, the AVISE ® CTD platform and the AVISE ® MTX test.
We are required to pay UPitt a low single-digit royalty on net sales of products or services utilizing the UPitt Patent Rights sold by us or our affiliates, subject to minimum annual royalty payments and other adjustment in certain circumstances.
Under the agreement, we were required to pay UPitt a low single-digit royalty on net sales of products or services that utilized the UPitt Patent Rights sold by us or our affiliates, subject to minimum annual royalty payments and other adjustment in certain circumstances.
Exclusive License Agreement and Master Research Collaboration Agreement with Allegheny Health Network Research Institute In May 2021, we entered into an exclusive license agreement with AHN, under which we obtained an exclusive, worldwide license to AHN's patent rights in certain inventions (the AHN Patent Rights) related to diagnostics for autoimmune rheumatic diseases.
Amended and Restated Exclusive License Agreement with Allegheny Health Network Research Institute In May 2021, we entered into an exclusive license agreement with AHN, as amended in January 2025, under which we obtained an exclusive, worldwide license to AHN's patent rights in certain inventions (the AHN Patent Rights) related to diagnostics for autoimmune rheumatic diseases.
International Regulations Many countries in which we may offer any of our testing products in the future have anti-kickback regulations prohibiting providers from offering, paying, soliciting or receiving remuneration, directly or indirectly, in order to induce business that is reimbursable under any national healthcare program.
Additionally, many countries in which we may offer any of our testing products in the future have anti-kickback regulations prohibiting providers from offering, paying, soliciting or receiving remuneration, directly or indirectly, in order to induce business that is reimbursable under any national healthcare program. Privacy and Security Laws U.S.
A later study published in 2022 by Tyler O’Malley, et al., compared the clinical utility of the AVISE ® Lupus test to the conventional biomarker strategy in the diagnosis of SLE, demonstrating 6-fold increased odds of SLE diagnosis and 3-fold increased odds of treatment initiation with a 5 positive AVISE ® Lupus result.
A later study published in 2022 by Tyler O’Malley, et al., compared the clinical utility of the AVISE ® Lupus platform to the conventional biomarker strategy in the diagnosis of SLE, demonstrating six-fold increased odds of SLE diagnosis and three-fold increased odds of treatment initiation with a positive AVISE ® Lupus result.
In addition, AVISE ® Lupus positive and anti-dsDNA negative patients were at 3 to 4-fold increased odds, relative to patients testing negative for both tests, of starting a new hydroxychloroquine (cornerstone therapy for Lupus) prescription following AVISE ® Lupus testing.
In addition, AVISE ® Lupus positive and anti-dsDNA negative patients were at three to four-fold increased odds, relative to patients testing negative for both tests, of starting a new HCQ (cornerstone therapy for Lupus) prescription following AVISE ® Lupus testing.
California has also recently adopted the California Consumer Privacy Act of 2018 (CCPA), which went into effect January 1, 2020. The CCPA, among other things, creates new data privacy obligations for covered companies and provides new privacy rights to California residents, including the right to opt out of certain disclosures of their information.
In addition to the CMIA, California adopted the California Consumer Privacy Act of 2018 (CCPA), which went into effect January 1, 2020. The CCPA, among other things, created new data privacy obligations for covered companies and provides new privacy rights to California residents, including the right to opt out of certain disclosures of their information.
For example, in 2016, the EU and the United States agreed to a transfer framework for data transferred from the EU to the United States, called the Privacy Shield, but the Court of Justice of the EU invalidated the Privacy Shield when it decided the case Maximilian Schrems vs. Facebook (Case C-311-18), known as Schrems II .
For example, in 2016, the EU and the United States agreed to a transfer framework for data transferred from the EU to the United States, called the Privacy Shield, but the Court of Justice of the EU invalidated the Privacy Shield when it decided the case Maximilian Schrems vs.
Affected stakeholders continue to press for a comprehensive legislative solution to create a harmonized paradigm for oversight of LDTs by 20 both the FDA and CMS, instead of implementation of the proposed FDA administrative action, which may be disruptive to the industry and to patient access to certain diagnostic tests.
Affected stakeholders also continue to press for a comprehensive legislative solution to create a harmonized paradigm for oversight of LDTs by both the FDA and CMS, instead of implementation of the FDA’s final rule, which may be disruptive to the industry and to patient access to certain diagnostic tests.
In the aforementioned 2014 Study, the AVISE ® Lupus test demonstrated 80% sensitivity for SLE (meaning 8 out of 10 diagnosed SLE patients tested positive) and 86% specificity for SLE (meaning 86% of non-SLE control subjects with other rheumatic conditions tested negative).
In the 2014 Study, the AVISE ® Lupus platform demonstrated 80% sensitivity for SLE (meaning eight out of ten diagnosed SLE patients tested positive) and 86% specificity for SLE (meaning 86% of non-SLE control subjects with other rheumatic conditions tested negative).
This strategy includes optimizing revenue cycle practices, focusing managed care efforts on medical policy expansion and continuing to educate insurance payors on the published, real-world evidence of the clinical utility of our testing products, demonstrating healthcare cost savings and reductions in time to diagnosis.
We center our efforts on long-term reimbursement and average sales price (ASP) growth. This strategy includes optimizing revenue cycle practices, focusing managed care efforts on medical policy expansion and continuing to educate insurance payors on the published, real-world evidence of the clinical utility of our testing products, demonstrating healthcare cost savings and reductions in time to diagnosis.
The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.
As of February 21, 2024, our portfolio primarily consisted of the following: AVISE ® Lupus Test 15 We own five issued patents (US 10,132,813, US 11,360,099, US 11,531,033, US 11,761,965, and US 11,885,812), six U.S. nonprovisional patent applications, one US provisional patent application, and ten foreign patents that relate to our AVISE® Lupus products.
As of February 21, 2025, our portfolio primarily consisted of the following: AVISE ® Lupus Platform We own five issued U.S. patents (US 10,132,813, US 11,360,099, US 11,531,033, US 11,761,965, and US 11,885,812), three U.S. nonprovisional patent applications, and six foreign patents that relate to our AVISE ® Lupus platform.
Various states such as Colorado, Connecticut, Delaware, Florida, Indiana, Iowa, Montana, Oregon, Tennessee, Texas, Utah and Virginia have enacted their own privacy laws similar to the CCPA, and other states are considering proposals for such laws, all of which increases the complexity of compliance and the risk of failures to comply.
Various states such as Colorado, Connecticut, Delaware, Florida, Indiana, Iowa, Kentucky, Maryland, Montana, Nebraska, New Hampshire, New Jersey, Oregon, Rhode Island, Tennessee, Texas, Utah, and Virginia have enacted their own omnibus consumer 27 privacy laws similar to the CCPA, and other states are considering proposals for such laws, all of which increases the complexity of compliance and the risk of failures to comply.
Using our specialty laboratory focused on rheumatology, we plan to build upon industry-leading quality, service and technology to support strong AVISE ® CTD adoption and continue to grow our ordering physician base. ▪ Continue developing innovative testing products, using clear criteria for R&D projects and commercialization milestones.
Using our specialty laboratory focused on rheumatology, we plan to build upon industry-leading quality, service and technology to support strong AVISE ® CTD adoption while continuing to expand and improve our AVISE ® CTD offering, grow our ordering physician base, and enhance our average reimbursement rates. ▪ Continue to develop innovative testing products, using clear criteria for R&D projects and commercialization milestones .
Others may develop products with prices lower than ours or have preferred network status that could be viewed by rheumatologists and payors as functionally equivalent to our solution or offer solutions at prices designed to promote market penetration. This could force us to lower the list price of our products and affect our ability to achieve profitability.
Others may develop products with prices lower than ours or have preferred network status that could be viewed by rheumatologists and payors as functionally equivalent to our solution or offer solutions at prices designed to promote market penetration.
We have demonstrated a solid track record of commercial growth of our AVISE ® CTD test. We believe we are uniquely positioned to continue expanding our commercial presence within the autoimmune disease market by leveraging our specialized sales force and expansive network of relationships with rheumatologists across the United States.
We believe we are uniquely positioned to continue expanding our commercial presence within the autoimmune disease market by leveraging our specialized sales force and expansive network of relationships with rheumatologists across the United States.
Criteria for developed products that we ultimately commercialize include Medicare coverage (specific to patient population), proprietary value-based pricing, published clinical utility and a strategy for medical guideline inclusion. ▪ Maintain meaningful margin.
Criteria for developing products that we ultimately commercialize include Medicare coverage (specific to patient population), proprietary value-based pricing, published clinical utility and a strategy for medical guideline inclusion. ▪ Deliver sustainable profitable growth .
Large, multispecialty group medical clinics, health systems and academic medical university-based clinics may provide in-house clinical laboratories offering autoimmune and autoimmune-related disease testing services. Additionally, we compete against regional clinical laboratories providing testing in the autoimmune and autoimmune-related disease field, including Rheumatology Diagnostics Laboratories, Inc. (acquired by Laboratory Corporation of America in June 2020).
Large, multispecialty group medical clinics, health systems and academic medical university-based clinics may provide in-house clinical laboratories offering autoimmune and autoimmune-related disease testing services. Additionally, we compete against regional clinical laboratories providing testing in the autoimmune and autoimmune-related disease field, including Aqtual, Inc.
The FDA regulates any diagnostic tests that meet the definition of a medical device, except under specific, narrow circumstances.
The U.S. Food and Drug Administration (FDA) regulates any diagnostic tests that meet the definition of a medical device, except under specific, narrow circumstances.
Changes in laws and regulations could negatively impact our ability to bill our clients or increase our costs. CMS also establishes new procedures and continuously evaluates and implements changes to the reimbursement process for billing government healthcare programs.
Additionally, compliance with applicable laws and regulations as well as internal compliance policies and procedures adds further complexity to the billing process. Changes in laws and regulations could negatively impact our ability to bill our clients or increase our costs. CMS also establishes new procedures and continuously evaluates and implements changes to the reimbursement process for billing government healthcare programs.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to: • our ability to successfully market and sell our AVISE ® testing products; • the extent to which our current testing and future testing products, if any, are eligible for coverage and reimbursement from third-party payors; • the timing and cost of, and level of investment in, research, development, regulatory approval and commercialization activities relating to our testing products, which may change from time to time, and our ability to successfully commercialize new testing products; • the cost of supplies, equipment and materials used for our testing products and laboratory operations, which may vary depending on the quantity of production and the terms of our agreements with third-party suppliers and manufacturers; • expenditures that we may incur to acquire, develop or commercialize additional testing products and technologies; • the level of demand for our testing products, which may vary significantly; • the receipt, timing and mix of revenue for our testing products; • future accounting pronouncements or changes in our accounting policies; • our ability to collect timely reimbursement for our tests; 37 • the rate and extent to which payors make an overpayment determination and require us to return all or some portion of payments which we received in a prior period; and • the timing and success or failure of competing products, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners.
Biggest changeThese factors include, but are not limited to: • our ability to successfully market and sell our AVISE ® testing products; • our ability to increase the average selling price for our AVISE ® testing products; • our ability to successfully commercialize new testing products and to do so in the timelines in which we expect, including the January 2025 launch of AVISE ® CTD incorporating our new T-Cell Biomarkers and RA Sub-Profile Biomarkers; • the extent to which the T-Cell Biomarkers and RA Sub-Profile Biomarkers are reimbursed by third-party payors; • the extent to which our current testing and future testing products, if any, are eligible for coverage and reimbursement from third-party payors; • the timing and cost of, and level of investment in, research, development, regulatory approval and commercialization activities relating to our testing products, which may change from time to time • the cost of supplies, equipment and materials used for our testing products and laboratory operations, which may vary depending on the quantity of production and the terms of our agreements with third-party suppliers and manufacturers; • expenditures that we may incur to acquire, develop or commercialize additional testing products and technologies; • the level of demand for our testing products, which may vary significantly; • the receipt, timing and mix of revenue for our testing products; • future accounting pronouncements or changes in our accounting policies; • our ability to collect timely reimbursement for our tests; • the rate and extent to which payors make an overpayment determination and require us to return all or some portion of payments which we received in a prior period; and • the timing and success or failure of competing products, or any other change in the competitive landscape of our industry, including consolidation among our competitors or partners.
