10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark one)

þANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                         to    

Commission file number 001-35792

LIPOSCIENCE, INC.

Incorporated under the Laws of the  State of Delaware I.R.S. Employer Identification No.  56-1879288

2500 Sumner Boulevard

Raleigh, NC 27616

(919) 212-1999

         Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.001 par value	NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Exchange Act:

None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o     No þ

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.  Yes o     No þ

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  þ     No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K (§229.405 of this chapter) is not contained herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o Non-accelerated filerþ  (Do not check if a  smaller reporting company) Smaller reporting company o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No þ

         The aggregate market value of LipoScience, Inc. voting and non-voting common equity held by non-affiliates as of June 30, 2013, based on the closing sale price of $6.99 per share as reported on the NASDAQ Global Market on that date was $77,795,555.

         At March 25, 2014,15,223,053 shares of LipoScience, Inc. Common Stock, $0.001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement, to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, for its 2014 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.

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SPECIAL NOTE REGARDING FORWARD‑LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the "safe harbor" created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as "believe," "expect," "may," "will," "should," "could," "seek," "intend," "plan," "estimate," "anticipate" or other comparable terms. Forward-looking statements in this Annual Report on Form 10-K may address the following subjects among others: our industry, business strategy, goals and expectations concerning our future operations, performance or results, profitability, capital expenditures, liquidity and capital resources, timing or anticipated results of our FDA submissions and other financial and operating information. Forward-looking statements involve inherent risks and uncertainties which could cause actual results to differ materially from those in the forward-looking statements, as a result of various factors including those risks and uncertainties described in the Risk Factors and in Management's Discussion and Analysis of Financial Condition and Results of Operations sections of this report. We urge you to consider those risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward -looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to any forward-looking statement contained herein (or elsewhere) to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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TABLE OF CONTENTS

	Page
PART I
Item 1. Business	4
Item 1A. Risk Factors	22
Item 1B. Unresolved Staff Comments	41
Item 2. Properties	41
Item 3. Legal Proceedings	41
Item 4. Mine Safety Disclosures	41
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	42
Item 6. Selected Financial Data	44
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations	46
Item 7A. Quantitative and Qualitative Disclosure About Market Risk	63
Item 8. Financial Statements and Supplementary Data	64
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	93
Item 9A. Controls and Procedures	93
Item 9B. Other Information	93
PART III
Item 10. Directors, Executive Officers and Corporate Governance	94
Item 11. Executive Compensation	94
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	94
Item 13. Certain Relationships and Related Transactions, and Director Independence	94
Item 14. Principal Accountant Fees and Services	94
PART IV
Item 15. Exhibits and Financial Statement Schedules	95
Signatures	96

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PART I

Item 1. Business

Overview

We are a clinical diagnostic company pioneering a new field of personalized diagnostics based on nuclear magnetic resonance, or NMR, technology. Our first diagnostic test, the NMR LipoProfile^®test, directly measures the number of low density lipoprotein, or LDL, particles, also known as LDL-P, in a blood sample and provides physicians and their patients with actionable information to personalize management of risk for heart disease. To date, over 11 millionNMR LipoProfile tests have been ordered, including nearly 2 million during 2012 and 2.1 million during 2013.

Our strategy is to continue to advance patient care by converting clinicians, and the clinical diagnostic laboratories they use, from traditional cholesterol testing to our NMR LipoProfile test for the management of patients at risk for cardiovascular disease, with the goal of ultimately becoming the preferred choice by physicians for the management of patients with cardiovascular disease. A number of large clinical outcome studies, including the Multi-Ethnic Study of Atherosclerosis, or MESA, and the Framingham Offspring Study, indicate that a patient's number of LDL particles is more strongly associated with the risk of developing cardiovascular disease than is his or her level of LDL cholesterol (LDL-C) when one of the measures suggests a higher risk and the other suggests a lower risk.

Because the NMR LipoProfile test provides direct quantification of the number of LDL particles, as well as additional measurements related to a patient's risk for developing cardiovascular disease, or CVD, we believe that it has the potential to become a new paradigm by which clinicians evaluate key cardiovascular risk factors to provide better treatment recommendations and improve outcomes, even for patients considered to have normal levels of cholesterol. A 2008 joint consensus statement by the American Diabetes Association, or ADA, and the American College of Cardiology, or ACC, recognized that direct LDL particle measurement by NMR may be a more accurate way to capture the risk posed by LDL than is traditional LDL-C measurement. Additionally, in October 2011, the National Lipid Association, or NLA, convened an expert panel to evaluate the use of a number of biomarkers other than LDL-C, including LDL particle number, for initial clinical risk assessment of cardiovascular disease and ongoing management of cardiovascular disease risk in patients. The recommendations of this panel included the use of LDL particle number for initial clinical risk assessment and for ongoing management of risk for many patients considered to be at intermediate risk of coronary heart disease, patients with a family history of coronary heart disease and patients with recurrent cardiac events, as well as for selected patients known to have coronary heart disease.

In April 2013, the American Association of Clinical Endocrinologists, or AACE, issued a Comprehensive Diabetes Management Algorithm that provides clinicians with a practical evidence-based approach to treatment of obesity, pre-diabetes, management of hyperglycemia through lifestyle modifications, pharmacotherapy and insulin, management of hypertension, and management of hyperlipidemia. The algorithm recommends the measurement of LDL particle number as part of a management strategy to reduce the risk of cardiovascular disease, CVD, in patients with diabetes. The consensus statement cited expert opinion that LDL-P "must be recognized and included in treatment recommendations," noting that patients with type 2 diabetes, insulin resistance, metabolic syndrome, and/or hypertriglyceridemia (elevated triglycerides) are the most likely populations to have persistently elevated LDL-P, even when LDL-C and non-HDL-C are at goal levels. In addition, the consensus statement incorporates a CVD Risk Factor Modifications Algorithm that specifies desirable level of LDL-P in at-risk patients. The AACE consensus statement reflects the growing recognition of LDL particle measurement by NMR as an important risk management tool in patients with diabetes and other cardiovascular risk factors.

The number of NMR LipoProfile tests ordered has continually increased since 2008, with 2013 showing an increase of approximately 6%. The NMR LipoProfile test utilizes a specific Current Procedural Terminology, or CPT, code for the quantification of lipoprotein particles and lipoprotein subclasses, and is reimbursed by a number of governmental and private payors which we believe collectively represent approximately 150 million covered lives. These payors include Medicare, TRICARE, WellPoint, United Healthcare and several Blue Cross Blue Shield affiliates. Our clinical laboratory, which is certified under the Clinical Laboratory Improvement Amendments of 1988, or CLIA, allows us to fulfill current demand for our test and we believe serves as a strategic asset that will facilitate our ability to launch new personalized diagnostic tests that we plan to develop. We also intend to accelerate clinician and clinical diagnostic laboratory adoption of the NMR LipoProfile test and future clinical diagnostic tests by increasing access to our technology platform through the placement of our automated clinical analyzer, the Vantera ^® Clinical Analyzer (the "Vantera system"), in certain selected third party clinical diagnostic laboratories. The Vantera system was cleared by the U.S. Food and Drug Administration, or FDA, in August 2012 and became commercially available in December 2012.

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Market Overview

Coronary Heart Disease

Cardiovascular disease is the leading cause of death in the United States and, according to a 2011 policy statement of the American Heart Association, or AHA, by 2030, 40.5% of the U.S. population is projected to have some form of cardiovascular disease. Coronary heart disease, or CHD, is the second most prevalent form of cardiovascular disease after hypertension and results from the failure of the heart to supply oxygenated blood to the body. According to the AHA, CHD accounted for over one-half of all cardiovascular disease deaths in 2009. CHD usually results from atherosclerosis, a hardening and narrowing of the arteries caused by a buildup of fatty plaque composed of cholesterol and other lipids, such as triglycerides, in the arterial wall. Heart attacks may result from reduced blood flow to the heart caused by progressive plaque buildup or by blood clots produced by plaque rupture.

Lipoproteins and Atherosclerosis

Lipoprotein particles are the “containers” that transport cholesterol, triglycerides and other lipids throughout the bloodstream. Lipoprotein particles span a range of sizes and densities and are grouped into three primary classes:

• LDL, or low density lipoproteins, are intermediate-sized particles and carry cholesterol from the liver to the rest of the body;

• HDL, or high density lipoproteins, are the smallest particles and collect cholesterol from the body's tissues, bringing it back to the liver; and

• VLDL, or very low density lipoproteins, are the largest particles and are rich in triglycerides.

Atherosclerosis occurs when elevated numbers of LDL particles enter the arterial wall, become oxidized and are taken up by macrophages, a type of immune cell, and transformed into fatty plaque deposits. Since the 1960s, the scientific community has recognized that LDL particles are a key causal factor for atherosclerosis. For many years, however, the only practical way to estimate the amount of LDL and HDL was to measure the level of cholesterol contained in these particles. Chemical measures of cholesterol concentration in lipoprotein particles, such as those reported by the lipid panel, have become the most commonly used clinical measurement not because they were shown to be better than alternative lipoprotein measurements for predicting cardiovascular outcomes, but because historically they were the simplest and easiest to perform in routine clinical laboratories.

Clinical Uses and Market for Cholesterol Testing

The medical community seeks to more effectively manage patients' risk for developing CHD and atherosclerosis because of the serious health effects, mortality and high treatment cost associated with these conditions. Current clinical practice guidelines issued by the National Cholesterol Education Program, or NCEP, an influential authority on cholesterol management overseen by the National Heart, Lung, and Blood Institute, or NHLBI, part of the National Institutes of Health, recommend that the intensity of LDL-lowering therapy should be based on a person's risk for CHD. Accordingly, accurate measurement of a patient's CHD risk is critical to managing his or her ongoing treatment.

Due in large part to NCEP recommendations, cholesterol testing to help assess CHD risk and to manage LDL, and sometimes HDL, levels has become well-established in clinical practice. Drug companies have also contributed significantly to the awareness of the importance of cholesterol testing through physician education and direct-to-consumer advertising of LDL-lowering drugs, including statins. Cholesterol awareness programs, the aging of patient populations and the ongoing need to perform cholesterol tests for patient monitoring and management have all led to considerable growth in the cholesterol testing market.

Lipid panels measuring LDL-C (the amount of cholesterol contained in LDL particles), HDL-C (the amount of cholesterol contained in HDL particles), total cholesterol and triglycerides are among the most frequently ordered laboratory tests in the United States. According to Medicare billing data, the lipid panel was the fourth most frequently ordered test in clinical laboratories in 2009.

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Limitations of Traditional Cholesterol Testing

While LDL and HDL testing is a generally well-accepted means to determine a patient's need for LDL-lowering or HDL-raising therapy and monitoring treatment response, there is increasing awareness that the traditional cholesterol measures of these key lipoprotein risk factors are deficient because they can overestimate or underestimate the actual levels of these lipoproteins in many patients and the CHD risk they confer. Many patients have disparities between their level of cholesterol and the number of lipoprotein particles in their blood, a state known as discordance. We believe that discordance leads directly to the under-treatment or over-treatment of millions of patients.

The cholesterol content of individual LDL and HDL particles can vary more than two-fold between patients and can change over time in the same patient. If the amounts of cholesterol per particle did not vary, LDL-C would always be an accurate measure of LDL. In practice, however, one person may have larger, more cholesterol-rich LDL particles, while a second person may have smaller, less cholesterol-rich LDL particles. As illustrated by the graphic below, a person with smaller LDL particles at a given level of LDL-C will always have more LDL particles, and consequently higher CHD risk, than a person with the same LDL-C carried in larger LDL particles.

Research data have shown that LDL-P is more strongly correlated with CHD risk in discordant patients than is the level of LDL-C. In one large population study, over 30% of patients with “optimal,” or low, LDL-C had higher, less-than-optimal LDL-P levels. We believe these discordant patients may be at higher risk for developing CHD but would not be identified by traditional cholesterol testing as potentially needing LDL-lowering treatment. Such a patient's medical provider would be able to prescribe pharmaceutical therapies, such as statins, niacin or fibrates, as well as dietary and other lifestyle changes to benefit that patient. Conversely, discordant patients with low LDL-P but higher LDL-C might be expected to derive little clinical benefit from LDL-lowering treatments. Despite the increasing body of clinical evidence indicating the benefits of particle number measurement over cholesterol measurement, technological limitations and lack of clinician awareness have prevented LDL-P and HDL-P from becoming more well-accepted within the medical community.

The diagnostic limitations of traditional cholesterol testing were cited in the 2008 joint consensus statement of the ADA and ACC, which concluded that LDL-C may not accurately represent the quantity of atherosclerosis-causing LDL particles, especially in those patients with the typical lipid abnormalities of cardiometabolic risk, such as elevated triglycerides and low HDL-C. The consensus statement suggested that a more accurate way to capture the risk posed by LDL may be to measure LDL-P directly using NMR technology. The consensus statement recognized the need for more independent data confirming the accuracy of direct LDL particle measurement using NMR and whether its predictive power with respect to heart disease is consistent across various ethnicities, ages, and conditions that affect lipid metabolism. We believe that the subsequent publication of large clinical outcome studies, such as MESA, has helped to address these concerns and to confirm the accuracy and usefulness of our NMR-based technology.

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Our Solution

Our NMR LipoProfile test has been cleared by the FDA for use in our clinical laboratory and directly measures LDL-P for use in managing cardiovascular risk. We believe that our test provides clinicians with more clinically relevant information about LDL and other classes and subclasses of lipoproteins than does the traditional cholesterol test for managing their patients' CHD risk.

The current NMR LipoProfile test report consists of two pages. The first page includes test results for the following measurements:

• LDL-P, along with reference ranges to guide patient management decisions;

• HDL-C; and

• triglycerides.

We have requested and received clearance from the FDA to provide the test results from our NMR LipoProfile test for each of these measurements, regardless of whether the test is performed using our standard clinical analyzer or using the Vantera system.

The second page of the NMR LipoProfile report includes test results for a number of additional lipoprotein measures that have been validated by us but have not been cleared by the FDA. These include:

• measures related to cardiovascular risk, including HDL-P, the total number of small LDL particles, and LDL particle size; and

• measures associated with insulin resistance and diabetes risk, including numbers of large HDL particles, small LDL particles and large VLDL particles, as well as HDL, LDL and VLDL particle size.

The second page includes a legend to the effect that these additional measurements, while validated by us, have not been cleared by the FDA and that the clinical utility of these measurements has not been fully established. When the Vantera system is placed in third-party laboratories, the laboratory will be able to process the blood sample in-house and produce the FDA-cleared results on the first page of the test report. At the option of the third-party laboratories, we will still make the second-page test results available to them at no additional charge for dissemination along with the first-page results. We generate these second-page results in our clinical laboratory using either NMR spectrum data digitally sent to us by the third-party laboratory or a portion of the original blood sample that they send to us. We send the second-page results back to the third-party laboratories for them to report the results to their customers along with the first-page results.

Clinical Validation of Lipoprotein Particle Quantification Using NMR

Our test was developed initially to provide a novel and efficient way to quantify, or count, the numbers of lipoprotein particles of different sizes in blood plasma or serum. Subsequently, clinical outcome studies were performed to compare the cardiovascular disease associations of our particle test results with those of traditional cholesterol tests. On the basis of the findings of those studies, we believe that our test provides clinicians with more clinically relevant information about LDL and other classes and subclasses of lipoproteins to aid in the management of the CHD risk of their patients.

The clinical utility of lipoprotein particle quantification has been supported by a number of scientific papers published in peer-reviewed journals, including Journal of the American Medical Association, New England Journal of Medicine, Circulation, American Journal of Cardiology, Atherosclerosis and Journal of Clinical Lipidology. To date, eleven cardiovascular disease outcome studies have specifically evaluated the link between LDL-P and CHD risk. In each case, LDL-P was associated significantly with atherosclerotic outcomes and, in ten of those studies, the strength of association was greater than for LDL-C. In each of the ten studies, the same blood samples were analyzed by traditional cholesterol testing and by our NMR LipoProfile test to enable a comparison of LDL-C and LDL-P in terms of their correlation with atherosclerosis and CHD risk.

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We believe the following studies are of particular note in showing the greater clinical relevance of LDL and HDL particle count as compared to LDL and HDL cholesterol measurement. Dr. James Otvos, our founder and Chief Scientific Officer, was an author of several of these published studies. Dr. Otvos collaborated with the studies' academic investigators to formulate the study hypotheses and data analysis plan, and he assisted with data interpretation and publication of the study results. We did not provide any funding for any of these studies. We performed all NMR lipoprotein testing in a fully blinded fashion, with us having no knowledge of the identity or clinical status of the participants who provided the blood samples being tested. In addition, Dr. Otvos's affiliation with us was disclosed in each publication. In each case, the person responsible for the scientific validity and integrity of the study was someone other than Dr. Otvos, and none of the investigators were affiliated with our company.

Multi-Ethnic Study of Atherosclerosis (MESA). In this observational study of frozen archived baseline blood samples from almost 5,600 ethnically diverse individuals conducted by the NHLBI, with a mean follow-up period of over five years, LDL-P was found to be more predictive of future cardiovascular events, such as heart attack, chest pain, stroke or death from CHD, among individuals with discordant LDL-P and LDL-C levels. Furthermore, the MESA data also indicated that individuals with “optimal,” or low, levels of LDL-C, but discordantly higher LDL-P, had significantly greater risk of cardiovascular events. In contrast, other patients with higher levels of LDL-C, but low LDL-P, did not have greater risk. The figure below illustrates these results.

Other Studies. Other large clinical outcome studies that establish the greater clinical relevance of LDL and HDL particle count as compared to LDL and HDL cholesterol measurement include:

• Mora S, Glynn RJ, Ridker PM. High-density lipoprotein cholesterol, size, particle number, and residual vascular risk after potent statin therapy. Circulation 2013;128:1189-1197.

• Mackey RH, Greenland P, Goff DC, et al. High-density lipoprotein cholesterol and particle concentrations, carotid atherosclerosis and coronary events MESA (Multi-Ethnic Study of Atherosclerosis). J Am Coll Cardiol 2012;60:508-516.

• Parish S, Offer A, Clarke R, et al. Lipids and lipoproteins and risk of different vascular events in the MRC/BHF Heart Protection Study. Circulation 2012;125:2469-2478.

• Cromwell WC, Otvos JD, Keyes MJ, et al. LDL particle number and risk for future cardiovascular disease in the Framingham Offspring Study - Implications for LDL management. Journal of Clinical Lipidology 2007;1:2458-2464.

• Otvos JD, Collins D, Freedman DS, et al. Low-density lipoprotein and high-density lipoprotein particle subclasses predict coronary events and are favorably changed by gemfibrozil therapy in the Veterans Affairs High-Density Lipoprotein Intervention Trial. Circulation 2006;113:1556-1563.

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Clinical Recommendations / Guidelines

AACC 2009 Working Group Position Statement. In addition to the foregoing studies, a systematic literature review from the American Association of Clinical Chemistry, or AACC, Working Group on Best Practices reviewed 25 clinical studies that demonstrated the association of both apolipoprotein B, or apoB, a protein found on both LDL and VLDL particles, and LDL-P with specific patient outcomes such as CVD or metabolic conditions like type 2 diabetes. Although most of the comparisons showed equivalent strength of association with the outcome measures, in these 25 studies the measurement of LDL-P using NMR showed a significant association with a clinical outcome more often than using apoB alone, and the level of statistical significance, as indicated by p-value, and the strength of association, as indicated by the odds ratio, relative risk and hazard ratio, was more often higher for LDL-P than it was for apoB.

In addition, the discordance rate was reported to be 29.2% between the two measures, and in most of these discordant cases, the measurement of LDL-P using NMR was a stronger predictor of patient outcome than was apoB. The AACC Working Group also noted that NMR can measure other major lipoprotein classes, as compared to apoB, thus providing more information, and that NMR measurement of LDL-P appeared to be more precise than that of apoB in the reviewed studies.

The AACC Working Group formally recommended that the measurement of particle number, either as concentration of apoB or LDL-P, should be incorporated into the guidelines for assessment of CVD risk.  The Working Group did indicate that in its opinion apoB appeared to be the preferred biomarker for guideline adoption because of its widespread availability, scalability, standardization and relatively low cost. It noted further that, as LDL-P is expected to become more readily available in the near future with potentially superior performance in direct comparison with apoB, LDL-P may become the preferred test as a cardiovascular marker.  

Society Recommendations. Other organizations that have recommended clinical measurement of LDL particles to assess and manage CVD risk for certain patients include:

• National Lipid Association (NLA) (2011) (for patients at intermediate risk, including patients with a family history of coronary heart disease (CHD) and recurrent cardiac events).

• American Association of Clinical Endocrinologists (AACE) (2013) (patients with type 2 diabetes, insulin resistance, metabolic syndrome, and/or hypertriglyceridemia (elevated triglycerides).

AHA/ACC Practice Guideline

On November 12, 2013 The American Heart Association (AHA) and American College of Cardiology (ACC) Task Force on Practice Guidelines published the 2013 ACC/AHA Guideline on the Treatment of Blood Cholesterol to Reduce Atherosclerotic Cardiovascular Risk in Adults. This guideline is a substantial change from the prior guideline recommendations and emphasizes treating specific patient groups with statin therapy, based solely on cardiovascular events noted in randomized controlled trials (RCT) of drug therapies rather than to treating to specific target levels of LDL cholesterol. Measuring LDL during follow-up of drug-treated patients is done to assess adherence to treatment and not to see whether a specific LDL cholesterol target has been achieved. Based on the guideline, physicians can use risk assessment tools (e.g. a risk calculator to determine 10-year risk for heart attack and stroke) in some cases to determine which patients would most likely benefit from statin therapy, rather than focusing only on blood cholesterol to determine which patients would benefit. Groups identified for treatment include; patients with known atherosclerotic cardiovascular disease (ASCVD), patients with diabetes mellitus, patients with untreated LDL-C > 190 mg/dL, and patients with a 10-year estimated ASCVD risk of > 7.5%. The guideline also emphasizes the importance of adopting a heart-healthy lifestyle to prevent and control high blood cholesterol.

The Task Force also recognized the challenge with LDL-C. The current guideline notes that use of LDL-C targets may result in under-treatment or over-treatment. Therefore, the use of LDL-P for management provides an opportunity to optimize individual therapy, as well as limit under- and over-treatment. However, it is not clear at this time what the potential impact may be in the marketplace as a result from the ongoing dialogue surrounding this new guideline.

The ACC/AHA guideline did not consider data addressing the value of treating patients to specific LDL goals they made no recommendation regarding use of LDL measures as a target for treatment. However, the ACC/AHA guideline did advocate measuring LDL to assess adherence and judge individual response to therapy. This information could assist providers in decision making regarding the need for therapeutic adjustments including intensifying statin therapy, or using statin combination therapy based on clinical judgment.

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Benefits of Our Test

We believe the NMR LipoProfile test provides the following benefits to clinicians and their patients, clinical diagnostic laboratories and healthcare payors:

Benefits to Clinicians and Patients

• Improved patient management. We believe that the NMR LipoProfile test provides a more accurate picture of a patient's lipoprotein-related CHD risk and the patient's ongoing response to LDL-lowering and HDL-raising therapies than does LDL-C and HDL-C, as measured by traditional cholesterol tests. By providing clinicians with better information about the key lipoprotein risk factors, LDL and HDL, clinicians can design a personalized therapeutic and lifestyle management plan tailored to address the principal drivers of their patients' CHD risk.

• Strong clinical validation. Clinical research and numerous CHD outcome studies support the stronger predictive capacity of LDL-P for CHD patient management, compared to LDL-C as evidenced by over 370 publications to date and 47 publications in 2013.

• Reimbursement. The NMR LipoProfile test utilizes a specific Category I CPT code for the quantification of lipoprotein particles and lipoprotein subclasses. The American Medical Association, or AMA, assigns Category I CPT codes to procedures that are consistent with contemporary medical practice, are widely performed and meet other specified criteria. The NMR LipoProfile test is reimbursed by Medicare and other governmental payors, as well as by many private insurance carriers.

• Ease of Use. The NMR LipoProfile test requires only a standard blood draw and, unlike traditional cholesterol tests, does not require the patient to fast in order to measure LDL-P and HDL-P.

Benefits to Laboratories

• Driver of revenue and margin growth. Clinicians are increasingly recognizing the growing importance of LDL-P in measuring CHD risk. Offering the NMR LipoProfile test allows laboratories to meet the medical community's growing demand for the test and expand their product offerings. Given the higher reimbursement rate our test enjoys as compared to traditional cholesterol testing, the NMR LipoProfile test also presents laboratories with an opportunity to increase their revenues and expand their margins.

• Simplicity, efficiency and cost-effectiveness. Our use of NMR does not require time-consuming physical sample separation procedures.

• Ability to leverage our sales and marketing efforts. Our NMR LipoProfile test is typically ordered by clinicians through clinical diagnostic laboratories. Our laboratory customers benefit from our direct sales force and our marketing programs and materials, which increase demand for our NMR LipoProfile test.

• Future integration into existing laboratory operations. We intend to selectively place the Vantera system on-site at our clinical diagnostic laboratory customers' locations. The Vantera system is designed to easily integrate into existing laboratory information systems and workflows, requiring limited technician attention and simple process management.

• Scalable platform. Using our NMR technology platform, multiple diagnostic tests can be performed simultaneously from a single sample.

Benefits to Payors

• More effective management of a costly disease. The NMR LipoProfile test is designed to help clinicians more effectively manage CHD risk, both in patients whose risk of CHD would have been underestimated by traditional cholesterol testing and in those patients who are being over-treated because traditional testing overstates their risk. Because our test provides information that allows physicians to make more informed therapeutic decisions, we believe it can lessen the financial burden of CHD on the payor community.

• Low relative cost. The price for our test, while higher than that of a traditional cholesterol test, is still relatively low compared to other advanced cardiovascular panels. Medicare generally reimburses our test at a rate of $42.49 per test.

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Our Strategy

Our strategy is to continue to advance patient care by converting clinicians, and the clinical diagnostic laboratories they use, from traditional cholesterol testing to our NMR LipoProfile test for the management of patients at risk for CHD, with the goal of ultimately becoming the preferred choice by physicians for the management of cardiovascular disease. The key elements of our strategy to achieve this goal include:

• Increase utilization of our test in key markets. We have achieved between 5%-10% market penetration of our target market in certain geographic areas that have adequate reimbursement and good lab partner access. We currently have sales representatives in 27 states who target clinicians, as well as dedicated representatives targeting clinical diagnostic laboratories and third-party payors. We intend to increase our utilization and market penetration in each of our territories. We will selectively invest in sales force expansion to the extent that managed care coverage broadens and access to the test is increased.

• Increase market awareness, educate clinicians about the clinical benefits of our test and pursue inclusion in management guidelines. To create awareness, encourage clinician evaluation and increase orders for our NMR LipoProfile test, we provide our sales force with peer-reviewed clinical outcome studies, medical society guidelines/recommendations and other clinical evidence sources. We plan to continue to invest in medical education and marketing efforts to promote our test as the preferred measure of LDL for the management of patients with cardiovascular risk. We actively engage key opinion leaders and medical societies in an effort to have the NMR LipoProfile test included in patient management guidelines and medical society recommendations.

• Expand relationships with clinical diagnostic laboratories and health delivery systems. Approximately 93% of the revenues derived from our NMR LipoProfile tests for the year ended December 31, 2013 were attributable to tests ordered through clinical diagnostic laboratories. We plan to expand our business with these existing laboratory customers and to develop relationships with additional national and regional laboratories as well as health delivery systems. We intend to train laboratory customers' sales forces and partner with them to gain access to additional clinicians and educate them about the benefits of our test. Where appropriate, we intend to collaborate with our laboratory customers to encourage health plan administrators to support reimbursement for the test.

• Broaden medical policy coverage. We have a dedicated team of managed care specialists who pursue the expansion of coverage for our test with third-party payors. Our clinical diagnostic laboratory customers, prescribing physicians and healthcare thought leaders also assist us in influencing payors to cover our test. We intend to further broaden coverage by leveraging the increasing weight of clinical and economic data, expanding access to our test and increasing utilization to incentivize payors to cover our test and set adequate reimbursement levels.

• Decentralize access to our technology platform with the Vantera system. We currently perform the vast majority of the NMR LipoProfile tests at our certified and accredited laboratory facilities in Raleigh, North Carolina. The Vantera system is our next-generation automated clinical analyzer. In August 2012, we received FDA clearance to market the Vantera system commercially to laboratories. The Vantera system became commercially available in December 2012. We are decentralizing access to our technology through the Vantera system in order to drive both geographic expansion and the technology adoption necessary for successful execution of our market conversion strategy. We started placing the Vantera system on-site with certain qualified national and regional clinical diagnostic laboratories, as well as at leading medical centers and hospital outreach laboratories during the second quarter of 2013. We have entered into agreements with some of our current clinical diagnostic laboratory customers to place the Vantera system in their laboratories, and we are also in discussions with additional laboratory customers who have indicated a similar interest in the placement of the Vantera system in their laboratories. In addition, we have placed the Vantera system in academic and medical research centers that are collaborating with us to develop additional high value diagnostic assays based on NMR technology. We believe the selective placement of our Vantera system directly in laboratories throughout the United States will further drive our market conversion strategy by decentralizing access to our technology. We expect that strong commercial relationships with clinical diagnostic laboratories will allow us to leverage the sales forces of these laboratories for additional access to prescribing clinicians, as well as third-party payors with whom the laboratories have existing contracts.

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• Develop new personalized diagnostic tests using our NMR-based technology platform. Our NMR LipoProfile test exploits only a very small fraction of the available information contained within an NMR spectrum of a sample. We intend to exploit the inherent analytical advantages of NMR spectroscopy, including its ability to analyze bodily fluids other than blood serum and plasma, to expand our menu of available diagnostic tests. We are currently developing additional NMR-based diagnostic tests to predict a patient's risk for type 2 diabetes, and evaluating NMR technology for the detection and management of several different cancers as well as inflammatory, gastrointestinal and neurological diseases. We have collaborated with leading academic medical centers, including the Mayo Foundation and the Cleveland Clinic, on clinical validation studies and research for developing new applications using NMR technology. Currently, we are also collaborating with the National Institutes of Health on the research and development of novel tests using NMR technology for the diagnosis and management of cardiovascular and metabolic disorders through the use of the Vantera system.

Our Technology Platform

Our technology platform combines proprietary signal processing algorithms and NMR spectroscopic detection into a clinical analyzer, the FDA cleared Vantera system, to identify and quantify concentrations of lipoproteins and, potentially, small molecule metabolites. NMR detectors, or spectrometers, analyze a blood plasma or serum sample by subjecting it to a short pulse of radio frequency energy within a strong magnetic field. Each lipoprotein particle within a given diameter range simultaneously emits a distinctive radio frequency signal, similar to distinctive ringing sounds for bells of different sizes. The amplitude, or “volume,” of the NMR signal is directly proportional to the concentration of the particular subclass of lipoprotein particles emitting the signal. Our proprietary software then collects, records and analyzes the composite signals emitted by all of the particles in the sample in real time and separates the signals into distinct subclasses. Within minutes, we are able to quantify multiple subclasses of lipoprotein particles.

Our technology platform based on NMR offers the following advantages over conventional methods of quantifying lipoproteins and small molecule metabolites:

• Information-rich detection. NMR can analyze lipoproteins as well as potentially hundreds of small molecule metabolites.

• Processing efficiency. Our technology does not require physical separation of the lipoprotein particles and does not require chemical reagents in order to evaluate a sample.

• Sample indifference. Our technology may be used to analyze multiple sample types, including plasma, serum, urine, cerebrospinal fluid and other biological fluids.

• Throughput. Simultaneous lipoprotein and metabolite quantification from a rapid NMR measurement makes the platform extremely efficient with high throughput.

Sales, Marketing and Distribution

We currently market our NMR LipoProfile test through a direct sales force in 27 states. Our sales strategy involves the use of a combination of sales managers, sales representatives and medical science liaisons that target primary care physicians, cardiologists and key medical opinion leaders, as well as separate dedicated personnel targeting clinical diagnostic laboratories and third-party payors. As of December 31, 2013, we had 97 employees engaged in sales and marketing functions, including our sales managers and sales representatives, medical science liaisons, personnel focused on our sales efforts to clinical diagnostic laboratories and managed care specialists focused on third-party payors.

The role of our sales force is to promote the NMR LipoProfile test and educate clinicians, laboratories and payors about its medical benefits over traditional cholesterol tests, as well as the potential economic benefits of providing patients with personalized cardiovascular risk management.

We intend to continue to distribute the NMR LipoProfile test directly through national and regional clinical diagnostic laboratories. During the year ended December 31, 2013, we generated approximately 93% of our revenues from our NMR LipoProfile tests through these laboratories.

Under our current agreement with Laboratory Corporation of America Holdings, or LabCorp, which went into effect as of September 2012, LabCorp makes the NMR LipoProfile test available nationally to its clients. We also provide LabCorp with our sales materials, as well as access to the various medical education and other marketing programs that we sponsor and conduct, for their use in connection with the promotion of the NMR LipoProfile test.

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Under our agreement with LabCorp, we will continue to fulfill all orders received from LabCorp for the NMR LipoProfile test and perform those tests at our own laboratory facilities. LabCorp may also decide to have us place Vantera analyzers directly in their laboratories, with the number of analyzers based on the annual volume of NMR LipoProfile tests performed in a particular facility. There is no minimum number of tests that LabCorp is required to order from us under the agreement. We will provide service and support of the Vantera analyzers placed at LabCorp facilities.

Our agreement with LabCorp has a term that continues until September 2015 and is automatically renewable for additional two-year terms, unless either party provides 90 days written notice of its intent not to renew the agreement at the end of the initial term or any subsequent two-year term. Either we or LabCorp may terminate the agreement upon the occurrence of a breach of the agreement by the other party that is not cured within a specified number of days after notice thereof by the non-breaching party, or if the other party files for bankruptcy protection or enters into similar proceedings. LabCorp may also terminate the agreement upon 90 days written notice in specified circumstances.

Significant Customers

For the years ended December 31, 2013, 2012 and 2011, we generated 90%, 84% and 76% of our revenues, respectively, from clinical diagnostic laboratory customers. Sales to one of these laboratories, Health Diagnostic Laboratory, Inc. ("HDL Inc."), accounted for 33%, 32% and 21% of our revenues for the years ended December 31, 2013, 2012 and 2011, respectively. Sales to a second laboratory customer, LabCorp, accounted for 30%, 29% and 33% of our revenues for the years ended December 31, 2013, 2012 and 2011, respectively.

Our current agreements with our laboratory customers do not require them to purchase any minimum quantities of the NMR LipoProfile test. In addition, these customers generally have the right to terminate their respective agreements with us at any time. If any major customer were to terminate its relationship with us, or to substantially diminish its purchases of the NMR LipoProfile test, our revenues could significantly decline or it could adversely impact our revenue growth, which could have a material adverse effect on the Company’s business, financial condition or results of operations.

In mid-March 2014, HDL Inc. announced its own LDL-P test and began making the test available to its customers. We believe our NMR LipoProfile test has significant advantages over HDL Inc.'s non-FDA cleared test and that it is critical that physicians are able to differentiate with certainty which test result they are receiving. We plan to aggressively market to physicians the advantages of our NMR LipoProfile test, the only FDA-cleared test that quantifies the number of LDL-P, versus the HDL Inc. laboratory-developed test (LDT) that has not demonstrated clinical efficacy nor undergone the rigor of an FDA-clearance process. Accordingly, on March 28, 2014, we notified HDL Inc. that we were terminating our agreement with HDL Inc. effective June 26, 2014. Over time, we believe that we will be able to mitigate the effects of loss of revenues from HDL Inc. through our relationships with other national, regional and local labs and by alerting physicians to use clinical laboratory customers that offer the FDA-cleared NMR LipoProfile test. However, in the short and medium term, we expect our revenues to be impacted negatively, potentially significantly so.

Coverage and Reimbursement

Clinicians order the NMR LipoProfile test directly from us and indirectly through clinical diagnostic laboratories located throughout the United States. When we sell our NMR LipoProfile test to a laboratory customer, we receive a fixed fee per test at a level individually negotiated with each laboratory, and the laboratory takes responsibility for billing and collections from third parties, including Medicare and other governmental and commercial payors. Under our agreement with LabCorp, in the event that LabCorp is unable under applicable law or an existing agreement to bill and collect for the testing services from third parties, then LabCorp is not obligated to pay us the applicable fee, in which case we may bill the third parties directly for our tests performed. To date, this situation has not occurred, and we have billed LabCorp for all tests performed under our agreement with them.

When a clinician orders the test directly from us, we have the responsibility for securing reimbursement. Our managed care team seeks to establish coverage for our test with all payors, including Medicare, state Medicaid agencies and commercial insurance carriers, so that we and our laboratory customers can maximize reimbursement.

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Laboratory tests, as with most other healthcare services, are classified for reimbursement purposes according to their respective CPT codes. In 2006, the AMA's CPT Editorial Board issued a Category I CPT code (83704) for the quantification of lipoprotein particle numbers and lipoprotein subclasses when measured (e.g. nuclear magnetic resonance spectroscopy). Utilizing this specific CPT code, our NMR LipoProfile test is reimbursed by a number of governmental and private payors, which we believe collectively represent approximately 150 million covered lives. These payors include Medicare, TRICARE, WellPoint, United Healthcare and several Blue Cross Blue Shield affiliates.

In February 2014, we formed a committee of the Board of Directors, the Payor and Health Systems Strategies Committee (PHSS Committee).  The purpose of the PHSS Committee is to oversee the Company’s efforts to secure reimbursement for its products and services from government and third party payors, and to consider new, innovative and collaborative approaches to contracting with developing health system models.  The PHSS Committee will also advise the Board and management on related policy and operating matters.

Medicare and Medicaid

The Centers for Medicare and Medicaid Services, or CMS, under the U.S. Department of Health and Human Services, which establishes reimbursement payment levels and coverage rules for Medicare, currently covers our NMR LipoProfile test. All NMR LipoProfile tests that are performed for Medicare patients and directly billed to Medicare are subject to Medicare's national coverage regulation. This applies to both our direct business as well as that of our laboratory customers. In order to obtain Medicare reimbursement under this policy, we and our laboratory customers are required to comply with all Medicare regulations. We believe that we have sufficient processes and procedures in place to comply with Medicare requirements and to directly seek reimbursement from Medicare for our NMR LipoProfile test.

Individual state agencies establish reimbursement levels for Medicaid. Our NMR LipoProfile test is currently reimbursed by several of these state Medicaid agencies, although it is not a significant portion of our business.

Commercial Insurance Carriers and Managed Care Organizations

In-network. Many of our laboratory customers have participating provider, or in-network, agreements with payors that we believe cover a vast number of insured individuals in the United States and, as a result, our NMR LipoProfile test is billed to an insurer as an in-network benefit. In-network agreements specify a fixed price for reimbursement over a fixed period of time. These in-network agreements between insurers and our laboratory customers allow for better and more consistent reimbursement to them, while we receive a fixed fee per test without assuming the risk of non-payment from an insurance company. We also have an in-network agreement with Blue Cross Blue Shield of North Carolina that covers NMR LipoProfile tests ordered directly from us.

Out-of-network. Some of our laboratory customers are considered out-of-network providers by certain commercial insurance and managed care organizations and may not receive reimbursement for our test. For our direct business that is not performed through a laboratory customer and not covered under our in-network agreement with Blue Cross Blue Shield of North Carolina, we are generally an out-of-network or non-participating provider, meaning that we do not have a contractual agreement in place that specifies a fixed price for reimbursement.

Competitive Products and Technologies

We compete primarily against the conventional lipid panel test as well as alternative methods of measuring cholesterol concentrations or lipoproteins.

The lipid panel test is widely ordered by physician offices and performed in substantially all clinical diagnostic laboratories. It is relatively inexpensive and reimbursed by virtually all payors. The market for lipid panel tests is highly fragmented, however, and there is no dominant provider for these tests.

We also compete against companies that offer other methods for measuring lipoproteins, the majority of which use different technology requiring lipoproteins to first be physically separated. These physical separation methods generally involve relatively labor-intensive steps to separate the sample and are more time-consuming and more costly to perform than the NMR LipoProfile test. Among the companies providing these tests are Quest Diagnostics, which offers ion mobility, Berkeley HeartLab, Inc., now part of Quest Diagnostics, as well as Atherotech, Inc. and SpectraCell Laboratories. A competing product using NMR technology has also been recently introduced into the market (specifically by HDL Inc.).

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There are also diagnostic tests available that measure other lipoprotein indicators of cardiovascular disease risk, including apoB. Plasma apoB levels provide a measure of the aggregate number of LDL plus VLDL particles. While an apoB test is generally less expensive and currently more widely available than our NMR LipoProfile test, it does not offer the breadth of information useful in the management of CHD risk provided by our test, including:

• measures related to cardiovascular risk, including HDL-P, the total number of small LDL particles, and LDL particle size; and

• measures associated with insulin resistance and diabetes risk, including numbers of large HDL particles, small LDL particles and large VLDL particles, as well as HDL, LDL and VLDL particle size.

The apoB test is a non-proprietary test offered by many clinical diagnostic laboratories. We believe that the lack of universal standardization of the apoB test has limited its use by physicians.

In order for us to successfully compete against these alternative tests and technologies, we will need to demonstrate that our products deliver superior results and value as a result of our key differentiators, including FDA clearance, clinical validation, improved patient outcomes, accessibility, ease of use, speed and efficiency, scalability and economic benefits.

Research and Development

Our research and development efforts are focused on developing new personalized diagnostic tests using our NMR-based technology as well as on implementing improvements and enhancements to the Vantera system.

Each NMR analysis returns data that could be used to measure concentrations of hundreds of small molecule metabolites, and we believe that our technology is suited for the measurement of any number of those metabolites with minimal sample preparation in a rapid, easy-to-use and efficient manner. Our technology also supports the analysis of other bodily fluids in addition to plasma, such as urine and cerebrospinal fluid.

We are actively developing our test for use in assessing insulin resistance and risk for developing type 2 diabetes. We currently provide an insulin resistance score as a laboratory-developed test that is part of the NMR LipoProfile test. This test, which is not cleared or approved by the FDA at this time, uses a lipoprotein-based indicator to assess insulin resistance status, an early indicator of type 2 diabetes. We are developing enhancements to this assay by quantifying NMR-derived biomarkers of insulin resistance and insulin secretion. This product is intended to stratify patients with intermediate glucose levels who stand to benefit the most from targeted risk reduction treatment strategies for the prevention of the onset of Type 2 Diabetes.

We are also investigating opportunities to develop a number of additional diagnostic tests, including:

• Additional lipoprotein tests. These would utilize lipoprotein subclass and particle size information to address diagnosis or management of additional cardiovascular or metabolic disease states.

• Single-analyte tests. These would measure metabolites from a variety of sample types, such as plasma, urine, cerebrospinal fluid and other biological fluids.

• Multivariate-indexed tests. These would simultaneously measure multiple metabolites in order to evaluate risk for developing or to diagnose certain diseases.

Research is under way to further explore the use of NMR technology for the detection and management of certain cancers, gastrointestinal, inflammatory and neurologic diseases.