The provisions in our charter documents include the following: • 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, unless the board of directors grants such right to the stockholders, 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 being able to fill vacancies on our board of directors; • the required approval of at least 66-2/3% of the shares entitled to vote to remove a director for cause, and the prohibition on removal of directors without cause; • the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror; • the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder approval; • the required approval of at least 66-2/3% of the shares entitled to vote to adopt, amend or repeal our amended and restated bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; • an exclusive forum provision providing that the Court of Chancery of the State of Delaware will be the exclusive forum for certain actions and proceedings; • the requirement that a special meeting of stockholders may be called only by 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 acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.
The provisions in our charter documents include the following: • 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, unless the board of directors grants such right to the stockholders, 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 being able to fill vacancies on our board of directors; • the required approval of at least 66-2/3% of the shares entitled to vote to remove a director for cause, and the prohibition on removal of directors without cause; • the ability of our board of directors to authorize the issuance of shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquiror; • the ability of our board of directors to alter our amended and restated bylaws without obtaining stockholder approval; • the required approval of at least 66-2/3% of the shares entitled to vote to adopt, amend or repeal our amended and restated bylaws or repeal the provisions of our amended and restated certificate of incorporation regarding the election and removal of directors; • a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders; • an exclusive forum provision providing that the Court of Chancery of the State of Delaware will be the exclusive forum for certain actions and proceedings; 65 • the requirement that a special meeting of stockholders may be called only by 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 acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of us.
The FDCA defines a medical device as “an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is , among other things: intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, 54 treatment, or prevention of disease, in man or other animals and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes.” By this definition, in vitro reagents and diagnostic tests are considered medical devices.
The FDCA defines a medical device as “an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is , among other things: intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals and which does not achieve its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes.” By this definition, in vitro reagents and diagnostic tests are considered medical devices.
If a third party that owns such a patent asserts it successfully against one of our current or future AVISE ® testing products, we may be unable to market our product, which could materially harm our business and because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be currently pending third-party 63 patent applications which may later result in issued patents that our AVISE ® testing products or our technologies may infringe, or which such third parties claim are infringed by the use of our technologies.
If a third party that owns such a patent asserts it successfully against one of our current or future AVISE ® testing products, we may be unable to market our product, which could materially harm our business and because patent applications can take many years to issue and may be confidential for 18 months or more after filing, there may be currently pending third-party patent applications which may later result in issued patents that our AVISE ® testing products or our technologies may infringe, or which such third parties claim are infringed by the use of our technologies.
If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begin its Section 404 reviews, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.
If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting once that firm begin its Section 404 reviews, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the Nasdaq Stock Market LLC, the SEC or other regulatory authorities.
Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to process tests, provide test results, bill payors or patients, process claims and appeals, provide customer assistance services, conduct research and development activities, collect, process and prepare company financial information, provide information about our products and other patient and rheumatologist education and outreach efforts through our website and manage the administrative aspects of our business and could damage our reputation, any of which could adversely affect our business.
Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to process tests, provide test results, bill payors or patients, process claims and appeals, provide customer assistance services, conduct research and development activities, collect, process and prepare company financial information, provide information about our products and other patient and rheumatologist education and outreach efforts through our website and manage the administrative aspects of our business and could damage our reputation, any of which could materially and adversely affect our business.
Given the complexity of these existing and changing rules and regulations, it is not always possible to identify and deter misconduct by employees, distributors, consultants and commercial partners and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with applicable laws or regulations.
Given the complexity of these existing and changing rules and regulations, it is not always possible to identify and deter misconduct by employees, distributors, consultants and commercial partners and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses 52 or in protecting us from government investigations or other actions or lawsuits stemming from a failure to comply with applicable laws or regulations.
We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled 49 disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
Our business, results of operations and financial condition may be adversely affected if, among other things: • our information technology, telephone or other systems fail or are interrupted for any extended length of time; • services relating to our information technology, telephone or other systems are not kept current; • our information technology, telephone or other systems do not have the capacity to support expanded operations and increased levels of business; • data is lost or unable to be restored or processed; or • data is corrupted due to a breach of security.
Our business, results of operations and financial condition may be materially and adversely affected if, among other things: • our information technology, telephone or other systems fail or are interrupted for any extended length of time; • services relating to our information technology, telephone or other systems are not kept current; • our information technology, telephone or other systems do not have the capacity to support expanded operations and increased levels of business; • data is lost or unable to be restored or processed; or • data is corrupted due to a breach of security.
Any failure or perceived failure by us to comply with federal or state laws or regulations, our internal policies and procedures or our contracts governing our use and disclosures of personal information could result in negative publicity, government investigations and enforcement actions including significant penalties, claims by third parties, and damage to our reputation, any of which could have a material adverse effect on our operations, financial performance and business.
Any failure or perceived failure by us to comply with federal or state laws or regulations, our internal policies and procedures or our contracts governing our use and disclosures of personal information could result in negative publicity, government investigations and enforcement actions including significant penalties, claims by third parties, 55 and damage to our reputation, any of which could have a material adverse effect on our operations, financial performance and business.
If the FDA were to disagree with our conclusion that our AVISE ® test products fall within the scope of the agency’s LDT definition and determines that the AVISE ® tests are thus subject to FDA’s medical device authorities and implementing regulations, we would become subject to extensive regulatory requirements and may be required to stop selling our existing tests or refrain from launching any other tests we may develop.
If the FDA were to disagree with our conclusion that our AVISE ® test products fall within the scope of the agency’s LDT definition and determines that the AVISE ® tests are thus subject to FDA’s medical device authorities and implementing regulations, we would become immediately subject to extensive regulatory requirements and may be required to stop selling our existing tests or refrain from launching any other tests we may develop.
Reimbursement by third-party payors may depend on a number of factors, including the payor’s determination that tests using our technologies are: • not experimental or investigational; • medically necessary; • demonstrated to lead to improved patient outcomes; • appropriate for the specific patient; • cost-saving or cost-effective; • supported by peer-reviewed medical journals; and • included in clinical guidelines.
Reimbursement by third-party payors may depend on a number of factors, including the payor’s determination that tests using our technologies are: • not experimental or investigational; • medically necessary; • demonstrated to lead to improved patient outcomes; • appropriate for the specific patient; 33 • cost-saving or cost-effective; • supported by peer-reviewed medical journals; and • included in clinical guidelines.
With respect to payments received from government healthcare programs, factors such as a prolonged government shutdown could cause significant regulatory delays or could result in attempts to reduce payments made to us by federal healthcare programs. In addition, third-party payors may refuse to ultimately make payment if their processes and requirements have not been met on a timely basis.
With respect to payments received from government healthcare programs, factors such as a prolonged 39 government shutdown could cause significant regulatory delays or could result in attempts to reduce payments made to us by federal healthcare programs. In addition, third-party payors may refuse to ultimately make payment if their processes and requirements have not been met on a timely basis.
The public trading price for our common stock is affected by a number of factors, including: • actual or anticipated variations in our and our competitors’ financial condition and results of operations; • announcements by us or our competitors of new products, strategic partnerships or capital commitments; • changes in reimbursement by current or potential third-party payors; • issuance of new securities analysts’ reports or changed recommendations for our stock; • actual or anticipated changes in regulatory oversight of our testing products; • developments or disputes concerning our intellectual property or other proprietary rights; • commencement of, or our involvement in, litigation; • announced or completed acquisitions of businesses or technologies by us or our competitors; • any major change in our management; • changes in accounting principles; • announcement or expectation of additional financing efforts; • future sales of our common stock by our executive officers, directors and other stockholders; and • general economic conditions and slow or negative growth of our markets, including as a result of the current conflict in the Ukraine and the Middle East.
The public trading price for our common stock is affected by a number of factors, including: • actual or anticipated variations in our and our competitors’ financial condition and results of operations; • announcements by us or our competitors of new products, strategic partnerships or capital commitments; • changes in reimbursement by current or potential third-party payors; • issuance of new securities analysts’ reports or changed recommendations for our stock; • actual or anticipated changes in regulatory oversight of our testing products; • developments or disputes concerning our intellectual property or other proprietary rights; • commencement of, or our involvement in, litigation; • announced or completed acquisitions of businesses or technologies by us or our competitors; • any major change in our management; • changes in accounting principles; • announcement or expectation of additional financing efforts; • future sales of our common stock by our executive officers, directors and other stockholders; and • general economic conditions and slow or negative growth of our markets, including as a result of the current conflicts in the Ukraine and the Middle East.
If we obtain regulatory approval of our testing products and ultimately commercialize our testing products in foreign markets, we would be subject to additional risks and uncertainties, including any or all of the following: • different regulatory requirements for approval of IVDs in foreign countries; • reduced protection for intellectual property rights; • the existence of additional third-party patent rights of potential relevance to our business; • unexpected changes in tariffs, trade barriers and regulatory requirements; • economic weakness, including inflation, or political instability in particular foreign economies and markets; • compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; • foreign currency fluctuations, which could result in increased operating expenses and reduced revenue and other obligations incident to doing business in another country; 58 • inflationary pressures, such as those the global market is currently experiencing, which have and may increase costs for materials, supplies, and services; • foreign reimbursement, pricing and insurance regimes; • workforce uncertainty in countries where labor unrest is common; • production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and • business interruptions resulting from geopolitical actions, including war and terrorism, such as current conflicts in Ukraine and the Middle East; natural disasters which may be exacerbated due to climate change, including earthquakes, typhoons, floods and fires; outbreak of disease; boycotts; or other business restrictions.
If we obtain regulatory approval of our testing products and ultimately commercialize our testing products in foreign markets, we would be subject to additional risks and uncertainties, including any or all of the following: • different regulatory requirements for approval of IVDs in foreign countries; • reduced protection for intellectual property rights; • the existence of additional third-party patent rights of potential relevance to our business; 57 • changes in tariffs, trade barriers and regulatory requirements; • economic weakness, including inflation, or political instability in particular foreign economies and markets; • compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; • foreign currency fluctuations, which could result in increased operating expenses and reduced revenue and other obligations incident to doing business in another country; • inflationary pressures, such as those the global market is currently experiencing, which have and may increase costs for materials, supplies, and services; • foreign reimbursement, pricing and insurance regimes; • workforce uncertainty in countries where labor unrest is common; • production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and • business interruptions resulting from geopolitical actions, including war and terrorism, such as current conflicts in Ukraine and the Middle East; natural disasters which may be exacerbated due to climate change, including earthquakes, typhoons, floods and fires; outbreak of disease; boycotts; or other business restrictions.
Failure to identify and return such overpayments exposes the provider or supplier to liability under the federal False Claims Act. 39 Additionally, from time to time, third-party payors change processes that may affect timely payment. These changes have in the past and may again result in uneven cash flow or impact the timing of revenue recognized with these payors.
Failure to identify and return such overpayments exposes the provider or supplier to liability under the federal False Claims Act. Additionally, from time to time, third-party payors change processes that may affect timely payment. These changes have in the past and may again result in uneven cash flow or impact the timing of revenue recognized with these payors.
If we are unable to manage our ongoing and future growth effectively, it may be difficult for us to execute our business strategy and our business could be harmed. Our commercial success depends upon attaining and maintaining significant market acceptance of our testing products among rheumatologists, patients, third-party payors and others in the medical community.
If we are unable to manage our ongoing and future growth effectively, it may be difficult for us to execute our business strategy and our business could be harmed. 36 Our commercial success depends upon attaining and maintaining significant market acceptance of our testing products among rheumatologists, patients, third-party payors and others in the medical community.
Additionally, these healthcare laws, regulations and policies could be amended or additional healthcare initiatives could be implemented in the future. 50 Further, the impact on our business of the expansion of the federal and state governments’ role in the U.S. healthcare industry generally, including the social, governmental and other pressures to reduce healthcare costs while expanding individual benefits, is uncertain.
Additionally, these healthcare laws, regulations and policies could be amended or additional healthcare initiatives could be implemented in the future. Further, the impact on our business of the expansion of the federal and state governments’ role in the U.S. healthcare industry generally, including the social, governmental and other pressures to reduce healthcare costs while expanding individual benefits, is uncertain.
If there are material defects in the form, preparation, prosecution or enforcement of our patents or patent applications, such patents may be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
If there are material defects in the form, preparation, prosecution or enforcement of our patents or patent applications, such patents may 60 be invalid and/or unenforceable, and such applications may never result in valid, enforceable patents. Any of these outcomes could impair our ability to prevent competition from third parties, which may have an adverse impact on our business.
Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. 35 We may be unable to manage our growth effectively, which could make it difficult to execute our business strategy.
Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets. We may be unable to manage our growth effectively, which could make it difficult to execute our business strategy.
Patent Nos. 7,361,517, 7,390,631, 7,585,640, 7,588,905, 8,080,382, 8,126,654, and foreign equivalents thereof), effective March 22, 2024, and as a result may face increased competition with respect to the portion of our testing products previously protected by these patents.
Patent Nos. 7,361,517; 7,390,631; 7,585,640; 7,588,905; 8,080,382; 58 8,126,654, and foreign equivalents thereof), effective March 22, 2024, and as a result may face increased competition with respect to the portion of our testing products previously protected by these patents.
In addition, clinicians may be less likely to order a test unless third-party payors pay a substantial portion of the test price. Therefore, coverage determinations and reimbursement levels and conditions are critical to commercial success, and if we are not able to secure positive coverage determinations and reimbursement levels, our business will be materially adversely affected.
In addition, clinicians may be less likely to order a test unless third-party payors pay a substantial portion of the test price. Therefore, coverage determinations and reimbursement levels and conditions are critical to commercial success, and if we are not able to secure positive coverage determinations and reimbursement levels, our business may be materially adversely affected.
Enforcement actions by the FTC may include, among others, injunctions, civil penalties and equitable monetary relief. Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements could adversely affect our business, results of operations and financial condition.
Enforcement actions by the FTC may include, among others, injunctions, civil penalties and equitable monetary relief. Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements could materially and adversely affect our business, results of operations and financial condition.
As a result of this volatility, you may not realize any return on your investment in us and may lose some or all of your investment. In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies.
As a result of this volatility, you may not realize any return on your investment in us and may lose some or all of your investment. 64 In addition, in the past, following periods of volatility in the overall market and the market price of a particular company’s securities, securities class action litigation has often been instituted against these companies.
At any point, we may abandon development of a testing product candidate or we may be required to expend considerable resources repeating clinical studies, which would adversely affect the timing for generating potential revenue from a new testing product and our ability to invest in other products in our pipeline.
At any point, we may abandon development of a testing product candidate or we may be required to expend considerable resources repeating clinical studies, which would 41 adversely affect the timing for generating potential revenue from a new testing product and our ability to invest in other products in our pipeline.
If we undergo an ownership change as a result of subsequent shifts in our stock ownership, our ability to utilize our NOL carryforwards and other pre-change tax attributes could be further limited by Sections 382 and 383 of the Code. Similar provisions of state tax law may also apply.
If we undergo an ownership change as a result of subsequent shifts in our stock ownership, our ability to utilize our NOL 47 carryforwards and other pre-change tax attributes could be further limited by Sections 382 and 383 of the Code. Similar provisions of state tax law may also apply.
In such cases, we may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious action or solution. 64 We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
In such cases, we may decide that the more prudent course of action is to simply monitor the situation or initiate or seek some other non-litigious action or solution. We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
As the diagnostics industry expands and more patents are issued, the risk increases that our activities related to our AVISE ® testing products may give rise to claims of infringement of the patent rights of others. We cannot assure you that any of our current or future AVISE ® testing products will not infringe existing or future patents.
As the diagnostics industry expands and more patents are issued, the risk increases that our activities related to our AVISE ® testing products may give rise to claims of infringement of the patent rights of others. 62 We cannot assure you that any of our current or future AVISE ® testing products will not infringe existing or future patents.
We may also need additional certified laboratory scientists and other scientific and technical personnel to process higher volumes of our testing products. We cannot assure you that any increases in scale, related improvements and quality assurance will be successfully implemented or that appropriate personnel will be available.
We may also need additional certified laboratory scientists and other scientific and technical personnel to process higher volumes of our testing products. We cannot assure you that any increases in scale, related improvements and quality assurance will be successfully implemented or 38 that appropriate personnel will be available.
We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results. The diagnostic industry is subject to rapidly changing technology, which could make our current and future testing products obsolete.
We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions might have on our operating results. 42 The diagnostic industry is subject to rapidly changing technology, which could make our current and future testing products obsolete.
If we use hazardous materials in a manner that causes contamination or injury, we could be liable for resulting damages. 53 We are subject to federal, state and local laws, rules and regulations governing the use, discharge, storage, handling and disposal of biological material, chemicals and waste.
If we use hazardous materials in a manner that causes contamination or injury, we could be liable for resulting damages. We are subject to federal, state and local laws, rules and regulations governing the use, discharge, storage, handling and disposal of biological material, chemicals and waste.
Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater.
Companies that must comply with the GDPR face increased compliance obligations 56 and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which 66 could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Any breach could also result in the compromise of our trade secrets and other proprietary information, which could adversely affect our competitive position. In addition, the interpretation and application of federal and state consumer, health-related and data protection laws in the United States are often uncertain, contradictory and in flux.
Any breach could also result in the compromise of our trade secrets and other proprietary information, which could materially and adversely affect our competitive position. In addition, the interpretation and application of federal and state consumer, health-related and data protection laws in the United States are often uncertain, contradictory and in flux.
In September 2017, we entered into the loan and security agreement (the 2017 Term Loan) with Innovatus Life Sciences Lending Fund I, LP (Innovatus), which we subsequently amended in November 2019, November 2021 and April 2023 (the Amended Loan Agreement). The Amended Loan Agreement is collateralized by substantially all of our personal property, including our intellectual property.
In September 2017, we entered into the loan and security agreement (the 2017 Term Loan) with Innovatus Life Sciences Lending Fund I, LP (Innovatus), which we subsequently amended in November 2019, November 2021, April 2023 and April 2024 (the Amended Loan Agreement). The Amended Loan Agreement is collateralized by substantially all of our personal property, including our intellectual property.
We are a party to a number of license agreements under which we are granted intellectual property rights that are important to our business. For example, we license certain patent rights from AHN, QMUL and JHU. Our existing license agreements impose various regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations.
We are a party to a number of license agreements under which we are granted intellectual property rights that are important to our business. For example, we license certain patent rights from AHN and JHU. Our existing license agreements impose various regulatory and/or commercial diligence obligations, payment of milestones and/or royalties and other obligations.
If third-party payors do not provide coverage and adequate reimbursement for our testing products, or they breach, rescind or modify their contracts or reimbursement policies or delay payments for our testing products, or if we or our partners are unable to successfully negotiate payor contracts, our commercial success could be compromised.
If third-party payors do not provide coverage and adequate reimbursement for our testing products, or they breach, rescind or modify their contracts or reimbursement policies or delay payments for our testing products, or if we or our partners are unable to successfully negotiate payor contracts, our commercial success could be materially compromised.
Therefore, if we do not have other sufficient properly functioning flow cytometers due to failure to meet specifications or they otherwise become inoperable, our ability to process patient specimens in the required timeframe would be compromised and our business could be harmed.
Therefore, if we do not have other sufficient properly functioning flow cytometers due to 44 failure to meet specifications or they otherwise become inoperable, our ability to process patient specimens in the required timeframe would be compromised and our business could be harmed.
We face a number of risks related to our protection of, and our service providers’ protection of, this critical information, including loss of access, unauthorized disclosure and unauthorized access, as well as risks associated with our ability to identify and audit such events and risks associated with the need to 45 reconstruct any lost or stolen data.
We face a number of risks related to our protection of, and our service providers’ protection of, this critical information, including loss of access, unauthorized disclosure and unauthorized access, as well as risks associated with our ability to identify and audit such events and risks associated with the need to reconstruct any lost or stolen data.
Our outside counsel has systems in place to monitor deadlines to pay these fees and to remind us of 62 these fees, and our outside counsel employs an outside firm to pay these fees due to the USPTO and to foreign patent agencies based on our instructions. In the aggregate, these fees can be cost prohibitive for an early-stage company.
Our outside counsel has systems in place to monitor deadlines to pay these fees and to remind us of these fees, and our outside counsel employs an outside firm to pay these fees due to the USPTO and to foreign patent agencies based on our instructions. In the aggregate, these fees can be cost prohibitive for an early-stage company.
As a result, capital appreciation, if any, of our common stock will be the sole source of gain for the foreseeable future. An active, liquid trading market for our common stock may not be maintained. Prior to our initial public offering (IPO), there had been no public market for our common stock.
As a result, capital appreciation, if any, of our common stock will be the sole source of gain for the foreseeable future. An active, liquid trading market for our common stock may not be maintained. Prior to our initial public offering, there had been no public market for our common stock.
Our failure to meet the continued listing requirements of Nasdaq or The Nasdaq Stock Market LLC could result in a delisting of our common stock. 67 If we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist our common stock.
Our failure to meet the continued listing requirements of Nasdaq or The Nasdaq Stock Market LLC could result in a delisting of our common stock. If we fail to satisfy the continued listing requirements of Nasdaq, such as the corporate governance requirements or the minimum closing bid price requirement, Nasdaq may take steps to delist our common stock.
While we believe we have implemented appropriate controls and metrics in our laboratory to meet such requirements, we 44 cannot provide any assurance that our instruments will not fall out of specification, in which case we would be required to re-calibrate them.
While we believe we have implemented appropriate controls and metrics in our laboratory to meet such requirements, we cannot provide any assurance that our instruments will not fall out of specification, in which case we would be required to re-calibrate them.
While we have experienced revenue growth from the sale of our testing products, we may not be able to sustain this growth or maintain existing revenue levels. Further, we cannot ensure the continued availability of our testing products in commercial quantities at acceptable costs.
While we have experienced revenue growth from the sale of our testing products, we 35 may not be able to sustain this growth or maintain existing revenue levels. Further, we cannot ensure the continued availability of our testing products in commercial quantities at acceptable costs.
If we are unable to increase sales of our testing products, expand reimbursement for our testing products, or successfully develop and commercialize 34 additional testing products, our revenue and our ability to achieve and sustain profitability would be impaired, and the market price of our common stock could decline.
If we are unable to increase sales of our testing products, expand reimbursement for our testing products, or successfully develop and commercialize additional testing products, our revenue and our ability to achieve and sustain profitability would be impaired, and the market price of our common stock could decline.
To finance any acquisitions or investments, we may choose to issue shares of our stock as consideration, which would dilute the ownership of our stockholders. If the price of our common stock is low or volatile, we may not be able to acquire other companies for stock.
To finance any acquisitions or investments, we may choose to issue shares of our stock, or stock equivalents, as consideration, which would dilute the ownership of our stockholders. If the price of our common stock is low or volatile, we may not be able to acquire other companies for stock.