Our research and development expenses were $12.7 million, $10.0 million and $7.8 million for the years ended December 31, 2013, 2012 and 2011, respectively.

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Supply Agreements

Agilent Technologies

In July 2012, we entered into a supply agreement with Agilent Technologies pursuant to which we agreed to exclusively purchase from Agilent the magnet, console and probe used in the Vantera system. Under the supply agreement, subject to specified exceptions, Agilent agreed not to sell the NMR probes, components and controlling electronics and acquisition software to customers in the United States who intend to use such technology within a designated restricted field of use, which consists of the screening, detection, prognosis or monitoring of diseases in the cardiovascular, cancer, endocrine, central nervous system or autoimmune fields, or in connection with designated specimen types. Agilent retains all rights to sell such NMR technology to other customers for uses, applications and purposes outside of the specified field of use, including research use, investigative use and other specified in vitro diagnostic applications. If we fail to make specified progress in the development of a diagnostic application in the field of cancer within any 12-month period, then the designated restricted field of use would no longer include cancer, and the restrictions on Agilent's ability to sell such NMR technology to other customers would lapse as to the field of cancer, although we would continue to have the non-exclusive right to purchase the NMR technology from Agilent for use in that field. We are responsible for all regulatory filings and required approvals related to the commercial availability of the Vantera system.

Under the supply agreement, we agreed not to sell a product using NMR technology to customers in the United States for research use, and agreed not to develop in vitro diagnostic products using NMR technology outside the designated field of use. We are also obligated to purchase all of our requirements for the components to be supplied by Agilent under the supply agreement.

The initial term of the supply agreement continues until July 2022. The initial term may be renewed for additional five-year periods upon mutual agreement, unless either party provides one year written notice of its intent not to renew the agreement at the end of the initial term or any subsequent five-year term. Either we or Agilent may terminate the supply agreement upon the occurrence of a breach of a material term of the agreement by the other party that is not cured within a specified number of days after notice thereof by the non-breaching party, or if the other party files for bankruptcy protection or enters into similar proceedings. Agilent may terminate the supply agreement in the event that it discontinues the sale of all NMR flow cell probes, NMR components and NMR controlling electronics and acquisition software, and, in such event, Agilent is required to provide us with not less than two years' prior written notice of such termination.

KMC Systems

In 2007, we began collaborating with KMC Systems, Inc. on the design and manufacture of the Vantera frame, the autosampler and the electronic interface (collectively the "Vantera hardware assembly"). In 2009, we entered into a production agreement with KMC under which we have designated KMC as the exclusive manufacturer of the Vantera hardware assembly, subject to specified exceptions, and have agreed to purchase all of our Vantera hardware assemblies from KMC. Our purchases of each Vantera hardware assembly are determined on an individual purchase order basis and are based on a pricing formula set forth in the production agreement.

The initial term of the production agreement continues until the later of three years from the first shipment of a Vantera analyzer or delivery of the 30th unit. The initial term will be automatically extended for additional one-year periods unless we or KMC provide the other with written notice of termination not less than 90 days prior the end of the term or an extension term. Either we or KMC may terminate the production agreement upon the occurrence of a material breach by the other party that is not cured within a specified number of days after notice thereof by the non-breaching party, if the other party files for bankruptcy protection or enters into similar proceedings, or upon a change of control of the other party, as defined in the agreement. KMC also has the right to terminate the production agreement if its production activities under a purchase order are interrupted or delayed due to our request or our failure to perform our obligations under the agreement, in each case for a 90-day continuous period. During the term of the agreement and for a specified period of time thereafter, neither we nor KMC may solicit for employment any employees of the other party.

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Intellectual Property

In order to remain competitive, we must develop and maintain protection on the key aspects of our technology. We currently rely on a combination of patents, copyrights and trademarks and confidentiality, licenses and invention assignment agreements to protect our intellectual property rights. We also rely upon unpatented trade secrets and improvements, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. Although the patent covering the measurement of lipoprotein classes and subclasses by NMR, which we license from a third party, expired in 2011, we believe that our other intellectual property and the know-how required to directly quantify lipoprotein particles and other metabolites using NMR-based technology, will provide sufficient barriers to entry that will not materially impact our competitive position.

Patents

We have implemented a strategy designed to optimize our intellectual property rights. For core intellectual property, we are pursuing patent coverage in the United States and those foreign countries that correspond to the majority of our current and anticipated customer base. We own, or co-own with exclusive license rights, eight issued U.S. patents and ten pending U.S. patent applications, four of which have a pending counterpart Patent Cooperation Treaty, or PCT, application and four others of which have pending or issued counterpart foreign patents. We believe our patents and pending applications provide, or will provide, protection for our NMR-based systems and technologies that simultaneously analyze lipoproteins as well as hundreds of small molecule metabolites from blood serum, plasma, urine and other bodily fluids, and which will enable us to further expand our diagnostics test menu.

License from North Carolina State University

We license from North Carolina State University, or NCSU, on an exclusive basis, U.S. patent number 6,518,069, which expires in 2020. This patent, which we co-own, covers NMR measurements of lipoprotein subclasses for use in identifying patients at risk for type 2 diabetes and measurement of glucose levels.

Under the agreement, we paid an initial license fee of $25,000. We are required to pay NCSU a low single-digit royalty based on net sales of the licensed products and licensed tests, subject to a minimum annual royalty of $2,500. Dr. James Otvos, our founder and Chief Scientific Officer, is an adjunct professor of biochemistry at NCSU.

Under the license agreement, we are obligated to diligently pursue the development and commercialization of the licensed technologies, including manufacturing or producing a product for testing, development and sale and seeking required government approvals of the product. NCSU may terminate our license if we fail to perform our obligations under the license agreement, or if we engage in fraud, willful misconduct or illegal conduct. Unless earlier terminated, our license agreement with NCSU will terminate upon the expiration of the last-to-expire of the patents that are subjects of the license agreement.

Government Regulation

Federal Food, Drug, and Cosmetic Act

In the United States, in vitro diagnostics are regulated by the FDA as medical devices under the Federal Food, Drug, and Cosmetic Act, or FDCA. The FDCA requires that medical devices introduced to the U.S. market, unless otherwise exempted, be subject to either a premarket notification clearance, known as a 510(k), or a premarket approval, known as a PMA. The 510(k) submission process is generally but not necessarily less expensive and time-consuming than the PMA process. Under a 510(k), the FDA finds that either (a) the product is substantially equivalent to a legally marketed product (a "predicate device") or (b) in the absence of a predicate device that the FDA concludes based on a benefit-risk determination that the product may use a process known as a de novo classification. Regardless, the 510(k) process still involves substantial costs and time and may have to be repeated for any number of reasons, including but not limited to, insufficient data to support a substantial equivalence determination or the product raises new safety or effectiveness concerns. The PMA process, which is typically for high risk devices which cannot be cleared through the 510(k) process, involves providing extensive data to the FDA to allow the FDA to find that the device is safe and effective for its intended use, which may also include providing additional data and updates to the FDA, the convening of expert panels, inspection of manufacturing facilities, and new or supplemented PMAs if the product is modified during the review process. The studies required in connection with any approval or clearance, regardless of whether the regulatory pathway is the 510(k) process or a PMA, may be material in cost and time-intensive. There can be no assurance that FDA will ultimately approve any 510(k) request or approve any PMA submitted by us in a timely manner or at all.

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We have previously received FDA clearance for our current NMR spectrometer together with the NMR LipoProfile test and specific portions of the report produced by the test for use in our clinical laboratory, specifically LDL-P, HDL-C and triglycerides, and in August 2012, we received FDA clearance for the Vantera system.

There are some measurements reported by our NMR LipoProfile test for which we have not received FDA clearance and which are therefore considered to be laboratory-developed tests (LDTs). We have begun seeking FDA clearance for certain of these measurements and plan to seek clearance for others at a later time. However, there can be no assurance that we will receive any such clearances on a timely basis, or at all.

The laws and regulations governing the marketing of diagnostic products for use as LDTs are extremely complex and in many instances there are no significant regulatory or judicial interpretations of these laws. For instance, while the FDA maintains that LDTs are subject to the FDA's authority as diagnostic medical devices under the FDCA, the FDA has generally exercised enforcement discretion and not enforced applicable regulations with respect to most tests performed by CLIA-certified laboratories. While we believe that we are currently in material compliance with applicable laws and regulations relating to LDTs, changes in such laws and regulations or in enforcement practices could restrict our ability to continue to report such measures in the future.

Continuing FDA Regulation

Under the medical device regulations, the FDA regulates quality control and manufacturing procedures by requiring us to demonstrate and maintain compliance with the quality system regulation, which sets forth the FDA's current good manufacturing practices requirements for medical devices. The FDA monitors compliance with the quality system regulation and current good manufacturing practices requirements by conducting periodic inspections of manufacturing facilities. We could be subject to unannounced inspections by the FDA. Violations of applicable regulations noted by the FDA during inspections of our manufacturing facilities, or the manufacturing facilities of these third parties, could adversely affect the continued marketing of our tests.

The FDA also enforces post-marketing controls that include the requirement to submit medical device reports to the agency when a manufacturer becomes aware of information suggesting that any of its marketed products may have caused or contributed to a death, serious injury or serious illness or any of its products has malfunctioned and that a recurrence of a malfunction would likely cause or contribute to a death or serious injury or illness. The FDA relies on medical device reports to identify product problems and utilizes these reports to determine, among other things, whether it should exercise its enforcement powers. The FDA may also require postmarket surveillance studies for specified devices.

FDA regulations also govern, among other things, the preclinical and clinical testing, manufacture, distribution, labeling and promotion of medical devices. In addition to compliance with good manufacturing practices and medical device reporting requirements, we will be required to comply with the FDCA's general controls, including establishment registration, device listing and labeling requirements. If we fail to comply with any requirements under the FDCA, we could be subject to, among other things, fines, injunctions, civil penalties, recalls or product corrections, total or partial suspension of production, denial of premarket notification clearance or approval of products, rescission or withdrawal of clearances and approvals, and criminal prosecution. We cannot assure you that any final FDA policy, once issued, or future laws and regulations concerning the manufacture or marketing of medical devices will not increase the cost and time to market of new or existing tests. Furthermore, any current or future federal and state regulations also will apply to future tests developed by us.

If our promotional activities fail to comply with these FDA regulations or guidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow FDA rules and guidelines relating to promotion and advertising may cause the FDA to issue warning letters or untitled letters, suspend or withdraw a product from the market, require a recall or institute fines or civil fines, or could result in disgorgement of money, operating restrictions, injunctions or criminal prosecution.

Advertising

Advertising of our tests is subject to regulation by the Federal Trade Commission, or FTC, under the FTC Act. The FTC Act prohibits unfair or deceptive acts or practices in or affecting commerce. Violations of the FTC Act, such as failure to have substantiation for product claims, would subject us to a variety of enforcement actions, including compulsory process, cease and desist orders and injunctions, which can require, among other things, limits on advertising, corrective advertising, consumer redress and restitution, as well as substantial fines or other penalties. Any enforcement actions by the FTC could have a material adverse effect our business.

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Laboratory Certification, Accreditation and Licensing

We have obtained all federal and state licenses, certificates and permits necessary to conduct our diagnostic testing business. CLIA requires us and most clinical laboratories operating in the United States to maintain federal certification. The State of North Carolina also requires us to maintain a laboratory license. In addition, the laws of some states require licensure for our laboratory, even though we do not operate a laboratory in those states.

CLIA imposes requirements relating to test processes, personnel qualifications, facilities and equipment, record keeping, quality assurance and participation in proficiency testing, which involves comparing the results of tests on specimens that have been specifically prepared for our laboratory to the known results of the specimens. CLIA requirements also apply as a condition for participation by clinical laboratories under the Medicare program. Under CLIA regulations, the complexity of the tests performed determines the level of regulatory control. The U.S. Department of Health and Human Services, or HHS, classifies our NMR LipoProfile test as a high-complexity test. As a result of this and associated compliance requirements, we must employ more experienced and highly educated personnel, as well as additional categories of employees.

HHS or an organization to which HHS delegates authority verifies compliance with CLIA standards through periodic on-site inspections. Sanctions for failure to meet these certification, accreditation and licensure requirements include suspension or revocation of the certification, accreditation or license, as well as imposition of plans to correct deficiencies, injunctive actions and civil monetary and criminal penalties. If HHS should remove or suspend our CLIA certificate, we would be forced to cease performing testing.

We are also accredited by CAP. The CAP Laboratory Accreditation Program is an internationally recognized program that utilizes teams of practicing laboratory professionals as inspectors, and accreditation by CAP can often be used to meet CLIA and state certification requirements.

HIPAA and Other Privacy Laws

The Health Insurance Portability and Accountability Act of 1996, or HIPAA, established for the first time comprehensive protection for the privacy and security of health information. The HIPAA standards apply to three types of organizations, or “Covered Entities”: health plans, healthcare clearinghouses, and healthcare providers that conduct certain healthcare transactions electronically. Covered Entities and their Business Associates must have in place administrative, physical, and technical standards to guard against the misuse of individually identifiable health information. Because we are a healthcare provider and we conduct certain healthcare transactions electronically, we are presently a Covered Entity, and we must have in place the administrative, physical, and technical safeguards required by HIPAA, HITECH and their implementing regulations. Additionally, some state laws impose privacy protections more stringent than HIPAA. We may perform future activities that may implicate HIPAA, such as providing clinical laboratory testing services or entering into specific kinds of relationships with a Covered Entity or a Business Associate of a Covered Entity.

Our activities must also comply with other applicable privacy laws. For example, there are also international privacy laws that impose restrictions on the access, use, and disclosure of health information. All of these laws may impact our business. Our failure to comply with these privacy laws or significant changes in the laws restricting our ability to obtain tissue samples and associated patient information could significantly impact our business and our future business plans.

Federal and State Billing and Fraud and Abuse Laws

Antifraud Laws/Overpayments. As participants in federal and state healthcare programs, we are subject to numerous federal and state antifraud and abuse laws. Many of these antifraud laws are broad in scope, and neither the courts nor government agencies have extensively interpreted these laws. Prohibitions under some of these laws include:

• the submission of false claims or false information to government programs;

• deceptive or fraudulent conduct;

• excessive or unnecessary services or services at excessive prices; and

• prohibitions in defrauding private sector health insurers.

We could be subject to substantial penalties for violations of these laws, including denial of payment and refunds, suspension of payments from Medicare, Medicaid or other federal healthcare programs and exclusion from participation in the federal healthcare programs, as well as civil monetary and criminal penalties and imprisonment.

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Numerous federal and state agencies enforce the antifraud and abuse laws. In addition, private insurers may also bring private actions. In some circumstances, private whistleblowers are authorized to bring fraud suits on behalf of the government against providers and are entitled to receive a portion of any final recovery.

Federal and State “Self-Referral” and “Anti-kickback” Restrictions

Self-Referral law. We are subject to a federal “self-referral” law, commonly referred to as the “Stark” law, which provides that physicians who, personally or through a family member, have ownership interests in or compensation arrangements with a laboratory are prohibited from making a referral to that laboratory for laboratory tests reimbursable by Medicare, and also prohibits laboratories from submitting a claim for Medicare payments for laboratory tests referred by physicians who, personally or through a family member, have ownership interests in or compensation arrangements with the testing laboratory. The Stark law contains a number of specific exceptions which, if met, permit physicians who have ownership or compensation arrangements with a testing laboratory to make referrals to that laboratory and permit the laboratory to submit claims for Medicare payments for laboratory tests performed pursuant to such referrals.

We are subject to comparable state laws, some of which apply to all payors regardless of source of payment, and do not contain identical exceptions to the Stark law. For example, we are subject to a North Carolina self-referral law that prohibits a physician investor from referring to us any patients covered by private, employer-funded or state and federal employee health plans. The North Carolina self-referral law contains few exceptions for physician investors in securities that have not been acquired through public trading, but will generally permit us to accept referrals from physician investors who buy their shares in the public market.

Anti-Kickback Statute. The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good or service, for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration” is not defined in the federal Anti-Kickback Statute and has been broadly interpreted to include anything of value, including for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payment, ownership interests and providing anything at less than its fair market value. Sanctions for violations of the federal Anti-Kickback Statute may include imprisonment and other criminal penalties, civil monetary penalties and exclusion from participation in federal healthcare programs.

Many states have also adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs, and do not contain identical safe harbors. For example, North Carolina has an anti-kickback statute that prohibits healthcare providers from paying any financial compensation for recommending or securing patient referrals. Penalties for violations of this statute include license suspension or revocation or other disciplinary action. Other states have similar anti-kickback prohibitions.

Both the federal Anti-Kickback Statute and the North Carolina anti-kickback law are broad in scope. The anti-kickback laws clearly prohibit payments for patient referrals. Under a broad interpretation, these laws could also prohibit a broad array of practices involving remuneration where one party is a potential source of referrals for the other.

If we or our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in U.S. federal or state health care programs, and the curtailment or restructuring of our operations. To the extent that any product we make is sold in a foreign country in the future, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals. To reduce the risks associated with these various laws and governmental regulations, we have implemented a compliance plan. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management's attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.

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Sunshine Act

In 2010, Congress enacted a statute commonly known as the Sunshine Act, as part of PPACA. The Sunshine Act aims to promote transparency and requires manufacturers of drugs, devices, biologicals and medical supplies covered by Medicare, Medicaid or the Children's Health Insurance Program, or CHIP, to report annually to CMS any payments or other transfers of value made to physicians and teaching hospitals, with limited exceptions. Manufacturers must also disclose to CMS any physician ownership or investment interests. On February 8, 2013, CMS issued a final rule implementing the Sunshine Act. Entities covered by the Sunshine Act, including us, must begin reporting by March 31, 2014, and failure to comply with the reporting requirement may subject us to substantial penalties.

Other Laws

Occupational Safety and Health. The State of North Carolina has an OSHA-approved state occupational safety and health plan allowing it to impose stricter worker health and safety standards than those promulgated by the federal Occupational Safety and Health Administration, or OSHA. In addition to their comprehensive regulation of health and safety in the workplace in general, OSHA and the North Carolina Department of Labor Occupational Safety and Health Division have established extensive requirements aimed specifically at laboratories and other healthcare-related facilities. In particular, both agencies have implemented regulations intended to protect workers who may be exposed to bloodborne pathogens, such as HIV and hepatitis B, and other potentially infectious materials. In addition, because our operations require employees to use certain hazardous chemicals, we also must comply with regulations on hazard communication and hazardous chemicals in laboratories. These regulations require us, among other things, to develop written programs and plans, which must address methods for preventing and mitigating employee exposure, the use of personal protective equipment, and training.

Specimen Transportation. We also are subject to regulations of the Department of Transportation, the United States Postal Service and the CDC that apply to the surface and air transportation of clinical laboratory specimens.

Environmental Compliance. We handle and dispose of human fluids and medical waste, such as vials and needles, in connection with our operations. The fluids and waste are treated as biohazardous material. We must comply with numerous federal, state and local statutes and regulations, particularly, to the extent applicable, the Medical Waste Tracking Act of 1988 and the Resource Conservation and Recovery Act. The statutes with which we must comply relate to public health and the environment, including practices and procedures for labeling, handling and storage of, and public disclosure requirements regarding, medical waste, hazardous and toxic materials or other substances generated by operation of clinical laboratories. We must also comply with environmental protection requirements, such as standards relating to the discharge of pollutants into the air, water and land, emergency response and remediation or cleanup in connection with medical waste, hazardous and toxic materials or other substances.

Employees

As of December 31, 2013, we had 239 employees. None of our employees are represented by a labor union or covered under a collective bargaining agreement, nor have we experienced any work stoppages. We consider our employee relations to be good.

Available Information

We were incorporated under the laws of North Carolina in June 1994 under the name LipoMed, Inc. and reincorporated under the laws of Delaware in June 2000. In January 2002, we changed our corporate name to LipoScience, Inc. Our executive offices are located at 2500 Sumner Boulevard, Raleigh, NC 27616. Our telephone number is (919) 212-1999. Our internet website address is www.liposcience.com. In addition to the information about us contained in this Annual Report, information about us can be found on our website. Our website and information included in or linked to our website are not part of this Annual Report.

Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge through our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission, or SEC. The public may read and copy the materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549.

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Item 1A. Risk Factors

Our business is subject to numerous risks. You should carefully consider the following risks and all other information contained in this Annual Report, as well as general economic and business risks, together with any other documents we file with the SEC. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following events actually occur or risks actually materialize, it could have a material adverse effect on our business, operating results and financial condition and cause the trading price of our common stock to decline.

Risks Related to Our Business and Strategy

Our ability to successfully execute our strategy is dependent on our achieving greater market acceptance of the NMR LipoProfile test.

Our ability to generate revenue depends on our successful marketing of the NMR LipoProfile test. The NMR LipoProfile test accounted for 96% of our revenues for the year ended December 31, 2013, 94% of our revenues for the year ended December 31, 2012 and 93% of our revenues for the year ended December 31, 2011. We expect that our revenues and profitability will depend on sales of the NMR LipoProfile test for the foreseeable future.

There is not currently widespread awareness of the NMR LipoProfile test among clinicians, even though the test has been available since 1999. In order to achieve greater market acceptance of the NMR LipoProfile test, we must continue to demonstrate to clinicians, other healthcare professionals, clinical diagnostic laboratories, healthcare thought leaders and third-party payors that the test is a clinically useful and cost-effective diagnostic test and disease management tool for cardiovascular disease risk providing improved or additional benefits over traditional cholesterol testing, which has been widely accepted as effective for managing cardiovascular risk for many years.

When seeking testing and management recommendations for coronary heart disease, or CHD, many physicians and other clinicians look to clinical guidelines and recommendations published by influential organizations. Such organizations include the National Cholesterol Education Program, or NCEP, an authority on cholesterol management overseen by the National Heart, Lung and Blood Institute, or NHLBI, part of the National Institutes of Health, American Association of Clinical Endocrinologist (AACE) and the American Heart Association, or AHA. The NMR LipoProfile test is not currently included in guidelines published by NCEP or the AHA. In November 12, 2013, the AHA and American College of Cardiology (ACC) Task Force on Practice Guidelines published the 2013 ACC/AHA guideline on the treatment of blood cholesterol to reduce atherosclerotic cardiovascular risk in adults. The new ACC/AHA guideline emphasizes treating specific patient groups with statin therapy, based solely on cardiovascular events noted in randomized controlled trials (RCT) of drug therapies. Since RCT data used in this new guideline did not contain information regarding the value of treating patients to specific LDL goals, the ACC/AHA expert panel did not endorse a specific LDL target for treatment. At this time, it is not known whether the content of the guidelines will adversely affect the use of the NMR LipoProfile test or coverage by the payors for the test given the substantial changes relative to prior guidelines. If we are not successful in our strategy of gaining inclusion in the guidelines published by these or other organizations, it could ultimately limit market adoption of the NMR LipoProfile test.

Our industry is characterized by rapid technological changes, and current or future studies may question the utility of LDL-P testing or suggest new approaches or technologies that may be more beneficial to patient care than our current tests or the tests that we may develop in the future. In such cases, it could make it more difficult to persuade clinicians, payors and publishers of clinical guidelines of the utility of our NMR LipoProfile test and other tests that we may develop in the future compared to existing tests or new approaches or technologies.

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A small number of clinical diagnostic laboratory customers account for most of the sales of our NMR LipoProfile test. If any of these laboratories orders fewer tests from us for any reason, our revenues could decline.

For the years ended December 31, 2013, 2012 and 2011, we generated 90%, 84% and 76% of our revenues, respectively, from clinical diagnostic laboratory customers. Sales to one of these laboratories, Health Diagnostic Laboratory, Inc., accounted for 33%, 32% and 21% of our revenues for the years ended December 31, 2013, 2012 and 2011, respectively. Sales to a second laboratory customer, LabCorp, accounted for 30%, 29% and 33% of our revenues for the years ended December 31, 2013, 2012 and 2011, respectively.

Our current agreements with our laboratory customers do not require them to purchase any minimum quantities of the NMR LipoProfile test. In addition, these customers generally have the right to terminate their respective agreements with us at any time. If any major customer were to terminate its relationship with us, or to substantially diminish its purchases of the NMR LipoProfile test, our revenues could significantly decline or it could adversely impact our revenue growth, which could have a material adverse effect on the Company’s business, financial condition or results of operations.

In mid-March 2014, HDL Inc. announced its own LDL-P test and began making the test available to its customers. We believe our NMR LipoProfile test has significant advantages over HDL Inc.'s non-FDA cleared test and that it is critical that physicians are able to differentiate with certainty which test result they are receiving. We plan to aggressively market to physicians the advantages of our NMR LipoProfile test, the only FDA-cleared test that quantifies the number of LDL-P, versus the HDL Inc. laboratory-developed test (LDT) that has not demonstrated clinical efficacy nor undergone the rigor of an FDA-clearance process. Accordingly, on March 28, 2014, we notified HDL Inc. that we were terminating our agreement with HDL Inc. effective June 26, 2014. Over time, we believe that we will be able to mitigate the effects of loss of revenues from HDL Inc. through our relationships with other national, regional and local labs and by alerting physicians to use clinical laboratory customers that offer the FDA-cleared NMR LipoProfile test. However, in the short and medium term, we expect our revenues to be impacted negatively, potentially significantly so.

We have incurred losses and anticipate incurring continuing losses.

We have incurred significant losses since our inception. As of December 31, 2013, we had an accumulated deficit of $60.5 million. We anticipate experiencing losses for the next few years as we incur additional expenses related to our research and development programs, our sales and marketing efforts, and our general and administrative expenses.

To become and remain profitable, we must succeed in increasing sales of our NMR LipoProfile test and/or develop and commercialize new tests with significant market potential, and place the Vantera system in third-party clinical diagnostic laboratories. We may never succeed in these activities and may never generate revenues that are sufficient to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain consistently profitable would likely depress the market price of our common stock and could significantly impair our ability to raise capital, expand our business or continue to pursue our business strategy.

If we do not establish relationships with additional clinical diagnostic laboratories, we may not be able to increase the number of NMR LipoProfile tests we sell.

A significant element of our strategy is to leverage relationships with clinical diagnostic laboratories to increase market acceptance of the NMR LipoProfile test and gain market share. Most clinicians who request traditional cholesterol tests, our NMR LipoProfile test and other diagnostic tests to evaluate cardiovascular disease risk order these tests through clinical diagnostic laboratories.

If we are unable to establish relationships with additional clinical diagnostic laboratories, clinicians who order tests through these laboratories may be unwilling or unable to order our NMR LipoProfile test. In addition, we would not have the benefit of leveraging the sales, marketing and distribution capabilities of these laboratories, which we believe is important to our ability to increase awareness of and expand utilization of the NMR LipoProfile test. As a result, if we are unable to establish additional clinical laboratory relationships, our ability to increase sales of our NMR LipoProfile test and to successfully execute our strategy could be compromised.

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We will need to optimize our marketing and sales capabilities in order to increase demand for our NMR LipoProfile test, to expand geographically and to successfully commercialize any other personalized diagnostic tests we may develop.

In 2013, our sales force expansion did not result in the growth we previously anticipated. We believe our current sales and marketing operations must improve in order to achieve the level of market awareness and sales required for us to attain significant commercial success for our NMR LipoProfile test, to expand our geographic presence and to successfully commercialize any other diagnostic tests we may develop.

We have limited experience in placing and servicing the Vantera system in third-party clinical diagnostic laboratories for commercial purposes. We may also face competition from other companies in the industry in which we operate, some of whom are much larger than us and who can pay significantly greater compensation and benefits than we can, in seeking to attract and retain qualified sales and marketing employees. If we are unable to hire and retain qualified sales and marketing personnel on a timely basis, or at all, our business will suffer.

Furthermore, in order to successfully commercialize diagnostic tests that we may develop in the future, we may need to conduct lengthy, expensive clinical trials and develop dedicated sales and marketing operations to achieve market awareness and demand. If we are not able to successfully implement our marketing, sales and commercialization strategies, we may not be able to increase sales of our NMR LipoProfile test, to expand geographically or to successfully commercialize any future diagnostic tests that we may develop.

The diagnostic and pharmaceutical industries feature changing technology and other innovations that could make our current test or the tests we are developing obsolete or less competitive unless we continue to develop and manufacture new and improved tests and pursue new market opportunities.

The diagnostic and pharmaceutical industries are characterized by technological changes, frequent new product introductions and enhancements and evolving industry standards. Our future success will depend on our ability to keep pace with the evolving needs of our customers on a timely and cost-effective basis and to pursue new market opportunities that develop as a result of technological and scientific advances. These new market opportunities may be outside the scope of our expertise or in areas that have unproven market demand, and the utility and value of new tests that we develop may not be accepted in the market. Our inability to gain market acceptance of new tests could harm our future operating results. Further, if new research or clinical evidence or economic comparative evidence arises that supports a different marker for CHD risk, demand for our test could decline.

Our NMR LipoProfile test competes with other diagnostic testing methods that may be more widely available than our test.

The clinical diagnostics market is highly competitive, and we must be able to compete effectively against existing and future competitors in order to be successful. In selling our NMR LipoProfile test, we compete primarily with existing diagnostic, detection and monitoring technologies, particularly the conventional lipid panel test, which is relatively inexpensive, widely reimbursed and broadly accepted as an effective test for managing the risk of developing cardiovascular disease. We also compete against companies that offer other methods for directly or indirectly measuring cholesterol concentrations, lipoproteins or lipoprotein particles. It is possible that other competing tests could be perceived by clinicians as more cost-effective than our test in providing information useful in managing CHD risk. In addition, some competitors offering these competing technologies may have longer operating histories, better name recognition and greater financial, technical, sales, marketing, distribution and public relations resources than we have. They may also have more experience in research and development, regulatory matters, manufacturing and marketing than we do, and may have established broad third-party reimbursement for their tests. If we do not compete successfully, we will not be able to increase our market share and our business will be seriously harmed.

Even though the Vantera system has received regulatory clearance in the United States, if laboratories are not receptive to placement of the Vantera system at their facilities, or if we do not receive regulatory clearance of the Vantera system in other jurisdictions, our growth strategy may not be successful.

An element of our strategy is to place the Vantera system, our next-generation automated clinical NMR analyzer, on site with certain selected clinical diagnostic laboratory customers to broaden access to our technology and increase demand for our NMR LipoProfile test and any future diagnostic tests that we may develop. Although we received clearance from the FDA to perform the FDA-cleared measurements of the NMR LipoProfile test using the Vantera system in August 2012, we may not receive regulatory clearance for the commercial use of the Vantera system in other countries on a timely basis, or at all. Even though the Vantera clinical analyzer is cleared by the FDA, clinical diagnostic laboratories may be unwilling or unable to accept the placement of the Vantera system for any reason, or these laboratories may not be satisfied with the Vantera system after it is placed in their facilities. If clinical diagnostic laboratories do not accept the placement of the Vantera system in their facilities, our ability to grow our business by deploying the Vantera system could be compromised.

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We rely on two key suppliers for the components used in the Vantera system. If we were to lose either of these suppliers, our ability to broadly place the Vantera system could be compromised.

We currently rely on a single supplier, Agilent Technologies, Inc., for the magnet, probe and console incorporated in the Vantera system. These are the key components of the analyzers necessary to perform our NMR LipoProfile test. We are party to a supply agreement with Agilent pursuant to which we have agreed to exclusively purchase all of our NMR-related components from them. We are also party to a production agreement with KMC Systems, Inc. under which KMC is our exclusive manufacturer of the sample handler and shell for the Vantera system.

We are currently aware of only one other primary supplier of NMR spectrometers. In the event it is necessary or desirable to acquire NMR spectrometers from another supplier, we might not be able to obtain them on commercially reasonable terms, if at all. It could also require significant time and expense to redesign our current analyzers or the Vantera system to work with the spectrometers provided by another company.

If we are unable to obtain the NMR components we need at a reasonable price or on a timely basis, we may be unable to maintain the analyzers we use in our facility to perform our NMR LipoProfile test, which could compromise our ability to meet our customers' orders for the test. Likewise, if the components or any other part of the Vantera system are not available when needed, we may not be able to place the Vantera system broadly, which could impair our ability to pursue our growth strategy.

If we do not successfully develop or acquire and introduce new personalized diagnostic tests or other applications of our technology, we may not generate new sources of revenue and may not be able to successfully implement our growth strategy.

Our business strategy includes the acquisition, development and introduction of new clinical diagnostic applications of our NMR-based technology in addition to our NMR LipoProfile test. Additionally, we believe that for our Vantera system to be attractive to laboratories to place in their facilities, it may be necessary for us to offer additional tests for use on the Vantera system. All of our diagnostic tests under development will require significant additional research and development, a commitment of significant additional resources and possibly costly and time-consuming clinical testing prior to their commercialization. Our technology is complex, and we cannot be sure that any tests under development will be developed successfully, be proven to be effective, offer diagnostic or other improvements over currently available tests, meet applicable regulatory standards, be produced in commercial quantities at acceptable costs or be successfully marketed.

We may also in the future seek to acquire complementary products or technologies from third parties. Integrating any product or technology we acquire could be expensive and time-consuming, disrupt our ongoing business and distract our management. If we are unable to integrate any tests or technologies effectively, we may not be able to implement our business model. If we do not successfully develop new clinical diagnostic applications of our NMR-based technology or acquire complementary diagnostic products, we could lose interest from academic medical centers and could also lose revenue opportunities with existing or future clinical laboratory customers.

Our transition to a new chief executive officer could be disruptive to our business, and our inability to attract, hire or retain other key personnel could also slow our growth and prevent us from successfully executing our business strategy.

On January 22, 2014, we announced that Howard B. Doran was appointed President and Chief Executive Officer and as a member of the board of directors, effective February 3, 2014.

Leadership transitions can be inherently difficult to manage and may cause uncertainty or a disruption to our business or may increase the likelihood of turnover in key officers and employees. If we cannot effectively transition Mr. Greczyn's interim President and Chief Executive Officer's roles and responsibilities to Mr. Doran, it could make it more difficult to successfully operate our business and pursue our business goals.

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In addition to the transition of our Chief Executive Officer position, our future success depends to a significant extent on the skills, experience and continued efforts of the rest of our senior management team, including Lucy Martindale, our Chief Financial Officer, James Otvos, our Chief Scientific Officer and founder, Timothy Fischer, our Chief Operating Officer, and Thomas Clement, our Vice President of Regulatory and Quality Affairs. The loss of services of any or all of these individuals, or other management personnel, could harm our business, could divert other senior management time in searching for their replacements, and might significantly delay or prevent the achievement of our business objectives. We have entered into employment agreements with each of these individuals and with our other executives. The existence of an employment agreement does not, however, guarantee retention of these employees, and we may not be able to retain those individuals for the duration of or beyond the end of their respective terms. We do not maintain key person life insurance on any of our management personnel. Our future success also depends on our ability to continue to attract, retain and motivate highly skilled sales and marketing, regulatory, scientific and laboratory personnel. In particular, our growth strategy is predicated on significantly expanding the size of our direct sales force. However, competition for qualified sales, regulatory and technical personnel in our industry is intense, and we may not be able to attract and retain these personnel on acceptable terms. If we are unable to attract, train or retain the number of highly qualified personnel that our business needs, it could seriously harm our reputation, key customer relationships and potential revenue growth, could result in the loss of key information, expertise or know-how and could cause us to incur unanticipated recruitment and training costs. To the extent that we hire personnel from competitors, we may also be subject to allegations that they have been improperly solicited or divulged proprietary or other confidential information.

If we are unable to successfully manage our growth, our business will be harmed.

During the past several years, we have significantly expanded our operations. Our growth has placed and will continue to place a significant strain on our management, operating and financial systems and our sales, marketing and administrative resources. As a result of our growth, our operating costs may escalate even faster than planned, and some of our internal systems may need to be enhanced or replaced. If we cannot effectively manage our expanding operations and our costs, we may not be able to continue to grow or we may grow at a slower pace and our business could be adversely affected.

We currently perform our tests predominantly in one laboratory facility. If this or any future facility or our equipment were damaged or destroyed, or if we experience a significant disruption in our operations for any reason, our ability to continue to operate our business could be materially harmed.

We currently perform our NMR LipoProfile tests predominantly in a single laboratory facility in Raleigh, North Carolina. If this or any future facility were to be damaged, destroyed or otherwise unable to operate, whether due to fire, floods, hurricanes, storms, tornadoes, other natural disasters, employee malfeasance, terrorist acts, power outages, or otherwise, or if performance of our analyzers is disrupted for any other reason, we may not be able to perform our tests or generate test reports as promptly as our customers expect, or possibly not at all. If we are unable to perform our tests or generate test reports within a timeframe that meets our customers' expectations, our business, financial results and reputation could be materially harmed.

Currently, we maintain insurance coverage totaling $12 million against damage to our property and equipment and an additional $10 million to cover business interruption and research and development restoration expenses, subject to deductibles and other limitations. If we have underestimated our insurance needs with respect to an interruption, or if an interruption is not subject to coverage under our insurance policies, we may not be able to cover our losses.

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Failure in our information technology, storage systems or our clinical analyzers, including the Vantera system, could significantly disrupt our operations and our research and development efforts, which could adversely impact our revenues, as well as our research, development and commercialization efforts.

Our ability to execute our business strategy depends, in part, on the continued and uninterrupted performance of our information technology, or IT, systems, which support our operations and our research and development efforts, as well as our storage systems and our clinical analyzers, including the Vantera system. Due to the sophisticated nature of the NMR technology we use in our testing, we are substantially dependent on our IT systems. IT systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our IT systems, sustained or repeated system failures that interrupt our ability to generate and maintain data, and in particular to operate our NMR analyzers, including any Vantera system placed in third-party clinical diagnostic laboratories, could adversely affect our ability to operate our business. Any interruption in the operation of our NMR analyzers, due to IT system failures, part failures or potential disruptions in the event we are required to relocate our analyzers within our facility or to another facility, or failures of the Vantera system within the facilities of third-party clinical diagnostic laboratories, could have an adverse effect on our operations.

We rely on courier delivery services to transport samples to our facility for analysis. If these delivery services are disrupted, our business and customer satisfaction could be negatively impacted.

Clinicians and clinical laboratories ship samples to us by air and ground express courier delivery service for analysis in our Raleigh, North Carolina facility. Disruptions in delivery service, whether due to bad weather, natural disaster, terrorist acts or threats, or for other reasons, can adversely affect specimen quality and our ability to provide our services on a timely basis to customers.

Our business involves the use of hazardous materials that could expose us to environmental and other liabilities.

Our laboratory facility is subject to various local, state and federal laws and regulations relating to safe working conditions, laboratory and manufacturing practices and the use and disposal of hazardous or potentially hazardous substances, including chemicals, biological materials and various compounds used in connection with our research and development activities. In the United States, these laws include the Occupational Safety and Health Act, the Toxic Test Substances Control Act and the Resource Conservation and Recovery Act. We cannot assure you that accidental contamination or injury to our employees and third parties from hazardous materials will not occur. We do not have insurance to cover claims arising from our use and disposal of these hazardous substances other than limited clean-up expense coverage for environmental contamination due to an otherwise insured peril, such as fire.

If product liability lawsuits are successfully brought against us, we may incur substantial liabilities that could have a significant negative effect on our financial condition or reputation.

Diagnostic testing entails the risk of product liability, and we may be exposed to liability claims arising from the use of our tests. We maintain product liability insurance that is subject to deductibles and coverage limitations and is in an amount that we believe to be reasonable. We cannot be certain, however, that our product liability insurance will be sufficient to protect us against losses due to liability. As a result, we may be required to pay all or a portion of any successfully asserted product liability claim out of our cash reserves. Furthermore, we cannot be certain that product liability insurance will continue to be available to us on commercially reasonable terms or in sufficient amounts. We can provide no assurance that we will be able to avoid significant product liability claims, which could hurt our reputation and our financial condition.

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We may use third-party collaborators to help us develop, validate or commercialize any new diagnostic tests, and our ability to commercialize such tests could be impaired or delayed if these collaborations are unsuccessful.

We may license or selectively pursue strategic collaborations for the development, validation and commercialization of any new diagnostic tests we may develop. In any third-party collaboration, we would be dependent upon the success of the collaborators in performing their responsibilities and their continued cooperation. Our collaborators may not cooperate with us or perform their obligations under our agreements with them. We cannot control the amount and timing of our collaborators' resources that will be devoted to performing their responsibilities under our agreements with them. Our collaborators may choose to pursue alternative technologies in preference to those being developed in collaboration with us. The development, validation and commercialization of our potential tests will be delayed if collaborators fail to conduct their responsibilities in a timely manner or in accordance with applicable regulatory requirements or if they breach or terminate their collaboration agreements with us. Disputes with our collaborators could also impair our reputation or result in development delays, decreased revenues and litigation expenses.

Failure to maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could result in a restatement of our financial statements, cause investors to lose confidence in our financial statements and our company and have a material adverse effect on our business and stock price.

Effective internal controls are necessary for us to provide reliable financial reports and to operate successfully as a publicly traded company. As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, which requires annual management assessments of the effectiveness of our internal controls over financial reporting.

Testing and maintaining internal controls can divert our management's attention from other matters that are important to our business. We may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. If we are unable to conclude that we have effective internal controls over financial reporting, we could be subject to sanctions or investigations by the NASDAQ Stock Market, the SEC or other regulatory authorities and investors could lose confidence in our reported financial information and our company, which could result in a decline in the market price of our common stock, and cause us to fail to meet our reporting obligations in the future, which in turn could impact our ability to raise additional financing if needed in the future.

If we fail to comply with the covenants and other obligations under our credit facility, the lenders may be able to accelerate amounts owed under the facility and may foreclose upon the assets securing our obligations.

In December 2012, we entered into a credit facility with Oxford Finance and Square 1. The facility consists of a total of $16 million in term loans and a $6 million revolving line of credit. The term loans are payable in monthly installments of interest only through January 2015 and then principal and interest thereafter in monthly installments through July 2017. The line of credit matures in February 2015. Borrowings under our credit facility are secured by substantially all of our tangible assets. The covenants set forth in the loan and security agreement require, among other things, that we maintain a specified liquidity ratio, measured monthly, that begins at 1.25 and is reduced to 1.0 over the term of the facility. Our liquidity ratio was approximately 4.8 as of December 31, 2013. The covenants also require that we maintain a minimum trailing 12 month revenue level for 2014, measured monthly, that begins at $50 million and is reduced to $45 million by the end of 2014. We are currently in compliance with all covenants under this credit facility, as modified. However, if we fail to comply with the covenants and our other obligations under the credit facility, the lenders would be able to accelerate the required repayment of amounts due under the loan agreement and, if they are not repaid, could foreclose upon our assets securing our obligations under the credit facility.

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We may need to raise additional capital to meet our financial obligations and to pursue our business objectives, and if we cannot raise additional capital when needed, we may have to curtail or cease operations.

We cannot assure you that the proceeds of our recent IPO will be sufficient to fully fund our business and growth strategy. We may need to raise additional funds through public or private equity or debt financing to continue to fund our operations.