Additionally, our success depends on our ability to attract and retain qualified and highly-specialized salespeople. We may have difficulties locating, recruiting or retaining qualified salespeople, which could cause a delay or decline in the rate of adoption of 43 our testing products.
Additionally, our success depends on our ability to attract and retain qualified and highly-specialized salespeople. We may have difficulties locating, recruiting or retaining qualified salespeople, which could cause a delay or decline in the rate of adoption of our testing products.
We can face criminal liability and other serious consequences for violations, which can harm our business. We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S.
We can face criminal liability and other serious consequences for violations, which can harm our business. 53 We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S.
The privacy, security and breach 56 notification rules promulgated under HIPAA, as amended by the HITECH Act, Standards for Privacy of Individually Identifiable Health Information (Privacy Standards) and the Security Standards for the Protection of Electronic Protected Health Information (Security Standards) under HIPAA establish a set of basic national privacy and security standards for the protection of individually identifiable health information by Covered Entities and their Business Associates.
The privacy, security and breach notification rules promulgated under HIPAA, as amended by the HITECH Act, Standards for Privacy of Individually Identifiable Health Information (Privacy Standards) and the Security Standards for the Protection of Electronic Protected Health Information (Security Standards) under HIPAA establish a set of basic national privacy and security standards for the protection of individually identifiable health information by Covered Entities and their Business Associates.
Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other factors that our board of directors may deem relevant.
Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend on our financial condition, operating results, capital 66 requirements, general business conditions and other factors that our board of directors may deem relevant.
We 40 also face competition from commercial laboratories, such as ARUP Laboratories, Inc.; Laboratory Corporation of America Holdings; the Mayo Clinic; and Quest Diagnostics Incorporated, all of which have existing infrastructures to support the commercialization of diagnostic services.
We also face competition from commercial laboratories, such as ARUP Laboratories, Inc.; Laboratory Corporation of America Holdings; the Mayo Clinic; and Quest Diagnostics Incorporated, all of which have existing infrastructures to support the commercialization of diagnostic services.
Security breaches, loss of data and other disruptions to us, our third-party service providers or our partners could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.
Security breaches, loss of data and other disruptions to us, our third-party service providers or our partners could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could materially and adversely affect our business and our reputation.
However, trade secrets can be difficult to protect. While we use commercially reasonable efforts to protect our trade secrets, our licensors, 59 employees, consultants, contractors and other advisors may unintentionally or willfully disclose such trade secret information to third parties and competitors.
However, trade secrets can be difficult to protect. While we use commercially reasonable efforts to protect our trade secrets, our licensors, employees, consultants, contractors and other advisors may unintentionally or willfully disclose such trade secret information to third parties and competitors.
While we believe our assumptions and the data underlying our estimates are reasonable, these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, thereby reducing the predictive accuracy of these underlying factors.
While we believe our assumptions and the data underlying our estimates are reasonable, these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, thereby reducing the predictive 37 accuracy of these underlying factors.
Additionally, future acquisitions or dispositions could result in potentially dilutive issuances of our equity 42 securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition.
Additionally, future acquisitions or dispositions could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition.
We cannot be certain that such activities by third parties have been or will be conducted 61 in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights.
We cannot be certain that such activities by third parties have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights.
We will also need to purchase additional equipment, some of which can 38 take several months or more to procure, setup and validate, and increase our software and computing capacity to meet increased demand.
We will also need to purchase additional equipment, some of which can take several months or more to procure, setup and validate, and increase our software and computing capacity to meet increased demand.
In the conduct of our business, we process, maintain, and transmit sensitive data, including PHI. There can be no assurance that a breach of privacy or security will not occur.
In the conduct of our business, we process, maintain, and transmit sensitive data, including PHI. There can be no assurance that a material breach of privacy or security will not occur.
The U.S. government also has the right to take title to these inventions if the grant recipient fails to disclose the invention to the government or fails to file an 60 application to register the intellectual property within specified time limits.
The U.S. government also has the right to take title to these inventions if the grant recipient fails to disclose the invention to the government or fails to file an application to register the intellectual property within specified time limits.
As a result of the foregoing, if we earn net taxable income, 47 our ability to use NOL carryforwards and other tax attributes to offset taxable income and taxes, as applicable, may be limited.
As a result of the foregoing, if we earn net taxable income, our ability to use NOL carryforwards and other tax attributes to offset taxable income and taxes, as applicable, may be limited.
For example, in 2016, the EU and United States agreed to a transfer framework for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July 2020 by the Court of Justice of the EU.
In 2016, the EU and United States agreed to a transfer framework for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July 2020 by the Court of Justice of the EU.
Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, political instability, acts of war, including the current conflict in Ukraine and the Middle East, and other natural or manmade disasters (which may be exacerbated due to climate change) or business interruptions, for which we are predominantly self-insured.
Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, political instability, acts of war, including the current conflicts in Ukraine and the Middle East, and other natural or manmade disasters (which may be exacerbated due to climate change) or business interruptions, for which we are predominantly self-insured.
In addition, in order to mitigate these risks, we may need to maintain inventories of these supplies at higher levels than would be the case if multiple sources of supply were available. We rely on a third party as our sole fulfillment center in Florida to supply healthcare providers with our testing products.
In addition, in order to mitigate these risks, we may need to maintain inventories of these supplies at higher levels than would be the case if multiple sources of supply were available. We rely on a third-party as our sole fulfillment center in Georgia to supply healthcare providers with our testing products.
In addition, these breaches and other forms of inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. Our financial condition, commercialization efforts and results of operations has been and may again in the future be adversely affected by outbreaks of contagious diseases.
In addition, these breaches and other forms of inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above. Our financial condition, commercialization efforts and results of operations have been and may again in the future be adversely affected by outbreaks of contagious diseases.
In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA or other domestic privacy and data protection laws (for example Virginia's Consumer Data Protection Act and other similar laws that recently went into effect in in other states, such as Utah, Colorado, Connecticut, Delaware, Florida, Indiana, Iowa, Montana, Oregon, Tennessee, and Texas), any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.
In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA or other domestic privacy and data protection laws (for example Virginia's Consumer Data Protection Act and other similar laws that recently went into effect in in other states, such as Utah, Colorado, Connecticut, Delaware, Florida, Indiana, Iowa, Montana, Oregon, Tennessee, and Texas or Washington's "My Health My Data" Act), any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.
Under the Amended Loan Agreement, we are required to repay any outstanding principal and capitalized interest in monthly installments over a ten-month period commencing on April 1, 2026. At December 31, 2023, we were in compliance with all covenants of the Amended Loan Agreement.
Under the Amended Loan Agreement, we are required to repay any outstanding principal and capitalized interest in monthly installments over a ten-month period commencing on April 1, 2026. At December 31, 2024, we were in compliance with all covenants of the Amended Loan Agreement.
Any errors or omissions or professional liability claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage in the future. Additionally, any product liability lawsuit could cause injury to our reputation or cause us to suspend sales of our testing products.
Any errors or omissions or professional liability claim brought against us, with or without merit, could materially increase our insurance rates or prevent us from securing insurance coverage in the future. Additionally, any product liability lawsuit could cause material injury to our reputation or cause us to suspend sales of our testing products.
In addition, our inability to obtain and maintain coverage and adequate reimbursement 36 from third-party payors may limit adoption by rheumatologists, as well as third-party payors exerting pressure on rheumatologists and healthcare providers to order in-network testing products which could adversely affect our revenue.
In addition, our inability to obtain and maintain coverage and adequate reimbursement from third-party payors may limit adoption by healthcare providers, as well as third-party payors exerting pressure on healthcare providers to order in-network testing products which could adversely affect our revenue.
In 2023, Noridian posted the calendar year 2024 Medicare Physician Fee Schedule (MPFS), and CLFS, which establishes the reimbursement rates to be paid by Medicare for our jurisdiction for services performed on or after January 1, 2024.
In 2024, Noridian posted the calendar year 2025 Medicare Physician Fee Schedule (MPFS), and CLFS, which establishes the reimbursement rates to be paid by Medicare for our jurisdiction for services performed on or after January 1, 2025.
If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures in connection with security incidents, we may suffer loss of reputation, financial loss, and civil or criminal fines or other penalties.
If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures in connection with security incidents, we may suffer material loss of reputation, financial loss, civil or criminal fines or other penalties.
Risks Related to our Intellectual Property If we are unable to maintain intellectual property protection, our competitive position could be harmed. Our ability to protect our technologies, such as the AVISE ® Lupus test, affects our ability to compete and to achieve sustained profitability.
Risks Related to our Intellectual Property If we are unable to maintain intellectual property protection, our competitive position could be harmed. Our ability to protect our technologies, such as the AVISE ® Lupus platform, affects our ability to compete and to achieve sustained profitability.
If we are unable to create or maintain demand for our testing products in sufficient volume, we may not generate sufficient revenue to become profitable. To generate increased demand, we will need to continue to educate rheumatologists about the benefits of our testing products through publications in peer-reviewed medical journals, presentations at medical conferences and other similar means.
If we are unable to create or maintain demand for our testing products in sufficient volume, we may not generate sufficient revenue to become profitable. To generate increased demand, we will need to continue to educate healthcare providers about the benefits of our testing products through publications in peer-reviewed medical journals, presentations at medical conferences and other similar means.
Successful commercialization of our testing products depends, in large part, on the availability of coverage and adequate reimbursement from third-party payors, including government payors, such as Medicare and Medicaid and commercial payors.
Successful commercialization, or continued commercialization, of our testing products depends, in large part, on the availability of coverage and adequate reimbursement from third-party payors, including government payors, such as Medicare and Medicaid and commercial payors.
Our efforts to educate the medical community and third-party payors regarding the benefits of our testing products may require significant resources and may never be successful. We may experience limits on our revenue if rheumatologists decide not to order our testing products or if we are otherwise unable to create or maintain demand for our testing products.
Our efforts to educate the medical community and third-party payors regarding the benefits of our testing products may require significant resources and may never be successful. We may experience limits on our revenue if healthcare providers decide not to order our testing products or if we are otherwise unable to create or maintain demand for our testing products.
Our ability to raise capital under our current shelf registration statement (and any future registration statement on Form S-3) is, and may again in the future be, limited by, among other things, current and future SEC rules and regulations impacting the eligibility of smaller companies to use Form S-3 without restrictions.
Our ability to raise capital under our current shelf registration statement (and any future registration statement on Form S-3) has in the past, and may again in the future be, limited by, among other things, current and future SEC rules and regulations impacting the eligibility of smaller companies to use Form S-3 without restrictions.
Should Federal Express, United Parcel Service, or any other carrier we may use in the future, encounter delivery performance issues such as loss, damage or destruction of a specimen, it may be difficult to replace our patient specimens in a timely manner and such occurrences may damage our reputation and lead to decreased utilization from rheumatologists for our testing services and increased cost and expense to our business.
Should Federal Express, UPS, or any other carrier we may use in the future, encounter delivery performance issues such as loss, damage or destruction of a specimen, it may be difficult to replace our patient specimens in a timely manner and such occurrences may damage our reputation and lead to decreased utilization from rheumatologists for our testing services and increased cost and expense to our business.
As a result, the U.S. government may have certain rights to intellectual property embodied in our testing products pursuant to the Bayh-Dole Act of 1980 (Bayh-Dole Act). These U.S. government rights include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose.
As a result, the U.S. government may have certain rights to intellectual 59 property embodied in our testing products pursuant to the Bayh-Dole Act. These U.S. government rights include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose.
If we engage a Business Associate to help us carry out healthcare activities and functions, we must have a written Business Associate contract or other arrangement with the Business Associate that establishes specifically what the Business Associate has been engaged to do and requires the Business Associate to comply with the requirements of HIPAA.
If we engage a Business Associate to help us carry out healthcare activities and functions, we must have a written Business Associate contract or other arrangement with the Business Associate that establishes specifically what the Business Associate has been engaged to do and obligates the Business Associate to comply with HIPAA requirements.
You should consider carefully the risks and uncertainties described below, together with all of the other information included in this Annual Report on Form 10-K, including our financial statements and related notes and "Management’s Discussion and Analysis of Financial Condition and Results of Operations," before making an investment decision to purchase or sell shares of our common stock.
You should consider carefully the risks and uncertainties described below, together with all of the other information included in this Annual Report, including our financial statements and related notes and "Management’s Discussion and Analysis of Financial Condition and Results of Operations," before making an investment decision to purchase or sell shares of our common stock.
However, the FDA has generally exercised its enforcement discretion and not enforced applicable regulations with respect to LDTs, which are IVDs that are designed, manufactured, and used within a single high-complexity CLIA-certified laboratory. We believe that all of our AVISE ® test products are LDTs, as are our near-term pipeline candidate tests.
Historically, the FDA had generally exercised its enforcement discretion and not enforced applicable regulations with respect to LDTs, which are IVDs that are designed, manufactured, and used within a single high-complexity CLIA-certified laboratory. We believe that all of our AVISE ® test products are LDTs, as are our near-term pipeline candidate tests.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeIn general, we seek to address cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, security and availability of the information that we collect and store by identifying, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.
Biggest changeIn general, we seek to address cybersecurity risks through a comprehensive, cross-functional approach that is focused on preserving the confidentiality, security and availability of the information that we collect and store by identifying, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur. 67 Cybersecurity Risk Management and Strategy; Effect of Risk We face risks related to cybersecurity such as unauthorized access, cybersecurity attacks and other security incidents, including as perpetrated by hackers and unintentional damage or disruption to hardware and software systems, loss of data, and misappropriation of confidential information.
To provide for the availability of critical data and systems, maintain 68 regulatory compliance, manage our material risks from cybersecurity threats, and protect against and respond to cybersecurity incidents, we undertake the following activities: a. monitor emerging data protection laws and implement changes to our processes that are designed to comply with such laws; b. through our policies, practices and contracts (as applicable), require employees, as well as third parties that provide services on our behalf, to treat confidential information and data with care; c. employ technical safeguards that are designed to protect our information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence; d. provide regular, mandatory training for our employees regarding cybersecurity threats as a means to equip them with effective tools to address cybersecurity threats, and to communicate our evolving information security policies, standards, processes and practices; e. conduct regular phishing email simulations for all employees with access to our email systems to enhance awareness and responsiveness to possible threats; f. conduct monthly cybersecurity management and incident training for employees involved in our systems and processes that handle sensitive data; g. leverage internal and external resources to help us identify, protect, detect, respond and recover when there is an actual or potential cybersecurity incident; and h. carry information security risk insurance that provides protection against the potential losses arising from a cybersecurity incident Our incident response plan coordinates the activities we take to prepare for, detect, respond to and recover from cybersecurity incidents, which include processes to triage, assess severity for, escalate, contain, investigate and remediate the incident, as well as to comply with potentially applicable legal obligations and mitigate damage to our business and reputation.
To provide for the availability of critical data and systems, maintain regulatory compliance, manage our material risks from cybersecurity threats, and protect against and respond to cybersecurity incidents, we undertake the following activities: a. monitor emerging data protection laws and implement changes to our processes that are designed to comply with such laws; b. through our policies, practices and contracts (as applicable), require employees, as well as third parties that provide services on our behalf, to treat confidential information and data with care; c. employ technical safeguards that are designed to protect our information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence; d. provide regular, mandatory training for our employees regarding cybersecurity threats as a means to equip them with effective tools to address cybersecurity threats, and to communicate our evolving information security policies, standards, processes and practices; e. conduct regular phishing email simulations for all employees with access to our email systems to enhance awareness and responsiveness to possible threats; f. conduct monthly cybersecurity management and incident training for employees involved in our systems and processes that handle sensitive data; g. leverage internal and external resources to help us identify, protect, detect, respond and recover when there is an actual or potential cybersecurity incident; and h. carry information security risk insurance that provides protection against the potential losses arising from a cybersecurity incident Our incident response plan coordinates the activities we take to prepare for, detect, respond to and recover from cybersecurity incidents, which include processes to triage, assess severity for, escalate, contain, investigate and remediate the incident, as well as to comply with potentially applicable legal obligations and mitigate damage to our business and reputation.
As discussed above, these Information Services team members report to our Chief Executive Officer, and ultimately to the Audit Committee of our board of directors about material cybersecurity threats. 70
As discussed above, these Information Services team members report to our Chief Executive Officer, and ultimately to the Audit Committee of our board of directors about material cybersecurity threats. 69
We describe whether and how risks from identified cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition, under the heading “ Failure in our information technology, telephone or other systems could significantly disrupt our operations and adversely affect our business and financial condition ,” which disclosures are incorporated by reference herein.
We describe whether and how risks from identified cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition, under the heading “ Failure in our information technology, telephone or other systems could significantly disrupt our operations and adversely affect our business and financial condition ,” which disclosures are incorporated by reference herein. 68 Cybersecurity Governance; Management Cybersecurity is an important part of our risk management processes and an area of focus for our board of directors and management.
Cybersecurity Governance; Management Cybersecurity is an important part of our risk management processes and an area of focus for our board of directors and management. In general, our board of directors oversees risk management activities designed and implemented by our management, and considers specific risks, including, for example, risks associated with our strategic plan, business operations, and capital structure.
In general, our board of directors oversees risk management activities designed and implemented by our management, and considers specific risks, including, for example, risks associated with our strategic plan, business operations, and capital structure.
In such sessions, our Audit Committee generally receives materials that include cybersecurity materials discussing current material cybersecurity threat risks, and describing our ability to mitigate those risks, and discusses such matters with our Chief Executive Officer.
In such sessions, our Audit Committee generally receives materials that include cybersecurity materials discussing current material cybersecurity threat risks, and describing our ability to mitigate those risks, and discusses such matters with our Chief Executive Officer. Our Audit Committee and board of directors receive prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds.
Our Audit Committee and board of directors receive prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds. 69 Our cybersecurity risk management and strategy processes, which are discussed in greater detail above, are led by our Vice President of Information Services, with support from our entire Information Services department.
Our cybersecurity risk management and strategy processes, which are discussed in greater detail above, are led by our Vice President of Information Services, with support from our entire Information Services department.
Removed
Cybersecurity Risk Management and Strategy; Effect of Risk We face risks related to cybersecurity such as unauthorized access, cybersecurity attacks and other security incidents, including as perpetrated by hackers and unintentional damage or disruption to hardware and software systems, loss of data, and misappropriation of confidential information.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAttorney’s Office dismissed this “covered conduct” in the qui tam with prejudice, while non-covered conduct was dismissed without prejudice. In November 2023, the complaint was unsealed and served on us. We filed a motion to dismiss the complaint. In February 2024, the relator filed a motion for leave to amend the complaint.
Biggest changeAttorney’s Office dismissed this “covered conduct” in the qui tam with prejudice, while non-covered conduct was dismissed without prejudice. The Department of Justice excused itself from the case in connection with the settlement. In November 2023, the complaint was unsealed and served on us. We filed a motion to dismiss the complaint.
We opposed this motion, and all motions are still pending. The Company intends to vigorously defend against the claims being asserted in the complaint. Items 4. Mine Safety Disclosures. Not applicable. 71 Part II
In February 2024, the relator filed a motion for leave to amend the complaint. We opposed this motion, and all motions are still pending. While we cannot predict when these matters will be resolved, the Company intends to vigorously defend against the claims being asserted in the complaint. Items 4. Mine Safety Disclosures. Not applicable. 70 Part II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHolders of Record As of March 14, 2024, there were approximately 31 stockholders of record of our common stock. This number was derived from our shareholder records and does not include beneficial owners of our common stock whose shares are held in "street" name with various dealers, clearing agencies, banks, brokers and other fiduciaries.
Biggest changeHolders of Record As of March 7, 2025, there were approximately 23 stockholders of record of our common stock. This number was derived from our shareholder records and does not include beneficial owners of our common stock whose shares are held in "street" name with various dealers, clearing agencies, banks, brokers and other fiduciaries.

Item 7. Management's Discussion & Analysis

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

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Biggest changeResults of Operations 76 Comparison of the Years Ended December 31, 2023 and 2022: Year Ended December 31, Change 2023 2022 (in thousands) Revenue $ 52,548 $ 45,563 $ 6,985 Operating expenses: Costs of revenue 23,092 24,214 (1,122) Selling, general and administrative expenses 47,428 52,018 (4,590) Research and development expenses 4,865 9,876 (5,011) Goodwill impairment — 5,506 (5,506) Total operating expenses 75,385 91,614 (16,229) Loss from operations (22,837) (46,051) 23,214 Interest expense (2,335) (2,448) 113 Interest income 1,516 830 686 Loss before income taxes (23,656) (47,669) 24,013 Income tax (expense) benefit (33) 282 (315) Net loss $ (23,689) $ (47,387) $ 23,698 Revenue Revenue increased $7.0 million, or 15.3%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, primarily due to improved commercial payor ASP, increased AVISE ® CTD year-over-year volume and cash collections from tests performed in prior periods, partially offset by decreased Medicare ASP.
Biggest changeResults of Operations Comparison of the Years Ended December 31, 2024 and 2023: Year Ended December 31, Change 2024 2023 (in thousands) Revenue $ 55,641 $ 52,548 $ 3,093 Costs of revenue 22,529 23,092 (563) Gross margin 33,112 29,456 3,656 Operating expenses: Selling, general and administrative expenses 41,373 47,428 (6,055) Research and development expenses 5,375 4,865 510 Total operating expenses 46,748 52,293 (5,545) Loss from operations (13,636) (22,837) 9,201 Interest expense (2,234) (2,335) 101 Interest income 767 1,516 (749) Loss before income taxes (15,103) (23,656) 8,553 Income tax expense (12) (33) 21 Net loss $ (15,115) $ (23,689) $ 8,574 Revenue Revenue increased $3.1 million, or 5.9%, for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to improved ASP (including cash collected related to tests performed in prior periods), partially offset by decreased AVISE ® CTD year-over-year volume resulting from the expected impacts of revenue cycle management initiatives and the reduction of sales territories which began in 2022.
Per the Amended Loan Agreement, we are not required to comply with the revenue covenant for any quarter during which we maintain a minimum aggregate cash balance equal to fifty percent of the aggregate principal amount of the 2017 Term Loan funded (excluding any capitalized interest paid-in-kind) at all times during such quarter.
Per the 77 Amended Loan Agreement, we are not required to comply with the revenue covenant for any quarter during which we maintain a minimum aggregate cash balance equal to fifty percent of the aggregate principal amount of the 2017 Term Loan funded (excluding any capitalized interest paid-in-kind) at all times during such quarter.
These costs consist of personnel-related expenses (including stock-based compensation expense), materials, laboratory supplies, consulting costs, costs associated with setting up and conducting clinical studies and allocated overhead (including rent and utilities). We expense all research and development costs in the periods in which they are incurred.
These costs consist of personnel-related expenses (including stock-based compensation expense), materials, laboratory supplies, consulting costs, costs associated with setting 75 up and conducting clinical studies and allocated overhead (including rent and utilities). We expense all research and development costs in the periods in which they are incurred.
Payment from third-party payors differs depending on whether we are considered a "participating provider" (have entered into a contract with the payors as a participating provider) or a "non-participating provider" (do not have a contract and are considered a "non-participating provider"). Payors will often 73 reimburse non-participating providers at a lower amount than participating providers, if at all.
Payment from third-party payors differs depending on whether we are considered a "participating provider" (have entered into a contract with the payors as a participating provider) or a "non-participating provider" (do not have a contract and are considered a "non-participating provider"). Payors will often reimburse non-participating providers at a lower amount than participating providers, if at all.
Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily 80 apparent from other sources.
Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.
Until such time, if ever, as we can generate revenue to support our costs structure, we expect to finance our operations through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements.
Until such time, if ever, as we can generate revenue to support our costs structure, we expect to finance our operations as needed through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders may be diluted, and the terms of these 79 securities may include liquidation or other preferences that adversely affect the rights of our common stockholders.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders.
In contrast, the specialized backgrounds of our sales personnel, coupled with our comprehensive training, enables our sales representatives to interpret results from our de-identified patient test reports and provide unique insights in a highly tailored discussion with rheumatologists.
In contrast, the specialized backgrounds of our sales personnel, coupled with our comprehensive training, enables our sales representatives to interpret results from our de-identified patient test reports and provide unique 72 insights in a highly tailored discussion with rheumatologists.
The consequences of failing to achieve the performance covenants, when applicable, will be cured if (i) within thirty days of failing to achieve the performance covenant, we submit a new Board approved financial plan to Innovatus under which we are expected to break even on a cash flow basis prior to the maturity date, and (ii) within thirty days of the submission of such financial plan, we issue additional equity securities or subordinated debt with net proceeds sufficient to fund any cash flow deficiency generated from operations, as defined in the Amended Loan Agreement.
The consequences of failing to achieve the performance covenants, when applicable, will be cured if (i) within thirty days of failing to achieve the performance covenant, we submit a new financial plan approved by our board of directors to Innovatus under which we are expected to break even on a cash flow basis prior to the maturity date, and (ii) within thirty days of the submission of such financial plan, we issue additional equity securities or subordinated debt with net proceeds sufficient to fund any cash flow deficiency generated from operations, as defined in the Amended Loan Agreement.
Operating Expenses 75 Costs of Revenue Costs of revenue represents the expenses associated with obtaining and testing patient specimens. The components of our costs of revenue include materials costs, direct labor, equipment, infrastructure expenses, shipping charges to transport specimens, blood specimen collections fees, royalties, depreciation and allocated overhead (including rent and utilities).
Costs of Revenue Costs of revenue represents the expenses associated with obtaining and testing patient specimens. The components of our costs of revenue include materials costs, direct labor, equipment, infrastructure expenses, shipping charges to transport specimens, blood specimen collections fees, royalties, depreciation and allocated overhead (including rent and utilities).
Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and financial performance, includes forward-looking statements that are based on current beliefs, plans and expectations and involve risks, uncertainties and assumptions.
Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and financial performance, includes forward-looking statements that are based on current beliefs, plans and expectations and involve risks, uncertainties and assumptions.
The rheumatologists who order our testing products, and to whom results are reported, are generally not responsible for payment for these products. The parties that pay for these services (payors) consist of commercial payors (insurance companies, health maintenance organizations, etc.), government payors (primarily Medicare and Medicaid), client payors (hospitals, other laboratories, etc.), and patient self-pay.
The healthcare professionals who order our testing products, and to whom results are reported, are generally not responsible for payment for these products. The parties that pay for these services (payors) consist of commercial payors (insurance companies, health maintenance organizations, etc.), government payors (primarily Medicare and Medicaid), client payors (hospitals, other laboratories, etc.), and patient self-pay.
We expect interest expense to remain relatively consistent in the year ending December 31, 2024 as compared to the year ended December 31, 2023. Interest Income Interest income consists of interest income earned on our cash and cash equivalents. Income Tax (Expense) Benefit Income taxes include federal and state income taxes in the United States.
We expect interest expense to remain relatively consistent in the year ending December 31, 2025 as compared to the year ended December 31, 2024. Interest Income Interest income consists of interest income earned on our cash and cash equivalents. Income Tax Expense Income taxes include federal and state income taxes in the United States.
You should read the "Special note regarding forward-looking statements" and "Risk Factors" section of this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
You should read the "Special note regarding forward-looking statements" and "Risk Factors" section of this Annual Report for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
We expect that our near- and longer-term liquidity requirements will continue to consist of working capital and general corporate expenses associated with the growth of our business, including payments we may be required to make upon the achievement of previously negotiated milestones associated with intellectual property we have licensed, payments related to non-cancelable purchase obligations with one supplier for reagents, payments related to our principal and interest under our long term borrowing arrangements, payments for operating leases related to our office and laboratory space in Vista, California and our office space in Carlsbad, California, and payments for finance leases related to our laboratory equipment (see Note 4, Borrowings, and Note 6, Commitments and Contingencies, to our audited financial statements included in this Annual Report on Form 10-K).
We expect that our near- and longer-term liquidity requirements will continue to consist of working capital and general corporate expenses associated with the growth of our business, including payments we may be required to make upon the achievement of previously negotiated milestones associated with intellectual property we have licensed, payments related to non-cancelable purchase obligations for reagents, payments related to our principal and interest under our long term borrowing arrangements, payments for operating leases related to our office and laboratory space in Vista, CA and our office space in Carlsbad, CA, and payments for finance leases related to our laboratory equipment (see Note 4, "Borrowings," and Note 6, "Commitments and Contingencies," to our audited financial statements included in this Annual Report).
Reimbursement rates vary by product and payor. All of our AVISE ® tests are performed in our approximately 13,000 square foot laboratory located in Vista, California, which is certified under the CLIA and accredited by CAP. Our laboratory is certified for performance of high-complexity testing by CMS in accordance with CLIA and is licensed by all states requiring out-of-state licensure.
All of our AVISE ® tests are performed in our approximately 13,000 square foot laboratory located in Vista, California, which is certified under the CLIA and accredited by CAP. Our laboratory is certified for performance of high-complexity testing by CMS in accordance with CLIA and is licensed by all states requiring out-of-state licensure.
As of December 31, 2023, we were in compliance with all covenants of the Amended Loan Agreement with Innovatus.
As of December 31, 2024, we were in compliance with all covenants of the Amended Loan Agreement with Innovatus.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes thereto included elsewhere in this Annual Report.
Cash Flows from Investing Activities Net cash used in investing activities for the year ended December 31, 2023 and 2022 was $0.8 million and $4.3 million, respectively, and was primarily due to net purchases of property and equipment.
Cash Flows from Investing Activities Net cash used in investing activities for the year ended December 31, 2024 and 2023 was $0.5 million and $0.8 million, respectively, and was primarily due to net purchases of property and equipment.
Cash Flows from Financing Activities Net cash used in financing activities for the year ended December 31, 2023 was $10.6 million, primarily consisting of principal payments on the Amended Loan Agreement, finance lease obligations and notes payable, partially offset by the proceeds from the Exagen Inc. 2019 Employee Stock Purchase Plan (the ESPP) purchases.
Net cash used in financing activities for the year ended December 31, 2023 was $10.6 million, primarily consisting of principal payments on the Amended Loan Agreement, finance lease obligations and notes payable, partially offset by the proceeds from the ESPP purchases.
The number of ordering healthcare providers decreased to 2,383 for the three months ended December 31, 2023 compared to 2,419 in the same 2022 period. Costs of Revenue Costs of revenue decreased $1.1 million, or 4.6%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
The number of ordering healthcare providers decreased to 2,370 for the three months ended December 31, 2024 compared to 2,383 in the same 2023 period. Costs of Revenue Costs of revenue decreased $0.6 million, or 2.4%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Actual results could vary as a result of a number of factors, including: • our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for our testing products; • our ability to maintain and grow sales of our AVISE ® testing products, as well as the costs associated with conducting clinical studies to demonstrate the utility of our products and support reimbursement efforts; ▪ fluctuations in working capital; ▪ the costs of developing our product pipeline, including the costs associated with conducting our ongoing and future validation, utility and outcome studies as well as the success of our development efforts; and ▪ the extent to which we establish additional partnerships or in-license, acquire or invest in complementary businesses or products as well as the success of our existing partnerships and/or in-licenses.
Actual results could vary as a result of a number of factors, including: • our ability to improve AVISE ® CTD ASP as a result of the launch of the T-Cell Biomarkers and RA Sub-Profile Biomarkers, in addition to our ability to achieve adequate reimbursement for these additions to our AVISE ® CTD test offering; • our ability to achieve sufficient market acceptance, coverage and adequate reimbursement from third-party payors and adequate market share and revenue for our testing products; • our ability to maintain and grow sales of our AVISE ® testing products, as well as the costs associated with conducting clinical studies to demonstrate the utility of our products and support reimbursement efforts; ▪ fluctuations in working capital; 78 ▪ the costs of developing our product pipeline, including the costs associated with conducting our ongoing and future validation, utility and outcome studies as well as the success of our development and commercialization efforts; and ▪ the extent to which we establish additional partnerships or in-license, acquire or invest in complementary businesses or products as well as the success of our existing partnerships and/or in-licenses.
We expect research and development expenses to increase in the short-term as a result of ongoing clinical studies. We believe we have sufficient laboratory capacity to support increased test volume. Cash used to fund operating expenses is impacted by the timing of when we pay expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
We expect research and development expenses to remain relatively consistent in the short-term. We believe we have sufficient laboratory capacity to support increased test volume. Cash used to fund operating expenses is impacted by the timing of when we pay expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
The number of ordering healthcare providers in the quarter ended December 31, 2023 was 2,383, representing an approximate 2% decrease over the same period in 2022.
The number of ordering healthcare providers in the quarter ended December 31, 2024 was 2,370, representing an approximate 1% decrease over the same period in 2023.
To determine if the submitted tests are compliant with relevant policy requirements, these tests will undergo technical assessment by Palmetto GBA as part of the MolDX program. The article listed several such tests, including the AVISE ® Lupus test. We face challenges relating to commercial payor claim processing and revenue.
To determine if the submitted tests are compliant with relevant policy requirements, these tests will undergo technical assessment by Palmetto GBA as part of the MolDX program. We face consistent challenges relating to commercial payor claim processing and revenue.
We discuss many of these risks, uncertainties and other factors in the section entitled "Risk Factors." Seasonality Based on our experience to date, we expect some seasonal variations in our financial results due to a variety of factors, such as: the year-end holiday period and other major holidays, vacation patterns of both patients and healthcare providers (including medical conferences), climate and weather conditions in our markets (for example, excess sun exposure can cause flares in SLE), seasonal conditions that may affect medical practices and provider activity (for example, influenza outbreaks that may reduce the percentage of patients that can be seen) and other factors relating to the timing of patient benefit changes, as well as patient deductibles and co-insurance limits. 74 Inflationary Environment The current inflationary environment has resulted in higher prices, which have impacted our costs incurred to generate revenue from our laboratory testing services, costs to attract and retain personnel, and other operating costs.
We discuss many of these risks, uncertainties and other factors in the section entitled "Risk Factors." Seasonality Based on our experience to date, we expect some seasonal variations in our financial results due to a variety of factors, such as: the year-end holiday period and other major holidays, vacation patterns of both patients and healthcare providers (including medical conferences), climate and weather conditions in our markets (for example, excess sun exposure can cause flares in SLE), seasonal conditions that may affect medical practices and provider activity (for example, influenza outbreaks that may reduce the percentage of patients that can be seen) and other factors relating to the timing of patient benefit changes, as well as patient deductibles and co-insurance limits.
We expect that our costs of revenue will remain relatively consistent year-over-year in the near-term. Selling, General and Administrative Expenses Selling, general and administrative expenses consist of personnel costs (including stock-based compensation expense), direct marketing expenses, accounting and legal expenses, consulting costs, and allocated overhead (including rent, information technology, depreciation and utilities).
Operating Expenses Selling, General and Administrative Expenses Selling, general and administrative expenses consist of personnel costs (including stock-based compensation expense), direct marketing expenses, accounting and legal expenses, consulting costs, and allocated overhead (including rent, information technology, depreciation and utilities). We expect that our selling, general and administrative expenses will increase year-over-year in the near-term as a result of increased headcount.