Our actual liquidity and capital funding requirements will depend on numerous factors, including:

• the extent to which our tests, including the NMR LipoProfile test and other tests under development, are successfully developed, gain regulatory clearance and market acceptance and become and remain competitive;

• our ability to obtain more extensive medical policy coverage for our tests, and our ability to effectively manage and control the pricing we receive from third-party clinical laboratories for our tests;

• our ability to collect our accounts receivable;

• the costs and timing of further optimization of our sales and marketing activities and research and development activities; and

• the timing and results of any regulatory approvals that we are required to obtain for our diagnostic tests.

If we seek to raise additional capital in order to meet various objectives, including developing future diagnostic tests, increasing working capital and responding to competitive pressures, that capital may not be available on favorable terms or may not be available at all. In addition, pursuant to the terms of our credit facility, we may be restricted from using the net proceeds of financing transactions for our operating objectives. Lack of sufficient capital resources could significantly limit our ability to take advantage of business and strategic opportunities. Furthermore, any additional capital raised through the sale of equity will dilute your ownership interest in us and may have an adverse effect on the price of our common stock. In addition, the terms of the financing may adversely affect your holdings or rights. Debt financing, if available, may include restrictive covenants.

If we are not able to obtain adequate funding when needed, we may have to delay development or commercialization of our diagnostic tests or license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize ourselves. We also may have to reduce research and development, sales and marketing, customer support or other expenses. Any of these outcomes could harm our business.

Our net operating loss carryforwards may expire unutilized or underutilized, which could prevent us from offsetting future taxable income.

We may be limited in the portion of net operating loss carryforwards that we can use in the future to offset taxable income for U.S. federal income tax purposes. As of December 31, 2013, our available federal net operating losses, or NOLs, and federal research and development tax credits totaled $48.3 million. In general, under Section 382 of the Internal Revenue Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs and tax credits to offset future taxable income. We believe that we have had one or more ownership changes, as a result of which our existing NOLs are currently subject to limitation. Future changes in our stock ownership, some of which are outside of our control, could result in additional ownership changes under Section 382. We are unable to predict the future ownership and other variables considered by, and elections available pursuant to, Section 382 for determining the usability of our net operating losses. We may not be able to utilize a material portion of our NOLs, even if we attain profitability.

Our quarterly operating results may fluctuate significantly, which could cause our stock price to decline.

We expect our operating results to be subject to quarterly fluctuations. Our net income (loss) and other operating results will be affected by numerous factors, including:

• our ability to execute on our strategy to convert clinicians, and the clinical diagnostic laboratories they use, from using traditional cholesterol testing to using our NMR LipoProfile test for the management of patients at risk for CHD;

• the addition of new clinical diagnostic laboratory customers or the loss of existing customers;

• our ability to successfully place the Vantera system at clinical diagnostic laboratories;

• changes in our pricing structures or the pricing structures of our competitors;

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• our ability to obtain and maintain third-party reimbursement for our NMR LipoProfile test and any other tests that we may develop;

• variations in the level of expenses related to our research and development efforts as well as sales force expansion;

• changes in the governmental regulation of diagnostic tests;

• our compliance with the rules and regulations established by relevant governmental and taxing authorities;

• our ability to develop, introduce and market any new future assays on a timely basis, or at all; and

• changes in our overall business strategy.

Many of these factors are beyond our control. You should not rely on period-to-period comparisons of our operating results as an indication of our future performance. Our quarterly operating results may fall below the expectations of investors or securities analysts. If this happens, even just temporarily, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially.

Risks Related to Billing, Coverage and Reimbursement for Our Tests

Health insurers and other third-party payors may decide not to cover, or may discontinue reimbursing, our NMR LipoProfile test or any other diagnostic tests we may develop in the future, or they may provide inadequate reimbursement, which could jeopardize our ability to expand our business and achieve profitability.

Our business is impacted by the level of reimbursement for our NMR LipoProfile test from third-party payors.

The Centers for Medicare and Medicaid Services, or CMS, under the U.S. Department of Health and Human Services, or HHS, establishes reimbursement payment levels and coverage rules for Medicare. CMS currently covers our NMR LipoProfile test, although the reimbursement payment level under CMS fee schedules may change from time to time. In recent years, payments under these fee schedules have decreased at times and may decrease more in the future. As a result, the coverage determination process is often a time-consuming and costly process that requires us to provide scientific and clinical support for the use of our tests to each payor separately, with no assurance that coverage or adequate reimbursement will be obtained.

We cannot predict whether or when third-party payors will cover our tests or offer adequate reimbursement to make them commercially attractive. Clinicians or patients may decide not to order our tests if third-party payments are inadequate, especially if ordering the test could result in financial liability for the patient. If CMS or other third-party payors decide not to cover our diagnostic tests, place significant restrictions on the use of our tests, or offer inadequate payment amounts, our ability to generate revenue from our diagnostic tests could be limited and our business could be materially adversely affected.

Payors may stop paying for out test for laboratories that areout-of-network. Certain payors have recently begun asking physicians not to use out of network services due to the typically higher costs and instead use in-network laboratory services. In addition, relative to laws requiring that laboratories bill co-pays and deductibles on tests directly to patients, the level of enforcement varies among states, with some states aggressively enforcing such laws. Additionally some payors are revising their medical policies to specifically decline coverage for certain test panels offered by out-of-network laboratories for cardiovascular risk assessment. The NMR LipoProfile test has been incorporated in some of these panels and potentially such revisions could result in decreased utilization by physicians.

Billing complexities associated with obtaining payment or reimbursement for our tests may negatively affect our revenues, cash flow and profitability.

Billing for clinical laboratory testing services is complex. In cases where we do not receive a fixed fee per test performed from a laboratory customer, we perform tests in advance of payment and without certainty as to the outcome of the billing process. In cases where we do receive a fixed fee per test from a laboratory customer, we may still have disputes over pricing and billing. We or our laboratory customers receive payment from individual patients and from a variety of payors, such as commercial insurance carriers, including managed care organizations and governmental programs, primarily Medicare. Each payor typically has different billing requirements, and the billing requirements of many payors have become increasingly stringent.

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Among the factors complicating our billing of third-party payors are:

• disputes among payors as to which party is responsible for payment;

• disparity in coverage among various payors;

• disparity in information and billing requirements among payors; and

• incorrect or missing billing information, which is required to be provided by the prescribing physician.

Billing by third-party clinical diagnostic laboratories that are considering the placement of the Vantera system in their facilities is also complex. These billing complexities, and the related uncertainty in obtaining payment for our tests, could negatively affect the rate of adoption of the Vantera systemand the NMR LipoProfile test, which would cause our revenues, cash flow and profitability, to suffer.

Healthcare reform measures could hinder or prevent commercial success of our NMR LipoProfile test.

Recent political, economic and regulatory influences are subjecting the healthcare industry to fundamental changes. In March 2010, President Obama signed into law a legislative overhaul of the U.S. healthcare system, known as the Patient Protection and Affordable Care Act of 2010, as amended by the Healthcare and Education Affordability Reconciliation Act of 2010, or the PPACA, which may have far-reaching consequences for most healthcare companies, including diagnostic companies like us.

While the goal of healthcare reform is to expand coverage to more individuals, it also involves increased government price controls, additional regulatory mandates and other measures designed to constrain medical costs, all of which impact the medical device industry. In addition, other legislative changes have been proposed and adopted since the PPACA was enacted.

These restructuring changes in the coverage of medical care in the United States, including new and more complex measures to regulate health care delivery and clinical laboratories, have resulted in reduced prices, added costs and decreased test utilization for diagnostic tests like ours. If reimbursement for our diagnostic tests and any other diagnostic tests that we may develop is substantially less than we or our clinical laboratory customers expect, or our rebate obligations associated with them are substantially increased, our business could be materially and adversely impacted.

The continuing efforts of the U.S. and foreign governments, insurance companies, managed care organizations and other payors to contain or reduce healthcare costs may compromise our ability to set prices at commercially attractive levels for the NMR LipoProfile test and other diagnostic tests that we may develop. Changes in healthcare policy, such as the creation of broad limits for diagnostic products, could substantially diminish the sale of or inhibit the utilization of future diagnostic tests, increase costs, divert management's attention and adversely affect our ability to generate revenues and achieve consistent profitability.

We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in lower reimbursement for our NMR LipoProfile test, and ultimately, reduced utilization for our test or additional pricing pressure.

Risks Related to Our Proprietary Technology

Our NMR LipoProfile test and the Vantera system have limited patent protection, and future personalized diagnostic tests that we may develop may also have limited patent protection. As a result, our intellectual property position may not adequately protect us from competitors for sales of our NMR LipoProfile test, the Vantera system or any future diagnostic tests we may develop.

A significant amount of our technology, especially regarding algorithmic processes used in the NMR LipoProfile test, is unpatented. Additionally, some of the technology used in our Vantera system is unpatented. As a result, we are dependent to a significant degree upon unpatented trade secrets and improvements, unpatented know-how and continuing technological innovation to develop and maintain our competitive position. We also rely on copyrights and trademarks and confidentiality, licenses and invention assignment agreements to protect our intellectual property rights, as well as, to a more limited extent, patents.

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In an effort to protect our trade secrets, we require our employees, consultants, collaborators and advisors to execute confidentiality agreements upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual's relationship with us be kept confidential and not disclosed to third parties. These agreements may not, however, provide us with adequate protection against improper use or disclosure of confidential information, and these agreements may be breached. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. A breach of confidentiality could significantly affect our competitive position. In addition, in some situations, these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, collaborators or advisors have previous employment or consulting relationships. Also, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.

The patent covering elements of our NMR LipoProfile test that we previously licensed from North Carolina State University expired in August 2011. The U.S. patent we previously licensed from Siemens Medical Systems expired in 2008. We also own or co-own with exclusive license rights a number of U.S. patents and patent applications. The claims of the issued U.S. patents owned by or licensed to us, and the claims of any patents that may issue in the future and be owned by or licensed to us, may not confer on us significant commercial protection against competing diagnostic products. Third parties may challenge, narrow, invalidate or circumvent any patents we own or license currently or in the future. Also, our pending patent applications may not issue, and we may not receive any additional patents. Our patents might not contain claims that are sufficiently broad to prevent others from utilizing our technologies. Further, because of the extensive time required for development, testing and regulatory review of a potential diagnostic product, it is possible that any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantages of the patent. Similar considerations apply in any other country where we file for patent protection relating to our technology. The laws of foreign countries may preclude issuance of patents or may not protect our patent rights to the same extent as do laws of the United States.

We also hold copyrights, including copyright registrations, on documentation and software for our NMR LipoProfile test and have a number of registered and unregistered trademarks, including a trademark for Vantera. These copyrights and trademarks may not, however, provide competitive advantages for us, and our competitors may challenge or circumvent these copyrights and trademarks. Furthermore, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our proprietary information. In addition, the laws of some foreign countries do not protect these types of proprietary rights to the same extent as the laws of the United States.

NMR spectroscopy technology, which we use in performing our NMR analyses, is not proprietary and is known in the scientific community generally, and it is possible to duplicate the methods we use to perform our diagnostic tests. Consequently, our competitors may independently develop competing diagnostic products that do not infringe our intellectual property.

If we infringe or are alleged to infringe intellectual property rights of third parties, our business could be harmed.

Our research, development and commercialization activities, including our current NMR LipoProfile test and our NMR-based technology platform, as well as any other diagnostic test resulting from these activities, may infringe or be claimed to infringe patents owned by other parties. There may also be patent applications that have been filed but not published that, when issued, could be asserted against us. These third parties could bring claims against us that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us, we could be forced to stop or delay research, development, manufacturing or sales of the diagnostic product or product candidate that is the subject of the suit.

As a result of patent infringement claims, or in order to avoid potential claims, we may choose or be required to seek licenses from third parties. These licenses may not be available on acceptable terms, or at all. Even if we are able to obtain a license, the license would likely obligate us to pay license fees or royalties or both, and the rights granted to us might be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms.

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There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the medical diagnostics industry. In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference, derivation or post-grant proceedings declared or granted by the U.S. Patent and Trademark Office and similar proceedings in foreign countries, regarding intellectual property rights with respect to our current or future diagnostic tests or devices. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially greater financial resources. Patent litigation and other proceedings may also absorb significant management time. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could impair our ability to compete in the marketplace.

We may become involved in lawsuits to protect or enforce our patents or other intellectual property or the patents of our licensors, which could be expensive and time-consuming.

Competitors may infringe our intellectual property, including our patents or the patents of our licensors. As a result, we may be required to file infringement claims to stop third-party infringement or unauthorized use. This can be expensive, particularly for a company of our size, and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patent claims do not cover its technology. An adverse determination of any litigation or other proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.

Interference, derivation or other proceedings brought at the U.S. Patent and Trademark Office may be necessary to determine the priority of inventions with respect to our patent applications or those of our licensors or collaborators. Litigation or USPTO proceedings brought by us may fail or may be invoked against us by third parties. Even if we are successful, domestic or foreign litigation or USPTO or foreign patent office proceedings may result in substantial costs and distraction to our management. We may not be able, alone or with our licensors or collaborators, to prevent misappropriation of our proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.

Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or proceedings. In addition, during the course of this kind of litigation or proceedings, there could be public announcements of the results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for our common stock could be significantly harmed.

Risks Related to Government Regulation of Our Diagnostic Tests

If we are unable to comply with the requirements of the Clinical Laboratories Improvement Amendments of 1988 and state laws governing clinical laboratories or if we are required to expend significant additional resources to comply with these requirements, the success of our business could be threatened.

HHS has classified our NMR LipoProfile test as a high-complexity test under the Clinical Laboratory Improvement Amendments of 1988, or CLIA. Under CLIA, personnel requirements for laboratories conducting high-complexity tests are more stringent than those applicable to laboratories performing less complex tests. If we fail to meet CLIA requirements, HHS or state agencies could require us to cease our NMR LipoProfile testing or other testing subject to CLIA that we may develop in the future. Even if it were possible for us to bring our laboratory back into compliance, we could incur significant expenses and potentially lose revenues in doing so. Moreover, new interpretations of current regulations or future changes in regulations under CLIA may make it difficult or impossible for us to comply with our CLIA classification, which would significantly harm our business.

Many states in which our physician and laboratory clients are located, such as New York, have laws and regulations governing clinical laboratories that are more stringent than federal law and may apply to us even if we are not located, and do not perform our NMR LipoProfile test, in that state. We may also be subject to additional licensing requirements as we expand our sales and operations into new geographic areas, which could impair our ability to pursue our growth strategy.

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Portions of our NMR LipoProfile test are subject to the FDA's exercise of enforcement discretion, and any changes to the FDA's policies with respect to this exercise of enforcement discretion could hurt our business.

Clinical laboratory tests that are developed and validated by a laboratory for its own use are called laboratory-developed tests, or LDTs. The laws and regulations governing the marketing of diagnostic products for use as LDTs are extremely complex and in many instances there are no significant regulatory or judicial interpretations of these laws. For instance, while the FDA maintains that LDTs are subject to the FDA's authority as diagnostic medical devices under the Federal Food, Drug, and Cosmetic Act, or FDCA, the FDA has generally exercised enforcement discretion and not enforced applicable regulations with respect to most tests performed by CLIA-certified laboratories.

We have obtained, FDA clearance for several of the measurements we report as part of the NMR LipoProfile test, specifically LDL-P, HDL-C and triglycerides, in order to support our strategy of decentralizing access to the test, which will be helpful in order to make our test commercially available for other laboratories to perform and to report patient results. The remainder of the results reported as part of our NMR LipoProfile test, including HDL-P, small LDL-P and LDL size, as well as a number of lipoprotein markers associated with insulin resistance and diabetes risk, are LDTs and we include them in our report on this basis.

When the Vantera system is placed in third-party laboratories, if they elect to report these non-FDA cleared test results to their customers, we will generate the test results in our clinical laboratory using either NMR spectrum data digitally sent to us by the third-party laboratory or a portion of the original blood sample that they send to us. This division of LDT data collection and reporting of test results has not been endorsed or approved by the FDA or other regulatory agencies, and there can be no assurance that the FDA will continue to regard these as LDTs. Additionally, there can be no assurance that third-party laboratories will accept this division of LDT data collection and reporting of test results, which could negatively affect the rate of adoption of the Vantera system and the NMR LipoProfile test, and accordingly, our revenues, cash flows and profitability.

The regulation of diagnostic tests classified as LDTs may become more stringent in the future. The FDA continues to have on-going dialogue with industry representatives regarding its current policy of enforcement discretion and has been drafting an oversight framework for LDTs. We cannot predict the extent of the FDA's future regulation and policies with respect to LDTs and there can be no assurance that the FDA will not require us to obtain premarket clearance or approval for some or all of the non-FDA cleared portions of our NMR LipoProfile test report. If the FDA imposes significant changes to the regulation of LDTs, or if Congress were to pass legislation that more actively regulates LDTs and in vitro diagnostic tests, it could restrict our ability to provide the portions of our test that are not cleared by the FDA or potentially delay the launch of future tests.

While we believe that we are currently in material compliance with applicable laws and regulations relating to LDTs, we cannot assure you that the FDA or other regulatory agencies, or third-party laboratories, would agree with our determination, and a determination that we have violated these laws, or a public announcement that we are being investigated for possible violation of these laws, could hurt our business and our reputation. A significant change in any of these laws, or the FDA's interpretation of the scope of its enforcement discretion, could have a material adverse effect on our business or require us to make costly changes to our business model in order to maintain compliance with these laws.

If we are unable to obtain the required clearance of the currently non-cleared portions of our test from the FDA, third-party clinical diagnostic laboratories may be less willing to accept the Vantera system in their facilities.

We have now submitted two 510(k) premarket notifications to the FDA in an attempt to obtain clearance for our HDL-P test. The first was submitted in March 2011 and second submitted December 2012 with both being voluntarily withdrawn due to FDA concerns regarding the clinical studies. In both submissions, LipoScience used retrospective studies sponsored by third parties to support clinical utility, and with both submissions the FDA has expressed concerns with the study designs. These concerns included not following the current definition of myocardial infarction, having a very selective population relative to the studies, and/or inadequate statistical power within the study. At the present time, we cannot provide a timeline for resubmission but are continuing to have on-going discussions with the FDA. There can be no assurance, however, that we will ever obtain clearance of the HDL-P test, or that the intended use or claims that may be cleared by the FDA in our 510(k) premarket notification for the HDL-P test will not be substantially reduced. We have not yet sought FDA clearance for any other LDTs but currently intend to do so for some of these non-cleared portions of our test. If FDA clearance of approval of the HDL-P test or other non-cleared portions of our test is delayed or does not occur, clinical diagnostic laboratories may be less willing to accept or reduce utilization of the Vantera system in their facilities. In the event we were to not receive clearance for HDL-P or these other tests, we would plan to continue to offer them as LDTs.

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In addition, our NMR LipoProfile test report would continue to include a disclaimer that any non-cleared portions of tests had not been cleared by the FDA and that the clinical utility of such results had not been fully established. Furthermore, even if we do obtain FDA clearance for the currently non-cleared portions of our test, new premarket submissions for any modifications or enhancements we later make to such test, or to the Vantera system, that could significantly affect safety or effectiveness, or constitute a major change in the intended use of the test or the Vantera system, would be required. We cannot be sure that clearance of a new 510(k) premarket notification would be granted on a timely basis, or at all, or that FDA clearance processes will not involve costs and delays that could adversely affect our ability to pursue our growth strategy.

The NMR LipoProfile test is, and any other test for which we obtain marketing clearance or approval will be, subject to extensive ongoing regulatory requirements, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our products.

Any test or medical device for which we obtain marketing clearance or approval, including the Vantera system that received FDA clearance in August 2012, along with the manufacturing processes, labeling, advertising and promotional activities for such test or device, will be subject to continual requirements of, and review by, the FDA and comparable regulatory authorities. These requirements include submissions of safety and other post-marketing information and reports, registration and listing requirements, requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, requirements relating to product labeling, advertising and promotion, and recordkeeping. Even if regulatory approval of a test or device is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to other conditions of approval. In addition, approval may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the test or device. Discovery after approval of previously unknown problems with our tests, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in actions such as:

• restrictions on manufacturing processes;

• restrictions on marketing of a test;

• restrictions on distribution;

• warning letters;

• withdrawal of the test from the market;

• refusal to approve pending applications or supplements to approved applications that we submit;

• recall of tests;

• fines, restitution or disgorgement of profits or revenue;

• suspension or withdrawal of regulatory approvals;

• refusal to permit the import or export of our products;

• product seizure;

• injunctions; or

• imposition of civil or criminal penalties.

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Our business is subject to other complex and sometimes unpredictable government regulations. If we or any of our clinical diagnostic laboratory customers fail to comply with these regulations, we could incur significant fines and penalties.

As a provider of clinical diagnostic testing products and services, we are subject to extensive and frequently changing federal, state and local laws and regulations governing various aspects of our business. In particular, the clinical laboratory industry is subject to significant governmental certification and licensing regulations, as well as federal and state laws regarding:

• test ordering and billing practices;

• marketing, sales and pricing practices;

• health information privacy and security, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and comparable state laws;

• insurance;

• anti-markup legislation; and

• consumer protection.

We are also required to comply with FDA regulation of our manufacturing practices and adverse event reporting activities, and regulation by the FDA of our labeling and promotion activities. In addition, advertising of our tests is subject to regulation by the Federal Trade Commission, or FTC, under the Federal Trade Commission Act, or FTC Act. Violation of any FDA requirement could result in enforcement actions, such as seizures, injunctions, civil penalties and criminal prosecutions, and violation of the FTC Act could result in injunctions and other associated remedies, all of which could have a material adverse effect on our business. Most states also have similar postmarket regulatory and enforcement authority for devices. Additionally, most foreign countries have authorities comparable to the FDA and processes for obtaining marketing approvals. Obtaining and maintaining these approvals, and complying with all laws and regulations, may subject us to similar risks and delays as those we could experience under FDA and FTC regulation. We incur various costs in complying and overseeing compliance with these laws and regulations.

We are unable to predict what additional federal or state legislation or regulatory initiatives may be enacted in the future regarding our business or the healthcare industry in general, or what effect such legislation or regulations may have on us. Federal or state governments may impose additional restrictions or adopt interpretations of existing laws that could have a material adverse effect on us. If we fail to comply with any existing or future regulations, restrictions or interpretations, we could incur significant fines and penalties.

If we or any of our clinical diagnostic laboratory customers are subject to an enforcement action involving false claims, kickbacks, physician self-referral or other federal or state fraud and abuse laws, we could incur significant civil and criminal sanctions and loss of reimbursement, which would hurt our business.

The government has made enforcement of the false claims, anti-kickback, physician self-referral and various other fraud and abuse laws a priority. In many instances, private whistleblowers also are authorized to seek enforcement of these laws even if government authorities choose not to do so. Several clinical diagnostic laboratories and members of their management have been the subject of this enforcement scrutiny, which has resulted in significant civil and criminal settlement payments. In most of these cases, private whistleblowers brought the allegations to the attention of federal enforcement agencies. The risk of our being found in violation of these laws and regulations is increased by the fact that some of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations. These laws include:

• the federal Anti-Kickback Statute, which regulates our marketing practices, educational programs, pricing policies, and relationships with health care providers or other entities, by prohibiting, among other things, soliciting, receiving, offering or paying remuneration, directly or indirectly, to induce, or in return for, the purchase or recommendation of an item or service reimbursable under a federal health care program, such as the Medicare and Medicaid programs;

• federal civil and criminal false claims laws and civil monetary penalty laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent;

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• federal physician self-referral laws, such as the Stark law, which prohibit a physician from making a referral to a provider of certain health services with which the physician or the physician's family member has a financial interest, and prohibit submission of a claim for reimbursement pursuant to a prohibited referral; and

• state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items or services reimbursed by any third-party payer, including commercial insurers, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

If we or our operations are found to be in violation of any of these laws and regulations, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from participation in U.S. federal or state health care programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. We monitor our own compliance with federal and state fraud and abuse laws on an ongoing basis. We do not, however, monitor the compliance of our clinical diagnostic laboratory customers with federal and state fraud and abuse laws. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management's attention from the operation of our business and hurt our reputation. If we were excluded from participation in U.S. federal health care programs, we would not be able to receive, or to sell our tests to other parties who receive, reimbursement from Medicare, Medicaid and other federal programs.

Further, the PPACA, among other things, amends the intent requirements of the federal Anti-Kickback Statute and the criminal statute governing healthcare fraud. A person or entity can now be found guilty of violating the Anti-Kickback Statute and the federal criminal healthcare fraud statute without actual knowledge of the statute or specific intent to violate it. In addition, the PPACA provides that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil money penalties statute. Possible sanctions for violation of laws include monetary fines, civil and criminal penalties, exclusion from Medicare and Medicaid programs and forfeiture of amounts collected in violation of such prohibitions. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, results of operations and financial condition.

Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under the federal Anti-Kickback Statue, it is possible that some of our business activities, including our relationship with physicians, hospitals, and other healthcare professionals, could be subject to challenge under one or more of such laws.

On February 8, 2013, CMS released its final rule implementing certain provisions of the PPACA that impose new reporting requirements on device manufacturers for payments by them and in some cases their distributors to physicians and teaching hospitals, as well as ownership and investment interests held by physicians (commonly known as the Physician Payment Sunshine Act). Failure to submit required information may result in civil monetary penalties of up to an aggregate of $150,000 per year (or up to an aggregate of $1 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported in an annual submission. Device manufacturers must begin collecting data on August 1, 2013 and submit reports to CMS by March 31, 2014 (and the 90th day of each subsequent calendar year). In addition, CMS estimates that approximately 1,000 device and medical supply companies will be required to comply with the disclosure requirements and that the average cost per entity will be approximately $170,000 in the first year. Due to the complexity in complying with the newly enacted Physician Payment Sunshine Act, we cannot assure you that we will successfully report all transfers of value by us, and any failure to comply could result in significant fines and penalties.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians. Some states, such as California, Massachusetts and Nevada, mandate implementation of commercial compliance programs, while other states, such as Massachusetts and Vermont, impose restrictions on device manufacturer marketing practices and tracking and reporting of gifts, compensation and other remuneration to physicians. The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance and/or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may run afoul of one or more of the requirements.

Our compliance program has not eliminated all risks related to these laws. Any finding of our noncompliance with applicable laws and regulations could subject us to a variety of penalties and other sanctions, the imposition of any of which could have a material adverse effect on us and our business. In addition, whether or not we are found to be in non-compliance with any applicable laws, we could incur significant expense in responding to or resolving any such inquiries, investigations or actions and we could be required to modify our business practices in a way that adversely affects our business.

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As previously disclosed, in 2011 we became aware of a practice engaged in by our sales force (giving gift cards in small denominations to staff in doctors' offices or to employees of our laboratory partners) that potentially implicated the fraud and abuse laws. An outside investigation concluded that there was no evidence of willful wrongdoing by any of our employees, but did conclude that our internal policies and communications provided inconsistent guidance on the use of gift cards. We subsequently revised our internal policies to eliminate any inconsistencies, and we have been taking and are continuing to take additional steps to strengthen our compliance activities. Among other things, we have adopted a new policy on interactions with healthcare professionals, which is based on the Code of Ethics on Interactions with Health Care Professionals promulgated by the Advanced Medical Technology Association, or AdvaMed, a leading medical technology association.

We voluntarily disclosed the gift card issue to relevant regulatory authorities including the U.S. Attorney's Office in Raleigh, North Carolina and the Office of Inspector General of HHS. On July 5, 2012, we entered into a settlement agreement with the OIG to settle this matter for a payment of approximately $150,000. We neither admitted nor denied any wrongdoing in connection with this settlement.

Risks Related to Ownership of Our Common Stock

An active trading market for our common stock may not continue to develop or be sustained.

Prior to our IPO in January 2013, there was no public market for our common stock, and even since our initial listing on The NASDAQ Global Market in January 2013, the trading market in our common stock has been extremely limited and substantially less liquid than the average trading market for companies with stock listed on The NASDAQ Global Market. The listing of our common stock on The NASDAQ Global Market does not assure that a meaningful, consistent and liquid trading market currently exists. We cannot predict whether a more active market for our common stock will develop or be sustained in the future.

Our executive officers, directors and 5% stockholders and their respective affiliates in the aggregate own a significant percentage of our outstanding shares of common stock, which may adversely affect the liquidity of the trading market for our common stock. If these stockholders continue to hold their shares of common stock, there will be limited trading volume in our common stock, which may make it more difficult for investors to sell their shares and may increase the volatility of our stock price. The absence of an active trading market could adversely affect our stockholders' ability to sell our common stock at current market prices in short time periods, or possibly at all. Additionally, market visibility for our common stock may be limited and such lack of visibility may have a depressive effect on the market price for our common stock.

The trading price of our common stock has been and is likely to continue to be volatile, and purchasers of our common stock could incur substantial losses.

Our stock price has been and is likely to continue to be volatile. The stock market in general and the market for diagnostic companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may not be able to sell their common stock at or above the price paid for their shares. The market price for our common stock may be influenced by many factors, including:

• sales of substantial amounts of our stock by insiders and large stockholders, or the expectation that such sales might occur;

• regulatory or legal developments in the United States and foreign countries;

• actual or anticipated variations in our financial results or those of companies that are perceived to be similar to us;

• changes in the structure of healthcare payment systems;

• announcements by us of significant acquisitions, licenses, strategic partnerships, joint ventures or capital commitments;

• market conditions in the diagnostic sector and issuance of securities analysts' reports or recommendations;

• general economic, industry and market conditions;

• additions or departures of key personnel;

• intellectual property, product liability or other litigation against us;

• expiration or termination of our potential relationships with customers and strategic partners; and

• the other factors described in this “Risk Factors” section.

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In addition, in the past, stockholders have initiated class action lawsuits against clinical diagnostics companies following periods of volatility in the market prices of these companies' stock. Such litigation, if instituted against us, could cause us to incur substantial costs and divert management's attention and resources.

If securities or industry analysts do not publish research or publish unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. As a newly public company, we have only limited research coverage by equity research analysts. Equity research analysts may elect not to initiate or to continue to provide research coverage of our common stock, and such lack of research coverage may adversely affect the market price of our common stock. Even if we do have equity research analyst coverage, we will not have any control over the analysts or the content and opinions included in their reports. The price of our stock could decline if one or more equity research analysts downgrade our stock or issue other unfavorable commentary or research. If one or more equity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.

The issuance of additional stock in connection with financings, acquisitions, investments, our stock incentive plans or otherwise may dilute our current stockholders.

Our amended and restated certificate of incorporation authorizes us to issue up to 75,000,000 shares of common stock and up to 5,000,000 shares of preferred stock with such rights and preferences as may be determined by our board of directors. Subject to compliance with applicable rules and regulations, we may issue our shares of common stock or securities convertible into our common stock from time to time in connection with a financing, acquisition, investment, our stock incentive plans or otherwise. Any such issuance could result in substantial dilution to our existing stockholders and cause the trading price of our common stock to decline.

Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our management and hinder efforts to acquire a controlling interest in us, and the market price of our common stock may be lower as a result.

There are provisions in our amended and restated certificate of incorporation and amended and restated bylaws that may make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change in control was considered favorable by you and other stockholders. For example, our board of directors has the authority to issue up to 5,000,000 shares of preferred stock. The board of directors can fix the price, rights, preferences, privileges, and restrictions of the preferred stock without any further vote or action by our stockholders. The issuance of shares of preferred stock may delay or prevent a change in control transaction. As a result, the market price of our common stock and the voting and other rights of our stockholders may be adversely affected. An issuance of shares of preferred stock may result in the loss of voting control to other stockholders.

Our charter documents also contain other provisions that could have an anti-takeover effect, including:

• only one of our three classes of directors is elected each year;

• stockholders are not entitled to remove directors other than by a 66 2/3% vote and only for cause;

• stockholders are not permitted to take actions by written consent;

• stockholders cannot call a special meeting of stockholders; and

• stockholders must give advance notice to nominate directors or submit proposals for consideration at stockholder meetings.

In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that certain investors are willing to pay for our stock.

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Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new investors from influencing significant corporate decisions.

Our executive officers, directors and current beneficial owners of 5% or more of our common stock own a significant percentage of our outstanding common stock. These persons, acting together, are able to significantly influence all matters requiring stockholder approval, including the election and removal of directors and any merger or other significant corporate transactions. The interests of this group of stockholders may not coincide with the interests of other stockholders.

We do not anticipate paying any cash dividends on our common stock in the foreseeable future and our stock may not appreciate in value.

We have not declared or paid cash dividends on our common stock to date. We currently intend to retain our future earnings, if any, to fund the development and growth of our business. In addition, the terms of any existing or future debt agreements may preclude us from paying dividends. There is no guarantee that shares of our common stock will appreciate in value or that the price at which our stockholders have purchased their shares will be able to be maintained.

We are an “emerging growth company,” and if we decide to comply only with reduced disclosure requirements applicable to emerging growth companies, our common stock could be less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, enacted in April 2012, and, for as long as we continue to be an “emerging growth company,” we may choose to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” through 2018, although a variety of circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700 million as of any June 30 before that time, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. If some investors find our common stock less attractive as a result of any choices to reduce future disclosure, there may be a less active trading market for our common stock and our stock price may be more volatile.

Under the JOBS Act, emerging growth companies that become public can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards following the completion of our IPO and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business particularly after we are no longer an “emerging growth company.”

As a public company, we are required to comply with various regulatory and reporting requirements, including those required by the SEC. Complying with these reporting and other regulatory requirements is time-consuming, expensive and may divert management's attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. As an “emerging growth company” under the JOBS Act, we may take advantage of certain temporary exemptions from some of the reporting requirements including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort toward ensuring compliance with them. We will remain an “emerging growth company” for up to five years, although we may cease to be an emerging growth company earlier under certain circumstances. We cannot predict or estimate the amount of additional costs we may incur as a result of our status as a public company and our loss of the "emerging growth company" exemption or the timing of such costs.

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Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our corporate headquarters and operations, including our laboratory facility, are located in Raleigh, North Carolina, where we currently lease approximately 83,000 square feet of office and lab space. The lease on this facility expires in September 2022. Our current rent under this lease is approximately $1.2 million annually, subject to annual increases.

Item 3. Legal Proceedings

We are not currently a party to any pending legal proceedings that we believe will have a material adverse effect on our business or financial condition. We may, however, be subject to various claims and legal actions arising in the ordinary course of business from time to time.

Item 4. Mine Safety Disclosures

Not applicable.

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PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information for Common Stock

Our common stock has been publicly traded on the NASDAQ Global Market under the symbol “LPDX” since January 25, 2013. Prior to that time, there was no public market for our common stock.

The following table sets forth the range of high and low sales prices per share on the NASDAQ Stock Market for our common stock for the periods indicated since January 25, 2013.

Fiscal Year Ended December 31, 2013	High		Low
First Quarter (from January 25, 2013)	$	11.84	$	9.07
Second Quarter	10.50		5.55
Third Quarter	7.37		4.71
Fourth Quarter	5.19		3.50

On March 25, 2014, the closing price for our common stock as reported on the NASDAQ Global Market was $3.91 per share.

Dividend Policy

We have never declared or paid any dividends on our common stock. We anticipate that we will retain all of our future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Additionally, our ability to pay dividends on our common stock is limited by restrictions under the terms of the agreements governing our credit facility.

Stockholders

As of March 25, 2014, there were 197 registered stockholders of record for our common stock. The actual number of stockholders is greater than this number of record holders and includes stockholders who are beneficial owners but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

Performance Graph

The following graph compares cumulative total shareholder return on our common stock from January 25, 2013 (the date our common stock commenced trading on the NASDAQ Global Market) through December 31, 2013, with the cumulative total return of the NASDAQ Composite Index and the NASDAQ Global Market Index. We have not paid any cash dividends on our common stock, and we do not include cash dividends in the representation of our performance. The graph assumes that $100 was invested at the market close on January 25, 2013 in our common stock (LPDX), the NASDAQ Composite Index and the NASDAQ Global Market Index. Data for the NASDAQ Composite Index and the NASDAQ Global Market Index assume reinvestment of dividends. Measurement points are the last trading day of each respective month.

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The stock price performance of the following graph is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock.

Use of Proceeds from Initial Public Offering of Common Stock

On January 24, 2013, our Registration Statement on Form S-1, as amended (Reg. No. 333-175102) was declared effective in connection with the IPO of our common stock, pursuant to which we sold 5,750,000 shares at a price to the public of $9.00 per share, including the full exercise of the underwriters' option to purchase additional shares. The offering closed on January 30, 2013, as a result of which we received net proceeds of approximately $44.4 million after underwriting discounts of approximately $3.4 million and offering-related expenses paid by us of approximately $4.0 million. We did not receive any proceeds from the shares sold by the selling stockholders. The joint managing underwriters of the offering were Barclays Capital Inc., UBS Securities LLC and Piper Jaffray & Co. No payments were made by us to directors, officers or persons owning ten percent or more of our common stock or to their associates, or to our affiliates, other than (i) payments of an aggregate of $3.9 million in respect of accrued dividends on shares of convertible preferred stock held by investors affiliated with our directors, which shares were converted into shares of common stock upon the closing of the IPO, and (ii) payments in the ordinary course of business to officers for salaries and to non-employee directors as compensation for board or board committee service.

There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act of 1933, as amended, on January 25, 2013.

Recent Sales of Unregistered Securities

None.

Purchases of Equity Securities by the Issuer and Affiliated Parties

None.

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Item 6. Selected Financial Data

The following selected statement of comprehensive (loss) income data and selected balance sheet data as of and for the years ended December 31, 2013, 2012, 2011, 2010 and 2009 are derived from our audited financial statements, which have been audited by Ernst & Young LLP, independent registered public accounting firm. Our historical results are not necessarily indicative of the results to be expected in the future. The selected financial data should be read together with “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” and in conjunction with the financial statements, related notes, and other financial information included elsewhere in this Annual Report.

	Year Ended December 31,
	2013			2012			2011			2010			2009
	(In thousands, except share and per share data)
Statement of Comprehensive (Loss) Income Data:
Revenues	$	52,383		$	54,798		$	45,807		$	39,368		$	34,713
Cost of revenues	10,742			10,060			8,529			8,139			7,792
Gross profit	41,641			44,738			37,278			31,229			26,921
Operating expenses:
Research and development	12,742			10,004			7,808			7,276			6,156
Sales and marketing	27,724			22,402			21,305			15,246			12,990
General and administrative	11,855			10,386			8,550			7,331			7,020
Gain on extinguishment of other long-term liabilities	—			—			—			(2,700		)	—
Total operating expenses	52,321			42,792			37,663			27,153			26,166
(Loss) income from operations	(10,680		)	1,946			(385		)	4,076			755
Total other (expense) income	(1,855		)	(696		)	(163		)	220			(495		)
(Loss) income before taxes	(12,535		)	1,250			(548		)	4,296			260
Income tax (benefit) expense	—			—			—			(16		)	2
Net (loss) income	(12,535		)	1,250			(548		)	4,312			258
Accrual of dividends on redeemable convertible preferred stock	—			—			(613		)	(1,040		)	(1,040		)
Undistributed earnings allocated to participating preferred stockholders	—			(1,004		)	—			(2,655		)	—
Net (loss) income attributable to common stockholders – basic	(12,535		)	246			(1,161		)	617			(782		)
Undistributed earnings re-allocated to common stockholders	—			113			—			303			—
Net (loss) income attributable to common stockholders – diluted	$	(12,535	)	$	359		$	(1,161	)	$	920		$	(782	)
Net (loss) income per share attributable to common stockholders – basic	$	(0.85	)	$	0.14		$	(0.69	)	$	0.38		$	(0.49	)
Net (loss) income per share attributable to common stockholders – diluted	$	(0.85	)	$	0.13		$	(0.69	)	$	0.34		$	(0.49	)
Weighted average shares used to compute basic net (loss) income per share attributable to common stockholders	14,819,787			1,715,408			1,674,018			1,611,843			1,596,920
Weighted average shares used to compute diluted net (loss) income per share attributable to common stockholders	14,819,787			2,814,323			1,674,018			2,713,770			1,596,920
Comprehensive (loss) income	$	(12,535	)	$	1,250		$	(548	)	$	4,312		$	258

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	As of December 31,
	2013			2012			2011			2010			2009
	(in thousands)
Balance Sheet Data:
Cash and cash equivalents	$	49,574		$	24,768		$	12,483		$	11,058		$	12,045
Accounts receivable, net	5,821			5,149			5,626			4,194			3,363
Total assets	71,998			47,679			28,117			20,141			19,509
Revolving line of credit	—			5,000			—			—			—
Long-term debt	15,816			15,708			6,000			1,200			3,000
Preferred stock warrant liability	—			412			229			597			1,104
Total liabilities	24,240			29,934			12,025			4,929			10,296
Redeemable convertible preferred stock and convertible preferred stock	—			57,301			57,163			55,845			53,599
Accumulated deficit	(60,528		)	(47,993		)	(49,243		)	(48,695		)	(53,007		)
Total stockholders’ equity (deficit)	47,758			(39,556		)	(41,071		)	(40,632		)	(44,385		)

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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the financial statements and the related notes to those statements included later in this Annual Report. In addition to historical financial information, the following discussion contains forward‑looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward‑looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report, particularly in “Item 1A. Risk Factors.”

Overview

We are a clinical diagnostic company pioneering a new field of personalized diagnostics based on NMR technology. Our first diagnostic test, the NMR LipoProfile test, directly measures the number of LDL-P in a blood sample and provides physicians and their patients with actionable information to personalize management of risk for heart disease. Our automated clinical analyzer, the Vantera system, was cleared by the FDA in August 2012 and became commercially available in December 2012. The Vantera system requires no previous knowledge of NMR technology to operate and has been designed to significantly simplify complex technology through ease of use and walk-away automation. We started placing the Vantera system on-site with certain selected clinical diagnostic laboratories as well as leading medical centers and hospital outreach laboratories during the second quarter of 2013, which we believe will facilitate their ability to offer our NMR LipoProfile test and other diagnostic tests that we may develop. We are striving toward our NMR LipoProfile test becoming the preferred choice by physicians for the management of patients with cardiovascular disease. We believe broadening payor coverage of our test, expanding relationships with clinical diagnostic laboratories and our geographic presence, increasing market awareness including pursuing inclusion in treatment guidelines, expanding our menu of personalized diagnostic tests to address a broad range of cardiovascular, metabolic and other diseases and decentralizing our technology where appropriate are key steps toward achieving this goal.

To date, the NMR LipoProfile test has been ordered over 11 million times, including nearly 2 million times during 2012 and approximately 2.1 million times during 2013. The number of NMR LipoProfile tests ordered has continually increased since 2008, with 2013 showing an increase of approximately 6%. The NMR LipoProfile test is reimbursed by a number of governmental and private payors, which we believe collectively represent approximately 150 million covered lives.

We currently perform the vast majority of the NMR LipoProfile tests at our certified and accredited laboratory facilities in Raleigh, North Carolina. We intend to accelerate clinician and clinical diagnostic laboratory adoption of the NMR LipoProfile test and future clinical diagnostic tests by increasing access to our technology platform through strategic placement of the Vantera system in third party clinical diagnostic laboratories. To date, we have placed the Vantera system in a leading medical center as well as certain selected clinical diagnostic laboratories. We are also in discussions with additional laboratory customers that have indicated a similar interest in the placement of the Vantera system in their laboratories. In addition, we have placed the Vantera system in academic and medical research centers that are collaborating with us to further validate the efficacy of our NMR LipoProfile test, and to develop additional high-value diagnostic assays based on NMR technology. We retain full ownership of any Vantera system placed in third-party clinical diagnostic laboratories and remain responsible for support and maintenance obligations. In general, we expect that the number of Vantera system that will be placed in our clinical diagnostic laboratory customers' facilities will depend on their demonstrated annual production volume for the NMR LipoProfile test and their ability to increase demand for our tests.

We believe that the inherent analytical advantages of NMR technology will also allow us to expand our diagnostic test menu. We are currently developing NMR-based diagnostic tests for use in the prediction of diabetes, including the assessment of insulin resistance, and we are investigating opportunities to develop new diagnostic tests for other diseases.

We have incurred significant losses since our inception. As of December 31, 2013, our accumulated deficit was $60.5 million. We expect to incur significant operating losses for the next few years.

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Financial Operations Overview

Revenues

Substantially all of our revenues are currently derived from sales of our NMR LipoProfile test to clinical diagnostic laboratories, clinicians and other healthcare professionals for use in patient care. For the years ended December 31, 2013, 2012 and 2011, sales of the NMR LipoProfile test represented approximately 96%, 94% and 93%, respectively, of our total revenues. The remainder of our revenues is derived from contract research arrangements as well as sales of standard analytical chemistry tests, which we refer to as ancillary tests, requested by clinicians in conjunction with our NMR LipoProfile test. Ancillary tests are FDA-approved blood tests that most clinical laboratories can process but that may be ordered from us at the same time as the NMR LipoProfile test for convenience. These tests are not run on our NMR technology platform, but instead are run on a traditional chemistry analyzer.

The following table presents our revenues by service offering and source:

	Year Ended December 31,
		2013		2012		2011
	(in thousands)
Revenues:
NMR LipoProfile tests		$	50,362	$	51,759	$	42,392
Ancillary tests		869		1,712		2,178
Research contracts		1,152		1,327		1,237
Total revenues		$	52,383	$	54,798	$	45,807

Our revenues are driven by both test volume and the average selling price of our NMR LipoProfile test. For the year ended December 31, 2013, we generated 90% of our total revenues from clinical diagnostic laboratory customers. We expect to continue to increase the proportion of NMR LipoProfile tests performed through clinical diagnostic laboratories, both under Vantera system placement arrangements and arrangements under which we perform the test for them at our own facility, as compared to our direct distribution channel in which clinicians order the test directly from us. The average selling price of our tests sold to these laboratories is less than that for tests we sell directly to clinicians, and therefore we expect that our overall average selling price will continue to decline in the future. For direct sales, the price we ultimately receive depends upon the level of reimbursement we receive from Medicare or commercial insurance carriers. Clinical diagnostic laboratories purchase our test at prices that we negotiate with them, which will continue to be the case for NMR LipoProfile tests performed using the Vantera system, whether the analyzer is located on-site at the customer's laboratory or at our own facility. Our clinical diagnostic laboratory customers are responsible for obtaining reimbursement from third-party payors or directly from patients.

We expect declines in our average selling price to continue as we place additional Vantera system in third-party laboratories, as the price we receive for a test performed on-site at third-party laboratories using the Vantera system will generally be less than the price for the same test performed at our own facility. Our business model contemplates that this decline in average selling price due to changes in the channel mix will be offset by increases in test volumes, if demand for our test increases through growth with our clinical diagnostic laboratory customers.

Over the next 12 to 24 months, we expect that additional Vantera system placements may be with our existing clinical diagnostic laboratory customers. As a result, we may see some decrease in the proportion of NMR LipoProfile tests we performed at our existing laboratory facility for these laboratory customers as compared to tests performed at our customers' facilities using the Vantera system. We expect that any reduced volume in the number of tests performed at our facility for customers with a Vantera clinical analyzer on-site may be partially offset by growth in NMR LipoProfile tests orders from new clinical diagnostic laboratory customers who may not initially meet our test volume criteria for the Vantera system placement or who may choose to continue to send the test to our existing laboratory facility. In addition, we started deploying the Vantera system in our facility and replacing our existing NMR clinical analyzers to perform NMR LipoProfile tests.

Our revenues from ancillary tests, while a diminishing portion of our business, are similarly dependent upon our rates of reimbursement from various payor sources. For example, Medicare reimbursement rates are adjusted annually. Changes in Medicare reimbursement rates are dependent on a number of factors that we cannot predict. Reductions in reimbursement rates for these ancillary tests would reduce our overall revenues from these tests.

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Cost of Revenues and Operating Expenses

We allocate certain overhead expenses, such as costs associated with information technology, rent, utilities, insurance and depreciation of office equipment, to cost of revenues and operating expense categories based on headcount and facility usage. As a result, an overhead expense allocation is reflected in cost of revenues and each operating expense category.

Cost of Revenues and Gross Margin

Cost of revenues consists of direct labor expenses, including employee benefits and stock-based compensation expenses, cost of laboratory supplies, freight costs, depreciation of laboratory equipment, leasehold improvements, royalties paid under license agreements and certain allocated overhead expenses. Since the Vantera system became commercially available in December 2012, our placement costs and associated service and maintenance support have been included in cost of revenues. We expect these expenses to increase in absolute dollars as we support our customers' use of the Vantera system, although we expect these increased expenses to be offset by increased revenues from additional test volume. Our cost of revenues represented approximately 21%, 18% and 19% during the years ended December 31, 2013, 2012 and 2011, respectively, of our total revenues.

Our gross profit represents total revenues less the cost of revenues, and gross margin is gross profit expressed as a percentage of total revenues. Our gross margins were approximately 79%, 82% and 81% for the years ended December 31, 2013, 2012 and 2011, respectively.

Research and Development Expenses

Our research and development expenses include those costs associated with performing research and development activities, such as personnel-related expenses, including stock-based compensation, fees for contractual and consulting services, travel costs, laboratory supplies, fees associated with collaboration agreements and allocated overhead expenses. We expense all research and development costs as incurred.

As a percentage of total revenues, our research and development expenses represented approximately 24%, 18% and 17% during the years ended December 31, 2013, 2012 and 2011, respectively. We do not expect our overall research and development expenses to increase in absolute dollars in the near term.

Sales and Marketing Expenses

Our sales and marketing expenses include costs associated with our sales organization, including our direct sales force and sales management, and our marketing, managed care and business development personnel. These expenses consist principally of salaries, commissions, bonuses and employee benefits for these personnel, including stock-based compensation, as well as travel costs related to sales and marketing activities, marketing and medical education activities and allocated overhead expenses. We expense all sales and marketing costs as incurred.

As a percentage of total revenues, our sales and marketing expenses represented approximately 53%, 41% and 47% during the years ended December 31, 2013, 2012 and 2011, respectively. We are evaluating our projected total sales and marketing expenditures in light of market conditions and recent developments with respect to healthcare reform. We do not, however, expect our sales and marketing costs to increase in absolute dollars in the near term.

General and Administrative Expenses

Our general and administrative expenses include costs for our executive, accounting and finance, legal, and human resources functions. These expenses consist principally of salaries, bonuses and employee benefits for the personnel included in these functions, including stock-based compensation and professional services fees, such as consulting, audit, tax and legal fees, medical device excise tax, general corporate costs and allocated overhead expenses, and bad debt expense. We expense all general and administrative expenses as incurred.

As a percentage of total revenues, our general and administrative expenses represented approximately 23%, 19% and 19% during the years ended December 31, 2013, 2012 and 2011, respectively. We expect that our general and administrative expenses will increase in absolute dollars in the near term, primarily due to the impact of the medical device excise tax, described below, and the costs of operating as a public company, such as additional legal, accounting and corporate governance expenses, including expenses related to compliance with the Sarbanes-Oxley Act of 2002 and investor relations expenses.

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Medical Device Excise Tax

In March 2010, President Obama signed into law a legislative overhaul of the U.S. healthcare system, known as the Patient Protection and Affordable Care Act of 2010, as amended by the Healthcare and Education Affordability Reconciliation Act of 2010, or the PPACA. The PPACA includes provisions that, among other things, require the medical device industry to subsidize healthcare reform in the form of a 2.3% excise tax on U.S. sales of most medical devices beginning in 2013. This tax is applicable to the sales of our NMR LipoProfile test and could adversely affect our results of operations, cash flows and financial condition. Our sales of the NMR LipoProfile test resulted in excise taxes of $1.0 million for the year ended December 31, 2013, which we have recorded in the statements of comprehensive (loss) income as general and administrative expense.

Other Expense

Interest income consists of interest earned on our cash and cash equivalents. During the years ended December 31, 2013, 2012 and 2011, this income has not been material.

Interest expense consists primarily of interest expense on our loan balances and the amortization of debt discounts and debt issuance costs. We amortize both debt discounts and debt issuance costs over the life of the loan and report them as interest expense in our statements of comprehensive (loss) income.

Prior to our IPO, other (expense) income primarily consisted of costs incurred as a result of changes in the fair value of our preferred stock warrant liability. The fair value of preferred stock warrants was re-measured at the end of each reporting period, and changes in fair value were also recognized in other (expense) income. Upon completion of the IPO in January 2013, the preferred stock warrants automatically converted into warrants to purchase common stock and no further changes in fair value were recognized in other (expense) income.

Results of Operations

Comparison of Years Ended December 31, 2013 and 2012

The following table sets forth, for the periods indicated, the amounts of certain components of our statements of comprehensive (loss) income and the percentage of total revenues represented by these items, showing period-to-period changes.

	Year Ended December 31,										Period-to-period change
	2013			% of Revenues		2012			% of Revenues		Amount			Percentage
	(in thousands, except for percentages)
Revenues	$	52,383		100.0	%	$	54,798		100.0	%	$	(2,415	)	(4.4	)%
Cost of revenues	10,742			20.5		10,060			18.4		682			6.8
Gross profit	41,641			79.5		44,738			81.6		(3,097		)	(6.9	)
Operating expenses:
Research and development	12,742			24.3		10,004			18.3		2,738			27.4
Sales and marketing	27,724			52.9		22,402			40.9		5,322			23.8
General and administrative	11,855			22.6		10,386			19.0		1,469			14.1
Total operating expenses	52,321			99.9		42,792			78.1		9,529			22.3
(Loss) income from operations	(10,680		)	(20.4	)	1,946			3.6		(12,626		)	*
Total other expense	(1,855		)	(3.5	)	(696		)	(1.3	)	(1,159		)	*
(Loss) income before taxes	(12,535		)	(23.9	)	1,250			2.3		(13,785		)	*
Net (loss) income	$	(12,535	)	(23.9	)%	$	1,250		2.3	%	$	(13,785	)	*

* Percentage not meaningful

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Revenues

Total revenues decreased by 4.4% to $52.4 million for the year ended December 31, 2013 from $54.8 million for the year ended December 31, 2012. Revenues from sales of our NMR LipoProfile test decreased to $50.4 million for the year ended December 31, 2013 from $51.8 million for the year ended December 31, 2012, resulting from an overall decline in average selling price, which was partially offset by growth in the number of NMR LipoProfile tests sold, particularly to our clinical diagnostic laboratory customers.

The overall number of NMR LipoProfile tests increased by 6.1% to approximately 2,068,000 tests for the year ended December 31, 2013 from approximately 1,949,000 tests for the year ended December 31, 2012. This volume growth reflected the impact of expanded relationships with clinical laboratory customers and greater geographic coverage of our sales force. The overall average selling price of NMR LipoProfile tests decreased8.3% for the year ended December 31, 2013 as compared to the year ended December 31, 2012. This decrease in average selling price was primarily the result of reductions in price for some clinical laboratory customers based on their achievement of higher test volumes set forth in their agreements with us, a reduction in the Medicare reimbursement rate for the NMR LipoProfile test and the continuing shift in channel mix toward high-volume clinical laboratory customers. The percentage of our total NMR LipoProfile tests sold through direct distribution channels decreased from 4.7% for the year ended December 31, 2012 to 2.8% for the year ended December 31, 2013. This continued shift reflects our current strategy of accelerating the adoption of our NMR LipoProfile test through clinical diagnostic laboratories, which we expect will result in fewer tests ordered through direct channels and an overall decrease in average selling price.

Revenues from sales of ancillary tests decreased to $0.9 million for the year ended December 31, 2013 from $1.7 million for the year ended December 31, 2012. The decrease in revenues from these ancillary tests was primarily driven by the shift in testing mix and an overall reduction of reimbursement rates from Medicare. Revenues from our clinical research clients were $1.2 million and $1.3 million for the years ended December 31, 2013 and 2012, respectively.

Cost of Revenues and Gross Margin

Cost of revenues increased by 6.8%, to $10.7 million for the year ended December 31, 2013 from $10.1 million for the year ended December 31, 2012. This increase was partially the result of $0.7 million in higher personnel-related costs both in our laboratory operations and associated with the launch of the Vantera system during the year ended December 31, 2013. We experienced higher costs associated with site preparation, instrument installation and customer service support as we prepared for the launch of the Vantera system at third-party customer sites. In addition, we experienced $0.5 million higher allocated expenses due to increases in information technology and facility costs. These increases were partially offset by $0.5 million lower materials and freight costs due to lower negotiated vendor pricing and fewer ancillary tests performed. Gross profit as a percentage of total revenues, or gross margin, decreased to 79.5% for the year ended December 31, 2013 from 81.6% for the year ended December 31, 2012. The decrease we experienced in gross margin resulted primarily from the costs incurred in 2013 associated with building the capabilities to support the placement of the Vantera system at third-party customer sites.

Research and Development Expenses

Research and development expenses increased by 27.4% to $12.7 million for the year ended December 31, 2013 from $10.0 million for the year ended December 31, 2012. This increase was partially the result of $1.2 million in higher salaries and benefits due to increased headcount within our research and development function, including recruiting fees and stock-based compensation expense for equity incentive grants to certain research and development employees. We also experienced a $0.7 million increase in consulting fees for conducting external research and development studies in support of our publication efforts and other engineering projects and $0.8 million in higher allocated expenses due to increases in information technology and facility costs. In addition, we recognized a $0.4 million loss in connection with the sale of a Vantera system to a medical research center for research and development purposes. These increases were partially offset by $0.2 million in lower depreciation expense in 2013. As a percentage of total revenues, research and development expenses increased to 24.3% for the year ended December 31, 2013, as compared to 18.3% for the year ended December 31, 2012.

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Sales and Marketing Expenses

Sales and marketing expenses increased by 23.8%, to $27.7 million for the year ended December 31, 2013 from $22.4 million for the year ended December 31, 2012. This increase was primarily due to an increase of $4.6 million in compensation and benefit costs and travel and entertainment-related expenses as a result of the growth and expansion of our sales organization. We also experienced $0.7 million in higher marketing expenses associated with various marketing programs, public relations, medical education, and campaign efforts. As a percentage of total revenues, sales and marketing expenses increased to 52.9% for the year ended December 31, 2013 from 40.9% for the year ended December 31, 2012.

General and Administrative Expenses

General and administrative expenses increased by 14.1%, to $11.9 million for the year ended December 31, 2013 from $10.4 million for the year ended December 31, 2012. The increase was partially the result of $1.4 million in higher professional fees, largely from additional accounting, tax, legal and consulting fees associated with the expansion of our business operations and compliance obligations in connection with becoming a publicly traded company as well as recruitment fees associated with searching for a permanent CEO. In addition to professional fees, we also incurred $1.0 million in tax liability as a result of the new U.S. medical device excise tax that became applicable to sales of the NMR LipoProfile test in January 2013. These increases were offset by the $0.4 million decrease in personnel-related costs, consisting of $1.3 million in lower bonus expense as a result of our financial performance for the year, partially offset by $0.9 million in higher salaries and benefits primarily related to $0.7 million in separation payments to our former CEO and $0.2 million in higher stock-based compensation expense related to equity incentive grants granted to certain employees and directors in 2013

Our bad debt expense decreased by $0.6 million to $0.2 million for the year ended December 31, 2013 from $0.8 million for the year ended December 31, 2012. As a percentage of total revenues, bad debt expense decreased to 0.4% for the year ended December 31, 2013 from 1.5% for the year ended December 31, 2012. The decrease in bad debt expense, both in absolute dollars and as a percentage of total revenues, resulted primarily from the shift of our customer mix toward clinical diagnostic laboratories, from which we typically experience higher collection rates.

As a percentage of total revenues, general and administrative expenses increased to 22.6% for the year ended December 31, 2013, compared to 19.0% for the year ended December 31, 2012.

Other Expense

Other expense increased to $1.9 million for the year ended December 31, 2013 from $0.7 million for the year ended December 31, 2012. The increase was primarily attributable to a $1.4 millionincrease in interest expense compared to the prior year period, due to higher average principal amounts outstanding on our indebtedness during 2013. This increase was partially offset by a $0.2 milliondecrease in other expense.

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Comparison of Years Ended December 31, 2012 and 2011

The following table sets forth, for the periods indicated, the amounts of certain components of our statements of operations and the percentage of total revenues represented by these items, showing period-to-period changes.

	Year ended December 31,										Period-to-period change
	2012			% of Revenues		2011			% of Revenues		Amount			Percentage
	(in thousands, except for percentages)
Revenues	$	54,798		100.0	%	$	45,807		100.0	%	$	8,991		19.6	%
Cost of revenues	10,060			18.4		8,529			18.6		1,531			17.9
Gross profit	44,738			81.6		37,278			81.4		7,460			20.0
Operating expenses:
Research and development	10,004			18.3		7,808			17.0		2,196			28.1
Sales and marketing	22,402			40.9		21,305			46.5		1,097			5.1
General and administrative	10,386			19.0		8,550			18.7		1,836			21.5
Total operating expenses	42,792			78.1		37,663			82.2		5,129			13.6
Income (loss) from operations	1,946			3.6		(385		)	(0.8	)	2,331			*
Total other expense	(696		)	(1.3	)	(163		)	(0.4	)	(533		)	*
Income (loss) before taxes	1,250			2.3		(548		)	(1.2	)	1,798			*
Net income (loss)	$	1,250		2.3	%	$	(548	)	(1.2	)%	$	1,798		*

* Percentage not meaningful

Revenues

Total revenues increased by 19.6% to $54.8 million for the year ended December 31, 2012 from $45.8 million for the year ended December 31, 2011. Revenues from sales of our NMR LipoProfile test increased to $51.8 million for the year ended December 31, 2012 from $42.4 million for the year ended December 31, 2011, resulting from growth in the number of NMR LipoProfile tests sold, particularly to our clinical diagnostic laboratory customers. This growth reflected the impact of an increase in the number of our sales representatives and greater geographic coverage of our sales force, as well as increased market acceptance of our test.

The overall number of NMR LipoProfile tests increased by 29% to approximately 1,949,000 tests for the year ended December 31, 2012 from approximately 1,508,000 tests for the year ended December 31, 2011. The overall average selling price of NMR LipoProfile tests decreased5.5% for the year ended December 31, 2012 as compared to the year ended December 31, 2011. This decrease in average selling price was primarily the result of a continuing shift in channel mix toward clinical laboratory customers. The percentage of our total NMR LipoProfile tests sold through direct distribution channels decreased from 7.9% for year ended December 31, 2011 to 4.7% for the year ended December 31, 2012. This continued shift reflects our current strategy of accelerating the adoption of our NMR LipoProfile test through clinical diagnostic laboratories, which we expect to result in fewer tests ordered through direct channels and an overall decrease in average selling price.

Revenues from sales of ancillary tests decreased from $2.2 million for the year ended December 31, 2011 to $1.7 million for the year ended December 31, 2012. The decrease in revenues from these ancillary tests was primarily driven by the shift in testing mix and an overall reduction of reimbursement rates from Medicare. Revenues from our clinical research clients were approximately $1.3 million and $1.2 million for the years ended December 31, 2012 and 2011, respectively.

Cost of Revenues and Gross Margin

Cost of revenues increased by 17.9%, to $10.1 million for the year ended December 31, 2012 from $8.5 million for the year ended December 31, 2011. This increase resulted primarily from the increase in the number of NMR LipoProfile tests sold to patient care clients during the year ended December 31, 2012. This additional testing volume resulted in increased required personnel, which increased our compensation, benefits and allocated costs. These increases were partially offset by lower material costs due to fewer ancillary tests being performed. Gross profit as a percentage of total revenues, or gross margin, increased to 81.6% for the year ended December 31, 2012 from 81.4% for the year ended December 31, 2011. The improvement we experienced in gross margin resulted primarily from increased sales volume coupled with operating efficiencies in our clinical laboratory.

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Research and Development Expenses

Research and development expenses increased by 28.1% to $10.0 million for the year ended December 31, 2012 from $7.8 million for the year ended December 31, 2011. This increase was primarily the result of $1.5 million in higher salaries and benefits, including relocation and recruiting fees, stock-based compensation expense and higher travel-related expenses, as well as associated operational costs, due to increased headcount within our research and development function, and $0.4 million in higher depreciation expense associated with an immaterial correction of an error relating to prior periods during 2012. We also incurred $0.2 million in additional costs associated with contract services for conducting external research and development studies in support for our publication efforts. In addition, we experienced $0.1 million in higher allocated expenses due to increases in information technology and facility costs. As a percentage of total revenues, research and development expenses increased to 18.3% for the year ended December 31, 2012, as compared to 17.0% for the year ended December 31, 2011.

Sales and Marketing Expenses

Sales and marketing expenses increased by 5.1% to $22.4 million for the year ended December 31, 2012 from $21.3 million for the year ended December 31, 2011. This increase reflected an increase of $0.8 million in compensation and benefit costs and travel and entertainment-related expenses as a result of the growth and expansion of our sales organization. In addition, we experienced $0.3 million in higher allocated expenses due to increases in information technology and facility costs. While sales and marketing expenses increased in absolute dollar amounts, they decreased as a percentage of total revenues from 46.5% for the year ended December 31, 2011 to 40.9% for the year ended December 31, 2012.

General and Administrative Expenses

General and administrative expenses increased by 21.5%, to $10.4 million for the year ended December 31, 2012 from $8.6 million for the year ended December 31, 2011. This increase was primarily the result of $1.8 million in higher salaries and benefits, including stock-based compensation expense, from increased headcount within our general and administrative function, and $0.5 million in higher professional fees, largely from additional legal fees associated with the OIG gift card matter and the DOJ investigation and additional expenses associated with expanded compliance efforts. We incurred $0.4 million in legal and accounting expenses in 2012 in connection with the OIG gift card matter. In addition, we experienced $0.3 million in higher allocated expenses due to increases in information technology and facility costs. This increase was partially offset by $0.2 million in lower spending associated with contract services due to lower utilization of external consultants within our finance department and a $0.6 million reduction in bad debt expense.

Our bad debt expense was $0.8 million for the year ended December 31, 2012 and $1.4 million for the year ended December 31, 2011. As a percentage of total revenues, bad debt expense decreased to 1.5% for the year ended December 31, 2012 from 3.0% for the year ended December 31, 2011. The decrease in bad debt expense, both in absolute dollars and as a percentage of total revenues, resulted primarily from the shift of our customer base towards clinical diagnostic laboratories, from which we typically experience improved collection rates.

As a percentage of total revenues general and administrative expenses increased to 19.0% for the year ended December 31, 2012, compared to 18.7% for the year ended December 31, 2011.

Other Expense

Other expense increased to $0.7 million for the year ended December 31, 2012 from an expense of $0.2 million for the year ended December 31, 2011. The increase was primarily attributable to a $0.4 millionincrease in other expense as a result of changes in the fair value of our preferred stock warrant liability between the periods. We experienced a $0.2 millionincrease in interest expense compared to the prior year period, due to higher average principal amounts outstanding on our indebtedness during the later period. In addition, we incurred a $59,000 loss on the extinguishment of debt recognized during the first quarter of 2011 as a result of refinancing our credit facility with Square 1.

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Seasonality

Our financial results may vary significantly from quarter to quarter as a result of many factors, many of which are outside our control. For example, we expect that the volume of the NMR LipoProfile tests ordered will generally decline during the summer months and holiday periods, when patients are less likely to visit their healthcare providers. As a result, comparison of our results of operations for successive quarters may not accurately reflect trends or results for the full year. Our historical results should not be considered a reliable indicator of our future results of operations.

Inflation

We do not believe that inflation has had a material effect on our business, financial condition or results of operations. We continue to monitor the impact of inflation in order to minimize its effect through pricing strategies, productivity improvements and cost reductions. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.

Liquidity and Capital Resources

Sources of Liquidity

Prior to our IPO in January 2013, we funded our operations principally through private placements of our capital stock, bank borrowings and, since 2009, cash flows from operations. Prior to the IPO, we had raised $58.7 million from the sale of common stock and convertible preferred stock to third parties.

In December 2012, we refinanced and paid off our then existing indebtedness with Square 1 Bank, or Square 1, which was comprised of a term loan with an outstanding balance of $3.8 million and a revolving line of credit with an outstanding balance of $3.5 million. We entered into a new credit facility with Square 1 and Oxford Finance that provides for term loans from Oxford Finance of $10.0 million, a term loan from Square 1 of $6.0 million and a revolving line of credit with Square 1 of up to $6.0 million. Our borrowing capacity under the line of credit is subject to borrowing base limitations related to our eligible accounts receivable. Interest on the term loans accrues at a fixed annual rate of 9.5%, while advances under the line of credit continue to carry a variable interest rate equal to the greater of 6.25% or the prime rate plus 3.0%.

As of December 31, 2013, the term loans from Oxford Finance had an outstanding balance of $9.9 million, net of debt discount in the amount of $0.1 million, and the term loan from Square 1 had an outstanding balance of $5.9 million, net of debt discount in the amount of $52,000. As of December 31, 2013, we did not have any outstanding borrowings under the revolving line of credit.

Borrowings under the credit facility are secured by substantially all of our assets other than our intellectual property. The covenants set forth in the loan and security agreement require, among other things, that we maintain a specified liquidity ratio, measured monthly, that begins at 1.25 and is reduced to 1.0 over the term of the facility. Our liquidity ratio was approximately 4.8 as of December 31, 2013. We entered into a second amendment to our loan agreement, effective as of October 31, 2013, that also required us to achieve minimum annual revenue levels for 2013 of at least $50 million. We are currently in compliance with all covenants under this credit facility, as modified. However, if we fail to comply with the covenants and our other obligations under the credit facility, the lenders would be able to accelerate the required repayment of amounts due under the loan and security agreement and, if they are not repaid, could foreclose upon our assets securing our obligations under the credit facility.

As of December 31, 2013, we were required only to make interest payments on the term loans through January 2014, and then repayments of principal and interest amounts due under the term loans through July 2016. In January 2014, we entered into to a third amendment to our loan agreement, under which we are required only to make interest payments on the term loans through January 2015, and then repayments of principal and interest amounts due under the term loans will continue in monthly installments through July 2017. The revolving line of credit matures in February 2015. Under this third amendment, we must maintain a minimum revenue level for 2014 measured monthly on a trailing 12 months basis, that begins at $50 million and is reduced to $45 million through December 2014.

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In connection with entering into the current and prior credit facilities, we issued warrants to Oxford Finance to purchase an aggregate of 45,978 shares of our Series E redeemable convertible preferred stock at an exercise price of $4.35 per share and warrants to Square 1 to purchase an aggregate of 27,586 shares of our Series E redeemable convertible preferred stock and 88,793 shares of our Series F redeemable convertible preferred stock, in each case at an exercise price of $4.35 per share. Upon the closing of our IPO, the warrants automatically became warrants to purchase an aggregate of 78,741 shares of common stock at an exercise price of $8.97 per share.

Initial Public Offering

On January 30, 2013, we closed our IPO, in which we sold 5,750,000 shares of common stock and received net proceeds of $44.4 million, after deducting underwriting discounts and offering-related expenses paid by us. Upon closing of the IPO, all of the redeemable convertible preferred stock then outstanding automatically converted into 6,994,559 shares of common stock. Concurrently with the closing of the IPO, we paid $5.2 million to holders of our Series F redeemable convertible preferred stock in full satisfaction of accrued dividends on such shares immediately prior to their conversion to common stock. In addition, outstanding warrants to purchase redeemable convertible preferred stock automatically converted into warrants to purchase common stock, and our preferred stock warrant liability of $0.4 million as of January 30, 2013 was reclassified to additional paid-in capital.

Cash and Cash Equivalents

The following table summarizes our cash and cash equivalents, accounts receivable and cash flows for the periods indicated:

	As of and for the Year Ended December 31,
	2013			2012			2011
	(in thousands)
Cash and cash equivalents	$	49,574		$	24,768		$	12,483
Accounts receivable, net	5,821			5,149			5,626
Operating activities	$	(10,206	)	$	7,597		$	96
Investing activities	(4,677		)	(8,127		)	(2,168		)
Financing activities	39,689			12,815			3,497
Net increase in cash and cash equivalents	$	24,806		$	12,285		$	1,425

Our cash and cash equivalents at December 31, 2013, 2012 and 2011 were held for working capital purposes. We do not enter into investments for trading or speculative purposes. Our policy is to invest any cash in excess of our immediate requirements in investments designed to preserve the principal balance and provide liquidity. Accordingly, our cash and cash equivalents are invested primarily in demand deposit accounts, certificates of deposit and money market funds that are currently providing only a minimal return.

Restricted cash, which totaled $0.5 million at December 31, 2013 and $1.5 million at December 31, 2012 and 2011, is not included in cash and cash equivalents. Restricted cash consists primarily of money market funds that secure letters of credit related to operating leases for our office and laboratory space.

Cash Flows for the Years Ended December 31, 2013, 2012 and 2011

Operating Activities

Net cash used in operating activities was $10.2 million during the year ended December 31, 2013, which included a net loss of $12.5 million partially offset by net non-cash items of $3.6 million. Non-cash items for the year ended December 31, 2013 consisted primarily of depreciation and amortization expense of $1.6 million and stock-based compensation expense of $1.4 million and loss on sale of equipment of $0.4 million. We also had a net cash outflow from changes in operating assets and liabilities of $1.3 million during the year ended December 31, 2013. The significant items in the changes in operating assets and liabilities included an increase of $0.7 million in accounts receivable and a decrease of $0.5 million in accounts payable and accrued liabilities. The increase in accounts receivable was due primarily to the timing of collections. The decrease in accounts payable and accrued expenses was due primarily to the timing of disbursements.

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Net cash provided by operating activities was $7.6 million during the year ended December 31, 2012, which included net income of $1.3 million and net non-cash items of $2.7 million. Non-cash items for the year ended December 31, 2012 consisted primarily of depreciation and amortization expense of $1.3 million, stock-based compensation expense of $1.2 million and $0.1 million in expense incurred due to changes in the fair value of our preferred stock warrant liability. We also had a net cash inflow of $3.7 million from changes in operating assets and liabilities during the year. The significant items in the changes in operating assets and liabilities included a decrease in accounts receivable of $0.5 million, an increase of $1.2 million in accounts payable and accrued liabilities and an increase of $2.3 million in other long-term liabilities, offset by an increase of $0.1 million in inventories and $0.1 million in prepaid expenses. The decrease in accounts receivable was due primarily to the timing of collections. The increase in accrued expenses during 2012 was due to higher expected bonus and commission payouts based on performance against target goals and increased spending associated with our initial public offering. The increase in other long-term liabilities consisted primarily of deferred rent due to tenant allowances related to our facility lease.

Net cash provided by operating activities was $0.1 million during the year ended December 31, 2011, which included net loss of $0.5 million, partially offset by net non-cash items of $1.0 million. Non-cash items for the year ended December 31, 2011 consisted primarily of depreciation and amortization expense of $0.5 million and stock-based compensation expense of $0.7 million, a $0.1 million loss on extinguishment of debt, offset by a $0.3 million decrease in the fair value of our preferred stock warrant liability. We also had a net cash outflow from changes in operating assets and liabilities of $0.3 million during the year. The significant items in the changes in operating assets and liabilities included an increase of $1.4 million in accounts receivable, an increase of $0.1 million in prepaid expenses and a decrease of $0.1 million in other long-term liabilities, offset by an increase of $1.3 million in accounts payable and accrued liabilities. The increase in accounts receivable was due primarily to the growth in our revenues. The increase in accounts payable during 2011 was due to higher expected bonus and commission payouts based on performance against target goals and increased spending associated with our initial public offering.

Investing Activities

Net cash used in investing activities was $4.7 million, $8.1 million and $2.2 million for the years ended December 31, 2013, 2012 and 2011, respectively. The amounts related primarily to purchases of property and equipment and costs associated with maintaining our patent and trademark portfolio. The purchases of property and equipment during the year ended December 31, 2013 consist primarily of $2.1 million in leasehold improvements related to our facilities, computer and furniture for general office use due to increased headcount as well as IT equipment used in test production. In addition, we incurred $2.5 million in hardware component purchases and associated installation costs from third-party manufacturers for the Vantera system not yet put into service. The purchases of property and equipment during the year ended December 31, 2012 consist primarily of $6.1 million of hardware components purchased from third-party manufacturers and enhanced IT infrastructure for the Vantera system not yet put into service, and $1.8 million in facility renovation. The purchases of property and equipment during the year ended December 31, 2011 were primarily for hardware components purchased from third-party manufacturers for the Vantera system not yet put into service. The capitalized patent and trademark costs during years ended December 31, 2013, 2012 and 2011 were primarily for pending domestic and international patent applications and prosecution.

Financing Activities

Net cash provided by financing activities was $39.7 million during the year ended December 31, 2013, consisting primarily of net proceeds from issuance of common stock in connection with our IPO of $47.3 million, net of $4.4 million of underwriting discounts and commissions, cash inflows from changes in restricted cash for operating lease of $1.0 million, and net proceeds from exercise of stock options and warrants of $1.6 million, partially offset by Series F accrued dividend payments of $5.2 million and repayment in full of our revolving line of credit in the amount of $5.0 million.

Net cash provided by financing activities was $12.8 million during the year ended December 31, 2012, consisting primarily of proceeds from borrowings under the revolving line of credit of $8.5 million and long-term debt of $16.0 million, and net proceeds from exercises of stock options and warrants of $0.2 million, partially offset by cash outlays of $1.1 million for tax withholding paid on behalf of certain employees in connection with the net exercise of stock options, deferred offering costs of $1.0 million in connection with our IPO, debt discount of $0.1 million, deferred financing costs of $0.1 million and repayment of the revolving line of credit of $3.5 million and long-term debt of $6.0 million.

Net cash provided by financing activities was $3.5 million during the year ended December 31, 2011, consisting primarily of proceeds from long-term debt of $6.0 million and net proceeds from exercises of stock options and warrants of $0.6 million, partially offset by cash outlays for deferred offering costs of $1.9 million and repayment of long-term debt of $1.2 million.

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Operating and Capital Expenditure Requirements

We expect to incur substantial operating losses in the future and expect that our operating expenses will increase as we continue to broaden medical policy coverage, expand our geographic presence and increase our marketing efforts to drive market adoption of the NMR LipoProfile test, commercially launch our Vantera system and develop additional diagnostic tests. Our liquidity requirements have historically consisted, and we expect that they will continue to consist, of sales and marketing expenses, research and development expenses, capital expenditures, working capital, debt service and general corporate expenses.

We believe our current cash and cash equivalents balances, which include the net proceeds from our IPO, and interest income we earn on these balances, together with the available borrowing capacity under our credit facilities, will be sufficient to meet our anticipated cash requirements through at least the next 12 months. In the future, we expect our operating and capital expenditures to increase as we continue to execute on our strategy to broaden medical policy coverage, expand our geographic presence and grow our customer base. As sales of our NMR LipoProfile test grow, we expect our accounts receivable balance to increase. Any such increase in accounts receivable may not be completely offset by increases in accounts payable and accrued expenses, which could result in greater working capital requirements.

If our cash balances are insufficient to satisfy our liquidity requirements, we may seek to sell common or preferred equity or convertible debt securities or enter into additional credit facilities or seek other debt financing. The sale of equity and convertible debt securities may result in dilution to our stockholders, and those securities may have rights senior to those of our common stock. If we raise additional funds through the issuance of preferred stock, convertible debt securities or other debt financing, these securities or other debt could contain covenants that would restrict our operations. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available on reasonable terms, or at all.

Our estimates of the period of time through which our financial resources will be adequate to support our operations and the costs to support research and development and our sales and marketing activities are forward-looking statements and involve risks and uncertainties and actual results could vary materially and negatively as a result of a number of factors, including the factors discussed in the section “Risk Factors” of this Annual Report. We have based our estimates on assumptions that may prove to be wrong and we could utilize our available capital resources sooner than we currently expect.

Our short- and long-term capital requirements will depend on many factors, including the following:

• the cost of our selling and marketing efforts;

• the rate of adoption of the NMR LipoProfile test in the marketplace;

• our ability to generate cash from operations;

• the rate of our progress in establishing additional coverage and reimbursement with third-party payors;

• our ability to control our costs and implement operating efficiencies;

• demand from clinical diagnostic laboratories for placements of our Vantera system at their facilities;

• the emergence of competing or complementary technological developments;

• the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights or participating in litigation-related activities;

• the economic and other terms and timing of any collaborations, licensing or other arrangements into which we may enter; and

• the acquisition of complementary tests or technologies that we may undertake.

57

Contractual Commitments and Obligations

We have contractual obligations for non-cancelable office space and office equipment operating leases, purchase obligations, as well as our credit facilities with Oxford Finance and Square 1. The following table discloses aggregate information about material contractual obligations and periods in which payments are due as of December 31, 2013. Future events could cause actual payments to differ from these estimates.

	Payment due by period
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
	(in thousands)
Principal repayments on term loans (2)	$	16,000	$	—	$	11,921	$	4,079	$	—
Interest payments on term loans (1) (2)	4,245		1,520		2,035		690		—
Operating lease obligations	11,513		1,239		2,582		2,383		5,309
Purchase obligations	2,817		2,817		—		—		—
Total	$	34,575	$	5,576	$	16,538	$	7,152	$	5,309

(1) Assumes that there is no prepayment of principal balance during the term of the loan.

(2) On January 19, 2014, we entered into a third amendment to our loan agreement, which extended our monthly installments of interest only through January 2015, after which we have monthly installments of principal and interest thereafter through July 2017. This amendment is reflected in the table above.

Off-Balance Sheet Arrangements

As of December 31, 2013, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.

Critical Accounting Policies and Significant Judgments and Estimates

Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reported period. In accordance with U.S. GAAP, we base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from these estimates under different assumptions or conditions.

We believe that of our significant accounting policies, which are described in Note 1 to our financial statements appearing elsewhere in this report, the following accounting policies involve a greater degree of judgment and complexity. A critical accounting policy is one that is both material to the preparation of our financial statements and requires us to make difficult, subjective or complex judgments for uncertain matters that could have a material effect on our financial condition and results of operations. Accordingly, these are the policies we believe are the most critical to aid in fully understanding and evaluating our financial condition and results of operations:

• revenue recognition;

• accounts receivable and allowance for uncollectible accounts receivable;

• stock-based compensation expense; and

• income taxes.

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Revenue Recognition

We currently derive revenue from sales of our NMR LipoProfile test to clinical diagnostic laboratories and clinicians for use in patient care, from sales of ancillary tests for use in patient care requested in conjunction with the NMR LipoProfile test, and from contract research arrangements.

Revenues from diagnostic tests for patient care, which consist of sales of the NMR LipoProfile test performed in-house and at third party clinical diagnostic laboratory facilities (see “The Vantera System Placement Arrangements” below) and sales of ancillary tests, are recognized on the accrual basis when the following revenue recognition criteria are met: (1) persuasive evidence that an arrangement exists; (2) services have been rendered or at the time final results are reported; (3) the fee is fixed or determinable; and (4) collectibility is reasonably assured. Testing services provided for patient care are covered by clinical diagnostic laboratories through negotiated contracts with commercial insurance carriers, programs with commercial insurance carriers, including managed care organizations, and various governmental programs, primarily Medicare.

Revenues from contract research arrangements are generally derived from clinical studies conducted by academic institutions and pharmaceutical companies for which we provide testing services. The specific methodology for revenue recognition is determined on a case-by-case basis according to the facts and circumstances applicable to a given agreement. Our output, measured in terms of full-time equivalent level of effort or processing a set of diagnostic tests under a contractual protocol, typically triggers payment obligations under these agreements. Revenues are recognized as costs are incurred or diagnostic tests are processed. Contract research costs include all direct labor and material costs, equipment costs and fringe benefits. Advance payments received in excess of revenues recognized are classified as deferred revenue until such time as the revenue recognition criteria have been met.

Billings for diagnostic tests for patient care under governmental and physician-based programs are included in revenues net of contractual adjustments. These contractual adjustments represent the difference between the final settlement amount paid by the program and the estimated settlement amount based on either the list price for tests performed or the reimbursement rate set by commercial insurance carriers or governmental programs. Estimated contractual adjustments are updated either upon notification from payors as to changes in existing reimbursement rates, which are typically received prior to changes going into effect, or upon a material variance between the final settlement and the estimated contractual adjustment originally established when the revenues were recognized. To date, our final settlement adjustments have not been material.

The Vantera System Placement Arrangements

The Vantera system placement arrangements or placement arrangements are generally negotiated and accounted for as operating leases. We determine arrangement consideration based on the test volume and the negotiated price-per-reportable NMR LipoProfile test result. The placement arrangements typically include lease and non-lease deliverables. Lease deliverables include the right to use the Vantera system and related maintenance and support, while non-lease deliverables consist of the NMR LipoProfile test and consumables. Lease deliverables are accounted for in accordance with specific leasing guidance while non-lease deliverables are accounted for in accordance with the multiple-element arrangement guidance.

We evaluate each non-lease deliverable to determine whether it represents a separate unit of accounting. A deliverable is considered a separate unit of accounting when the delivered item has stand-alone value and delivery of the undelivered element is probable and within our control. We determined that both the NMR LipoProfile test and consumables have separate units of accounting. The NMR LipoProfile test is the most significant deliverable under these placement arrangements.

We allocate revenue to each deliverable at the inception of the placement arrangement, based on its estimated stand-alone value in relation to the combined estimated stand-alone value of all deliverables, or the relative selling price method. We then recognize revenue allocated to each deliverable when the basic revenue recognition criteria, as described above, is met for each deliverable.

59

We apply the following selling price hierarchy in determining the selling price for each deliverable:

• Vendor-specific objective evidence, or VSOE, if available-the price charged for a deliverable when it is sold separately and, in other instances, using the price established by management having the relevant authority.

• Third-party evidence, or TPE, if VSOE is not available-the price of the vendor's or any competitor's largely interchangeable products or services in standalone sales to similarly situated customers.

• Estimated selling price, or ESP, if neither VSOE or TPE is available-the price best estimated by the vendor and at which the vendor would transact if the deliverable would have been sold by the vendor regularly on a standalone basis.

We have determined that only the selling price of the NMR LipoProfile test is based on VSOE. Currently, we do not sell the license to use the Vantera system, the consumables or related maintenance and support separately on a regular basis and therefore we do not have the evidence to support VSOE for these deliverables. Due to the high degree of customization involved with these deliverables, we also determined that there is no comparable TPE for these deliverables. Since these deliverables have neither VSOE nor TPE, our allocation of revenue to them has been based on our ESP.