We expect that our research and development expenses will increase year-over-year in the near-term as a result of ongoing clinical studies. Interest Expense Interest expense consists of cash and non-cash interest expense associated with our financing arrangements, including the borrowings under our Amended Loan Agreement with Innovatus.
We expect that our research and development expenses will remain relatively consistent year-over-year in the near-term. Interest Expense Interest expense consists of cash and non-cash interest expense associated with our financing arrangements, including the borrowings under our Amended Loan Agreement with Innovatus.
During the year ended December 31, 2023, we implemented several revenue cycle management initiatives, including among others, withholding the submission of commercial payor claims for reimbursement until subsequent quarters, increasing appeals efforts and implementing increases to our patient payment rates. Additionally, in November 2023, we increased the list price billed for our tests.
During the year ended December 31, 2023, we implemented several revenue cycle management initiatives, including among others, withholding the submission of commercial payor claims for reimbursement until subsequent quarters, increasing appeals efforts, adjusting the documentation required of physicians when ordering our tests and implementing increases to our patient payment rates.
Our clinical laboratory typically reports all AVISE ® testing product results within five business days. We market our AVISE ® testing products using our specialized sales force covering 40 territories in the United States. Many diagnostic sales forces are trained only to understand the comparative benefits of the tests they promote.
We market our AVISE ® testing products using our specialized sales force covering 40 territories in the United States. Many diagnostic sales forces are trained only to understand the comparative benefits of the tests they promote.
Cash Flows The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2023 2022 (in thousands) Net cash provided by (used in): Operating activities $ (14,462) $ (32,144) Investing activities (804) (4,318) Financing activities (10,632) (489) Net change in cash, cash equivalents and restricted cash $ (25,898) $ (36,951) Cash Flows from Operating Activities Net cash used in operating activities for the year ended December 31, 2023 was $14.5 million and primarily resulted from (i) our net loss of $23.7 million adjusted for non-cash charges of $8.9 million primarily related to stock-based compensation, depreciation, amortization, loss on disposal of assets primarily related to the assignment of a lease, non-cash lease expenses and non-cash interest and (ii) changes in our net operating assets of $0.3 million primarily related to net increases in prepaid expenses and other current assets and accounts receivable, and net decreases in operating lease liabilities, partially offset by net increases in accrued and other current liabilities.
Cash Flows The following table summarizes our cash flows for the periods indicated: Year Ended December 31, 2024 2023 (in thousands) Net cash provided by (used in): Operating activities $ (13,279) $ (14,462) Investing activities (515) (804) Financing activities (663) (10,632) Net change in cash, cash equivalents and restricted cash $ (14,457) $ (25,898) Cash Flows from Operating Activities Net cash used in operating activities for the year ended December 31, 2024 was $13.3 million and primarily resulted from (i) our net loss of $15.1 million adjusted for non-cash charges of $4.9 million primarily related to stock-based compensation, depreciation, amortization, non-cash lease expenses and non-cash interest and (ii) changes in our net operating assets of $3.1 million primarily related to net increases in prepaid expenses and other current assets and accounts receivable, and net decreases in operating lease liabilities, partially offset by net increases in accounts payable.
The number of AVISE ® CTD tests delivered increased to 137,650 in the year ended December 31, 2023 compared to 135,210 tests delivered in the same 2022 period. The AVISE ® CTD test accounted for 88% and 84% of revenue for the years ended December 31, 2023 and 2022, respectively.
The number of AVISE ® CTD tests delivered decreased to 122,883 in the year ended December 31, 2024 compared to 137,650 tests delivered in the same 2023 period. The AVISE ® CTD test accounted for 91% and 88% of revenue for the years ended December 31, 2024 and 2023, respectively.
In an effort to improve transparency regarding Medicare support of AVISE ® Lupus, on July 29, 2022, we submitted a formal request to Noridian for coverage of our AVISE ® Lupus test under the new PLA Code. On September 27, 2022, we received notice that Noridian has deemed our application for an LCD to be valid.
We submitted a formal request to Noridian for coverage of our AVISE ® Lupus test under the new PLA Code and on September 27, 2022, we received notice that Noridian deemed our application for an LCD to be valid, but our application is still pending.
We expect to continue to invest in research and development in order to develop additional testing products. Our success in developing new testing products will be important in our efforts to grow our business by expanding the potential market for our products and diversifying our sources of revenue. ▪ Maintain Meaningful Margin .
Our success in developing new testing products will be important in our efforts to grow our business by expanding the potential market for our products and diversifying our sources of revenue.
Net cash used in operating activities for the year ended December 31, 2022 was $32.1 million and primarily resulted from (i) our net loss of $47.4 million adjusted for non-cash charges of $13.6 million related to stock-based compensation, depreciation, amortization, non-cash interest and deferred income taxes and (ii) changes in our net operating assets of $1.7 million primarily related to net increases in accounts receivable and net decreases in accounts payable, partially offset by net decreases in prepaid expenses and other current assets and net increases in accrued liabilities and other current liabilities.
Net cash used in operating activities for the year ended December 31, 2023 was $14.5 million and primarily resulted from (i) our net loss of $23.7 million adjusted for non-cash charges of $8.9 million primarily related to stock-based compensation, depreciation, amortization, loss on disposal of assets primarily related to the assignment of a lease, non-cash lease expenses and non-cash interest and (ii) changes in our net operating assets of $0.3 million primarily related to net increases in prepaid expenses and other current assets and accounts receivable, and net decreases in operating lease liabilities, partially offset by net increases in accrued and other current liabilities.
Revenue growth for our testing products will depend, in part, on our ability to continue to expand our base of ordering healthcare providers and increase our penetration with existing healthcare providers. ▪ Development of Additional Testing Products. We rely on sales of our AVISE ® CTD test to generate the significant majority of our revenue.
Revenue growth for our testing products will depend, in part, on our ability to continue to expand our base of ordering healthcare providers and increase our penetration with existing healthcare providers. ▪ Development of Innovative Testing Products . We expect to continue to invest in research and development in order to develop additional testing products.
Since the launch of AVISE ® CTD in 2012 and through December 31, 2023, we have delivered approximately 887,000 of these tests. 137,650 AVISE ® CTD tests were delivered in the year ended December 31, 2023, representing approximately 2% growth over the same period in 2022.
Since the launch of AVISE ® CTD in 2012 and through December 31, 2024, we have delivered approximately 1,009,812 of these tests. 122,883 AVISE ® CTD tests were delivered in the year ended December 31, 2024, representing approximately 11% decline over the same period in 2023.
On November 17, 2023, we filed a registration statement on Form S-3 (Shelf Registration Statement) covering the offering, from time to time, of up to $150.0 million of common stock, preferred stock, debt securities, warrants and units, all of which remain available for sale at December 31, 2023. 78 On September 15, 2022, the Company entered into a sales agreement (the Sales Agreement) with TD Cowen as sales agent, pursuant to which the Company may offer and sell, from time to time, shares of Company common stock having an aggregate offering price of up to $50.0 million.
On November 17, 2023, we filed a registration statement on Form S-3 (Shelf Registration Statement) covering the offering, from time to time, of up to $150.0 million of common stock, preferred stock, debt securities, warrants and units, all of which remain available for sale at December 31, 2023.
To date, we have derived nearly all of our revenue from the sale of our testing products, most of which is attributable to our AVISE ® CTD test. We primarily market our testing products to rheumatologists in the United States.
These assessments require significant judgment by management. To date, we have derived nearly all of our revenue from the sale of our testing products, most of which is attributable to our AVISE ® CTD test.
We expect that our selling, general and administrative expenses will remain relatively consistent year-over-year in the near-term. Research and Development Expenses Research and development expenses include costs incurred to develop our technology, test products and product candidates, in addition to costs incurred to collect clinical specimens and conduct clinical studies to develop and support those products and product candidates.
Research and Development Expenses Research and development expenses include costs incurred to develop our technology, test products and product candidates, in addition to costs incurred to collect clinical specimens and conduct clinical studies to develop and support those products and product candidates.
As of December 31, 2023, we had an accumulated deficit of $279.2 million and cash and cash equivalents of $36.5 million. Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our funds are held in cash, money market funds and certificates of deposit.
Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our funds are held in cash and money market funds.
We record revenue on an accrual basis, using an estimate of the amount we will ultimately receive, as determined based on a historical analysis of amounts collected by test and by payor, among other factors. These assessments require significant judgment by management.
Financial Overview Revenue We recognize revenue in accordance with the provisions of ASC Topic 606, Revenue from Contracts with Customers. We record revenue on an accrual basis, using an estimate of the amount we will ultimately receive, as determined based on a historical analysis of amounts collected by test and by payor, among other factors.
Included in revenues for the years ended December 31, 2023 and 2022 was a net revenue increase of $3.4 million and a net revenue decrease of $2.4 million, respectively, associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods.
Included in revenues for the years ended December 31, 2024 and 2023 were net revenue increases of $6.6 million and $3.4 million, respectively, associated with changes in estimated variable consideration related to performance obligations satisfied in previous periods. Recent Accounting Pronouncements See Note 2, "Recent Accounting Pronouncements, of our annual financial statements." 80 Item 7A.
Gross margin as a percentage of revenue increased to 56.1% for the year ended December 31, 2023 compared to 46.9% for the year ended December 31, 2022. Selling, General and Administrative Expenses Selling, general and administrative expenses decreased $4.6 million, or 8.8%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
Selling, General and Administrative Expenses Selling, general and administrative expenses decreased $6.1 million, or 12.8%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
This pricing was finalized on the 2023 CLFS and is effective from January 1, 2023 through December 31, 2025. The process for obtaining and maintaining consistent reimbursement for new tests can be uncertain, lengthy and time consuming. A pricing determination is not synonymous with a coverage determination.
Noridian, our MAC, has set the current pricing for this PLA code at $840.65 per test through December 31, 2025. The process for obtaining and maintaining consistent reimbursement for new tests can be uncertain, lengthy and time consuming. A pricing determination is not synonymous with a coverage determination.
Since becoming a public company, our primary sources of capital have been cash inflows from product sales, sales of our common stock and, to a lesser extent, borrowings under our 2017 Term Loan. In April 2023, we further amended the 2017 Term Loan, pursuant to which we prepaid $10.0 million of principal and amended additional terms of the agreement.
Since becoming a public company, our primary sources of capital have been cash inflows from product sales, sales of our common stock and, to a lesser extent, borrowings under our 2017 Term Loan. Our obligations under the Amended Loan Agreement are secured by a security interest in substantially all of our assets, including our intellectual property.
For the years ended December 31, 2023 and 2022, we incurred a net loss of $23.7 million and $47.4 million, respectively, and we expect to incur additional losses in future periods. To date, we have generated only limited revenue, and we may never achieve revenue sufficient to offset our expenses.
Liquidity and Capital Resources We have incurred net losses since our inception. For the years ended December 31, 2024 and 2023, we incurred a net loss of $15.1 million and $23.7 million, respectively, and we expect to incur additional losses in future periods.
In addition, in connection with our revenue cycle management initiatives, we plan to hold claims in the first half of the year which will likely result in increases in our accounts receivable and an accelerated decrease in our cash in the first half of the year which we would expect to return to typical levels by the end of our fiscal year. ▪ Continued Growth of Our Testing Products.
In addition, in connection with our revenue cycle management initiatives, we held claims in the first half of the year which resulted in increases in our accounts receivable and an accelerated decrease in our cash in the first half of the year.
We seek to maintain meaningful margin through a continued focus on increasing operating leverage through the implementation of certain internal initiatives, such as leveraging validation, utility and reimbursement oriented clinical studies to facilitate payor coverage of our testing products.