Our process for determining ESP for the deliverables considers all reasonably available information including both market data and conditions, as well as entity specific factors that may vary depending upon the facts and circumstances related to each deliverable. Key factors considered in developing ESP relating to deliverables include cost structures, established pricing and approval policies and customization of the product or service and industry pricing. We regularly review ESP and maintain internal controls over the establishment and updates of these estimates.

Accounts Receivable

Accounts receivable are reported net of an allowance for uncollectible accounts and contractual allowance adjustments. The process of estimating the collection of accounts receivable involves significant assumptions and judgments. Specifically, the accounts receivable allowance is based on management's analysis of current and past due accounts, collection experience in relation to amounts billed, changes in reimbursement levels, known contract terms, channel mix, any specific customer collection issues that have been identified and other relevant information. Our provision for uncollectible accounts is recorded as bad debt expense and included in general and administrative expenses. Historically, we have not experienced significant credit loss related to our customers or payors. Although we believe amounts provided are adequate, the ultimate amounts of uncollectible accounts receivable could be in excess of the amounts provided.

Stock-Based Compensation

We account for stock-based compensation arrangements with our employees and non-employee directors using a fair value method, which requires us to recognize compensation expense for costs related to all stock-based payments, including stock options and restricted stock units. The fair value method requires us to estimate the fair value of stock options on the date of grant using an option pricing model. The fair value of restricted stock units is estimated based on the closing price of our stock on the date of grant, and for the purposes of expense recognition, the total new number of shares expected to vest is adjusted for estimated forfeitures. The fair value is then recognized as stock-based compensation expense over the requisite service period, which is the vesting period, of the award.

We estimate the fair value of stock-based compensation awards using the Black-Scholes option pricing model. The Black-Scholes option-pricing model requires the input of subjective assumptions, including stock price volatility and the expected life of stock options. As a new public company, we do not have sufficient history to estimate the volatility of our common stock price or the expected life of our options. We calculate expected volatility based on reported data for selected reasonably similar publicly traded companies within the diagnostic industry, or guideline peer group, for which the historical information is available. When selecting the public companies within the diagnostic industry, we selected companies with comparable characteristics to us, including enterprise value and financial leverage, and removed companies with significantly higher enterprise values, lower risk profiles or established positions within the industry. We also selected companies with historical share price volatility information sufficient to meet the expected life of our stock options. The historical volatility data was computed using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of our stock options.

We will continue to use the guideline peer group volatility information until the historical volatility of our common stock is relevant to measure expected volatility for future option grants.

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We determine the average expected life of stock options according to the “simplified” method. Under this method, the expected term is calculated as the average of the time-to-vesting and the contractual life of the option. The assumed dividend yield is based on our expectation that we will not pay dividends in the foreseeable future, which is consistent with our history of not paying dividends. We determine the risk-free interest rate by using the weighted average assumption equivalent to the expected term based on the U.S. Treasury yield curve in effect as of the date of grant. We estimate forfeitures based on our historical analysis of actual stock option forfeitures. Although, we estimate forfeitures based on historical experience, actual forfeitures may differ. If actual results differ significantly from these estimates, stock-based compensation expense and our statements of operations could be materially impacted. We would record an adjustment for the difference in the period that the options vest.

For the years ended December 31, 2013, 2012 and 2011, we estimated the fair value of stock options at their grant dates using the following assumptions:

	Year Ended December 31,
	2013		2012		2011
Expected dividend yield	0.0	%	0.0	%	0.0	%
Risk-free interest rate	1.2	%	0.8	%	2.0	%
Expected volatility	45.5	%	50.0	%	50.3	%
Expected life (in years)	5.8		5.6		5.6

There is a high degree of subjectivity involved when using option-pricing models to estimate stock-based compensation. There is currently no market-based mechanism or other practical application to verify the reliability and accuracy of the estimates stemming from these valuation models, nor is there a means to compare and adjust the estimates to actual values. Although the fair value of stock-based awards is determined using an option-pricing model, that value may not be indicative of the fair value that would be observed in a market transaction between a willing buyer and willing seller. If factors change and we employ different assumptions when valuing our options, the compensation expense that we record in the future may differ significantly from what we have historically reported.

Income Taxes

We are subject to income taxes in the United States, and we use estimates in determining our provision for income taxes. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income.

Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. We recognize a valuation allowance against our net deferred tax assets if it is more likely than not that some portion of the deferred tax assets will not be fully realizable. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction. At December 31, 2013, we had a full valuation allowance against all of our deferred tax assets.

We have adopted authoritative guidance to account for uncertain tax positions. None of our currently unrecognized tax benefits would affect our effective income tax rate if recognized, due to the valuation allowance that currently offsets our deferred tax assets. We do not anticipate the total amount of unrecognized income tax benefits relating to tax positions existing at December 31, 2013 will significantly increase or decrease in the next 12 months.

We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position's sustainability and is measured at the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and we will determine whether the factors underlying the sustainability assertion have changed and whether the amount of the recognized tax benefit is still appropriate.

The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.

61

As of December 31, 2013, we had federal net operating loss carryforwards, state net operating loss carryforwards and research and development credit carryforwards of $45.6 million, $41.4 million, and $2.7 million, respectively. Our federal and state net operating loss carryforwards included $3.3 million of excess tax benefits related to deductions from the exercise of nonqualified stock options. The tax benefit of these deductions has not been recognized in deferred tax assets. The federal and state net operating loss carryforwards and the research and development credit carryforwards will continue to partially expire in 2015. We analyzed our filing positions in all significant federal, state and foreign jurisdictions where we are required to file income tax returns, as well as open tax years in these jurisdictions. With few exceptions, we are no longer subject to U.S. Federal and state and local tax examinations by tax authorities for years prior to 2010, although carryforward attributes that were generated prior to 2010 may still be adjusted upon examination by the Internal Revenue Service if they either have been or will be used in a future period.

Recent Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this update provide clarification, and are intended to reduce diversity in practice, on the financial statement presentation of unrecognized tax benefits. The guidance specifies that an unrecognized tax benefit (or a portion thereof) shall be presented in the financial statements as a reduction to a deferred tax asset when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. If such deferred tax asset is not available at the reporting date to settle additional income taxes resulting from the disallowance of a tax position, or the entity does not plan to use the deferred tax asset for such purpose given the option, the unrecognized tax benefit shall be presented in the financial statements as a liability and shall not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. For public companies, the amendments that are subject to this update are effective for interim and annual reporting periods beginning after December 15, 2013, with early adoption permitted. Our current practice is consistent with the amendments in this update, and accordingly, we do not believe the new guidance will have a material impact to our financial position, results of operations or cash flows.

JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies.

As defined in the JOBS Act, a public company whose initial public offering of common equity securities occurred after December 8, 2011 and whose annual gross revenues are less than $1.0 billion will, in general, qualify as an “emerging growth company” until the earliest of:

• the last day of its fiscal year following the fifth anniversary of the date of its initial public offering of common equity securities;

• the last day of its fiscal year in which it has annual gross revenues of $1.0 billion or more;

• the date on which it has, during the previous three-year period, issued more than $1.0 billion in non-convertible debt; and

• the date on which it is deemed to be a “large accelerated filer,” which will occur at such time as the company (a) has an aggregate worldwide market value of common equity securities held by non-affiliates of $700 million or more as of the last business day of its most recently completed second fiscal quarter, (b) has been required to file annual and quarterly reports under the Securities Exchange Act of 1934, as amended, (the "Exchange Act") for a period of at least 12 months, and (c) has filed at least one annual report pursuant to the Exchange Act.

Under this definition, we are an “emerging growth company” and could remain an emerging growth company until as late as December 31, 2018. Under the JOBS Act, emerging growth companies that become public can delay adopting new and revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards following the completion of our IPO and, therefore, we will be subject to the same new or revised accounting standards as other companies that are not emerging growth companies.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in price of a financial instrument. The value of a financial instrument may change as a result of changes in interest rates, exchange rates, commodity prices, equity prices and other market changes.

Interest Rate Sensitivity

Cash and Cash Equivalents. As of December 31, 2013, we had cash and cash equivalents of $49.6 million. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of U.S. interest rates. Our cash equivalents are invested in interest-bearing certificates of deposit and moneymarket funds. We do not enter into investments for trading or speculative purposes. Due to the conservative nature of our investment portfolio, which is predicated on capital preservation and mainly consists of investments with short maturities, we do not believe an immediate one percentage point change in interest rates would have a material effect on the fair market value of our portfolio, and therefore we do not expect our operating results or cash flows to be significantly affected by changes in market interest rates.

Term Loans and Line of Credit. Our primary exposure to market risk is interest expense sensitivity, which is affected by changes in the general level of U.S. interest rates. Under our current credit facility, our term loans carry a fixed interest rate of 9.5%, while advances under the line of credit carry a variable interest rate equal to the greater of 6.25% or Square 1's prime rate plus 3.0%. On March 29, 2013, we paid off the outstanding balance under the revolving line of credit. As of December 31, 2013, we had debt obligations of $15.8 million consisting of term loans under our credit facilities with Oxford Finance and Square 1. Since the interest rate on our term loans is fixed, we are not exposed to market risk from changes in interest rates as it relates to this interest-bearing obligation. We have not entered into, and do not expect to enter into, hedging arrangements.

Foreign Currency Exchange Risk

We bill our customers and payors in U.S. dollars and receive payment in U.S. dollars. Accordingly, our results of operations and cash flows are not subject to fluctuations due to changes in foreign currency exchange rates. If we grow sales of our NMR LipoProfile test outside of the United States, or place the Vantera system in foreign jurisdictions, our contracts with foreign customers and payors may be denominated in foreign currency and may become subject to changes in currency exchange rates.

63

Item 8. Financial Statements

LipoScience, Inc.

INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	65
Balance Sheets as of December 31, 2013 and 2012	66
Statements of Comprehensive (Loss) Income for the years ended December 31, 2013, 2012 and 2011	67
Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) for the years ended December 31, 2013, 2012 and 2011	68
Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011	69
Notes to Financial Statements	70

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of LipoScience, Inc.

We have audited the accompanying balance sheets of LipoScience, Inc. as of December 31, 2013 and 2012, and the related statements of comprehensive (loss) income, redeemable convertible preferred stock and stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LipoScience, Inc. at December 31, 2013 and 2012, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Raleigh, North Carolina

March 28, 2014

65

LipoScience, Inc.

Balance Sheets

(in thousands, except share and per share data)

	December 31,
	2013			2012
Assets
Current assets:
Cash and cash equivalents	$	49,574		$	24,768
Accounts receivable, net	5,821			5,149
Inventories	224			125
Prepaid expenses and other	972			719
Total current assets	56,591			30,761
Property and equipment, net	13,955			11,493
Other noncurrent assets:
Restricted cash	502			1,505
Intangible assets, net of accumulated amortization of $125 and $147 at December 31, 2013 and 2012, respectively	841			637
Deferred financing costs	64			100
Deferred offering costs	—			3,151
Other assets	45			32
Total other noncurrent assets	1,452			5,425
Total assets	$	71,998		$	47,679
Liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)
Current liabilities:
Accounts payable	$	2,045		$	1,003
Accrued expenses	3,744			5,349
Revolving line of credit	—			5,000
Long-term debt reclassified to current	15,816			—
Total current liabilities	21,605			11,352
Long-term liabilities:
Long-term debt	—			15,708
Preferred stock warrant liability	—			412
Other long-term liabilities	2,635			2,462
Total liabilities	24,240			29,934
Redeemable Convertible Preferred Stock:
Series D, D-1, E and F Redeemable Convertible Preferred Stock, par value $.001; 15,216,336 shares designated and 11,205,672 issued and outstanding at December 31, 2012; aggregate liquidation preference of $51,695	—			57,301
Total Redeemable Convertible Preferred Stock	—			57,301
Stockholders’ equity (deficit):
Series A, A-1, B, B-1, C and C-1 Convertible Preferred Stock, par value $.001; 3,428,677 shares designated and 1,687,010 shares issued and outstanding at December 31, 2012; aggregate liquidation preference of $7,472	—			1
Common stock, $.001 par value; 75,000,000 and 90,000,000 shares authorized at December 31, 2013 and 2012, respectively; 15,188,861 and 1,894,277 shares issued and outstanding at December 31, 2013 and 2012, respectively	15			2
Additional paid-in capital	108,271			8,434
Accumulated deficit	(60,528		)	(47,993		)
Total stockholders’ equity (deficit)	47,758			(39,556		)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)	$	71,998		$	47,679

See accompanying notes to financial statements.

66

LipoScience, Inc.

Statements of Comprehensive (Loss) Income

(in thousands, except share and per share data)

	Year Ended December 31,
	2013			2012			2011
Revenues	$	52,383		$	54,798		$	45,807
Cost of revenues	10,742			10,060			8,529
Gross profit	41,641			44,738			37,278
Operating expenses:
Research and development	12,742			10,004			7,808
Sales and marketing	27,724			22,402			21,305
General and administrative	11,855			10,386			8,550
Total operating expenses	52,321			42,792			37,663
(Loss) income from operations	(10,680		)	1,946			(385		)
Other expense:
Interest income	93			13			13
Interest expense	(1,942		)	(540		)	(350		)
Loss on extinguishment of long-term debt	—			—			(59		)
Other (expense) income	(6		)	(169		)	233
Total other expense	(1,855		)	(696		)	(163		)
Net (loss) income	(12,535		)	1,250			(548		)
Accrual of dividends on redeemable convertible preferred stock	—			—			(613		)
Undistributed earnings allocated to participating preferred stockholders	—			(1,004		)	—
Net (loss) income attributable to common stockholders—basic	(12,535		)	246			(1,161		)
Undistributed earnings re-allocated to common stockholders	—			113			—
Net (loss) income attributable to common stockholders—diluted	$	(12,535	)	$	359		$	(1,161	)
Net (loss) income per share attributable to common stockholders—basic	$	(0.85	)	$	0.14		$	(0.69	)
Net (loss) income per share attributable to common stockholders—diluted	$	(0.85	)	$	0.13		$	(0.69	)
Weighted average shares used to compute basic net (loss) income per share attributable to common stockholders	14,819,787			1,715,408			1,674,018
Weighted average shares used to compute diluted net (loss) income per share attributable to common stockholders	14,819,787			2,814,323			1,674,018
Comprehensive (loss) income	$	(12,535	)	$	1,250		$	(548	)

See accompanying notes to financial statements.

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LipoScience, Inc.

Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share data)

	Redeemable Convertible
	Series D, D-1, E and F					Convertible Series A, A-1, B, B-1,								Additional						Total
	Preferred Stock					C and C-1 Preferred Stock					Common Stock			Paid-In			Accumulated			Stockholders’
	Shares		Amount			Shares		Amount			Shares	Amount		Capital			Deficit			Equity (Deficit)
Balance at December 31, 2010	11,086,581		$	55,843		1,687,010		$	1		1,625,333	$	2	$	8,060		$	(48,695	)	$	(40,632	)
Issuance of shares of common stock under equity incentive plans and warrant agreements	101,150		440			—		—			70,152	0		186			—			186
Reclassification of preferred stock warrant liabilities to redeemable convertible preferred stock upon exercises	—		152			—		—			—	—		—			—			—
Accretion on redeemable convertible preferred stock	—		115			—		—			—	—		(115		)	—			(115		)
Accrual of Series F dividends	—		613			—		—			—	—		(613		)	—			(613		)
Stock-based compensation expense	—		—			—		—			—	—		651			—			651
Net loss	—		—			—		—			—	—		—			(548		)	(548		)
Balance at December 31, 2011	11,187,731		57,163			1,687,010		1			1,695,485	2		8,169			(49,243		)	(41,071		)
Issuance of shares of common stock under equity incentive plans and warrant agreements, net of withholding for employee taxes	17,941		138			—		—			198,792	0		(925		)	—			(925		)
Stock-based compensation expense	—		—			—		—			—	—		1,190			—			1,190
Net income	—		—			—		—			—	—		—			1,250			1,250
Balance at December 31, 2012	11,205,672		57,301			1,687,010		1			1,894,277	2		8,434			(47,993		)	(39,556		)
Issuance of common stock	—		—			—		—			5,750,000	6		51,744			—			51,750
Stock issuance costs	—		—			—		—			—	—		(7,396		)	—			(7,396		)
Conversion of preferred stock to common stock	(11,205,672	)	(52,101		)	(1,687,010	)	(1		)	6,994,559	7		52,096			—			52,102
Conversion of preferred warrants to common stock	—		—			—		—			—	—		410			—			410
Payments of Series F redeemable convertible preferred stock accrued dividends	—		(5,200		)	—		—			—	—		—			—			—
Issuance of shares of common stock under equity incentive plans	—		—			—		—			550,025	—		1,584			—			1,584
Stock-based compensation expense	—		—			—		—			—	—		1,399			—			1,399
Net loss	—		—			—		—			—	—		—			(12,535		)	(12,535		)
Balance at December 31, 2013	—		$	—		—		$	—		15,188,861	$	15	$	108,271		$	(60,528	)	$	47,758

See accompanying notes to financial statements.

68

LipoScience, Inc.

Statements of Cash Flows

(in thousands)

	Year Ended December 31,
	2013			2012			2011
Operating activities
Net (loss) income	$	(12,535	)	$	1,250		$	(548	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	1,625			1,280			508
Amortization of deferred financing costs	37			—			—
Amortization of debt discount	108			—			—
Stock-based compensation expense	1,399			1,190			651
Fair value remeasurement of preferred stock warrant liability	(2		)	149			(252		)
Loss on sale or disposal of equipment	448			30			—
Impairment of intangible assets	—			13			—
Loss on extinguishment of long-term debt	—			—			59
Changes in operating assets and liabilities:
Accounts receivable, net	(672		)	477			(1,432		)
Inventories	(99		)	(125		)	—
Prepaid expenses and other	(179		)	(138		)	(100		)
Accounts payable and accrued expenses	(470		)	1,162			1,316
Other non-current assets	(13		)	—			—
Other long-term liabilities	147			2,309			(106		)
Net cash (used in) provided by operating activities	(10,206		)	7,597			96
Investing activities
Purchases of property and equipment	(4,621		)	(8,015		)	(1,963		)
Capitalized patent and trademark costs	(231		)	(112		)	(205		)
Proceeds from sale of equipment	175			—			—
Net cash used in investing activities	(4,677		)	(8,127		)	(2,168		)
Financing activities
Payments on revolving line of credit	(5,000		)	(3,500		)	—
Payments of Series F redeemable convertible preferred stock accrued dividends	(5,200		)	—			—
Proceeds from long-term debt	—			16,000			6,000
Payments on long-term debt	—			(6,000		)	(1,200		)
Taxes paid on behalf of employees for net exercise of options	—			(1,083		)	—
Payments on capital leases	—			—			(27		)
Changes in restricted cash	1,004			(2		)	4
Changes in deferred financing costs	(6		)	(95		)	3
Debt discount	—			(120		)	—
Deferred offering costs	—			(1,044		)	(1,908		)
Issuance cost of common stock	(4,443		)	—			—
Proceeds from revolving line of credit	—			8,500			—
Proceeds from issuance of common stock	51,750			—			—
Proceeds from exercise of stock options and warrants	1,584			159			625
Net cash provided by financing activities	39,689			12,815			3,497
Net increase in cash and cash equivalents	24,806			12,285			1,425
Cash and cash equivalents at beginning of period	24,768			12,483			11,058
Cash and cash equivalents at end of period	$	49,574		$	24,768		$	12,483
Supplemental disclosure of cash flow information
Cash paid for interest	$	1,476		$	532		$	354
Cash paid for income taxes	$	—		$	—		$	2
Supplemental disclosure of non-cash investing activities
Fixed asset expenditures included in accounts payable and other liabilities	$	776		$	791		$	1,316
Supplemental disclosure of non-cash financing activities
Accrual of Series F Redeemable Convertible Preferred Stock dividends	$	—		$	—		$	613
Accretion on Series F Redeemable Convertible Preferred Stock	$	—		$	—		$	115

See accompanying notes to financial statements.

69

LipoScience, Inc.

Notes to Financial Statements

December 31, 2013

1. Description of Business and Significant Accounting Policies

Description of Business

LipoScience, Inc. (“LipoScience” or the “Company”) was incorporated under the laws of North Carolina in June 1994 under the name LipoMed, Inc. and reincorporated under the laws of Delaware in June 2000. In January 2002, the Company changed its corporate name to LipoScience, Inc. The Company is a clinicaldiagnostic company pioneering a new field of personalized diagnostics based on nuclear magnetic resonance (“NMR”) technology. The Company's first diagnostic test, the NMR LipoProfile test, is cleared by the U.S. Food and Drug Administration (the "FDA"), and directly measures the number of low density lipoprotein, (“LDL”) particles in a blood sample and provides physicians and their patients with actionable information to personalize management of risk for heart disease.

Basis of Presentation and Use of Estimates

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include all adjustments necessary for the fair presentation of the Company's financial position, results of operations and cash flows for the periods presented. In preparing the financial statements, management must make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates and assumptions used.

Customers and Payors

The Company provides diagnostic tests to a broad range of customers. A majority of these tests are comprised of orders generated through clinical diagnostic laboratory customers and clinicians. The Company also receives requests from academic institutions as well as pharmaceutical companies. In most cases, the customer that orders the tests is not responsible for the payments for services. The Company considers a party that refers a test to it to be a “customer” and a party that reimburses the Company as a “payor.” Depending on the billing arrangement and applicable law, the payor may be (i) a clinical diagnostic laboratory, (ii) a third party responsible for providing health insurance coverage to patients, such as a health insurance plan or the traditional Medicare or Medicaid program, (iii) the physician or (iv) the patient or other party (such as academic institutions or pharmaceutical companies) who requested the test from the Company.

Revenue Recognition

The Company currently derives revenue from sales of its NMR LipoProfile test to clinical diagnostic laboratories and clinicians for use in patient care, from contract research arrangements and from sales of ancillary tests for use in patient care requested in conjunction with the NMR LipoProfile test.

Revenues from diagnostic tests for patient care, which consist of sales of the NMR LipoProfile test performed at the Company's laboratory facility and at third party clinical diagnostic laboratory facilities (see “The Vantera System Placement Arrangements” below) and sales of ancillary tests, are recognized on the accrual basis when the following revenue recognition criteria are met: (1) persuasive evidence that an arrangement exists; (2) services have been rendered or at the time final results are reported; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Testing services provided for patient care are covered by clinical diagnostic laboratories through negotiated contracts with commercial insurance carriers, programs with commercial insurance carriers (including managed care organizations) and various governmental programs, primarily Medicare.

Billings for diagnostic tests for patient care under governmental and physician-based programs are included in revenues net of contractual adjustments. These contractual adjustments represent the difference between the final settlement amount paid by the program and the estimated settlement amount based on either the list price for tests performed or the reimbursement rate set by commercial insurance carriers or governmental programs. Estimated contractual adjustments are updated either upon notification from payors as to changes in existing reimbursement rates, which are typically received prior to changes going into effect, or upon a material variance between the final settlement and the estimated contractual adjustment originally established when the revenues were recognized. To date, the Company's final settlement adjustments have not been material.

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Revenues from contract research arrangements are generally derived from studies conducted by academic institutions and pharmaceutical companies. The specific methodology for revenue recognition is determined on a case-by-case basis according to the facts and circumstances applicable to a given agreement. The Company's output, measured in terms of full-time equivalent level of effort or processing a set of diagnostic tests under a contractual protocol, typically triggers payment obligations under these agreements. Revenues are recognized as costs are incurred or diagnostic tests are processed. Contract research costs include all direct material and labor costs, equipment costs and fringe benefits. Advance payments received in excess of revenues recognized are classified as deferred revenue until such time as the revenue recognition criteria have been met.

Billing for diagnostic testing services for patient care is complex. In most cases, tests are performed in advance of payment and without certainty as to the outcome of the billing process, which may negatively affect revenues, cash flow and profitability. Payments are received from a variety of payors, including clinical diagnostic laboratories, commercial insurance carriers (including managed care organizations), governmental payors (primarily Medicare) and individual patients. Each payor typically has different billing requirements, and the billing requirements of many payors have become increasingly stringent.

The Company generally assumes the financial risk related to collection, including the potential uncollectibility of accounts and the other complex factors identified above. For sales of its NMR LipoProfile test to clinical diagnostic laboratories, the clinical diagnostic laboratories are responsible for obtaining reimbursement from third-party payors or directly from patients. Delays in collection and uncollectible bills may negatively affect the Company's revenues, cash flow and profitability.

The Vantera System Placement Arrangements

The Company's automated clinical analyzer, the Vantera system, was cleared by the FDA in August 2012 and became commercially available in December 2012. The Company started placing the Vantera system on-site with certain selected clinical diagnostic laboratories as well as leading medical centers and hospital outreach laboratories during the second quarter of 2013.

The Company's Vantera system placement arrangements (or “placement arrangements”) are generally negotiated and accounted for as operating leases. Arrangement consideration is determined based on the test volume and the negotiated price-per-reportable NMR LipoProfile test result. The placement arrangements typically include lease and non-lease deliverables. Lease deliverables include the right to use the Vantera system and related maintenance and support, while non-lease deliverables consist of the NMR LipoProfile test and consumables. Lease deliverables are accounted for in accordance with specific leasing guidance while non-lease deliverables are accounted for in accordance with the multiple-element arrangement guidance.

The Company evaluates each non-lease deliverable to determine whether it represents a separate unit of accounting. A deliverable is considered a separate unit of accounting when the delivered item has stand-alone value and delivery of the undelivered element is probable and within the Company's control. The Company has determined that both the NMR LipoProfile test and consumables have separate units of accounting. The NMR LipoProfile test is the Company's most significant deliverable under these placement arrangements.

The Company allocates revenue to each deliverable at the inception of the placement arrangement, based on its estimated stand-alone value in relation to the combined estimated stand-alone value of all deliverables, or the relative selling price method. Revenue allocated to each deliverable is then recognized when the basic revenue recognition criteria, as described above, is met for each deliverable.

The Company applies the following selling price hierarchy in determining the selling price for each deliverable:

• Vendor-specific objective evidence (“VSOE”) if available-the price charged for a deliverable when it is sold separately and, in other instances, using the price established by management having the relevant authority.

• Third-party evidence (“TPE”) if VSOE is not available-the price of the vendor's or any competitor's largely interchangeable products or services in standalone sales to similarly situated customers.

• Estimated selling price (“ESP”) if neither VSOE or TPE is available-the price best estimated by the vendor and at which the vendor would transact if the deliverable would have been sold by the vendor regularly on a standalone basis.

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The Company has determined that only the selling price of its NMR LipoProfile test is based on VSOE. The Company does not sell the license to use the Vantera system, the consumables or related maintenance and support separately on a regular basis and therefore it does not have the evidence to support VSOE for these deliverables. Due to the high degree of customization involved with these deliverables, the Company has determined that there is no comparable TPE for these deliverables. Since these deliverables have neither VSOE nor TPE, the allocation of revenue to them has been based on the Company's ESP.

The Company's process for determining ESP for its deliverables considers all reasonably available information including both market data and conditions, as well as entity specific factors that may vary depending upon the facts and circumstances related to each deliverable. Key factors considered in developing ESP relating to deliverables include cost structures, established pricing and approval policies and customization of the product or service and industry pricing. The Company regularly reviews ESP and maintains internal controls over the establishment and updates of these estimates.

Shipping and Handling

The Company does not bill its customers for shipping and handling charges. All charges relating to inbound and outbound freight costs are incurred by the Company and recorded within cost of revenues. For the years ended December 31, 2013, 2012 and 2011, the Company incurred shipping and handling costs of $1.3 million, $1.5 million and $1.5 million, respectively.

Fair Value of Financial Instruments

The Company measures certain financial assets and liabilities at fair value based on the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. As of December 31, 2013 and December 31, 2012, the Company's financial instruments consisted principally of cash and cash equivalents, a revolving line of credit and long-term debt. Additionally, as of December 31, 2012, the Company's financial instruments also consisted of a preferred stock warrant liability. See Note 2, “Fair Value Measurement,” to the financial statements for further information on the fair value of the Company's financial instruments.

Cash and Cash Equivalents

The Company invests its available cash balances in cash, money market funds and certificates of deposits. The Company considers all highly liquid instruments purchased with original maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents are stated at cost and the carrying amounts approximate fair value. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Additionally, the Company has established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity. See Note 6 for a discussion of Restricted Cash.

Accounts Receivable

Accounts receivable are primarily amounts due from clinical diagnostic laboratories, commercial insurance companies (including managed care organizations), governmental programs (primarily Medicare), physicians, and individual patients.

Accounts receivable are reported net of an allowance for uncollectible accounts and contractual allowance adjustments. The process of estimating the collection of accounts receivable involves significant assumptions and judgments. Specifically, the accounts receivable allowance is based on management's analysis of current and past due accounts, collection experience in relation to amounts billed, changes in reimbursement levels, known contract terms, channel mix, any specific customer collection issues that have been identified and other relevant information. The Company's provision for uncollectible accounts is recorded as bad debt expense and included in general and administrative expenses. Historically, the Company has not experienced credit loss related to its customers or payors significantly in excess of its reserves. Although the Company believes amounts provided are adequate, the ultimate amounts of uncollectible accounts receivable could be in excess of the amounts provided.

Inventories

Inventories consist of materials and spare parts to service the Vantera system. Inventories are valued at the lower of cost or net realizable value. The cost of inventories is maintained using the average-cost method.

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Property and Equipment

Property and equipment are stated at cost. Property and equipment financed under capital leases are initially recorded at the present value of minimum lease payments at the inception of the lease. Amortization of assets financed under capital leases is included with purchased property and equipment as part of depreciation and amortization.

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Property and equipment under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. Depreciable lives range from three to ten years for laboratory equipment, customer-use assets, office equipment and furniture and fixtures and three years for software.

Intangible Assets

Intangible assets include patent costs, trademark costs and technology licenses that are capitalized and amortized over estimated useful lives (generally nine to twenty years) using the straight-line method. Patent costs are expensed if the patent is not granted. On an ongoing basis, the Company assesses the recoverability of its intangible assets by determining its ability to generate undiscounted future cash flows sufficient to recover the unamortized balances over the remaining useful lives. Intangible assets determined to be unrecoverable are expensed in the period in which the determination is made.

Amortization expense on intangible assets was $22,000, $19,000 and $23,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may be impaired and assesses their recoverability based upon anticipated future cash flows. If changes in circumstances lead the Company to believe that any of its long-lived assets may be impaired, the Company will (a) evaluate the extent to which the remaining book value of the asset is recoverable by comparing the future undiscounted cash flows estimated to be associated with the asset to the asset's carrying amount and (b) write-down the carrying amount to market value or discounted cash flow value to the extent necessary.

Redeemable Convertible Preferred Stock

The Company had historically classified its redeemable convertible preferred stock, for which the Company did not control the redemption, outside of permanent equity. The Company had recorded redeemable convertible preferred stock at fair value upon issuance, net of any issuance costs or discounts, and the carrying value was increased by periodic accretion to its redemption value. These increases were effected through charges against additional paid-in capital. Upon closing of the IPO, all outstanding redeemable convertible preferred stock as well as convertible preferred stock was reclassified to additional paid-in capital. See Note 10 for further information regarding the Company's IPO.

Preferred Stock Warrant Liability

The Company had historically accounted for its freestanding warrants to purchase the Company's Series E and Series F Redeemable Convertible Preferred Stock as liabilities at fair value on the accompanying balance sheets. The warrants were subject to re-measurement at each balance sheet date, and the change in fair value, if any, was recognized as other income or expense. As a result of the IPO, the preferred stock warrant liability was reclassified to additional paid-in capital upon the conversion of warrants to purchase preferred stock into warrants to purchase common stock (see Note 11, "Preferred Stock Warrant Liability").

Concentration of Credit Risk and Other Risks

The Company derives its revenues from diagnostic testing services provided for patient care and contract research arrangements with institutional customers. The Company operates in one industry segment. Substantially all of the Company's historical revenues have been derived from the sale of the NMR LipoProfile test.

The Company's principal financial instruments subject to potential concentration of credit risk are cash equivalents and trade accounts receivable, which are unsecured. Through December 31, 2013, no material losses have been incurred.

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Revenues from customers representing 10% or more of total revenues for the respective periods, are summarized as follows:

	Year Ended December 31,
	2013		2012		2011
Health Diagnostic Laboratory	33	%	32	%	21	%
LabCorp	30		29		33

The Company’s accounts receivable due from these significant customers as a percentage of total accounts receivable was as follows as of the dates indicated:

	As of December 31,
	2013		2012
Health Diagnostic Laboratory	37	%	*
LabCorp	17		39	%

* Less than 10%.

The Company depends on a limited number of suppliers, including single-source suppliers, of various critical components used in its Vantera system and existing NMR clinical analyzers. The loss of these suppliers, or their failure to supply the Company with the necessary components on a timely basis, could cause delays in the placement of Vantera system or the diagnostic testing process and adversely affect the Company.

Research and Development Expenses

Research and development expenses include all costs associated with the development of NMR technology products and are charged to expense as incurred. Research and development expenses include direct costs and an allocation of indirect costs, including amortization, depreciation, telephone, rent, supplies, insurance and repairs and maintenance.

Financing Costs

The Company capitalizes direct financing costs, which are included as other noncurrent assets on the Company's balance sheets. The Company accretes debt discounts, which are included as a direct deduction from the face amount of the financing. Debt financing costs and debt discounts are deferred and amortized to interest expense using the effective interest method over the life of the related debt. The related expense is included in interest expense in the Company's statements of comprehensive (loss) income.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of the Company's assets and liabilities and their financial statement reported amounts. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company accounts for uncertainties in income taxes by utilizing a two-step process for evaluating tax positions to determine the amount of tax benefit to be recognized. First, the tax position is evaluated to determine whether it is more likely than not to be sustained upon examination by taxing authorities. If the tax position is deemed more likely than not to be sustained, the tax benefit is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company’s policy for recording interest and penalties related to uncertain tax provisions is to record them as a component of provision for income taxes.  The Company did not have any accrued interest or penalties associated with any unrecognized tax positions as of December 31, 2013 and 2012, and there were no such interest or penalties recognized during the years ended December 31, 2013, 2012 and 2011, respectively.

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Advertising

Advertising costs, which are included in sales and marketing expenses, are expensed as incurred. Advertising expense was $1.3 million, $0.8 million and $0.9 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Stock-Based Compensation

The Company accounts for stock-based compensation arrangements with employees and non-employee directors using a fair value method that requires the recognition of compensation expense for costs related to all stock-based payments, including stock options and restricted stock units. The fair value method requires the Company to estimate the fair value of stock options on the date of grant using an option pricing model. The fair value of restricted stock units is estimated based on the closing price of the Company's stock on the date of grant, and for the purposes of expense recognition, the total new number of shares expected to vest is adjusted for estimated forfeitures.

Stock-based compensation costs for stock options are based on the fair value of the underlying option calculated using the Black-Scholes option-pricing model on the date of grant for stock options and recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. Determining the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, forfeiture rates and expected term. The expected volatility rates are estimated based on the actual volatility of comparable public companies over the expected term. The expected term represents the average time that options are expected to be outstanding based on the mid-point between the vesting date and the end of the contractual term of the award. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has not paid dividends and does not anticipate paying a cash dividend in the foreseeable future and, accordingly, uses an expected dividend yield of zero. The risk-free interest rate is based on the rate of U.S. Treasury securities with maturities consistent with the estimated expected term of the awards. The measurement of nonemployee share-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period over which services are received.

Segment Reporting

The Company operates in one operating segment. The Company's chief operating decision maker (the “CODM”), its chief executive officer, manages the Company's operations on an integrated basis for purposes of allocating resources. When evaluating the Company's financial performance, the CODM reviews separate revenue information for the Company's patient care testing and its research services, while all other financial information is reviewed on a combined basis. All of the Company's principal operations and decision-making functions are located in the United States. Accordingly, the Company has determined that it has a single reporting segment.

Leases

Leases are classified as either capital or operating leases.   Leases that transfer substantially all the benefits and risks of ownership of the asset to the Company are accounted for as capital leases.   All other leases are accounted for as operating leases wherein rental payments are expensed in a manner that results in the total rent payments being recognized on a straight-line basis over the term of the lease. The Company records rent holidays, rent concessions and rent escalations on a straight-line basis over the lease term and records the difference between expense and cash payments as deferred rent. Leasehold improvement incentives received from landlord are recorded as deferred rent and amortized over the lease term on a straight-line basis. Deferred rent is included in other long-term liabilities on the accompanying balance sheets.

Off-Balance Sheet Arrangements

Through December 31, 2013, the Company has not entered into any off-balance sheet arrangements, other than the operating leases described in Note 14, and does not have any holdings in variable interest entities.

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Recent Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this update provide clarification, and are intended to reduce diversity in practice, on the financial statement presentation of unrecognized tax benefits. The guidance specifies that an unrecognized tax benefit (or a portion thereof) shall be presented in the financial statements as a reduction to a deferred tax asset when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. If such deferred tax asset is not available at the reporting date to settle additional income taxes resulting from the disallowance of a tax position, or the entity does not plan to use the deferred tax asset for such purpose given the option, the unrecognized tax benefit shall be presented in the financial statements as a liability and shall not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. For public companies, the amendments that are subject to this update are effective for interim and annual reporting periods beginning after December 15, 2013, with early adoption permitted. The Company’s current practice is consistent with the amendments in this update. The Company expects that the new guidance will have no material impact on the Company’s financial statements.

2. Fair Value Measurement

As a basis for determining the fair value of certain of the Company's financial instruments, the Company utilizes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

• Level I - Observable inputs such as quoted prices in active markets for identical assets or liabilities.

• Level II - Observable inputs, other than Level I prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level III - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The Company did not elect to report any of its non-financial assets or non-financial liabilities at fair value.

The fair value of the Company's revolving line of credit and long-term debt were estimated using the discounted cash flow method, which is based on the future expected cash flows, discounted to their present values, using a discount rate that approximates market rates. Such fair value measurements are categorized as Level II under the fair value hierarchy as of December 31, 2013 and 2012. The carrying value of the Company's revolving line of credit and long-term debt as of December 31, 2013 and December 31, 2012 approximated fair value because the interest rates under those obligations approximate market rates of interest available to the Company for similar instruments.

Recurring Fair Value Measurements

The Company's financial instruments that are measured at fair value on a recurring basis consist only of cash equivalents and the preferred stock warrant liability prior to the completion of the IPO. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability.

Cash equivalents

All of the Company's cash equivalents, which include certificates of deposits and money market funds, are classified within Level I of the fair value hierarchy because they are valued using quoted market prices.

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Preferred stock warrant liability

The fair value determination of the Company's preferred stock warrant liability had historically required a number of assumptions, including significant unobservable inputs that reflect the Company's own assumptions about the assumptions a market participant would use in valuing the liability, and therefore was classified within Level III of the fair value hierarchy. The significant unobservable inputs used in the fair value measurement of the Company's preferred stock warrant liability were (i) probability weighting of potential liquidity event outcomes, (ii) the implied value of the underlying preferred shares derived in the IPO scenario and (iii) the weighted average cost of capital (“WACC”). Significant increases (decreases) in the probability weighting of potential liquidity event outcomes and the implied value of the underlying preferred stock in isolation would historically resulted in a significantly higher (lower) fair value measurement. Conversely, significant increases (decreases) in the anticipated timing of a liquidity event and WACC inputs in isolation would historically resulted in a significantly lower (higher) fair value measurement.

The following table sets forth the Company's financial instruments that were measured at fair value as of December 31, 2013 and 2012 by level within the fair value hierarchy (in thousands):

	December 31, 2013						December 31, 2012
	Level I		Level III		Total		Level I		Level III		Total
Assets
Certificates of deposits	$	—	$	—	$	—	$	5,253	$	—	$	5,253
Money market funds	502		—		502		21,016		—		21,016
Total assets measured at fair value	$	502	$	—	$	502	$	26,269	$	—	$	26,269
Liabilities
Preferred stock warrant liability	$	—	$	—	$	—	$	—	$	412	$	412
Total liabilities measured at fair value	$	—	$	—	$	—	$	—	$	412	$	412

The change in the fair value of the Level III preferred stock warrant liability is summarized below (in thousands):

	Year Ended December 31,
	2013			2012			2011
Fair value at beginning of period	$	412		$	229		$	597
Issuances	—			172			36
Reclassification to additional paid in capital	(410		)	(138		)	(152		)
Change in fair value recorded in other expense	(2		)	149			(252		)
Fair value at end of period	$	—		$	412		$	229

3. Cash and Cash Equivalents

Cash and cash equivalents consist of the following as of (in thousands):

	December 31,
	2013		2012
Cash	$	49,574	$	4
Certificates of deposit	—		5,253
Money market funds	—		19,511
Total cash and cash equivalents	$	49,574	$	24,768

The Company has an arrangement with its primary bank that excess cash balances are transferred daily to an overnight sweep deposits account. At December 31, 2013, the balance in the overnight sweep deposits account totaling $6.3 million was invested in bank deposits which are classified as cash on the Company's balance sheet. At December 31, 2012, the balance in the overnight sweep deposits account totaling $19.5 million was invested in shares of a money market fund.

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4. Accounts Receivable and Revenues

Accounts receivable, net, consists of the following as of (in thousands):

	December 31,
	2013			2012
Accounts receivable	$	6,760		$	6,526
Less allowance for uncollectible accounts receivable	(939		)	(1,377		)
Accounts receivable, net	$	5,821		$	5,149

Activity for the allowance for uncollectible accounts receivable is as follows (in thousands):

	Year Ended December 31,
	2013			2012
Balance at beginning of period	$	1,377		$	1,676
Provision for bad debt expense	212			818
Write-off, net of recoveries	(650		)	(1,117		)
Balance at end of period	$	939		$	1,377

Revenues consist of the following (in thousands):

	Year Ended December 31,
	2013			2012			2011
Gross billings	$	53,751		$	56,603		$	48,292
Less contractual adjustments	(1,368		)	(1,805		)	(2,485		)
Revenues	$	52,383		$	54,798		$	45,807

5. Property and Equipment

Property and equipment consists of the following as of (in thousands):

	December 31,
	2013			2012
Laboratory equipment	$	9,929		$	9,415
Office equipment, furniture and fixtures	3,535			3,497
Leasehold improvements	3,229			2,652
Software	2,218			1,793
Customer-use assets	841			—
Construction in progress	6,811			5,778
	26,563			23,135
Less accumulated depreciation	(12,608		)	(11,642		)
Property and equipment, net	$	13,955		$	11,493

Customer-use assets represent the Company's Vantera system placed at customer sites, to which title and risk of loss is retained by the Company, for the customer's use in performing the NMR LipoProfile tests sold by the Company.

For the years ended December 31, 2013, 2012 and 2011, the Company recorded depreciation expense of $1.6 million, $1.3 million and $0.5 million, respectively.

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During the year ended December 31, 2013, the Company recognized a $0.4 million loss on sale of assets, measured at fair value less cost to sell, in connection with the sale of a Vantera system to a medical research center for research and development purposes. This loss on sale of assets is recorded as research and development expense within the statement of comprehensive (loss) income. Additionally, the Company retired substantially depreciated assets during the year ended December 31, 2013 with a net book value of approximately $47,000.

For the year ended December 31, 2012, the Company disposed of $30,000 of damaged assets. There was no such loss on disposal for the year ended December 31, 2011.

6. Restricted Cash

As of December 31, 2013 and December 31, 2012, money market funds totaling $0.5 million and certificates of deposit totaling $1.5 million, respectively, were pledged as security for the Company's office and laboratory space operating lease. These funds may be released by the bank upon the achievement of minimum sales and cash flow levels and upon the satisfaction of specified financial ratios.

7. Accrued Expenses

Accrued expenses consist of the following as of (in thousands):

	December 31,
	2013		2012
Accrued wages and benefits	$	1,893	$	1,541
Accrued bonus	589		2,200
Other accrued liabilities	1,262		1,608
Total accrued expenses	$	3,744	$	5,349

8. Long-Term Debt and Line of Credit

The Company had total debt with a carrying value of $15.8 million and $15.7 million as of December 31, 2013 and 2012, respectively. Long-term debt consists of the following (in thousands):

	December 31,
	2013			2012
Long-term debt to financial institutions	$	16,000		$	16,000
Less unamortized debt discount	(184		)	(292		)
Long-term debt, less unamortized debt discount	$	15,816		$	15,708

Credit Facility

On December 20, 2012, the Company entered into a credit facility with Square 1 and Oxford Finance and repaid the outstanding balance under a previous facility. The current credit facility consists of $16.0 million in term loans and a revolving line of credit of up to $6.0 million in borrowing capacity, subject to certain limitations relating to the Company's eligible accounts receivable. In connection with entering into the current credit facility, the Company issued warrants to these financial institutions to purchase an aggregate of 73,564 shares of Series E redeemable convertible preferred stock at an exercise price of $4.35 per share. The Company determined the fair value of the warrants at issuance to be $0.2 million. In connection with the IPO, the warrants converted into warrants to purchase common stock (see Note 11, "Preferred Stock Warrant Liability"). At December 31, 2013, total unamortized debt issuance costs incurred in connection with the current credit facility were $64,000.

As of December 31, 2013, under the credit facility, the term loans carry interest at a fixed annual rate of 9.5% and are payable in monthly installments of interest only through January 2014 and then principal and interest thereafter in monthly installments through July 2016. Advances under the revolving line of credit, which matures in January 2014, carry a variable interest rate equal to the greater of 6.25% or the institution's prime rate plus 3.0%.

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As of December 31, 2012, the Company had borrowed $5.0 million under the revolving line of credit. During the three months ended March 31, 2013, the Company paid off outstanding balances under the revolving line of credit and there was no amount outstanding as of December 31, 2013.

Borrowings under the credit facility are secured by substantially all of the Company's tangible assets. The covenants set forth in the loan and security agreement require, among other things, that the Company maintain a specified liquidity ratio, measured monthly, that begins at 1.25 and is reduced to 1.0 over the term of the credit facility. The Company is also required to achieve minimum three-month trailing revenue levels relative to projections approved by the Company's Board of Directors (2013 Revenue to Plan Covenant), and beginning in 2014 such three-month trailing revenue levels must also be equal to or greater than the revenues for the same period for the prior year (2014 Revenue to Plan Covenant).

In June 2013, the Company discovered that it had failed to comply with the covenant set forth in the loan agreement related to minimum three-month trailing revenue levels against prior period for the measuring periods from March 2013 to May 2013. On June 11, 2013, the Company entered into a first amendment to the loan agreement to waive the noncompliance with this covenant for the measuring periods described above, and to eliminate the necessity of complying with this financial covenant through the end of 2013.

The Company executed a second amendment to the loan agreement, with an effective date as of October 31, 2013, to amend the 2013 Revenue to Plan Covenant with a minimum annual revenue level for 2013 of at least $50 million, and to modify the projected annual revenue levels to be at least $55 million under the 2014 Revenue to Plan Covenant. In addition, the maturity date for advances under the revolving line of credit was extended to January 19, 2014 from December 19, 2013. As of December 31, 2013 and 2012, the Company was in compliance with all financial and non-financial covenants under this credit facility, as modified.

On January 19, 2014, the Company entered into a third amendment to the loan agreement. Under the loan agreement as amended, the Company must maintain a minimum revenue level for 2014 measured monthly on a trailing 12 month basis, that begins at $50 million and is reduced to $45 million through December 2014, as its 2014 Revenue to Plan Covenant and must also comply with certain monthly reporting covenants. The term loans continue to carry interest at a fixed annual rate of 9.5%, however as a result of the third amendment, are payable in monthly installments of interest only through January 2015 and then principal and interest thereafter in monthly installments through July 2017. In addition, the maturity date for advances under the revolving line of credit has been extended from January 19, 2014 to February 19, 2015. As a result of the third amendment, which extended the period of time when principal payments are due past December 31, 2014, the current amount outstanding under the loan agreement at December 31, 2013 was classified as long term on the balance sheet.

As of December 31, 2013, the annual principal payments on long-term debt and revolving line of credit reflecting the third amendment mentioned above, are as follows (in thousands):

2014	$	—
2015	5,432
2016	6,489
2017	4,079
	$	16,000

See Note 16 for subsequent event leading to the reclassification of the long term debt to current classification.

9. Net (Loss) Income Per Share

Net (Loss) Income Per Share

The Company computes basic net (loss) income per share by dividing net (loss) income by the weighted average number of shares of common stock outstanding for the period, without consideration for common share equivalents. Diluted net (loss) income per share is computed on the basis of the weighted average number of shares of common stock plus dilutive potential common share equivalents during the period, consisting of incremental common shares deemed outstanding from the assumed exercise of common stock options, warrants and restricted stock units. The dilutive effect of common share equivalents is reflected in diluted earnings per shares by application of treasury stock method. Under the treasury stock method, earnings per share data is computed as if the common share equivalents were outstanding at the beginning of the period (or at the time of issuance, if later) and as if the funds obtained from exercise of the common share equivalents were used to purchase common stock at the average market price during the period.

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Prior to the IPO, the Company computed net (loss) income per share in accordance with the accounting guidance regarding the computation of earnings or net loss per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in earnings and dividends. Basic net (loss) income per share was computed by dividing net (loss) income allocable to common stockholders, which was net (loss) income after deduction of any required returns to preferred stockholders prior to paying dividends to the common stock and assuming current income for the period had been distributed based on the respective rights of the common and preferred stockholders to receive dividends, by the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) income per share was computed on the basis of the weighted average number of shares of common stock plus dilutive potential common shares outstanding during the period. Since the Company's participating preferred stock was not contractually required to share in the Company's losses, in applying the two-class method to compute basic net (loss) income per share, no allocation was made to preferred stock if a net loss existed.

Because of their anti-dilutive effect, the following common stock equivalents, consisting of convertible preferred shares, redeemable convertible preferred shares, common stock options, warrants and restricted stock units, have been excluded from the diluted loss per share calculations for the respective periods presented:

	Year Ended December 31,
Anti-Dilutive Common Share Equivalents:	2013	2012	2011
Convertible Preferred Stock (Series A, A-1, B, B-1, C, and C-1)	—	1,222,211	1,222,211
Redeemable Convertible Preferred Stock (Series D, D-1, E and F)	—	5,772,348	5,763,606
Common Stock Options and Warrants	1,730,067	382,869	2,266,155
Restricted Stock Units	108,208	—	69,821
	1,838,275	7,377,428	9,321,793

A reconciliation of the numerator and denominator used in the computation of basic and diluted net (loss) income per share allocable to common stockholders follows (in thousands, except share and per share data):

	Year Ended December 31,
	2013			2012			2011
Historical net (loss) income per share:
Numerator:
Net (loss) income	$	(12,535	)	$	1,250		$	(548	)
Less: Accrual of dividends on Series F redeemable convertible preferred stock	—			—			(613		)
Less: Undistributed earnings allocated to participating preferred shares	—			(1,004		)	—
Net (loss) income attributable to common stockholders – basic	(12,535		)	246			(1,161		)
Add: Undistributed earnings re-allocated to common stockholders	—			113			—
Net (loss) income attributable to common stockholders – diluted	$	(12,535	)	$	359		$	(1,161	)
Denominator:
Weighted average common shares outstanding – basic	14,819,787			1,715,408			1,674,018
Dilutive effect of common stock equivalent shares resulting from common stock options and warrants	—			1,098,915			—
Weighted average common shares outstanding – diluted	14,819,787			2,814,323			1,674,018
Net (loss) income per common share:
Net (loss) income per share attributable to common stockholders – basic	$	(0.85	)	$	0.14		$	(0.69	)
Net (loss) income per share attributable to common stockholders – diluted	$	(0.85	)	$	0.13		$	(0.69	)

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10. Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders’ Equity

Stockholders’ Equity

On January 10, 2013, the Company effected a 0.485-for-1 reverse stock split of the Company's outstanding common stock, which resulted in an adjustment to the preferred stock conversion price to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. Accordingly, all shares and per share amounts for all periods presented in the accompanying financial statements and notes to financial statements have been adjusted retroactively, where applicable, to reflect the reverse stock split and adjustment of the preferred share conversion ratios.

On January 30, 2013, the Company completed its IPO, which resulted in the sale of 5,750,000 shares of its common stock in the IPO, at a price to the public of $9.00 per share, for aggregate gross proceeds of $51.8 million. The Company raised a total of $44.4 million in net proceeds after deducting underwriting discounts and commissions of $3.4 million and offering costs of $4.0 million. Some of the $4.0 million of offering costs were paid prior to the closing of the IPO. Legal, accounting and other costs directly associated with the IPO were capitalized and recorded as deferred offering costs prior to the closing of the IPO. The total offering costs and underwriting discount and commissions of $7.4 million were reclassified to additional paid-in capital upon the closing of the IPO.

12,892,682 shares of the Company's outstanding preferred stock were automatically converted into a total of 6,994,559 shares of its common stock, and the then-outstanding preferred stock warrant liability was reclassified to additional paid-in capital upon the conversion of warrants to purchase preferred stock into warrants to purchase common stock. As of December 31, 2013, there were 15,188,861 shares of common stock outstanding.

Each share of common stock has the right to one vote per share. The holders of common stock are also entitled to receive dividends as and when declared by the Company’s Board of Directors, whenever funds are legally available.

Convertible Preferred Stock

As of December 31, 2012, there were 3,428,677 shares designated and 1,687,010 shares issued and outstanding of Series A, A-1, B, B-1, C and C-1 Convertible Preferred Stock, with an aggregate liquidation preference of $7.5 million.

Upon the closing of the IPO, all outstanding shares of the Company’s convertible preferred stock were converted into 1,222,211 shares of common stock.

Redeemable Convertible Preferred Stock

Redeemable Convertible Preferred Stock consisted of the following as of December 31, 2012 (in thousands):

	Authorized	Issued and Outstanding	Liquidation Preference		Carrying Value		Common Stock Issuable Upon Conversion
Series D Redeemable Convertible Preferred Stock	3,544	500	$	2,612	$	2,612	291
Series D-1 Redeemable Convertible Preferred Stock	3,480	2,980	15,556		15,556		1,734
Series E Redeemable Convertible Preferred Stock	5,059	4,719	20,527		20,795		2,289
Series F Redeemable Convertible Preferred Stock	3,133	3,006	13,000		18,338		1,458
	15,216	11,205	$	51,695	$	57,301	5,772

Upon the closing of the IPO, all outstanding shares of the Company’s redeemable convertible preferred stock were converted into 5,772,348 shares of common stock.

Prior to the conversion, the holders of the Convertible and Redeemable Convertible Preferred Stock had the following rights and preferences:

Voting Rights - The holders of preferred stock had the right to vote based on the number of common shares they would receive upon conversion.

Transfer Restrictions - The holders of each share of preferred stock were subject to transfer restrictions.

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Dividends  - The holders of Series F Preferred Stock were entitled to receive prior, and in preference to, the holders of any other class or series of capital stock of the Company, dividends at the rate of $0.348 per annum per share of the Series F Preferred Stock (the Series F Dividend), payable in cash and out of funds legally available. The Series F Dividend was cumulative and accrued on a daily basis for a period of five years from the original issue date of the Series F Preferred Stock to its maximum of $5.2 million, which occurred on August 2, 2011. The balance of this Series F Dividend was reflected in the carrying amount of Series F on the balance sheet as of December 31, 2012. Concurrently with the closing of the IPO, the Company paid $5.2 million to holders of its Series F redeemable convertible preferred stock in full satisfaction of accrued dividends on such shares immediately prior to their conversion to common stock. Holders of Series E, D, and D-1 were entitled to receive, out of funds legally available, noncumulative dividends at a rate of 8% per annum of the original price per share, if declared by the Board of Directors of the Corporation. No dividends have been declared or paid by the Company through conversion date.

Liquidation - All Redeemable Convertible Preferred Stock had a liquidation preference of its original conversion price per share and any amount equal to declared or accrued but unpaid dividends. Other Convertible Preferred Stock had a liquidation preference of its original purchase price per share and any amount equal to declared or accrued but unpaid dividends. In the event the Company was liquidated, holders of Series F Preferred Stock were entitled to receive their liquidation preference, before any distribution or payment to the other preferred stockholders or holders of the common stock. Any remaining assets or surplus after payment to Series F holders were to be distributed to the holders of the Company's other series of preferred stock with liquidation terms as defined in the Company's certificate of incorporation, as amended and restated.

Conversion - Each share of preferred stock was convertible into common stock at the option of the holder at any time after the date of issuance and without payment of additional consideration. Each share of the preferred stock automatically converted into shares of common stock at the applicable conversion price upon the closing of the IPO. The conversion price for Series A-1, B-1, C-1, D-1, E and F were subject to a full-ratchet dilution adjustment in the event the Company issues additional securities at a purchase price less than the applicable conversion price for each series. The original conversion price was the amount of consideration received for each share of preferred stock. No full-ratchet dilution adjustment was required through conversion date. The adjusted conversion price upon the IPO was adjusted for the 0.485-for-1 reverse stock split effected on January 10, 2013. Upon the closing of the IPO, the adjusted conversion prices per share ranged from $3.87 to $8.97.

Preemptive Rights - The holders of preferred stock were not entitled to preemptive rights to acquire or subscribe for additional shares of securities that the Company authorizes to be issued. The holders of Series D, D-1, E and F had contractual rights of first refusal (which expire upon a Qualified Public Offering) to participate in certain future offerings of stock by the Company on a pro rata basis.

Redemption - At any time on or after on August 2, 2011, the holders of at least 40% of the issued and outstanding shares of Series D, D-1, E and F (the Electing Holders) could request the Company redeem all of their shares of each Series at a price for each share equal to its original purchase price (subject to adjustment in the event of stock dividends, stock splits, combinations, etc.), plus any accrued but unpaid dividends. Upon election by the Electing Holders to redeem their shares of Series D, D-1, E or F, the Company should pay cash to the holders for the redemption value in three equal installments over three years at an interest rate of 8% per annum from the date of the initial payment until the redemption amount is paid in full. No redemption was requested through conversion date.

Common Stock Reserved for Future Issuance

The Company had reserved shares of common stock for future issuance as summarized in the table below.

	December 31, 2013
Outstanding Common Stock Warrants	78,741
Outstanding employee stock options	1,651,326
Unvested restricted stock units	108,208
Shares authorized under Employee Stock Purchase Plan (ESPP)	242,500
Possible future issuance under stock option plan	449,659
Total shares reserved	2,530,434

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11. Equity Transactions and Share-Based Compensation

Preferred Stock Warrant Liability

Prior to the IPO, the Company accounted for its freestanding warrants to purchase the Company's Series E and Series F Redeemable Convertible Preferred Stock as liabilities at fair value on its balance sheets. The warrants were subject to re-measurement at each balance sheet date, and the change in fair value, if any, was recognized as other expense. The Company estimated the fair value of these warrants at the respective balance sheet dates using the Black-Scholes option pricing model. The estimated fair value of the Company, calculated at each valuation date, was allocated to the shares of redeemable convertible preferred stock, convertible preferred stock, warrants to purchase shares of redeemable convertible preferred stock, and common stock, using a “hybrid” approach of the probability-weighted expected return method and the option pricing model. This approach treats the various components of the Company's capital structure as a series of call options on the proceeds expected from the sale of the Company or the liquidation of the Company's assets in the future. This approach defines the securities' fair values as functions of the current fair value of the Company and assumptions based on the securities' rights and preferences. These call options were then valued using the Black-Scholes option pricing model. As a result, the option-pricing model requires a number of assumptions to estimate the fair value including the anticipated timing of a potential liquidity event, such as an initial public offering, remaining contractual terms of the warrant, risk-free interest rates, expected dividend yield and the estimated volatility of the price of the underlying securities. The anticipated timing of a liquidity event utilized in these valuations was based on then current plans and estimates of the Company's board of directors and management regarding the IPO. These assumptions were highly judgmental.

The fair values of outstanding Series E and Series F Redeemable Convertible Preferred Stock warrants were estimated using the Black-Scholes option-pricing model with the following assumptions as of:

	Year Ended December 31,
	2012		2011
Expected term (in years)	0.25-0.5		0.5-1.0
Risk-free interest rate	0.0%-0.1%		0.1%-0.6%
Expected volatility	30	%	36	%
Expected dividend rate	0	%	0	%

The Company adjusted the liability for changes in fair value until the earlier of (i) exercise of the warrants, (ii) conversion of the warrants into warrants to purchase common stock upon an event such as the completion of the IPO or (iii) expiration of the warrants. Upon the completion of the IPO in January 2013, all warrants to purchase redeemable convertible preferred stock were converted into warrants to purchase common stock, and the preferred stock warrant liability was reclassified into additional paid-in capital at its then fair value of $0.4 million.

Common Stock Warrants

As of December 31, 2013, the following warrants to purchase common stock were outstanding:

Issuance Date	Number of Shares	Exercise Price	Expiration Date
2/7/2008	36,375	8.97	2/7/2015
3/31/2011	6,689	8.97	3/31/2018
12/20/2012	35,677	8.97	12/20/2022

These warrants are exercisable at any time upon their issuance date.

Equity Incentive Plans

On September 12, 1997, the Company's Board of Directors adopted the Stock Option Plan (the "1997 Plan") to create an additional incentive for key employees, directors and consultants or advisors of the Company. Both incentive stock options, which meet the requirements of Section 422 of the Internal Revenue Code, and nonqualified stock options, could be granted under the 1997 Plan. The 1997 Plan expired on September 12, 2007.

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On October 25, 2007, the Company's Board of Directors adopted the 2007 Stock Incentive Plan (the "2007 Plan") to replace the expired 1997 Plan. The terms of the 2007 Plan are consistent with those of the 1997 Plan. On May 24, 2012, the Company's Board of Directors adopted, and stockholders subsequently approved, the 2012 Equity Incentive Plan (the "2012 Plan"). The 2012 Plan became effective immediately upon the completion of the IPO in January 2013, and no further shares may be issued under the 2007 Plan. In addition to grants of incentive stock options and nonqualified stock options (collectively, the "stock options"), the 2012 Plan also allows the Company to grant stock appreciation rights, restricted stock awards, restricted stock units ("RSUs"), performance-based stock or cash awards to key employees, directors and consultants or advisors of the Company. A maximum of 970,000 shares of the Company's common stock are reserved for issuance under the 2012 Plan, subject to adjustments for stock splits, stock dividends, evergreen feature and comparable restructuring activities. The 2012 Plan will terminate on May 24, 2022, unless sooner terminated by the Company's Board of Directors. To date, the Company's Board of Directors granted only stock options and RSUs. A maximum of 242,500 shares of the Company's common stock are reserved for issuance under the 2012 Employee Stock Purchase Plan (the "ESPP"). As of December 31, 2013, the Company has not granted any purchase rights under the ESPP.

The exercise price of all stock options and RSUs was determined by the Board of Directors, provided that such price for stock options was not to be less than the estimated fair market value of the Company’s stock on the date of grant. The stock options vest based on terms in the stock option agreements (generally over four years) and are exercisable after they have been granted for up to ten years from the date of grant. The RSUs granted to the Company's employees generally vest 100% on the three-year anniversary of the grant date. The RSUs granted to non-employee directors generally vest quarterly over a one-year period from the date of grant.

Stock Options

The following table summarizes stock option activity under the Company’s 1997 Plan, 2007 Plan and 2012 Plan for the year ended December 31, 2013:

	Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (Thousands)
Outstanding at December 31, 2012	2,056,849		$	5.55
Granted	513,444		8.00
Exercised	(537,177	)	2.95
Expired	(195,144	)	7.03
Forfeited	(186,646	)	10.04
Outstanding at December 31, 2013	1,651,326		$	6.48	$	864
Exercisable at December 31, 2013	1,234,900		$	5.79	$	864
Outstanding Vested and Expected to Vest at December 31, 2013	1,608,389		$	6.42	$	864

The aggregate intrinsic value represents the pre-tax intrinsic value, which is computed based on the difference between the exercise price and the estimated fair market value or the closing stock price as of December 31(the last day of trading for our calendar year end), and which represents the amount that would have been received by the option holders had all option holders exercised their stock options as of that date. The aggregate intrinsic value of options exercised for the years ended December 31, 2013, 2012 and 2011 was $1.4 million, $3.4 million and $0.4 million, respectively.

As of December 31, 2013, there were 449,659 shares available to be granted under the stock option plans discussed above.

The Company estimates the fair value of its stock options on the grant date using the Black-Scholes option pricing model. The fair value of both employee and non-employee director options is then amortized on a straight-line basis over the requisite service period of the awards. The exercise prices of all stock options granted was equal to the closing market price of the underlying common stock on the grant date. The weighted average assumptions used in the Black-Scholes valuation model for equity awards granted for the twelve months ended December 31, 2013 and 2012 are shown in the table below. As of December 31, 2013, there was $1.3 million of unrecognized compensation expense, net of estimated forfeitures, related to non-vested stock options, which is expected to be recognized over a weighted-average period of 2.3 years.

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The Company determined the options' life based upon the use of the simplified method. As a newly public company, sufficient history to estimate the volatility and dividend yield of the Company's common stock is not available. The Company elected to utilize a peer group of comparable companies as a basis for the expected volatility assumption and dividend yield. The Company intends to continue to consistently apply this process using the peer group of comparable companies until a sufficient amount of historical information becomes available. The risk-free interest rate is based upon the yield of an applicable U.S. Treasury instrument. The weighted average grant date fair value per share of options granted for the years ended December 31, 2013, 2012 and 2011 was $3.52, $5.18 and $3.78, respectively.

The fair value of these stock options was estimated using the following weighted average assumptions:

	Year Ended December 31,
	2013		2012		2011
Expected dividend yield	0.0	%	0.0	%	0.0	%
Risk-free interest rate	1.2	%	0.8	%	2.0	%
Expected volatility	45.5	%	50.0	%	50.3	%
Expected life (in years)	5.8		5.6		5.6

The following table summarizes information about stock options outstanding as of December 31, 2013:

	Total Options Outstanding			Options Exercisable
Range of Exercise Prices	Number of Options	Weighted Average Exercise Price	Weighted Average Remaining Life in Years	Number of Options	Weighted Average Exercise Price	Weighted Average Remaining Life in Years
$1.87 – $2.45	259,547	$2.36		259,547	$2.36
$2.49	198,155	2.49		198,155	2.49
$3.88 – $4.23	98,527	4.00		98,527	4.00
$5.04 – $5.55	171,319	5.25		82,537	5.14
$5.63 – $5.98	143,147	5.68		113,855	5.63
$6.68 - $6.89	217,378	6.83		169,321	6.84
$9.01	58,103	9.01		41,985	9.01
$9.65 – $9.84	226,278	9.69		67,236	9.74
$11.11 – $11.44	201,466	11.40		155,327	11.39
$12.80	77,406	12.80		48,410	12.80
	1,651,326	6.48	6.8	1,234,900	5.79	6.0

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Restricted Stock Units

Each RSU represents the contingent right to receive one share of common stock of the Company. The following table summarizes RSU activity under the Company's 2012 Plan for the year ended December 31, 2013:

	Number of Awards		Weighted Average Grant-Date Fair Value
Nonvested balance at December 31, 2012	—		$	—
Granted	142,869		7.07
Vested	(12,848	)	5.88
Forfeited	(21,813	)	9.65
Nonvested balance at December 31, 2013	108,208		$	6.70

The total fair value shares of outstanding common stock issued upon the vesting and settlement of RSUs during the year ended December 31, 2013 was $64,000.

The fair value of RSUs is estimated based on the closing price of the underlying common stock on the date of grant. For the purposes of expense recognition, the total number of shares expected to vest is adjusted for estimated forfeitures and the expense is recognized on a straight-line basis over the requisite service period. As of December 31, 2013, there was $0.3 million of unrecognized compensation expense, net of estimated forfeitures, related to unvested RSUs, which is expected to be recognized over a weighted-average period of 2.1 years.

Performance-based Restricted Stock Units

As of December 31, 2013, approximately 60,000 shares of performance-based restricted stock awards remained outstanding. These awards, granted in fiscal 2013, were granted to the Company’s Vice President of Sales, and will vest at levels ranging from 0% of shares granted to 100% of shares granted, dependent upon the achievement of certain revenue performance metrics for a term through the end of fiscal 2016.  No share based compensation expense was recognized through December 31, 2013.

For the years ended December 31, 2013, 2012 and 2011, the Company recorded stock-based compensation expense in the amount of $1.4 million, $1.2 million and $0.7 million, respectively. Net cash provided by operating and financing activities was unchanged by stock option activity for the years ended December 31, 2013, 2012 and 2011, as there were no excess tax benefits from stock-based compensation plans.

The Company recognized non-cash stock-based compensation expense, for both RSUs and stock options, to employees in its research and development, sales and marketing and general and administrative functions as follows (in thousands):

	Year Ended December 31,
	2013		2012		2011
Cost of revenues	$	38	$	46	$	8
Research and development	493		454		155
Sales and marketing	208		255		217
General and administrative	660		435		271
Total:	$	1,399	$	1,190	$	651

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12. Income Taxes

The Company recorded no provision for income taxes during the years ended December 31, 2013, 2012 and 2011.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows as of (in thousands):

	December 31,
	2013			2012
Deferred tax assets (liabilities):
Net operating loss carryforwards	$	15,660		$	11,255
Research and development credits	2,691			1,963
Stock-based compensation	742			1,851
Allowance for uncollectible accounts receivable	291			471
Deferred rent	877			952
Accrued compensation	240			1,044
Depreciation and amortization	(1,153		)	(1,167		)
Other	208			165
Total deferred tax assets, net	19,556			16,534
Valuation allowance	(19,556		)	(16,534		)
Net deferred tax asset	$	—		$	—

At December 31, 2013 and 2012, the Company had federal net operating loss carryforwards of approximately $45.6 million and $32.9 million, respectively, state net economic loss carryforwards of approximately $41.4 million and $29.1 million, respectively, and research and development credit carryforwards of approximately $2.7 million and $2.0 million, respectively. The federal and state net operating loss carryforwards begin to expire in 2018 and 2015, respectively, and the research and development credit carryforwards begin to expire in 2018. The Company's federal and state net operating loss carryforwards include $3.3 million of excess tax benefits related to deductions from the exercise of nonqualified stock options. The tax benefit of these deductions has not been recognized in deferred tax assets. If utilized, the benefits from these deductions will be recorded as adjustments to additional paid-in capital. During 2013, the Company recorded approximately $1.1 million of adjustments to decrease deferred tax assets related to stock option activity from prior periods. As the Company is in a full valuation allowance position, there was no impact on net loss for the year ended December 31, 2013. For financial reporting purposes, a valuation allowance has been recognized to fully offset the deferred tax assets related to the carryforwards, based on the Company's assessment regarding the realizability of these net deferred tax assets in future periods. The total increase in valuation allowance of $3.0 million was allocable to current operating activities. The utilization of the loss carryforwards to reduce future income taxes will depend on the Company's ability to generate sufficient taxable income prior to the expiration of the loss carryforwards. In addition, the maximum annual use of net operating loss and research credit carryforwards is limited in certain situations where changes occur in stock ownership. There was no recognized tax benefit related to net operating loss carryforwards for the year ended December 31, 2013. The recognized tax benefit related to net operating loss carryforwards was approximately $0.4 million and $38,000 for the years ended December 31, 2012 and 2011, respectively.

The research and development credit, which had previously expired on December 31, 2011, was reinstated as part of the American Taxpayer Relief Act of 2012 enacted on January 2, 2013. This legislation retroactively reinstated and extended the credit from the previous expiration date through December 31, 2013. As a result, the Company adjusted its deferred tax assets in 2013 for the 2013 and 2012 research and development credits, which resulted in an increase to the deferred tax assets and a corresponding increase to the valuation allowance of $0.5 million and $0.4 million, respectively.

On July 23, 2013, North Carolina enacted House Bill 998, which reduced the corporate income tax rate from 6.9% in 2013 to 6% in 2014 and to 5% in 2015. As a result of the new enacted tax rate, the Company adjusted its deferred tax assets in 2013 by applying the lower rate, which resulted in a decrease to the deferred tax assets and a corresponding decrease to the valuation allowance of approximately $0.4 million.

88

The Small Business Jobs Act of 2010 was enacted on September 27, 2010. The new law allows research and development tax credits to offset both federal regular tax and federal alternative minimum tax of eligible small businesses. The provision is effective for any research and development credits generated during the tax year ended December 31, 2010 and to any carryback of such credits. The Company has determined that it qualifies as an eligible small business under these provisions and was able to offset its federal alternative minimum tax liability for the tax year ended December 31, 2012.

Taxes computed at the statutory federal income tax rate of 34% are reconciled to the provision for (benefit from) income taxes are as follows (in thousands):

	Year Ended December 31,
	2013					2012					2011
	Amount			% of Pretax Earnings		Amount			% of Pretax Earnings		Amount			% of Pretax Earnings
United States federal tax at statutory rate	$	(4,262	)	34.0	%	$	425		34.0	%	$	(186	)	34.0	%
State taxes (net of federal benefit)	(371		)	3.0		51			4.1		(25		)	4.5
Research and development credits	(912		)	7.3		15			1.2		(386		)	70.4
Meals & entertainment	314			(2.5	)	271			21.7		272			(49.7	)
Stock based compensation	230			(1.8	)	214			17.1		151			(27.6	)
Change in preferred stock warrant liability	(1		)	—		57			4.5		(97		)	17.7
Other nondeductible expenses	218			(1.7	)	—			—		98			(17.8	)
Stock compensation deferred tax asset adjustment	1,072			(8.6	)	—			—		—			—
Increase in unrecognized tax benefits	121			(1.0	)	—			—		51			(9.3	)
Change in valuation allowance	3,022			(24.1	)	(1,069		)	(85.5	)	126			(22.9	)
Other	569			(4.6	)	36			2.9		(4		)	0.7
Provision for (benefit from) income taxes	$	—		—	%	$	—		—	%	$	—		—	%

The Company had gross unrecognized tax benefits of approximately $0.4 million as of January 1, 2013. As of December 31, 2013, the total gross unrecognized tax benefits were approximately $0.5 million and of this total, none would reduce the Company’s effective tax rate if recognized. The Company does not anticipate a significant change in total unrecognized tax benefits or the Company’s effective tax rate due to the settlement of audits or the expiration of statutes of limitations within the next twelve months. Furthermore, the Company does not expect any cash settlement with the taxing authorities as a result of these unrecognized tax benefits as the Company has sufficient unutilized carryforward attributes to offset the tax impact of these adjustments.

The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes. As of December 31, 2013 and 2012, the Company had no accrued interest or penalties related to uncertain tax positions.

The Company has analyzed its filing positions in all significant federal, state and foreign jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. With few exceptions, the Company is no longer subject to US Federal and state and local tax examinations by tax authorities for years prior to 2010, although carryforward attributes that were generated prior to 2010 may still be adjusted upon examination by the IRS if they either have been or will be used in a future period. No income tax returns are currently under examination by taxing authorities.

89

The following is a tabular reconciliation of the Company's change in gross unrecognized tax positions (in thousands):

	Year Ended December 31,
	2013		2012		2011
Beginning balance	$	369	$	369	$	327
Gross decreases for tax positions related to current periods	—		—		(9		)
Gross increases for tax positions related to current periods	121		—		51
Ending balance	$	490	$	369	$	369

13. Employee Benefit Plan

The Company has adopted a defined contribution plan (the "Employee Benefit Plan") that qualifies under Section 401(k) of the Internal Revenue Code. All employees of the Company who have attained 21 years of age are eligible for participation in the Employee Benefit Plan after thirty days of employment.

Under the Employee Benefit Plan, participating employees may defer up to the Internal Revenue Service annual contribution limit. On July 1, 2012, the Company increased its employer match from 25% to 50% of the first 6% that an eligible participant contributes each year. The Company paid $0.7 million, $0.4 million and $0.2 million during the years ended December 31, 2013, 2012 and 2011, respectively, in employer match contributions to the Employee Benefit Plan.

14. Commitments and Contingencies

Leases

The Company leases an aggregate of approximately 83,000 square feet of office and laboratory space under a long-term lease agreement that expires on September 30, 2022. The lease contains fixed scheduled rent escalations, $0.9 million of rent concession and $1.8 million of leasehold improvement incentives. In connection with the lease, the Company obtained a $1.5 million letter of credit secured by restricted cash (see Note 6). In June 2013, the required amount for the letter of credit secured by restricted cash was reduced to $0.5 million. The Company also leases office equipment and software licenses through operating leases.

Future minimum lease payments required under the non-cancelable operating leases in effect as of December 31, 2013 are as follows (in thousands):

2014	$	1,239
2015	1,272
2016	1,310
2017	1,022
2018	1,361
Thereafter	5,309
Total minimum lease payments	$	11,513

Rent expense is calculated on a straight-line basis over the term of the lease. The Company incurred rent expense of $1.1 million, $1.2 million and $1.2 million during the years ended December 31, 2013, 2012 and 2011, respectively.

Legal Contingencies

The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company's management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.

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Indemnification

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company's exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but that have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. The Company may, however, record charges in the future as a result of these indemnification obligations.

In accordance with its Certificate of Incorporation and Bylaws, the Company has indemnification obligations to its directors, and has the authority to indemnify its officers and employees, for certain events or occurrences, subject to certain limits, while they are serving at the Company's request in such capacity. There have been no claims to date, and the Company has director and officer insurance that enables it to recover a portion of any amounts paid for future potential claims.

In addition to the indemnification provided for in its Certificate of Incorporation and Bylaws, the Company has also entered into separate indemnification agreements with each of its directors, which agreements provide such directors with indemnification rights under certain circumstances.

15. Quarterly Results of Operations

The following is a summary of the unaudited quarterly results of operations (in thousands):

	Quarterly Period Ended
	March 31, 2013			June 30, 2013			September 30, 2013			December 31, 2013
Revenues	$	13,616		$	13,311		$	12,738		$	12,718
Gross profit	10,766			10,695			10,130			10,050
Loss from operations	(2,332		)	(1,995		)	(4,179		)	(2,174		)
Net loss	(2,848		)	(2,444		)	(4,627		)	(2,616		)
Net loss attributable to common stockholders – basic(1)	(2,848		)	(2,444		)	(4,627		)	(2,616		)
Net loss attributable to common stockholders – diluted(1)	(2,848		)	(2,444		)	(4,627		)	(2,616		)
Net loss per share attributable to common stockholders – basic(1)	(0.19		)	(0.17		)	(0.31		)	(0.17		)
Net loss per share attributable to common stockholders – diluted(1)	(0.19		)	(0.17		)	(0.31		)	(0.17		)

	Quarterly Period Ended
	March 31, 2012		June 30, 2012		September 30, 2012			December 31, 2012
Revenues	$	13,783	$	13,894	$	13,564		$	13,557
Gross profit	11,465		11,217		10,937			11,119
Income (loss) from operations	1,503		372		(214		)	285
Net income (loss)	1,269		269		(481		)	193
Net income (loss) attributable to common stockholders – basic(1)	248		54		(481		)	38
Net income (loss) attributable to common stockholders – diluted(1)	381		81		(481		)	56
Net income (loss) per share attributable to common stockholders – basic(1)	0.15		0.03		(0.28		)	0.02
Net income (loss) per share attributable to common stockholders – diluted(1)	0.13		0.03		(0.28		)	0.02

(1) These amounts are computed independently for each of the periods presented above and, therefore, may not add up to the total for the year presented in the statements of comprehensive (loss) income.

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16. Subsequent Events

Exit and Disposal Activities - Workforce Reduction

In January 2014, the Company implemented a workforce reduction to reduce approximately 24 positions throughout the Company, impacting primarily positions in corporate headquarters and field sales. The workforce reduction is related to its plan to realign the Company’s cost structure in light of its current revenue performance. The Company expects to record total charges for severance, related benefits and other costs of approximately $0.4 million during the first quarter of 2014, with respect to the workforce reduction.

Termination of HDL Inc. Agreement

On March 28, 2014, the Company notified Health Diagnostic Laboratory, Inc. ("HDL Inc.") that it was terminating the parties' agreement effective June 26, 2014. The Company expects its revenues to be impacted negatively, potentially significantly so. As a result, based on an initial assessment of the likelihood of achieving its 2014 Revenue to Plan Covenant, the Company has reclassified the full balance of its $15.8 million of long term debt to current as of December 31, 2013.

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision of and with the participation of our management, including our chief executive officer, who is our principal executive officer, and our chief financial officer, who is our principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2013, the end of the period covered by this Annual Report. The term “disclosure controls and procedures,” as set forth in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2013, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2013, the end of our fiscal year. Management based its evaluation on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework published in 1992. Based on its evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2013.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Not applicable.

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PART III

We will file a definitive Proxy Statement for our 2014 Annual Meeting of Stockholders (the “2014 Proxy Statement”) with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the 2014 Proxy Statement that specifically address the items set forth herein are incorporated by reference.

Item 10. Directors, Executive Officers and Corporate Governance

The information required by Item 10 is hereby incorporated by reference to the sections of our 2014 Proxy Statement under the captions “Board of Directors and Committees,” “Election of Directors,” “Management” and “Section 16(a) Beneficial Ownership Reporting Compliance.”

Item 11. Executive Compensation

The information required by Item 11 is hereby incorporated by reference to the sections of our 2014 Proxy Statement under the captions “Executive Compensation,” “Director Compensation” and “Compensation Committee Interlocks and Insider Participation.”

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by Item 12 is hereby incorporated by reference to the sections of our 2014 Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity Compensation Plans.”

Item 13. Certain Relationships and Related Transactions, and Director Independence

The information required by Item 13 is hereby incorporated by reference to the sections of our 2014 Proxy Statement under the captions “Transactions with Related Parties” and “Director Independence.”

Item 14. Principal Accountant Fees and Services

The information required by Item 14 is hereby incorporated by reference to the section of our 2014 Proxy Statement under the caption “Independent Registered Public Accounting Firm Fees.”

94

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Form 10-K.

1. Financial Statements

The financial statements are included under Part II, Item 8 of this Annual Report.

2.Financial Statement Schedules

No financial statement schedules are provided because the information called for is not required or is shown either in the financial statements or the notes thereto.

3.Exhibits

The exhibits required to be filed as part of this Annual Report are listed in the Exhibit Index.

95

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LIPOSCIENCE, INC.
(Registrant)
By:	/s/    LUCY G. MARTINDALE
	Lucy G. Martindale Executive Vice President and Chief Financial Officer (On Behalf of the Registrant and as Principal Financial Officer)

Date: March 28, 2014

96

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Lucy G. Martindale and Kathryn F. Twiddy, jointly and severally, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Annual Report on Form 10-K of LipoScience, Inc., and any or all amendments (including post-effective amendments) thereto, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite or necessary to be done in and about the premises hereby ratifying and confirming all that said attorneys-in-fact and agents, or his, her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/S/    HOWARD B. DORAN, JR.	President, Chief Executive Officer and Director (Principal Executive Officer)	March 28, 2014
Howard B. Doran, Jr.
/S/    LUCY G. MARTINDALE	Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	March 28, 2014
Lucy G. Martindale
/S/ BUZZ BENSON	Chairman of the Board of Directors	March 28, 2014
Buzz Benson
/S/ ROBERT J. GRECZYN JR.	Director	March 28, 2014
Robert J. Greczyn Jr.
/S/ JEFFREY T. BARBER	Director	March 28, 2014
Jeffrey T. Barber
/S/ JOHN H. LANDON	Director	March 28, 2014
John H. Landon
/S/ DANIEL J. LEVANGIE	Director	March 28, 2014
Daniel J. Levangie
/S/ J. ROBERT HURLEY	Director	March 28, 2014
J. Robert Hurley
/S/ RODERICK A. YOUNG	Director	March 28, 2014
Roderick A. Young

97

Exhibit Index

Exhibit Number	Description of Document
3.1 (1)	Amended and Restated Certificate of Incorporation.
3.2 (2)	Amended and Restated Bylaws.
4.1 (3)	Specimen stock certificate evidencing shares of Common Stock.
10.1 (4)	Loan and Security Agreement, dated as of December 20, 2012, by and among the Registrant, Oxford Finance LLC and Square 1 Bank.
10.2 (5)	Warrant to purchase Series E preferred stock issued to Square 1 Bank, dated December 20, 2012.
10.3.1 (6)	Warrant No. 1 to purchase Series E preferred stock issued to Oxford Finance LLC, dated December 20, 2012.
10.3.2 (7)	Warrant No. 2 to purchase Series E preferred stock issued to Oxford Finance LLC, dated December 20, 2012.
10.4 (8)	Warrant to purchase Series F preferred stock issued to Silicon Valley Bank, dated December 13, 2006.
10.5 (9)	Warrant to purchase Series F preferred stock issued to Square 1 Bank, dated February 7, 2008.
10.6 (10)	Warrant to purchase Series F preferred stock issued to Square 1 Bank, dated March 31, 2011.
10.7 (11)	Second Amended and Restated Investor Rights Agreement, dated as of August 2, 2006 and as amended to date, by and among the Registrant and certain of its stockholders.
10.8 (12)	Standard Lease, dated as of October 4, 2001, as amended on March 5, 2002 and August 28, 2002, by and between the Registrant and Parker-Raleigh Development XXX, LLC.
10.8.1 (13)	Lease Amendment No. 3, dated as of November 29, 2011, by and between the Registrant and Raleigh Portfolio JH, LLC, as successor to Parker-Raleigh Development XXX, LLC.
10.9† (14)	Agreement, dated as of September 28, 2012, by and between the Registrant and Laboratory Corporation of America Holdings.
10.10† (15)	Supply Agreement, dated as of July 16, 2012, by and between the Registrant and Agilent Technologies, Inc.
10.11† (16)	Production Agreement, dated as of June 26, 2009, by and between the Registrant and KMC Systems, Inc.
10.12† (17)	License Agreement, dated as of May 9, 1997, as amended on January 10, 2001 and October 11, 2010, by and between the Registrant and North Carolina State University.
10.13+ (18)	1997 Stock Option Plan, as amended to date.
10.14+ (19)	Form of Incentive Stock Option Agreement under 1997 Stock Option Plan.
10.15+ (20)	Form of Incentive Stock Option Agreement under 1997 Stock Option Plan with modified change of control provisions.
10.16+ (21)	Form of Nonqualified Stock Option Agreement under 1997 Stock Option Plan.
10.17+ (22)	2007 Stock Incentive Plan, as amended through July 29, 2010.
10.18+ (23)	Fourth Amendment to 2007 Stock Incentive Plan, effective as of August 27, 2012.
10.19+ (24)	Form of Incentive Stock Option Agreement under 2007 Stock Incentive Plan.
10.20+ (25)	Form of Nonqualified Stock Option Agreement under 2007 Stock Incentive Plan.
10.21+ (26)	Form of Nonqualified Stock Option Agreement under 2007 Stock Incentive Plan for initial grants to directors.
10.22+ (27)	Form of Nonqualified Stock Option Agreement under 2007 Stock Incentive Plan for annual grants to directors.
10.23+ (28)	Form of Nonqualified Stock Option Agreement under 2007 Stock Incentive Plan for grants to committee chairpersons.