We seek to establish a solid foundation for growth and path to sustained profitability through continued gross margin enhancements and improved operating expense efficiencies through the implementation of certain internal initiatives, such as leveraging validation, utility 73 and reimbursement-oriented clinical studies to facilitate payor coverage of our testing products. We center our efforts around long-term reimbursement and ASP growth.
Factors Affecting Our Performance We believe there are several important factors that have impacted, and that we expect will impact, our operating performance and results of operations, including: ▪ Reimbursement for Our Testing Products . Our revenue depends on achieving broad coverage and reimbursement for our tests from third-party payors, including both commercial payors and government payors.
Factors Affecting Our Performance We believe there are several important factors that have impacted, and that we expect will impact, our operating performance and results of operations, including: ▪ Commercial Launch of AVISE ® CTD Enhancements .
On January 31, 2024, CMS released a coverage article under which all multi-analyte proteomic testing will be considered within the scope of MolDX and reviewed through their technology assessment process. The article requires all laboratories furnishing multi-analyte proteomics testing in MolDX jurisdictions to register with the DEX ® Diagnostics Exchange Registry and obtain a Z-Code ® identifier.
In the meantime, we have continued to submit Medicare claims for AVISE ® Lupus, appeal denials and respond to requests for additional information. On January 31, 2024, CMS released a coverage article under which all multi-analyte proteomic testing will be considered within the scope of MolDX and reviewed through their technology assessment process.
Research and Development Expenses Research and development expenses decreased $5.0 million, or 50.7%, for the year ended December 31, 2023 compared to the year ended December 31, 2022.
These decreases were partially offset by an increase in commissions. Research and Development Expenses Research and development expenses increased $0.5 million, or 10.5%, for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Ultimately receiving a favorable LCD is uncertain and may be time-consuming, resource intensive and require multiple quarterly or annual periods to complete. In the meantime, we have continued to submit Medicare claims for AVISE ® Lupus, appeal denials and respond to requests for additional information.
Ultimately receiving a favorable LCD is uncertain and may be time-consuming, resource intensive and require multiple quarterly or annual periods to complete and is subject to risks and uncertainties described in the section entitled "Risk Factors" in this Annual Report.
Our service is completed upon the delivery of test results to the prescribing rheumatologists which triggers billing for the service. Our ability to increase our revenue will depend on our ability to further penetrate the market for our current and future testing products and increase our reimbursement and collection rates for tests delivered.
Our service is completed upon the delivery of test results to the prescribing rheumatologists which triggers billing for the service.
Now that we are billing under our PLA code, we are experiencing denials due to unfavorable medical policy with certain plans, and we expect this situation to persist.
While collectability has improved with certain plans year-over-year, we continue to experience denials due to unfavorable medical policy with certain plans, and we expect this situation to persist.
The Sales Agreement was amended in November 2023 in connection with the filing of the Form S-3 discussed above. The Company is not obligated to sell any shares of Company common stock in the offering and, as of December 31, 2023, the Company had not sold any shares of its common stock pursuant to the Sales Agreement.
The Company is not obligated to sell any shares of Company common stock in the offering and, as of December 31, 2024, the Company has not sold any shares of its common stock pursuant to the Sales Agreement. Funding Requirements Our primary use of cash is to fund our operations as we continue to grow our business.
We experienced moderate declines in test volume in the second half of 2023, as rheumatologists and patients adjust to these changes; however, we delivered 137,650 tests for our flagship product, AVISE ® CTD, in the year ended December 31, 2023 as compared to 135,210 tests for the year ended December 31, 2022.
We delivered 122,883 tests for our flagship product, AVISE ® CTD, in the year ended December 31, 2024 as compared to 137,650 tests for the year ended December 31, 2023 resulting from the expected impacts of revenue cycle management initiatives and the reduction of sales territories which began in 2022.
Overview We exist to provide clarity in autoimmune disease decision making with the goal of improving patients' clinical outcomes. We have developed and are commercializing a portfolio of innovative testing products under our AVISE ® brand, which allow for the differential diagnosis, prognosis and monitoring of complex autoimmune and autoimmune-related diseases.
Overview We are a medical technology company primarily focused on the design, development and commercialization of a next-generation portfolio of innovative testing products under our AVISE ® brand, which allow for the differential diagnosis, prognosis and monitoring of complex rheumatic, autoimmune and autoimmune-related disease including, among others, SLE and RA.
The severity and duration of the current inflationary environment remains uncertain and may continue to impact our financial condition and results of operations. Financial Overview Revenue We recognize revenue in accordance with the provisions of ASC Topic 606, Revenue from Contracts with Customers.
Inflationary Environment The current inflationary environment has resulted in higher prices, which have impacted our costs incurred to generate revenue from our laboratory testing services, costs to attract and retain personnel, and other operating costs. The severity and duration of the current inflationary environment remains uncertain and may continue to impact our financial condition and results of operations.
Interest Income Interest income increased $0.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 due to higher money market and certificate of deposit interest rates in 2023 compared to 2022.
Interest Income Interest income decreased $0.7 million for the year ended December 31, 2024 compared to the year ended December 31, 2023, primarily due to lower cash and cash equivalents balances of interest-earning accounts. Income Tax Expense Income tax expense remained substantially consistent for the year ended December 31, 2024 compared to the year ended December 31, 2023.
These ongoing revenue cycle management initiatives aim to optimize our appeals process and the potential for cash collections.
Additionally, in November 2023, we increased the list price billed for our tests. These ongoing revenue cycle management initiatives aim to optimize our appeals process and the potential for cash collections. We've experienced moderate declines in test volume since the second half of 2023, as rheumatologists and patients adjust to these changes.
AVISE ® CTD enables differential diagnosis for patients presenting with symptoms indicative of a wide variety of CTDs and other related diseases with overlapping symptoms. Revenue from this product comprised 88% and 84% of our revenue for the years ended December 31, 2023 and 2022, respectively.
AVISE ® CTD enables differential diagnosis for patients presenting with symptoms indicative of a wide variety of CDTs and other related diseases with overlapping symptoms. Traditional screening methods often lack accuracy, resulting in repeat testing and delayed diagnosis.
Funding Requirements Our primary use of cash is to fund our operations as we continue to grow our business. We expect to continue to incur operating losses in the near term. In the short-term, we expect costs of revenue and selling, general and administrative expenses to remain relatively consistent.
We expect to continue to incur operating losses in the near term. In the short-term, we expect increases in costs of revenue as a result of costs associated with the addition of the T-Cell Biomarkers and RA Sub-Profile Biomarkers to our AVISE ® CTD test. We also anticipate increases in our selling, general and administrative expenses due to increased headcount.
This decrease was primarily due to decreases of $0.9 million in materials and supplies expenses resulting from price improvements related to transition of biomarkers to suppliers with favorable pricing, and $0.2 million in shipping and handling costs.
This decrease was primarily due to decreases of $1.0 million in materials and supplies expenses and additional decreases in facilities and allocated overhead expenses, royalties expenses and phlebotomy expenses.
These decreases were partially offset by the recognition of a $1.5 million loss on the disposal of assets primarily related to an assignment of a lease, in addition to an increases in expenses related to bonuses of $1.3 million, facilities and allocated overhead expenses of $0.5 million and commissions of 0.3 million.
These increases were partially offset by decreases of $0.3 million of clinical trial expenses and decreases in facilities and allocated overhead expenses. Interest Expense Interest expense remained substantially consistent for the year ended December 31, 2024 compared to the year ended December 31, 2023.
This decrease was primarily due to decreases of $6.1 million of personnel costs, including salaries, benefits, stock-based compensation, severance expenses and other reimbursable employee expenses, as a result of lower headcount, in addition to decreases of $1.5 million in marketing expenses related to advertising expenses, speaker programs and trade show expenses, $0.3 million in insurance expenses, $0.2 million in third-party billing expenses and $0.1 million in legal expenses.
This decrease was primarily due to a decrease of $1.8 million in stock-based compensation expense and a decrease of $1.5 million in asset disposal costs related to the assignment of a lease in 2023; in addition to decreases in professional service expenses, legal expenses, insurance expenses, facilities and allocated overhead expenses, personnel costs and audit and tax services.
We have never been profitable and, as of December 31, 2023, we had $36.5 million of cash and cash equivalents and an accumulated deficit of $279.2 million. Reimbursement for our testing services comes from several sources, including commercial payors (such as insurance companies and health maintenance organizations), government payors (such as Medicare and Medicaid), and patients.
Our clinical laboratory typically reports all AVISE ® testing product results within five business days. Reimbursement for our testing services comes from several sources, including commercial payors (such as insurance companies and health maintenance organizations), government payors (such as Medicare and Medicaid), client payors (such as hospitals, other laboratories, etc.) and patients. Reimbursement rates vary by product and payor.
Removed
There is an unmet need for rheumatologists to add clarity in their CTD clinical evaluation, and we believe there is a significant opportunity for our tests in this market, particularly for potentially life-threatening diseases such as SLE.
Added
We believe our strong focus and extensive background in the field of rheumatology, combined with our commitment to exceptional customer service and support, position us well to respond to the needs of rheumatologists, primary care physicians, other specialists, and the patients they serve.
Removed
Since inception we have devoted substantially all of our efforts to developing and marketing products for the diagnosis, prognosis and monitoring of autoimmune diseases. We commercially launched our lead testing product, AVISE ® CTD, in 2012.
Added
Our tests are used in a variety of clinical settings to provide clarity in autoimmune disease decision-making with the goal of improving patients' clinical outcomes. We commercially launched our flagship testing product, AVISE ® CTD, in 2012.
Removed
Our proprietary AVISE ® Lupus test is included as part of the AVISE ® CTD panel and employs a patent-protected method for diagnosing patients with SLE based on levels of CB-CAPs (e.g. EC4d and BC4d), ANA, and ds-DNA.
Added
With significant increases in autoimmune incidence in recent years, AVISE ® CTD provides unique biomarkers that empower clinicians to confidently and quickly diagnose various CTDs.
Removed
The AVISE ® Lupus test also employs patent-protected algorithms used to generate risk scores to diagnose patients with SLE based on the levels of the biomarkers. These proprietary, patent-protected methods vastly improve the diagnostic sensitivity of our test compared to the current standard of care.
Added
Beginning in late 2022, w e revitalized our organization with the addition of key members to our senior leadership team, including our Chief Executive Officer, Chief Financial Officer, Vice President of Sales, Chief Medical Officer, and Medical and Laboratory Director.
Removed
For the years ended December 31, 2023 and 2022, we incurred net losses of $23.7 million and $47.4 million, respectively, and we expect to continue to incur operating losses in the near term. Our operations have been funded primarily through equity financings, debt financings and revenue from product sales.
Added
By leveraging our team’s extensive experience to create clinically distinct solutions that improve patient lives, we have created a strong foundation for growth and believe that we are well-positioned to positively impact patient care and address unmet clinical needs in autoimmune disease . We strive to become a partner of choice for doctors, hospitals, healthcare systems, and payors.
Removed
We plan to center our efforts around long-term reimbursement and ASP growth and seek to improve our per test costs by focusing on profitable, core test offerings and limiting fixed costs and overhead. ▪ Timing of Our Research and Development Expenses .
Added
Under the leadership of our Chief Executive Officer, John Aballi, who joined Exagen in October 2022, we are executing an operational turnaround of the business, resulting in a return to revenue growth and gross margin expansion while significantly reducing operating expenses and cash burn.
Removed
In the quarter ended March 31, 2022, CMS agreed, effective April 1, 2022, to recognize a new PLA code for our protein-based test, AVISE ® Lupus. Noridian, our MAC, priced this PLA code at $1,085 per test. To determine pricing beyond 2022, CMS recommended crosswalking AVISE ® Lupus (0312U) to Vectra (81490) at a rate of $840.65 per test.

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