98

Exhibit Number	Description of Document
10.24+ (29)	Form of Restricted Stock Purchase Agreement under 2007 Stock Incentive Plan.
10.25+ (30)	2012 Equity Incentive Plan.
10.26+ (31)	Form of Stock Option Grant Notice and Stock Option Agreement under 2012 Equity Incentive Plan.
10.27+ (32)	Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under 2012 Equity Incentive Plan.
10.28+ (33)	Non-Employee Director Compensation Plan.
10.29 (34)	Form of Indemnification Agreement between the Registrant and certain of its directors.
10.30 (35)	Form of Indemnification Agreement between the Registrant and certain of its directors affiliated with stockholders.
10.31+ (36)	2012 Employee Stock Purchase Plan.
10.32+ (38)	Amended and Restated Employment Agreement, dated as of March 26, 2013, by and between the Registrant and Richard O. Brajer.
10.33+ (39)	Amended and Restated Employment Agreement, dated as of March 25, 2013, by and between the Registrant and Lucy G. Martindale.
10.34+ (40)	Employment Agreement, dated as of January 9, 2013, by and between the Registrant and Robert M. Honigberg.
10.35+ (41)	Amended and Restated Employment Agreement, dated as of March 25, 2013, by and between the Registrant and Timothy J. Fischer.
10.36+ (42)	Amended and Restated Employment Agreement, dated as of March 25, 2013, by and between the Registrant and Thomas S. Clement.
10.37+ (37)	Executive Severance Benefit Plan.
10.38+ (43)	2012 Corporate Goals for Strategic Leadership Team.
10.39 + † (44)	2013 Corporate Goals for Strategic Leadership Team.
10.40 (45)	First Amendment to Loan and Security Agreement, dated as of June 11, 2013, by and among the Registrant, Oxford Finance LLC and Square 1 Bank.
10.41 (46)	Lease Amendment No. 4, dated as of June 11, 2013, by and between the Registrant and Raleigh Portfolio JH, LLC, as successor of Parker-Raleigh Development XXX, LLC.
10.42† (47)	Amendment to Production Agreement, dated as of July 1, 2013, by and between the Registrant and KMC Systems, Inc.
10.43	Second Amendment to Loan and Security Agreement, dated as of October 31, 2013, by and among the Registrant, Oxford Finance LLC and Square 1 Bank.
10.44	Third Amendment to Loan and Security Agreement, dated as of January 19, 2014, by and among the Registrant, Oxford Finance LLC and Square 1 Bank.
23.1	Consent of Ernst & Young LLP, independent registered public accounting firm.
24.1	Power of Attorney (contained on signature page hereto).
31.1	Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rules 13a-14(b) and 15d-14(b) promulgated under the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase
101.DEF**	XBRL Taxonomy Extension Definition Linkbase
101.LAB**	XBRL Taxonomy Extension Label Linkbase
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase

_______________________

99

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files included in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those Sections.

+ Indicates management contract or compensatory plan.

† Confidential treatment has been granted with respect to portions of this exhibit, indicated by asterisks, which have been filed separately with the Securities and Exchange Commission.

(1) Previously filed as Exhibit 3.1 to the Registrant's Current Report on Form 8-K (File No. 001-35792), filed with the Commission on January 30, 2013, and incorporated by reference herein.

(2) Previously filed as Exhibit 3.2 to the Registrant's Current Report on Form 8-K (File No. 001-35792), filed with the Commission on January 30, 2013, and incorporated by reference herein.

(3) Previously filed as Exhibit 4.2 to Amendment No. 7 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on January 10, 2013, and incorporated by reference herein.

(4) Previously filed as Exhibit 10.1 to Amendment No. 7 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on January 10, 2013, and incorporated by reference herein.

(5) Previously filed as Exhibit 10.2 to Amendment No. 7 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on January 10, 2013, and incorporated by reference herein.

(6) Previously filed as Exhibit 10.3.1 to Amendment No. 7 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on January 10, 2013, and incorporated by reference herein.

(7) Previously filed as Exhibit 10.3.2 to Amendment No. 7 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on January 10, 2013, and incorporated by reference herein.

(8) Previously filed as Exhibit 10.4 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(9) Previously filed as Exhibit 10.5 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(10) Previously filed as Exhibit 10.6 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(11) Previously filed as Exhibit 10.7 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(12) Previously filed as Exhibit 10.8 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(13) Previously filed as Exhibit 10.8.1 to Amendment No. 4 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on April 27, 2012, and incorporated by reference herein.

(14) Previously filed as Exhibit 10.35 to Amendment No. 6 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on December 4, 2012, and incorporated by reference herein.

(15) Previously filed as Exhibit 10.9.2 to Amendment No. 8 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on January 24, 2013, and incorporated by reference herein.

(16) Previously filed as Exhibit 10.10 to Amendment No. 4 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on April 27, 2012, and incorporated by reference herein.

100

(17) Previously filed as Exhibit 10.11 to Amendment No. 1 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on August 1, 2011, and incorporated by reference herein.

(18) Previously filed as Exhibit 10.12 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(19) Previously filed as Exhibit 10.13 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(20) Previously filed as Exhibit 10.14 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(21) Previously filed as Exhibit 10.15 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(22) Previously filed as Exhibit 10.16 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(23) Previously filed as Exhibit 10.16.1 to Amendment No. 8 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on January 24, 2013, and incorporated by reference herein.

(24) Previously filed as Exhibit 10.17 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(25) Previously filed as Exhibit 10.18 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(26) Previously filed as Exhibit 10.19 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(27) Previously filed as Exhibit 10.20 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(28) Previously filed as Exhibit 10.21 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(29) Previously filed as Exhibit 10.22 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on June 23, 2011, and incorporated by reference herein.

(30) Previously filed as Exhibit 4.16 to the Registrant's Registration Statement on Form S-8 (Registration No. 333-186545) filed with the Securities and Exchange Commission on February 8, 2013 and incorporated herein by reference.

(31) Previously filed as Exhibit 10.24 to Amendment No. 5 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on October 23, 2012, and incorporated by reference herein.

(32) Previously filed as Exhibit 10.25 to Amendment No. 5 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on October 23, 2012, and incorporated by reference herein.

(33) Previously filed as Exhibit 10.26.1 to Amendment No. 5 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on October 23, 2012, and incorporated by reference herein.

(34) Previously filed as Exhibit 10.28 to Amendment No. 1 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on August 1, 2011, and incorporated by reference herein.

(35) Previously filed as Exhibit 10.29 to Amendment No. 1 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on August 1, 2011, and incorporated by reference herein.

(36) Previously filed as Exhibit 4.19 to the Registrant's Registration Statement on Form S-8 (Registration No. 333-186545) filed with the Securities and Exchange Commission on February 8, 2013 and incorporated herein by reference.

101

(37) Previously filed as Exhibit 10.36 to Amendment No. 5 to the Registrant's Registration Statement on Form S-1 (File No. 333-175102), filed with the Commission on October 23, 2012, and incorporated by reference herein.

(38) Previously filed as Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and incorporated by reference herein.

(39) Previously filed as Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and incorporated by reference herein.

(40) Previously filed as Exhibit 10.34 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and incorporated by reference herein.

(41) Previously filed as Exhibit 10.35 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and incorporated by reference herein.

(42) Previously filed as Exhibit 10.36 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and incorporated by reference herein.

(43) Previously filed as Exhibit 10.38 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2012, and incorporated by reference herein.

(44) Previously filed as Exhibit 10.1 to the Registrant's Report on Form 10-Q for the period ended June 30, 2013, and incorporated by reference herein.

(45) Previously filed as Exhibit 10.2 to the Registrant's Report on Form 10-Q for the period ended June 30, 2013, and incorporated by reference herein.

(46) Previously filed as Exhibit 10.3 to the Registrant's Report on Form 10-Q for the period ended June 30, 2013, and incorporated by reference herein.

(47) Previously filed as Exhibit 10.4 to the Registrant's Report on Form 10-Q for the period ended June 30, 2013, and incorporated by reference herein.

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EX-10.43

Exhibit 10.43

SECOND AMENDMENT TOLOAN AND SECURITY AGREEMENT

THIS SECOND AMENDMENT to Loan and Security Agreement (this “Amendment”) is entered into effective as of October 31, 2013, by and between OXFORD FINANCE LLC, a Delaware limited liability company with an office located at 133 North Fairfax Street, Alexandria, Virginia 22314 (“Oxford”), as collateral agent (in such capacity, “Collateral Agent”), the Lenders listed on Schedule 1.1 of the Loan Agreement (as defined below) or otherwise party thereto from time to time including Oxford in its capacity as a Lender and SQUARE 1 BANK, a North Carolina banking corporation with an office located at 406 Blackwell Street, Suite 240, Durham, NC 27701 (“Bank” or “Square 1”) (each a “Lender” and collectively, the “Lenders”)and LIPOSCIENCE, INC., a Delaware corporation with offices located at 2500 Sumner Boulevard, Raleigh, NC 27616 (“Borrower”)

RECITALS

A.Collateral Agent, Lenders and Borrower have entered into that certain Loan and Security Agreement dated as of December 20, 2012 (as amended, restated, supplemented or otherwise modified from time to time, including but without limitation by that certain First Amendment to Loan and Security Agreement dated as of June 11, 2013 the “Loan Agreement”).

B.    Lenders have extended credit to Borrower for the purposes permitted in the Loan Agreement.

C.    Borrower has requested that Collateral Agent and Lenders (i) revise the performance to plan financial covenant and (ii) make certain other revisions to the Loan Agreement as more fully set forth herein.

D.    Collateral Agent and Lenders have agreed to amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

2.Amendments to Loan Agreement.

2.1Section 6.10 (Financial Covenants). Section 6.10(ii) of the Loan Agreement hereby is amended and restated in its entirety as follows:

“(ii)    Performance to Plan; Revenue. Revenues shall (x) for 2013, be at least Fifty Million Dollars ($50,000,000.00); and (y) beginning with fiscal year 2014, be at least eighty percent (80.00%) of the trailing three (3) month projections that have been approved by Borrower’s Board of Directors and be equal to or greater than the revenues for the same period from the previous year. Borrower shall deliver to Collateral Agent and Lenders updated Annual Projections approved by Borrower’s Board of Directors for each fiscal year in accordance with Section 6.2 hereof; and this covenant shall be measured against such updated Annual Projections, provided that all such Annual Projections shall include annual projected revenues of at least Fifty Five Million Dollars ($55,000,000.00).”

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2.2Section 13.1 (Definitions). The following definition in Section 13.1 of the Loan Agreement hereby is amended and restated in its entirety as follows:

“Revolving Maturity Date” means the earliest of (a) January 19, 2014; (b) early termination of this Agreement, whether as a result of acceleration, prepayment or otherwise or (c) the Maturity Date.

3.Limitation of Amendment.

3.1    The amendments set forth in Section 2 are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Collateral Agent or any Lender may now have or may have in the future under or in connection with any Loan Document.

3.2    This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

4.Representations and Warranties. To induce Collateral Agent and Lenders to enter into this Amendment, Borrower hereby represents and warrants to Collateral Agent and Lenders as follows:

4.1    Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;

4.2    Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

4.3    The organizational documents of Borrower delivered to Collateral Agent and Lenders on June 10, 2013, or subsequent thereto, remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

4.4    The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

4.5    The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

4.6    The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and

4.7    This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

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5.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

6.Effectiveness. This Amendment shall be deemed effective upon the due execution and delivery to Collateral Agent and Lenders of (i) this Amendment by each party hereto and (ii) Borrower’s payment of all Lenders’ Expenses incurred through the date of this Amendment.

[Balance of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

COLLATERAL AGENT AND LENDER:
OXFORD FINANCE LLC
By:	/s/    Mark Davis
Name:	Mark Davis
Title:	Vice President - Finance, Secretary & Treasurer

LENDER:
OXFORD FINANCE FUNDING I, LLC
By: Oxford Finance LLC, as servicer
By:	/s/    Mark Davis
Name:	Mark Davis
Title:	Vice President - Finance, Secretary & Treasurer

LENDER:
SQUARE 1 BANK
By:	/s/    Lan Zhu
Name:	Lan Zhu
Title:	Client Manager

BORROWER:
LIPOSCIENCE, INC.
By:	/s/    Lucy G. Martindale
Name:	Lucy G. Martindale
Title:	Chief Financial Officer

[Signature Page to Second Amendment to Loan and Security Agreement]

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EX-10.44

Exhibit 10.44

THIRD AMENDMENT TOLOAN AND SECURITY AGREEMENT

THIS THIRD AMENDMENT to Loan and Security Agreement (this “Amendment”) is entered into effective as of January 19, 2014, by and between OXFORD FINANCE LLC, a Delaware limited liability company with an office located at 133 North Fairfax Street, Alexandria, Virginia 22314 (“Oxford”), as collateral agent (in such capacity, “Collateral Agent”), the Lenders listed on Schedule 1.1 of the Loan Agreement (as defined below) or otherwise party thereto from time to time including Oxford in its capacity as a Lender and SQUARE 1 BANK, a North Carolina banking corporation with an office located at 406 Blackwell Street, Suite 240, Durham, NC 27701 (“Bank” or “Square 1”) (each a “Lender” and collectively, the “Lenders”)and LIPOSCIENCE, INC., a Delaware corporation with offices located at 2500 Sumner Boulevard, Raleigh, NC 27616 (“Borrower”)

RECITALS

A.Collateral Agent, Lenders and Borrower have entered into that certain Loan and Security Agreement dated as of December 20, 2012 (as amended, restated, supplemented or otherwise modified from time to time, including but without limitation by that certain First Amendment to Loan and Security Agreement dated as of June 11, 2013 and that certain Second Amendment to Loan and Security Agreement dated as of October 31, 2013, the “Loan Agreement”).

B.    Lenders have extended credit to Borrower for the purposes permitted in the Loan Agreement.

C.    Borrower has requested that Collateral Agent and Lenders (i) amend the maturity date and (ii) make certain other revisions to the Loan Agreement as more fully set forth herein.

D.    Collateral Agent and Lenders have agreed to amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to the conditions and in reliance upon the representations and warranties set forth below.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:

1.Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.

2.Amendments to Loan Agreement.

2.1Section 6.10 (Financial Covenants). Section 6.10(ii) of the Loan Agreement hereby is amended and restated in its entirety as follows:

“(ii)    Minimum Revenue. Revenue, measured on a trailing twelve (12) month basis, of at least the amounts as set forth in the table immediately below for the corresponding measuring periods.

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Measuring Period Ending	Minimum Revenue
January 31, 2014	$50,000,000
February 28, 2014	$50,000,000
March 31, 2014	$50,000,000
April 30, 2014	$48,000,000
May 31, 2014	$48,000,000
June 30, 2014	$48,000,000
July 31, 2014	$46,000,000
August 31, 2014	$46,000,000
September 30, 2014	$46,000,000
October 31, 2014	$45,000,000
November 30, 2014	$45,000,000
December 31, 2014	$45,000,000

2.2Section 13.1 (Definitions). The following definitions in Section 13.1 of the Loan Agreement hereby are amended and restated in their entirety as follows:

“Amortization Date” is February 1, 2015.

“Revolving Maturity Date” means the earliest of (a) February 19, 2015; (b) early termination of this Agreement, whether as a result of acceleration, prepayment or otherwise or (c) the Maturity Date.

2.3    Borrower, Collateral Agent and Lenders hereby agree that the amendment to the definition of “Amortization Date” set forth in Section 2.2 hereof shall not affect the Funding Date of the Term Loan for the purposes of the Prepayment Fee.

3.Limitation of Amendment.

3.1    The amendments set forth in Section 2 are effective for the purposes set forth herein and shall be limited precisely as written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or (b) otherwise prejudice any right or remedy which Collateral Agent or any Lender may now have or may have in the future under or in connection with any Loan Document.

3.2    This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and shall remain in full force and effect.

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4.Representations and Warranties. To induce Collateral Agent and Lenders to enter into this Amendment, Borrower hereby represents and warrants to Collateral Agent and Lenders as follows:

4.1    Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;

4.2    Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan Agreement, as amended by this Amendment;

4.3    The organizational documents of Borrower delivered to Collateral Agent and Lenders on June 10, 2013, or subsequent thereto, remain true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect;

4.4    The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, have been duly authorized;

4.5    The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;

4.6    The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been obtained or made; and

4.7    This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.

5.Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.

6.Effectiveness. This Amendment shall be deemed effective upon the due execution and delivery to Collateral Agent and Lenders of (i) this Amendment by each party hereto and (ii) Borrower’s payment of all Lenders’ Expenses incurred through the date of this Amendment.

[Balance of Page Intentionally Left Blank]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.

COLLATERAL AGENT AND LENDER:
OXFORD FINANCE LLC
By:	/s/    Mark Davis
Name:	Mark Davis
Title:	Vice President of Finance

LENDER:
SQUARE 1 BANK
By:	/s/    Evan Travis
Name:	Evan Travis
Title:	Assistant Vice President

BORROWER:
LIPOSCIENCE, INC.
By:	/s/    Lucy G. Martindale
Name:	Lucy G. Martindale
Title:	Chief Financial Officer

[Signature Page to Third Amendment to Loan and Security Agreement]

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EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-186545) pertaining to the LipoScience, Inc. 1997 Stock Option Plan, as amended, the 2007 Stock Incentive Plan, as amended, the 2012 Equity Incentive Plan, and the 2012 Employee Stock Purchase Plan of LipoScience, Inc. of our report dated March 28, 2014, with respect to the financial statements of LipoScience, Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2013.

/s/ Ernst & Young LLP

Raleigh, North Carolina

March 28, 2014

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO 17 CFR 240.13a-14

PROMULGATED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Howard B. Doran, Jr., certify that:

1. I have reviewed this Annual Report on Form 10-K of LipoScience, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 28, 2014

/S/    HOWARD B. DORAN, JR.

Howard B. Doran, Jr.

President and Chief Executive Officer

(principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 17 CFR 240.13a-14

PROMULGATED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Lucy G. Martindale, certify that:

1. I have reviewed this Annual Report on Form 10-K of LipoScience, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 28, 2014

/S/    LUCY G. MARTINDALE

Lucy G. Martindale

Executive Vice President and Chief Financial Officer

(principal financial officer)

EX-32

Exhibit 32

CERTIFICATIONS OF

PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of LipoScience, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Howard B. Doran, Jr., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and results of operations of the Company for the period covered by the Report.

Date: March 28, 2014

/S/    HOWARD B. DORAN, JR.

Howard B. Doran, Jr.

President and Chief Executive Officer

(principal executive officer)

________________________________________

In connection with the Annual Report of LipoScience, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lucy G. Martindale, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Report and results of operations of the Company for the period covered by the Report.

Date: March 28, 2014

/S/    LUCY G. MARTINDALE.

Lucy G. Martindale

Executive Vice President and Chief Financial Officer

(principal financial officer)

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Fair Value Measurement (Level 3 Preferred Stock Warrant Liability) (Details) (Preferred Stock Warrant Liability [Member], USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Preferred Stock Warrant Liability [Member]
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Fair value at beginning of period	$ 412	$ 229	$ 597
Issuances	0	172	36
Reclassification to additional paid in capital	(410)	(138)	(152)
Change in fair value recorded in other expense	(2)	149	(252)
Fair value at end of period	$ 0	$ 412	$ 229

XML

Equity Transactions and Share-Based Compensation (Fair Value Assumptions) (Details)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions [Abstract]
Expected dividend yield	0.00%	0.00%	0.00%
Risk-free interest rate	1.20%	0.80%	2.00%
Expected volatility	45.50%	50.00%	50.30%
Expected life (in years)	5 years 9 months	5 years 7 months 6 days	5 years 7 months 6 days
Series E and F Redeemable Convertible Preferred Stock [Member]
Fair Value Assumptions and Methodology for Assets and Liabilities [Abstract]
Expected volatility		30.00%	36.00%
Expected dividend rate		0.00%	0.00%
Series E and F Redeemable Convertible Preferred Stock [Member] | Minimum [Member]
Fair Value Assumptions and Methodology for Assets and Liabilities [Abstract]
Expected term (in years)		3 months	6 months
Risk-free interest rate		0.00%	0.10%
Series E and F Redeemable Convertible Preferred Stock [Member] | Maximum [Member]
Fair Value Assumptions and Methodology for Assets and Liabilities [Abstract]
Expected term (in years)		6 months	1 year
Risk-free interest rate		0.10%	0.60%

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Long-Term Debt and Line of Credit (Narrative) (Details) (USD $)	0 Months Ended						12 Months Ended	0 Months Ended
	Dec. 20, 2012 Revolving Credit Facility [Member]	Oct. 31, 2013 Revolving Credit Facility [Member] 2013 Revenue to Plan Covenant [Member]	Oct. 31, 2013 Revolving Credit Facility [Member] 2014 Revenue to Plan Covenant [Member]	Dec. 20, 2012 Revolving Credit Facility [Member] Beginning [Member]	Dec. 20, 2012 Revolving Credit Facility [Member] Over the Term of the Facility [Member]	Dec. 20, 2012 Term Loan [Member]	Dec. 31, 2014 Term Loan [Member] Scenario, Forecast [Member]	Jan. 19, 2014 Term Loan [Member] Subsequent Event [Member]	Dec. 31, 2013 Term Loan [Member] Subsequent Event [Member]	Dec. 31, 2013 Square 1 and Oxford Finance [Member]	Dec. 20, 2012 Square 1 and Oxford Finance [Member]	Dec. 20, 2012 Square 1 and Oxford Finance [Member] Series E Redeemable Convertible Preferred Stock [Member]	Dec. 31, 2013 Square 1 and Oxford Finance [Member] Revolving Credit Facility [Member]	Dec. 31, 2012 Square 1 and Oxford Finance [Member] Revolving Credit Facility [Member]	Dec. 20, 2012 Square 1 and Oxford Finance [Member] Revolving Credit Facility [Member]	Dec. 20, 2012 Square 1 and Oxford Finance [Member] Term Loan [Member]
Debt Instrument [Line Items]
Face value of long-term debt																$ 16,000,000
New facility, borrowing capacity															6,000,000
Number of shares called by warrants												73,564
Exercise price of warrants (in usd per share)												4.35
Fair value of warrants											200,000
Total unamortized debt issuance costs										64,000
Fixed annual interest rate						9.50%			9.50%
Variable interest rate	6.25%
Description of variable rate basis	institution's prime rate
Basis spread on variable rate, percent	3.00%
Revolving line of credit, amount outstanding													0	5,000,000
Minimum covenant ratio, liquidity				1.25	1
Minimum annual revenue level		$ 50,000,000	$ 55,000,000				$ 45,000,000	$ 50,000,000

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Equity Transactions and Share-Based Compensation (Warrants) (Details)	Dec. 31, 2013
Class of Warrant or Right [Line Items]
Number of Shares	78,741
2/7/2008 [Member]
Class of Warrant or Right [Line Items]
Number of Shares	36,375
Exercise Price (in usd per share)	8.97
3/31/2011 [Member]
Class of Warrant or Right [Line Items]
Number of Shares	6,689
Exercise Price (in usd per share)	8.97
12/20/2012 [Member]
Class of Warrant or Right [Line Items]
Number of Shares	35,677
Exercise Price (in usd per share)	8.97

XML

Long-Term Debt and Line of Credit (Schedule of Debt) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Debt Disclosure [Abstract]
Long- term debt reclassified to current	$ 15,816	$ 0
Long-term debt to financial institutions	16,000	16,000
Less unamortized debt discount	(184)	(292)
Long-term debt, less unamortized debt discount	$ 15,816	$ 15,708

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Equity Transactions and Share-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Fair Value Assumptions and Methodology

The fair values of outstanding Series E and Series F Redeemable Convertible Preferred Stock warrants were estimated using the Black-Scholes option-pricing model with the following assumptions as of:

	Year Ended December 31,
	2012		2011
Expected term (in years)	0.25-0.5		0.5-1.0
Risk-free interest rate	0.0%-0.1%		0.1%-0.6%
Expected volatility	30	%	36	%
Expected dividend rate	0	%	0	%

Schedule of Stockholders' Equity Note, Warrants or Rights

As of December 31, 2013, the following warrants to purchase common stock were outstanding:

Issuance Date	Number of Shares	Exercise Price	Expiration Date
2/7/2008	36,375	8.97	2/7/2015
3/31/2011	6,689	8.97	3/31/2018
12/20/2012	35,677	8.97	12/20/2022

Schedule of Share-based Compensation, Stock Options, Activity

The following table summarizes stock option activity under the Company’s 1997 Plan, 2007 Plan and 2012 Plan for the year ended December 31, 2013:

	Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (Thousands)
Outstanding at December 31, 2012	2,056,849		$	5.55
Granted	513,444		8.00
Exercised	(537,177	)	2.95
Expired	(195,144	)	7.03
Forfeited	(186,646	)	10.04
Outstanding at December 31, 2013	1,651,326		$	6.48	$	864
Exercisable at December 31, 2013	1,234,900		$	5.79	$	864
Outstanding Vested and Expected to Vest at December 31, 2013	1,608,389		$	6.42	$	864

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

The fair value of these stock options was estimated using the following weighted average assumptions:

	Year Ended December 31,
	2013		2012		2011
Expected dividend yield	0.0	%	0.0	%	0.0	%
Risk-free interest rate	1.2	%	0.8	%	2.0	%
Expected volatility	45.5	%	50.0	%	50.3	%
Expected life (in years)	5.8		5.6		5.6

Schedule of Share-based Compensation, Shares Authorized under Stock Option Plans, by Exercise Price Range

The following table summarizes information about stock options outstanding as of December 31, 2013:

	Total Options Outstanding			Options Exercisable
Range of Exercise Prices	Number of Options	Weighted Average Exercise Price	Weighted Average Remaining Life in Years	Number of Options	Weighted Average Exercise Price	Weighted Average Remaining Life in Years
$1.87 – $2.45	259,547	$2.36		259,547	$2.36
$2.49	198,155	2.49		198,155	2.49
$3.88 – $4.23	98,527	4.00		98,527	4.00
$5.04 – $5.55	171,319	5.25		82,537	5.14
$5.63 – $5.98	143,147	5.68		113,855	5.63
$6.68 - $6.89	217,378	6.83		169,321	6.84
$9.01	58,103	9.01		41,985	9.01
$9.65 – $9.84	226,278	9.69		67,236	9.74
$11.11 – $11.44	201,466	11.40		155,327	11.39
$12.80	77,406	12.80		48,410	12.80
	1,651,326	6.48	6.8	1,234,900	5.79	6.0

Schedule of Share-based Compensation, Restricted Stock Units Award Activity

The following table summarizes RSU activity under the Company's 2012 Plan for the year ended December 31, 2013:

	Number of Awards		Weighted Average Grant-Date Fair Value
Nonvested balance at December 31, 2012	—		$	—
Granted	142,869		7.07
Vested	(12,848	)	5.88
Forfeited	(21,813	)	9.65
Nonvested balance at December 31, 2013	108,208		$	6.70

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs

The Company recognized non-cash stock-based compensation expense, for both RSUs and stock options, to employees in its research and development, sales and marketing and general and administrative functions as follows (in thousands):

	Year Ended December 31,
	2013		2012		2011
Cost of revenues	$	38	$	46	$	8
Research and development	493		454		155
Sales and marketing	208		255		217
General and administrative	660		435		271
Total:	$	1,399	$	1,190	$	651

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Equity Transactions and Share-Based Compensation (Stock Options by Exercise Price Range) (Details) (USD $)	12 Months Ended
	Dec. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total Options Outstanding, Number of Options (in shares)	1,651,326
Total Options Outstanding, Weighted Average Exercise Price	$ 6.48
Total Options Outstanding, Weighted Average Remaining Life in Years	6 years 9 months
Options Exercisable, Number of Options (in shares)	1,234,900
Options Exercisable, Weighted Average Exercise Price	$ 5.79
Options Exercisable, Weighted Average Remaining Life in Years	6 years
$1.87 – $2.45 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices - Lower Limit	$ 1.87
Range of Exercise Prices - Upper Limit	$ 2.45
Total Options Outstanding, Number of Options (in shares)	259,547
Total Options Outstanding, Weighted Average Exercise Price	$ 2.36
Options Exercisable, Number of Options (in shares)	259,547
Options Exercisable, Weighted Average Exercise Price	$ 2.36
$2.49 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices - Lower Limit	$ 2.49
Total Options Outstanding, Number of Options (in shares)	198,155
Total Options Outstanding, Weighted Average Exercise Price	$ 2.49
Options Exercisable, Number of Options (in shares)	198,155
Options Exercisable, Weighted Average Exercise Price	$ 2.49
$3.88 – $4.23 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices - Lower Limit	$ 3.88
Range of Exercise Prices - Upper Limit	$ 4.23
Total Options Outstanding, Number of Options (in shares)	98,527
Total Options Outstanding, Weighted Average Exercise Price	$ 4.00
Options Exercisable, Number of Options (in shares)	98,527
Options Exercisable, Weighted Average Exercise Price	$ 4.00
$5.04 - $5.55 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices - Lower Limit	$ 5.04
Range of Exercise Prices - Upper Limit	$ 5.55
Total Options Outstanding, Number of Options (in shares)	171,319
Total Options Outstanding, Weighted Average Exercise Price	$ 5.25
Options Exercisable, Number of Options (in shares)	82,537
Options Exercisable, Weighted Average Exercise Price	$ 5.14
$5.63 - $5.98 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices - Lower Limit	$ 5.63
Range of Exercise Prices - Upper Limit	$ 5.98
Total Options Outstanding, Number of Options (in shares)	143,147
Total Options Outstanding, Weighted Average Exercise Price	$ 5.68
Options Exercisable, Number of Options (in shares)	113,855
Options Exercisable, Weighted Average Exercise Price	$ 5.63
$6.68 to $6.89 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices - Lower Limit	$ 6.68
Range of Exercise Prices - Upper Limit	$ 6.89
Total Options Outstanding, Number of Options (in shares)	217,378
Total Options Outstanding, Weighted Average Exercise Price	$ 6.83
Options Exercisable, Number of Options (in shares)	169,321
Options Exercisable, Weighted Average Exercise Price	$ 6.84
$9.01 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices - Lower Limit	$ 9.01
Total Options Outstanding, Number of Options (in shares)	58,103
Total Options Outstanding, Weighted Average Exercise Price	$ 9.01
Options Exercisable, Number of Options (in shares)	41,985
Options Exercisable, Weighted Average Exercise Price	$ 9.01
$9.65 - $9.84 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices - Lower Limit	$ 9.65
Range of Exercise Prices - Upper Limit	$ 9.84
Total Options Outstanding, Number of Options (in shares)	226,278
Total Options Outstanding, Weighted Average Exercise Price	$ 9.69
Options Exercisable, Number of Options (in shares)	67,236
Options Exercisable, Weighted Average Exercise Price	$ 9.74
$11.11 - $11.44 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices - Lower Limit	$ 11.11
Range of Exercise Prices - Upper Limit	$ 11.44
Total Options Outstanding, Number of Options (in shares)	201,466
Total Options Outstanding, Weighted Average Exercise Price	$ 11.40
Options Exercisable, Number of Options (in shares)	155,327
Options Exercisable, Weighted Average Exercise Price	$ 11.39
$12.80 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Range of Exercise Prices - Lower Limit	$ 12.80
Total Options Outstanding, Number of Options (in shares)	77,406
Total Options Outstanding, Weighted Average Exercise Price	$ 12.80
Options Exercisable, Number of Options (in shares)	48,410
Options Exercisable, Weighted Average Exercise Price	$ 12.80

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Fair Value Measurement (Tables)

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurements, Recurring and Nonrecurring

The following table sets forth the Company's financial instruments that were measured at fair value as of December 31, 2013 and 2012 by level within the fair value hierarchy (in thousands):

	December 31, 2013						December 31, 2012
	Level I		Level III		Total		Level I		Level III		Total
Assets
Certificates of deposits	$	—	$	—	$	—	$	5,253	$	—	$	5,253
Money market funds	502		—		502		21,016		—		21,016
Total assets measured at fair value	$	502	$	—	$	502	$	26,269	$	—	$	26,269
Liabilities
Preferred stock warrant liability	$	—	$	—	$	—	$	—	$	412	$	412
Total liabilities measured at fair value	$	—	$	—	$	—	$	—	$	412	$	412

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

The change in the fair value of the Level III preferred stock warrant liability is summarized below (in thousands):

	Year Ended December 31,
	2013			2012			2011
Fair value at beginning of period	$	412		$	229		$	597
Issuances	—			172			36
Reclassification to additional paid in capital	(410		)	(138		)	(152		)
Change in fair value recorded in other expense	(2		)	149			(252		)
Fair value at end of period	$	—		$	412		$	229

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Net (Loss) Income Per Share (Net (Loss) Income Per Share Calculation) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended																12 Months Ended
	Dec. 31, 2013		Sep. 30, 2013		Jun. 30, 2013		Mar. 31, 2013		Dec. 31, 2012		Sep. 30, 2012		Jun. 30, 2012		Mar. 31, 2012		Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Numerator:
Net (loss) income	$ (2,616)		$ (4,627)		$ (2,444)		$ (2,848)		$ 193		$ (481)		$ 269		$ 1,269		$ (12,535)	$ 1,250	$ (548)
Accrual of Series F Redeemable Convertible Preferred Stock dividends																	0	0	613
Net (loss) income attributable to common stockholders – basic	(2,616)	[1]	(4,627)	[1]	(2,444)	[1]	(2,848)	[1]	38	[1]	(481)	[1]	54	[1]	248	[1]	(12,535)	246	(1,161)
Net (loss) income attributable to common stockholders – diluted	(2,616)	[1]	(4,627)	[1]	(2,444)	[1]	(2,848)	[1]	56	[1]	(481)	[1]	81	[1]	381	[1]	(12,535)	359	(1,161)
Denominator:
Weighted average common shares outstanding – basic (in shares)																	14,819,787	1,715,408	1,674,018
Dilutive effect of common stock equivalent shares resulting from common stock options and warrants (in shares)																	0	1,098,915	0
Weighted average common shares outstanding – diluted (in shares)																	14,819,787	2,814,323	1,674,018
Net (loss) income per common share:
Net (loss) income per share attributable to common stockholders - basic (in usd per share)	$ (0.17)	[1]	$ (0.31)	[1]	$ (0.17)	[1]	$ (0.19)	[1]	$ 0.02	[1]	$ (0.28)	[1]	$ 0.03	[1]	$ 0.15	[1]	$ (0.85)	$ 0.14	$ (0.69)
Net (loss) income per share attributable to common stockholders - diluted (in usd per share)	$ (0.17)	[1]	$ (0.31)	[1]	$ (0.17)	[1]	$ (0.19)	[1]	$ 0.02	[1]	$ (0.28)	[1]	$ 0.03	[1]	$ 0.13	[1]	$ (0.85)	$ 0.13	$ (0.69)
Preferred Stock [Member]
Numerator:
Less: Undistributed earnings allocated																	0	(1,004)	0
Common Stock [Member]
Numerator:
Less: Undistributed earnings allocated																	$ 0	$ 113	$ 0

[1] These amounts are computed independently for each of the periods presented above and, therefore, may not add up to the total for the year presented in the statements of comprehensive (loss) income.

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Accounts Receivable and Revenues (Revenues) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended								12 Months Ended
	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012	Sep. 30, 2012	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Receivables [Abstract]
Gross billings									$ 53,751	$ 56,603	$ 48,292
Less contractual adjustments									(1,368)	(1,805)	(2,485)
Revenues	$ 12,718	$ 12,738	$ 13,311	$ 13,616	$ 13,557	$ 13,564	$ 13,894	$ 13,783	$ 52,383	$ 54,798	$ 45,807

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Description of Business and Significant Accounting Policies (Details) (USD $)	12 Months Ended
	Dec. 31, 2013 segments	Dec. 31, 2012		Dec. 31, 2011
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Shipping and handling costs	$ 1,300,000	$ 1,500,000		$ 1,500,000
Number of operating segments	1
Advertising expense	1,300,000	800,000		900,000
Intangible Assets
Amortization of intangible assets	$ 22,000	$ 19,000		$ 23,000
Stock Options [Member]
Stock-Based Compensation
Expected dividend yield	0.00%	0.00%		0.00%
Minimum [Member]
Intangible Assets
Intangible asset, useful life	9 years
Maximum [Member]
Intangible Assets
Intangible asset, useful life	20 years
Laboratory Equipment [Member] | Minimum [Member]
Property and Equipment
Property and equipment, useful life	3 years
Laboratory Equipment [Member] | Maximum [Member]
Property and Equipment
Property and equipment, useful life	10 years
Customer-Use Assets [Member] | Minimum [Member]
Property and Equipment
Property and equipment, useful life	3 years
Customer-Use Assets [Member] | Maximum [Member]
Property and Equipment
Property and equipment, useful life	10 years
Office Equipment, Furniture and Fixtures [Member] | Minimum [Member]
Property and Equipment
Property and equipment, useful life	3 years
Office Equipment, Furniture and Fixtures [Member] | Maximum [Member]
Property and Equipment
Property and equipment, useful life	10 years
Software [Member]
Property and Equipment
Property and equipment, useful life	3 years
Customer Concentration Risk [Member] | Health Diagnostic Laboratory [Member] | Revenues [Member]
Concentration of Credit Risks and Other Risks
Concentration risk, percentage	33.00%	32.00%		21.00%
Customer Concentration Risk [Member] | Health Diagnostic Laboratory [Member] | Accounts Receivable [Member]
Concentration of Credit Risks and Other Risks
Concentration risk, percentage	37.00%		[1]
Customer Concentration Risk [Member] | LabCorp [Member] | Revenues [Member]
Concentration of Credit Risks and Other Risks
Concentration risk, percentage	30.00%	29.00%		33.00%
Customer Concentration Risk [Member] | LabCorp [Member] | Accounts Receivable [Member]
Concentration of Credit Risks and Other Risks
Concentration risk, percentage	17.00%	39.00%

[1] * Less than 10%.

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Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders' Equity (Common Stock Reserved for Issuance) (Details)	Dec. 31, 2013	Dec. 31, 2012
Equity [Abstract]
Outstanding Common Stock Warrants	78,741
Outstanding employee stock options	1,651,326	2,056,849
Unvested restricted stock units	108,208
Shares authorized under Employee Stock Purchase Plan (ESPP)	242,500
Possible future issuance under stock option plan	449,659
Total shares reserved	2,530,434

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Commitments and Contingencies - Future Minimum Lease Payments (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]
2014	$ 1,239
2015	1,272
2016	1,310
2017	1,022
2018	1,361
Thereafter	5,309
Total minimum lease payments	$ 11,513

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Income Taxes (Deferred Tax Assets) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Deferred tax assets (liabilities)
Net operating loss carryforwards	$ 15,660	$ 11,255
Research and development credits	2,691	1,963
Stock-based compensation	742	1,851
Allowance for uncollectible accounts receivable	291	471
Deferred rent	877	952
Accrued compensation	240	1,044
Depreciation and amortization	(1,153)	(1,167)
Other	208	165
Total deferred tax assets, net	19,556	16,534
Valuation allowance	(19,556)	(16,534)
Net deferred tax asset	$ 0	$ 0

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Long-Term Debt and Line of Credit (Debt Maturities) (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Debt Disclosure [Abstract]
2014	$ 0
2015	5,432
2016	6,489
2017	4,079
Long-term Debt	$ 16,000	$ 16,000

XML

Cash and Cash Equivalents

12 Months Ended

Dec. 31, 2013

Cash and Cash Equivalents [Abstract]

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents consist of the following as of (in thousands):

	December 31,
	2013		2012
Cash	$	49,574	$	4
Certificates of deposit	—		5,253
Money market funds	—		19,511
Total cash and cash equivalents	$	49,574	$	24,768

The Company has an arrangement with its primary bank that excess cash balances are transferred daily to an overnight sweep deposits account. At December 31, 2013, the balance in the overnight sweep deposits account totaling $6.3 million was invested in bank deposits which are classified as cash on the Company's balance sheet. At December 31, 2012, the balance in the overnight sweep deposits account totaling $19.5 million was invested in shares of a money market fund.

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Income Taxes (Income Tax Rate Reconciliation) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Amount
United States federal tax at statutory rate	$ (4,262)	$ 425	$ (186)
State taxes (net of federal benefit)	(371)	51	(25)
Research and development credits	(912)	15	(386)
Meals & entertainment	314	271	272
Stock based compensation	230	214	151
Change in preferred stock warrant liability	(1)	57	(97)
Other nondeductible expenses	218	0	98
Stock compensation deferred tax asset adjustment	1,072	0	0
Increase in unrecognized tax benefits	121	0	51
Change in valuation allowance	3,022	(1,069)	126
Other	569	36	(4)
Provision for (benefit from) income taxes	$ 0	$ 0	$ 0
% of Pretax Earnings
United States federal tax at statutory rate	34.00%	34.00%	34.00%
State taxes (net of federal benefit)	3.00%	4.10%	4.50%
Research and development credits	7.30%	1.20%	70.40%
Meals & entertainment	(2.50%)	21.70%	(49.70%)
Stock based compensation	(1.80%)	17.10%	(27.60%)
Change in preferred stock warrant liability	0.00%	4.50%	17.70%
Other nondeductible expenses	(1.70%)	0.00%	(17.80%)
Stock compensation deferred tax asset adjustment	(8.60%)	0.00%	0.00%
Increase in unrecognized tax benefits	(1.00%)	0.00%	(9.30%)
Change in valuation allowance	(24.10%)	(85.50%)	(22.90%)
Other	(4.60%)	2.90%	0.70%
Provision for (benefit from) income taxes	0.00%	0.00%	0.00%

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Property and Equipment (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 26,563,000	$ 23,135,000
Less accumulated depreciation	(12,608,000)	(11,642,000)
Property and equipment, net	13,955,000	11,493,000
Depreciation	1,600,000	1,300,000	500,000
Gain (loss) on disposition of fixed assets	47,000	30,000
Laboratory Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	9,929,000	9,415,000
Office Equipment, Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	3,535,000	3,497,000
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	3,229,000	2,652,000
Software [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	2,218,000	1,793,000
Customer-Use Assets [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	841,000	0
Gain (loss) on disposition of fixed assets	400,000
Construction in Progress [Member]
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 6,811,000	$ 5,778,000

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Accrued Expenses (Tables)

12 Months Ended

Dec. 31, 2013

Payables and Accruals [Abstract]

Schedule of Accrued Expenses

Accrued expenses consist of the following as of (in thousands):

	December 31,
	2013		2012
Accrued wages and benefits	$	1,893	$	1,541
Accrued bonus	589		2,200
Other accrued liabilities	1,262		1,608
Total accrued expenses	$	3,744	$	5,349

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Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2013

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment

Property and equipment consists of the following as of (in thousands):

	December 31,
	2013			2012
Laboratory equipment	$	9,929		$	9,415
Office equipment, furniture and fixtures	3,535			3,497
Leasehold improvements	3,229			2,652
Software	2,218			1,793
Customer-use assets	841			—
Construction in progress	6,811			5,778
	26,563			23,135
Less accumulated depreciation	(12,608		)	(11,642		)
Property and equipment, net	$	13,955		$	11,493

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Equity Transactions and Share-Based Compensation (Stock Option Activity) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013
Number of Options
Outstanding at beginning of period (in shares)	2,056,849
Granted (in shares)	513,444
Exercised (in shares)	(537,177)
Expired (in shares)	(195,144)
Forfeited (in shares)	(186,646)
Outstanding at end of period (in shares)	1,651,326
Exercisable at end of period (in shares)	1,234,900
Outstanding Vested and Expected to Vest at end of period (in shares)	1,608,389
Weighted Average Exercise Price
Outstanding at beginning of period (in usd per share)	$ 5.55
Granted (in usd per share)	$ 8.00
Exercised (in usd per share)	$ 2.95
Expired (in usd per share)	$ 7.03
Forfeited (in usd per share)	$ 10.04
Outstanding at end of period (in usd per share)	$ 6.48
Exercisable at end of period (in usd per share)	$ 5.79
Outstanding Vested and Expected to Vest at end of period (in usd per share)	$ 6.42
Aggregate Intrinsic Value
Outstanding at end of period	$ 864
Exercisable at end of period	864
Outstanding Vested and Expected to Vest at end of period	$ 864

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Restricted Cash (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Restricted Cash and Investments [Abstract]
Restricted cash	$ 502	$ 1,505

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Long-Term Debt and Line of Credit (Tables)

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

Schedule of Long-term Debt

Long-term debt consists of the following (in thousands):

	December 31,
	2013			2012
Long-term debt to financial institutions	$	16,000		$	16,000
Less unamortized debt discount	(184		)	(292		)
Long-term debt, less unamortized debt discount	$	15,816		$	15,708

Schedule of Maturities of Long-term Debt

As of December 31, 2013, the annual principal payments on long-term debt and revolving line of credit reflecting the third amendment mentioned above, are as follows (in thousands):

2014	$	—
2015	5,432
2016	6,489
2017	4,079
	$	16,000

See Note 16 for subsequent event leading to the reclassification of the long term debt to current classification.

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Net (Loss) Income Per Share (Tables)

12 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

Schedule of Antidilutive Common Share Equivalents

Because of their anti-dilutive effect, the following common stock equivalents, consisting of convertible preferred shares, redeemable convertible preferred shares, common stock options, warrants and restricted stock units, have been excluded from the diluted loss per share calculations for the respective periods presented:

	Year Ended December 31,
Anti-Dilutive Common Share Equivalents:	2013	2012	2011
Convertible Preferred Stock (Series A, A-1, B, B-1, C, and C-1)	—	1,222,211	1,222,211
Redeemable Convertible Preferred Stock (Series D, D-1, E and F)	—	5,772,348	5,763,606
Common Stock Options and Warrants	1,730,067	382,869	2,266,155
Restricted Stock Units	108,208	—	69,821
	1,838,275	7,377,428	9,321,793

Schedule of Net (Loss) Income Per Share

A reconciliation of the numerator and denominator used in the computation of basic and diluted net (loss) income per share allocable to common stockholders follows (in thousands, except share and per share data):

	Year Ended December 31,
	2013			2012			2011
Historical net (loss) income per share:
Numerator:
Net (loss) income	$	(12,535	)	$	1,250		$	(548	)
Less: Accrual of dividends on Series F redeemable convertible preferred stock	—			—			(613		)
Less: Undistributed earnings allocated to participating preferred shares	—			(1,004		)	—
Net (loss) income attributable to common stockholders – basic	(12,535		)	246			(1,161		)
Add: Undistributed earnings re-allocated to common stockholders	—			113			—
Net (loss) income attributable to common stockholders – diluted	$	(12,535	)	$	359		$	(1,161	)
Denominator:
Weighted average common shares outstanding – basic	14,819,787			1,715,408			1,674,018
Dilutive effect of common stock equivalent shares resulting from common stock options and warrants	—			1,098,915			—
Weighted average common shares outstanding – diluted	14,819,787			2,814,323			1,674,018
Net (loss) income per common share:
Net (loss) income per share attributable to common stockholders – basic	$	(0.85	)	$	0.14		$	(0.69	)
Net (loss) income per share attributable to common stockholders – diluted	$	(0.85	)	$	0.13		$	(0.69	)

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Fair Value Measurement

12 Months Ended

Dec. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurement

Fair Value Measurement

As a basis for determining the fair value of certain of the Company's financial instruments, the Company utilizes a three-tier value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

• Level I - Observable inputs such as quoted prices in active markets for identical assets or liabilities.

• Level II - Observable inputs, other than Level I prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level III - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The Company did not elect to report any of its non-financial assets or non-financial liabilities at fair value.

The fair value of the Company's revolving line of credit and long-term debt were estimated using the discounted cash flow method, which is based on the future expected cash flows, discounted to their present values, using a discount rate that approximates market rates. Such fair value measurements are categorized as Level II under the fair value hierarchy as of December 31, 2013 and 2012. The carrying value of the Company's revolving line of credit and long-term debt as of December 31, 2013 and December 31, 2012 approximated fair value because the interest rates under those obligations approximate market rates of interest available to the Company for similar instruments.

Recurring Fair Value Measurements

The Company's financial instruments that are measured at fair value on a recurring basis consist only of cash equivalents and the preferred stock warrant liability prior to the completion of the IPO. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability.

Cash equivalents

All of the Company's cash equivalents, which include certificates of deposits and money market funds, are classified within Level I of the fair value hierarchy because they are valued using quoted market prices.

Preferred stock warrant liability

The fair value determination of the Company's preferred stock warrant liability had historically required a number of assumptions, including significant unobservable inputs that reflect the Company's own assumptions about the assumptions a market participant would use in valuing the liability, and therefore was classified within Level III of the fair value hierarchy. The significant unobservable inputs used in the fair value measurement of the Company's preferred stock warrant liability were (i) probability weighting of potential liquidity event outcomes, (ii) the implied value of the underlying preferred shares derived in the IPO scenario and (iii) the weighted average cost of capital (“WACC”). Significant increases (decreases) in the probability weighting of potential liquidity event outcomes and the implied value of the underlying preferred stock in isolation would historically resulted in a significantly higher (lower) fair value measurement. Conversely, significant increases (decreases) in the anticipated timing of a liquidity event and WACC inputs in isolation would historically resulted in a significantly lower (higher) fair value measurement.

The following table sets forth the Company's financial instruments that were measured at fair value as of December 31, 2013 and 2012 by level within the fair value hierarchy (in thousands):

	December 31, 2013						December 31, 2012
	Level I		Level III		Total		Level I		Level III		Total
Assets
Certificates of deposits	$	—	$	—	$	—	$	5,253	$	—	$	5,253
Money market funds	502		—		502		21,016		—		21,016
Total assets measured at fair value	$	502	$	—	$	502	$	26,269	$	—	$	26,269
Liabilities
Preferred stock warrant liability	$	—	$	—	$	—	$	—	$	412	$	412
Total liabilities measured at fair value	$	—	$	—	$	—	$	—	$	412	$	412

The change in the fair value of the Level III preferred stock warrant liability is summarized below (in thousands):

	Year Ended December 31,
	2013			2012			2011
Fair value at beginning of period	$	412		$	229		$	597
Issuances	—			172			36
Reclassification to additional paid in capital	(410		)	(138		)	(152		)
Change in fair value recorded in other expense	(2		)	149			(252		)
Fair value at end of period	$	—		$	412		$	229

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Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders' Equity (Tables)

12 Months Ended

Dec. 31, 2013

Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders' Equity (Deficit) [Abstract]

Schedule of Common Stock Reserved for Future Issuance

The Company had reserved shares of common stock for future issuance as summarized in the table below.

	December 31, 2013
Outstanding Common Stock Warrants	78,741
Outstanding employee stock options	1,651,326
Unvested restricted stock units	108,208
Shares authorized under Employee Stock Purchase Plan (ESPP)	242,500
Possible future issuance under stock option plan	449,659
Total shares reserved	2,530,434

Schedule of Redeemable Convertible Preferred Stock

Redeemable Convertible Preferred Stock consisted of the following as of December 31, 2012 (in thousands):

	Authorized	Issued and Outstanding	Liquidation Preference		Carrying Value		Common Stock Issuable Upon Conversion
Series D Redeemable Convertible Preferred Stock	3,544	500	$	2,612	$	2,612	291
Series D-1 Redeemable Convertible Preferred Stock	3,480	2,980	15,556		15,556		1,734
Series E Redeemable Convertible Preferred Stock	5,059	4,719	20,527		20,795		2,289
Series F Redeemable Convertible Preferred Stock	3,133	3,006	13,000		18,338		1,458
	15,216	11,205	$	51,695	$	57,301	5,772

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Cash and Cash Equivalents (Details) (USD $)	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Cash and Cash Equivalents [Abstract]
Cash	$ 49,574,000	$ 4,000
Certificates of deposit	0	5,253,000
Money market funds	0	19,511,000
Total cash and cash equivalents	49,574,000	24,768,000	12,483,000	11,058,000
Investment in bank deposits	$ 6,300,000

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Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders' Equity (Narrative) (Details) (USD $)	0 Months Ended	12 Months Ended			0 Months Ended				0 Months Ended	12 Months Ended	0 Months Ended	12 Months Ended			0 Months Ended	12 Months Ended		0 Months Ended
	Jan. 10, 2013	Dec. 31, 2013 vote	Dec. 31, 2012	Dec. 31, 2011	Jan. 30, 2013 IPO [Member]	Jan. 30, 2013 Preferred Stock [Member] IPO [Member]	Jan. 30, 2013 Common Stock [Member] IPO [Member]	Dec. 31, 2012 Convertible Preferred Stock [Member]	Jan. 30, 2013 Convertible Preferred Stock [Member] IPO [Member]	Dec. 31, 2012 Redeemable Convertible Preferred Stock [Member] installment	Jan. 30, 2013 Redeemable Convertible Preferred Stock [Member] IPO [Member]	Dec. 31, 2012 Series D Redeemable Convertible Preferred Stock [Member]	Dec. 31, 2012 Series D-1 Redeemable Convertible Preferred Stock [Member]	Dec. 31, 2012 Series E Redeemable Convertible Preferred Stock [Member]	Aug. 02, 2011 Series F Redeemable Convertible Preferred Stock [Member]	Dec. 31, 2013 Series F Redeemable Convertible Preferred Stock [Member]	Dec. 31, 2012 Series F Redeemable Convertible Preferred Stock [Member]	Jan. 30, 2013 Minimum [Member] IPO [Member]	Jan. 30, 2013 Maximum [Member] IPO [Member]
Temporary Equity [Line Items]
Payment of accrued dividends																$ 5,200,000
Reverse stock split ratio	0.485
Common stock sold					5,750,000
Price per share (in usd per share)					$ 9
Value of new issues		51,750,000			51,800,000
Aggregate gross proceeds from public offering					44,400,000
Underwriting discounts and commissions					3,400,000
Offering expenses		4,443,000	0	0	4,000,000
Total offering costs and underwriting discount and commissions					7,400,000
Shares converted to common stock						12,892,682
Conversion of stock, shares issued							6,994,559
Number of shares issued from conversion of convertible securities									1,222,211		5,772,348
Preferred stock, dividend rate (in usd per share)																	$ 0.348
Preferred stock, dividend payment term																	5 years
Amount of preferred dividends in arrears															5,200,000
Preferred stock, dividend rate												8.00%	8.00%	8.00%
Common stock, shares outstanding		15,188,861	1,894,277
Number of voting rights per share		1
Convertible preferred stock, shares authorized			3,428,677					3,428,677
Shares outstanding			1,687,010					1,687,010
Shares issued			1,687,010
Aggregate liquidation preference			$ 7,472,000					$ 7,472,000
Preferred stock, adjusted conversion price (in usd per share)																		$ 3.87	$ 8.97
Preferred stock, ownership interest										40.00%
Number of installments for redemption value										3
Redemption period										3 years
Interest rate on redemption										8.00%

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Balance Sheets (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 49,574	$ 24,768
Accounts receivable, net	5,821	5,149
Inventories	224	125
Prepaid expenses and other	972	719
Total current assets	56,591	30,761
Property and equipment, net	13,955	11,493
Other noncurrent assets:
Restricted cash	502	1,505
Intangible assets, net of accumulated amortization of $125 and $147 at December 31, 2013 and 2012, respectively	841	637
Deferred financing costs	64	100
Deferred offering costs	0	3,151
Other assets	45	32
Total other noncurrent assets	1,452	5,425
Total assets	71,998	47,679
Current liabilities:
Accounts payable	2,045	1,003
Accrued expenses	3,744	5,349
Revolving line of credit	0	5,000
Long- term debt reclassified to current	15,816	0
Total current liabilities	21,605	11,352
Long-term liabilities:
Long-term debt	0	15,708
Preferred stock warrant liability	0	412
Other long-term liabilities	2,635	2,462
Total liabilities	24,240	29,934
Redeemable Convertible Preferred Stock:
Series D, D-1, E and F Redeemable Convertible Preferred Stock, par value $.001; 15,216,336 shares designated and 11,205,672 issued and outstanding at December 31, 2012; aggregate liquidation preference of $51,695	0	57,301
Stockholders’ equity (deficit):
Series A, A-1, B, B-1, C and C-1 Convertible Preferred Stock, par value $.001; 3,428,677 shares designated and 1,687,010 shares issued and outstanding at December 31, 2012; aggregate liquidation preference of $7,472	0	1
Common stock, $.001 par value; 75,000,000 and 90,000,000 shares authorized at December 31, 2013 and 2012, respectively; 15,188,861 and 1,894,277 shares issued and outstanding at December 31, 2013 and 2012, respectively	15	2
Additional paid-in capital	108,271	8,434
Accumulated deficit	(60,528)	(47,993)
Total stockholders’ equity (deficit)	47,758	(39,556)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)	71,998	47,679
Redeemable Convertible Preferred Stock [Member]
Redeemable Convertible Preferred Stock:
Series D, D-1, E and F Redeemable Convertible Preferred Stock, par value $.001; 15,216,336 shares designated and 11,205,672 issued and outstanding at December 31, 2012; aggregate liquidation preference of $51,695	$ 0	$ 57,301

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Accrued Expenses (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Payables and Accruals [Abstract]
Accrued wages and benefits	$ 1,893	$ 1,541
Accrued bonus	589	2,200
Other accrued liabilities	1,262	1,608
Total accrued expenses	$ 3,744	$ 5,349

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Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Operating activities
Net (loss) income	$ (12,535)	$ 1,250	$ (548)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation and amortization	1,625	1,280	508
Amortization of deferred financing costs	37	0	0
Amortization of debt discount	108	0	0
Stock-based compensation expense	1,399	1,190	651
Fair value remeasurement of preferred stock warrant liability	(2)	149	(252)
Loss on sale or disposal of equipment	448	30	0
Impairment of intangible assets	0	13	0
Loss on extinguishment of long-term debt	0	0	59
Changes in operating assets and liabilities:
Accounts receivable, net	(672)	477	(1,432)
Inventories	(99)	(125)	0
Prepaid expenses and other	(179)	(138)	(100)
Accounts payable and accrued expenses	(470)	1,162	1,316
Other non-current assets	(13)	0	0
Other long-term liabilities	147	2,309	(106)
Net cash (used in) provided by operating activities	(10,206)	7,597	96
Investing activities
Purchases of property and equipment	(4,621)	(8,015)	(1,963)
Capitalized patent and trademark costs	(231)	(112)	(205)
Proceeds from sale of equipment	175	0	0
Net cash used in investing activities	(4,677)	(8,127)	(2,168)
Financing activities
Payments on revolving line of credit	(5,000)	(3,500)	0
Payments of Series F redeemable convertible preferred stock accrued dividends	(5,200)	0	0
Proceeds from long-term debt	0	16,000	6,000
Payments on long-term debt	0	(6,000)	(1,200)
Taxes paid on behalf of employees for net exercise of options	0	(1,083)	0
Payments on capital leases	0	0	(27)
Changes in restricted cash	1,004	(2)	4
Changes in deferred financing costs	(6)	(95)	3
Debt discount	0	(120)	0
Deferred offering costs	0	(1,044)	(1,908)
Issuance cost of common stock	(4,443)	0	0
Proceeds from revolving line of credit	0	8,500	0
Proceeds from issuance of common stock	51,750	0	0
Proceeds from exercise of stock options and warrants	1,584	159	625
Net cash provided by financing activities	39,689	12,815	3,497
Net increase in cash and cash equivalents	24,806	12,285	1,425
Cash and cash equivalents at beginning of period	24,768	12,483	11,058
Cash and cash equivalents at end of period	49,574	24,768	12,483
Supplemental disclosure of cash flow information
Cash paid for interest	1,476	532	354
Cash paid for income taxes	0	0	2
Supplemental disclosure of non-cash investing activities
Fixed asset expenditures included in accounts payable and other liabilities	776	791	1,316
Supplemental disclosure of non-cash financing activities
Accrual of Series F Redeemable Convertible Preferred Stock dividends	0	0	613
Accretion on Series F Redeemable Convertible Preferred Stock	$ 0	$ 0	$ 115

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Equity Transactions and Share-Based Compensation (Allocation of Share-based Compensation) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Allocated share-based compensation expense	$ 1,399	$ 1,190	$ 651
Cost of Revenues [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Allocated share-based compensation expense	38	46	8
Research and Development [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Allocated share-based compensation expense	493	454	155
Sales and Marketing [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Allocated share-based compensation expense	208	255	217
General and Administrative [Member]
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Allocated share-based compensation expense	$ 660	$ 435	$ 271

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases

Future minimum lease payments required under the non-cancelable operating leases in effect as of December 31, 2013 are as follows (in thousands):

2014	$	1,239
2015	1,272
2016	1,310
2017	1,022
2018	1,361
Thereafter	5,309
Total minimum lease payments	$	11,513

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Employee Benefit Plan (Details) (USD $) In Millions, unless otherwise specified	0 Months Ended		12 Months Ended
	Jul. 02, 2012	Jan. 02, 2012	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Postemployment Benefits [Abstract]
Employee minimum age			21 years
Employee requisite service period			30 days
Employer matching contribution, percent	50.00%	25.00%
Percent of employee's gross pay	6.00%
Employer matching contribution, amount			$ 0.7	$ 0.4	$ 0.2

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Subsequent Events

12 Months Ended

Dec. 31, 2013

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

Exit and Disposal Activities - Workforce Reduction

In January 2014, the Company implemented a workforce reduction to reduce approximately 24 positions throughout the Company, impacting primarily positions in corporate headquarters and field sales. The workforce reduction is related to its plan to realign the Company’s cost structure in light of its current revenue performance. The Company expects to record total charges for severance, related benefits and other costs of approximately $0.4 million during the first quarter of 2014, with respect to the workforce reduction.

Termination of HDL Inc. Agreement

On March 28, 2014, the Company notified Health Diagnostic Laboratory, Inc. ("HDL Inc.") that it was terminating the parties' agreement effective June 26, 2014. The Company expects its revenues to be impacted negatively, potentially significantly so. As a result, based on an initial assessment of the likelihood of achieving its 2014 Revenue to Plan Covenant, the Company has reclassified the full balance of its $15.8 million of long term debt to current as of December 31, 2013.

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Quarterly Results of Operations (Tables)

12 Months Ended

Dec. 31, 2013

Quarterly Financial Information Disclosure [Abstract]

Unaudited Quarterly Financial Results of Operations

The following is a summary of the unaudited quarterly results of operations (in thousands):

	Quarterly Period Ended
	March 31, 2013			June 30, 2013			September 30, 2013			December 31, 2013
Revenues	$	13,616		$	13,311		$	12,738		$	12,718
Gross profit	10,766			10,695			10,130			10,050
Loss from operations	(2,332		)	(1,995		)	(4,179		)	(2,174		)
Net loss	(2,848		)	(2,444		)	(4,627		)	(2,616		)
Net loss attributable to common stockholders – basic(1)	(2,848		)	(2,444		)	(4,627		)	(2,616		)
Net loss attributable to common stockholders – diluted(1)	(2,848		)	(2,444		)	(4,627		)	(2,616		)
Net loss per share attributable to common stockholders – basic(1)	(0.19		)	(0.17		)	(0.31		)	(0.17		)
Net loss per share attributable to common stockholders – diluted(1)	(0.19		)	(0.17		)	(0.31		)	(0.17		)

	Quarterly Period Ended
	March 31, 2012		June 30, 2012		September 30, 2012			December 31, 2012
Revenues	$	13,783	$	13,894	$	13,564		$	13,557
Gross profit	11,465		11,217		10,937			11,119
Income (loss) from operations	1,503		372		(214		)	285
Net income (loss)	1,269		269		(481		)	193
Net income (loss) attributable to common stockholders – basic(1)	248		54		(481		)	38
Net income (loss) attributable to common stockholders – diluted(1)	381		81		(481		)	56
Net income (loss) per share attributable to common stockholders – basic(1)	0.15		0.03		(0.28		)	0.02
Net income (loss) per share attributable to common stockholders – diluted(1)	0.13		0.03		(0.28		)	0.02

(1) These amounts are computed independently for each of the periods presented above and, therefore, may not add up to the total for the year presented in the statements of comprehensive (loss) income.

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Description of Business and Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2013

Revenues [Member]

Concentration Risk [Line Items]

Schedules of Concentration of Risk, by Risk Factor

Revenues from customers representing 10% or more of total revenues for the respective periods, are summarized as follows:

	Year Ended December 31,
	2013		2012		2011
Health Diagnostic Laboratory	33	%	32	%	21	%
LabCorp	30		29		33

Accounts Receivable [Member]

Concentration Risk [Line Items]

Schedules of Concentration of Risk, by Risk Factor

The Company’s accounts receivable due from these significant customers as a percentage of total accounts receivable was as follows as of the dates indicated:

	As of December 31,
	2013		2012
Health Diagnostic Laboratory	37	%	*
LabCorp	17		39	%

* Less than 10%.

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Quarterly Results of Operations (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended																12 Months Ended
	Dec. 31, 2013		Sep. 30, 2013		Jun. 30, 2013		Mar. 31, 2013		Dec. 31, 2012		Sep. 30, 2012		Jun. 30, 2012		Mar. 31, 2012		Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Quarterly Financial Information Disclosure [Abstract]
Revenues	$ 12,718		$ 12,738		$ 13,311		$ 13,616		$ 13,557		$ 13,564		$ 13,894		$ 13,783		$ 52,383	$ 54,798	$ 45,807
Gross profit	10,050		10,130		10,695		10,766		11,119		10,937		11,217		11,465		41,641	44,738	37,278
(Loss) income from operations	(2,174)		(4,179)		(1,995)		(2,332)		285		(214)		372		1,503		(10,680)	1,946	(385)
Net (loss) income	(2,616)		(4,627)		(2,444)		(2,848)		193		(481)		269		1,269		(12,535)	1,250	(548)
Net (loss) income attributable to common stockholders – basic	(2,616)	[1]	(4,627)	[1]	(2,444)	[1]	(2,848)	[1]	38	[1]	(481)	[1]	54	[1]	248	[1]	(12,535)	246	(1,161)
Net (loss) income attributable to common stockholders – diluted	$ (2,616)	[1]	$ (4,627)	[1]	$ (2,444)	[1]	$ (2,848)	[1]	$ 56	[1]	$ (481)	[1]	$ 81	[1]	$ 381	[1]	$ (12,535)	$ 359	$ (1,161)
Net (loss) income per share attributable to common stockholders - basic (in usd per share)	$ (0.17)	[1]	$ (0.31)	[1]	$ (0.17)	[1]	$ (0.19)	[1]	$ 0.02	[1]	$ (0.28)	[1]	$ 0.03	[1]	$ 0.15	[1]	$ (0.85)	$ 0.14	$ (0.69)
Net (loss) income per share attributable to common stockholders - diluted (in usd per share)	$ (0.17)	[1]	$ (0.31)	[1]	$ (0.17)	[1]	$ (0.19)	[1]	$ 0.02	[1]	$ (0.28)	[1]	$ 0.03	[1]	$ 0.13	[1]	$ (0.85)	$ 0.13	$ (0.69)

[1] These amounts are computed independently for each of the periods presented above and, therefore, may not add up to the total for the year presented in the statements of comprehensive (loss) income.

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Description of Business and Significant Accounting Policies

12 Months Ended

Dec. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Description of Business and Significant Accounting Policies

Description of Business and Significant Accounting Policies

Description of Business

LipoScience, Inc. (“LipoScience” or the “Company”) was incorporated under the laws of North Carolina in June 1994 under the name LipoMed, Inc. and reincorporated under the laws of Delaware in June 2000. In January 2002, the Company changed its corporate name to LipoScience, Inc. The Company is a clinicaldiagnostic company pioneering a new field of personalized diagnostics based on nuclear magnetic resonance (“NMR”) technology. The Company's first diagnostic test, the NMR LipoProfile test, is cleared by the U.S. Food and Drug Administration (the "FDA"), and directly measures the number of low density lipoprotein, (“LDL”) particles in a blood sample and provides physicians and their patients with actionable information to personalize management of risk for heart disease.

Basis of Presentation and Use of Estimates

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include all adjustments necessary for the fair presentation of the Company's financial position, results of operations and cash flows for the periods presented. In preparing the financial statements, management must make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates and assumptions used.

Customers and Payors

The Company provides diagnostic tests to a broad range of customers. A majority of these tests are comprised of orders generated through clinical diagnostic laboratory customers and clinicians. The Company also receives requests from academic institutions as well as pharmaceutical companies. In most cases, the customer that orders the tests is not responsible for the payments for services. The Company considers a party that refers a test to it to be a “customer” and a party that reimburses the Company as a “payor.” Depending on the billing arrangement and applicable law, the payor may be (i) a clinical diagnostic laboratory, (ii) a third party responsible for providing health insurance coverage to patients, such as a health insurance plan or the traditional Medicare or Medicaid program, (iii) the physician or (iv) the patient or other party (such as academic institutions or pharmaceutical companies) who requested the test from the Company.

Revenue Recognition

The Company currently derives revenue from sales of its NMR LipoProfile test to clinical diagnostic laboratories and clinicians for use in patient care, from contract research arrangements and from sales of ancillary tests for use in patient care requested in conjunction with the NMR LipoProfile test.

Revenues from diagnostic tests for patient care, which consist of sales of the NMR LipoProfile test performed at the Company's laboratory facility and at third party clinical diagnostic laboratory facilities (see “The Vantera System Placement Arrangements” below) and sales of ancillary tests, are recognized on the accrual basis when the following revenue recognition criteria are met: (1) persuasive evidence that an arrangement exists; (2) services have been rendered or at the time final results are reported; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Testing services provided for patient care are covered by clinical diagnostic laboratories through negotiated contracts with commercial insurance carriers, programs with commercial insurance carriers (including managed care organizations) and various governmental programs, primarily Medicare.

Billings for diagnostic tests for patient care under governmental and physician-based programs are included in revenues net of contractual adjustments. These contractual adjustments represent the difference between the final settlement amount paid by the program and the estimated settlement amount based on either the list price for tests performed or the reimbursement rate set by commercial insurance carriers or governmental programs. Estimated contractual adjustments are updated either upon notification from payors as to changes in existing reimbursement rates, which are typically received prior to changes going into effect, or upon a material variance between the final settlement and the estimated contractual adjustment originally established when the revenues were recognized. To date, the Company's final settlement adjustments have not been material.

Revenues from contract research arrangements are generally derived from studies conducted by academic institutions and pharmaceutical companies. The specific methodology for revenue recognition is determined on a case-by-case basis according to the facts and circumstances applicable to a given agreement. The Company's output, measured in terms of full-time equivalent level of effort or processing a set of diagnostic tests under a contractual protocol, typically triggers payment obligations under these agreements. Revenues are recognized as costs are incurred or diagnostic tests are processed. Contract research costs include all direct material and labor costs, equipment costs and fringe benefits. Advance payments received in excess of revenues recognized are classified as deferred revenue until such time as the revenue recognition criteria have been met.

Billing for diagnostic testing services for patient care is complex. In most cases, tests are performed in advance of payment and without certainty as to the outcome of the billing process, which may negatively affect revenues, cash flow and profitability. Payments are received from a variety of payors, including clinical diagnostic laboratories, commercial insurance carriers (including managed care organizations), governmental payors (primarily Medicare) and individual patients. Each payor typically has different billing requirements, and the billing requirements of many payors have become increasingly stringent.

The Company generally assumes the financial risk related to collection, including the potential uncollectibility of accounts and the other complex factors identified above. For sales of its NMR LipoProfile test to clinical diagnostic laboratories, the clinical diagnostic laboratories are responsible for obtaining reimbursement from third-party payors or directly from patients. Delays in collection and uncollectible bills may negatively affect the Company's revenues, cash flow and profitability.

The Vantera System Placement Arrangements

The Company's automated clinical analyzer, the Vantera system, was cleared by the FDA in August 2012 and became commercially available in December 2012. The Company started placing the Vantera system on-site with certain selected clinical diagnostic laboratories as well as leading medical centers and hospital outreach laboratories during the second quarter of 2013.

The Company's Vantera system placement arrangements (or “placement arrangements”) are generally negotiated and accounted for as operating leases. Arrangement consideration is determined based on the test volume and the negotiated price-per-reportable NMR LipoProfile test result. The placement arrangements typically include lease and non-lease deliverables. Lease deliverables include the right to use the Vantera system and related maintenance and support, while non-lease deliverables consist of the NMR LipoProfile test and consumables. Lease deliverables are accounted for in accordance with specific leasing guidance while non-lease deliverables are accounted for in accordance with the multiple-element arrangement guidance.

The Company evaluates each non-lease deliverable to determine whether it represents a separate unit of accounting. A deliverable is considered a separate unit of accounting when the delivered item has stand-alone value and delivery of the undelivered element is probable and within the Company's control. The Company has determined that both the NMR LipoProfile test and consumables have separate units of accounting. The NMR LipoProfile test is the Company's most significant deliverable under these placement arrangements.

The Company allocates revenue to each deliverable at the inception of the placement arrangement, based on its estimated stand-alone value in relation to the combined estimated stand-alone value of all deliverables, or the relative selling price method. Revenue allocated to each deliverable is then recognized when the basic revenue recognition criteria, as described above, is met for each deliverable.

The Company applies the following selling price hierarchy in determining the selling price for each deliverable:

• Vendor-specific objective evidence (“VSOE”) if available-the price charged for a deliverable when it is sold separately and, in other instances, using the price established by management having the relevant authority.

• Third-party evidence (“TPE”) if VSOE is not available-the price of the vendor's or any competitor's largely interchangeable products or services in standalone sales to similarly situated customers.

• Estimated selling price (“ESP”) if neither VSOE or TPE is available-the price best estimated by the vendor and at which the vendor would transact if the deliverable would have been sold by the vendor regularly on a standalone basis.

The Company has determined that only the selling price of its NMR LipoProfile test is based on VSOE. The Company does not sell the license to use the Vantera system, the consumables or related maintenance and support separately on a regular basis and therefore it does not have the evidence to support VSOE for these deliverables. Due to the high degree of customization involved with these deliverables, the Company has determined that there is no comparable TPE for these deliverables. Since these deliverables have neither VSOE nor TPE, the allocation of revenue to them has been based on the Company's ESP.

The Company's process for determining ESP for its deliverables considers all reasonably available information including both market data and conditions, as well as entity specific factors that may vary depending upon the facts and circumstances related to each deliverable. Key factors considered in developing ESP relating to deliverables include cost structures, established pricing and approval policies and customization of the product or service and industry pricing. The Company regularly reviews ESP and maintains internal controls over the establishment and updates of these estimates.

Shipping and Handling

The Company does not bill its customers for shipping and handling charges. All charges relating to inbound and outbound freight costs are incurred by the Company and recorded within cost of revenues. For the years ended December 31, 2013, 2012 and 2011, the Company incurred shipping and handling costs of $1.3 million, $1.5 million and $1.5 million, respectively.

Fair Value of Financial Instruments

The Company measures certain financial assets and liabilities at fair value based on the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. As of December 31, 2013 and December 31, 2012, the Company's financial instruments consisted principally of cash and cash equivalents, a revolving line of credit and long-term debt. Additionally, as of December 31, 2012, the Company's financial instruments also consisted of a preferred stock warrant liability. See Note 2, “Fair Value Measurement,” to the financial statements for further information on the fair value of the Company's financial instruments.

Cash and Cash Equivalents

The Company invests its available cash balances in cash, money market funds and certificates of deposits. The Company considers all highly liquid instruments purchased with original maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents are stated at cost and the carrying amounts approximate fair value. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Additionally, the Company has established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity. See Note 6 for a discussion of Restricted Cash.

Accounts Receivable

Accounts receivable are primarily amounts due from clinical diagnostic laboratories, commercial insurance companies (including managed care organizations), governmental programs (primarily Medicare), physicians, and individual patients.

Accounts receivable are reported net of an allowance for uncollectible accounts and contractual allowance adjustments. The process of estimating the collection of accounts receivable involves significant assumptions and judgments. Specifically, the accounts receivable allowance is based on management's analysis of current and past due accounts, collection experience in relation to amounts billed, changes in reimbursement levels, known contract terms, channel mix, any specific customer collection issues that have been identified and other relevant information. The Company's provision for uncollectible accounts is recorded as bad debt expense and included in general and administrative expenses. Historically, the Company has not experienced credit loss related to its customers or payors significantly in excess of its reserves. Although the Company believes amounts provided are adequate, the ultimate amounts of uncollectible accounts receivable could be in excess of the amounts provided.

Inventories

Inventories consist of materials and spare parts to service the Vantera system. Inventories are valued at the lower of cost or net realizable value. The cost of inventories is maintained using the average-cost method.

Property and Equipment

Property and equipment are stated at cost. Property and equipment financed under capital leases are initially recorded at the present value of minimum lease payments at the inception of the lease. Amortization of assets financed under capital leases is included with purchased property and equipment as part of depreciation and amortization.

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Property and equipment under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. Depreciable lives range from three to ten years for laboratory equipment, customer-use assets, office equipment and furniture and fixtures and three years for software.

Intangible Assets

Intangible assets include patent costs, trademark costs and technology licenses that are capitalized and amortized over estimated useful lives (generally nine to twenty years) using the straight-line method. Patent costs are expensed if the patent is not granted. On an ongoing basis, the Company assesses the recoverability of its intangible assets by determining its ability to generate undiscounted future cash flows sufficient to recover the unamortized balances over the remaining useful lives. Intangible assets determined to be unrecoverable are expensed in the period in which the determination is made.

Amortization expense on intangible assets was $22,000, $19,000 and $23,000 for the years ended December 31, 2013, 2012 and 2011, respectively.

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may be impaired and assesses their recoverability based upon anticipated future cash flows. If changes in circumstances lead the Company to believe that any of its long-lived assets may be impaired, the Company will (a) evaluate the extent to which the remaining book value of the asset is recoverable by comparing the future undiscounted cash flows estimated to be associated with the asset to the asset's carrying amount and (b) write-down the carrying amount to market value or discounted cash flow value to the extent necessary.

Redeemable Convertible Preferred Stock

The Company had historically classified its redeemable convertible preferred stock, for which the Company did not control the redemption, outside of permanent equity. The Company had recorded redeemable convertible preferred stock at fair value upon issuance, net of any issuance costs or discounts, and the carrying value was increased by periodic accretion to its redemption value. These increases were effected through charges against additional paid-in capital. Upon closing of the IPO, all outstanding redeemable convertible preferred stock as well as convertible preferred stock was reclassified to additional paid-in capital. See Note 10 for further information regarding the Company's IPO.

Preferred Stock Warrant Liability

The Company had historically accounted for its freestanding warrants to purchase the Company's Series E and Series F Redeemable Convertible Preferred Stock as liabilities at fair value on the accompanying balance sheets. The warrants were subject to re-measurement at each balance sheet date, and the change in fair value, if any, was recognized as other income or expense. As a result of the IPO, the preferred stock warrant liability was reclassified to additional paid-in capital upon the conversion of warrants to purchase preferred stock into warrants to purchase common stock (see Note 11, "Preferred Stock Warrant Liability").

Concentration of Credit Risk and Other Risks

The Company derives its revenues from diagnostic testing services provided for patient care and contract research arrangements with institutional customers. The Company operates in one industry segment. Substantially all of the Company's historical revenues have been derived from the sale of the NMR LipoProfile test.

The Company's principal financial instruments subject to potential concentration of credit risk are cash equivalents and trade accounts receivable, which are unsecured. Through December 31, 2013, no material losses have been incurred.

Revenues from customers representing 10% or more of total revenues for the respective periods, are summarized as follows:

	Year Ended December 31,
	2013		2012		2011
Health Diagnostic Laboratory	33	%	32	%	21	%
LabCorp	30		29		33

The Company’s accounts receivable due from these significant customers as a percentage of total accounts receivable was as follows as of the dates indicated:

	As of December 31,
	2013		2012
Health Diagnostic Laboratory	37	%	*
LabCorp	17		39	%

* Less than 10%.

The Company depends on a limited number of suppliers, including single-source suppliers, of various critical components used in its Vantera system and existing NMR clinical analyzers. The loss of these suppliers, or their failure to supply the Company with the necessary components on a timely basis, could cause delays in the placement of Vantera system or the diagnostic testing process and adversely affect the Company.

Research and Development Expenses

Research and development expenses include all costs associated with the development of NMR technology products and are charged to expense as incurred. Research and development expenses include direct costs and an allocation of indirect costs, including amortization, depreciation, telephone, rent, supplies, insurance and repairs and maintenance.

Financing Costs

The Company capitalizes direct financing costs, which are included as other noncurrent assets on the Company's balance sheets. The Company accretes debt discounts, which are included as a direct deduction from the face amount of the financing. Debt financing costs and debt discounts are deferred and amortized to interest expense using the effective interest method over the life of the related debt. The related expense is included in interest expense in the Company's statements of comprehensive (loss) income.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of the Company's assets and liabilities and their financial statement reported amounts. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company accounts for uncertainties in income taxes by utilizing a two-step process for evaluating tax positions to determine the amount of tax benefit to be recognized. First, the tax position is evaluated to determine whether it is more likely than not to be sustained upon examination by taxing authorities. If the tax position is deemed more likely than not to be sustained, the tax benefit is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company’s policy for recording interest and penalties related to uncertain tax provisions is to record them as a component of provision for income taxes.  The Company did not have any accrued interest or penalties associated with any unrecognized tax positions as of December 31, 2013 and 2012, and there were no such interest or penalties recognized during the years ended December 31, 2013, 2012 and 2011, respectively.

Advertising

Advertising costs, which are included in sales and marketing expenses, are expensed as incurred. Advertising expense was $1.3 million, $0.8 million and $0.9 million for the years ended December 31, 2013, 2012 and 2011, respectively.

Stock-Based Compensation

The Company accounts for stock-based compensation arrangements with employees and non-employee directors using a fair value method that requires the recognition of compensation expense for costs related to all stock-based payments, including stock options and restricted stock units. The fair value method requires the Company to estimate the fair value of stock options on the date of grant using an option pricing model. The fair value of restricted stock units is estimated based on the closing price of the Company's stock on the date of grant, and for the purposes of expense recognition, the total new number of shares expected to vest is adjusted for estimated forfeitures.

Stock-based compensation costs for stock options are based on the fair value of the underlying option calculated using the Black-Scholes option-pricing model on the date of grant for stock options and recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. Determining the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, forfeiture rates and expected term. The expected volatility rates are estimated based on the actual volatility of comparable public companies over the expected term. The expected term represents the average time that options are expected to be outstanding based on the mid-point between the vesting date and the end of the contractual term of the award. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has not paid dividends and does not anticipate paying a cash dividend in the foreseeable future and, accordingly, uses an expected dividend yield of zero. The risk-free interest rate is based on the rate of U.S. Treasury securities with maturities consistent with the estimated expected term of the awards. The measurement of nonemployee share-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period over which services are received.

Segment Reporting

The Company operates in one operating segment. The Company's chief operating decision maker (the “CODM”), its chief executive officer, manages the Company's operations on an integrated basis for purposes of allocating resources. When evaluating the Company's financial performance, the CODM reviews separate revenue information for the Company's patient care testing and its research services, while all other financial information is reviewed on a combined basis. All of the Company's principal operations and decision-making functions are located in the United States. Accordingly, the Company has determined that it has a single reporting segment.

Leases

Leases are classified as either capital or operating leases.   Leases that transfer substantially all the benefits and risks of ownership of the asset to the Company are accounted for as capital leases.   All other leases are accounted for as operating leases wherein rental payments are expensed in a manner that results in the total rent payments being recognized on a straight-line basis over the term of the lease. The Company records rent holidays, rent concessions and rent escalations on a straight-line basis over the lease term and records the difference between expense and cash payments as deferred rent. Leasehold improvement incentives received from landlord are recorded as deferred rent and amortized over the lease term on a straight-line basis. Deferred rent is included in other long-term liabilities on the accompanying balance sheets.

Off-Balance Sheet Arrangements

Through December 31, 2013, the Company has not entered into any off-balance sheet arrangements, other than the operating leases described in Note 14, and does not have any holdings in variable interest entities.

Recent Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this update provide clarification, and are intended to reduce diversity in practice, on the financial statement presentation of unrecognized tax benefits. The guidance specifies that an unrecognized tax benefit (or a portion thereof) shall be presented in the financial statements as a reduction to a deferred tax asset when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. If such deferred tax asset is not available at the reporting date to settle additional income taxes resulting from the disallowance of a tax position, or the entity does not plan to use the deferred tax asset for such purpose given the option, the unrecognized tax benefit shall be presented in the financial statements as a liability and shall not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. For public companies, the amendments that are subject to this update are effective for interim and annual reporting periods beginning after December 15, 2013, with early adoption permitted. The Company’s current practice is consistent with the amendments in this update. The Company expects that the new guidance will have no material impact on the Company’s financial statements.

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Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Accumulated amortization	$ 125	$ 147
Redeemable convertible preferred stock, shares designated		15,216,336
Liquidation Preference		51,695
Convertible preferred stock, par value (in usd per share)	$ 0.001	$ 0.001
Convertible preferred stock, shares designated		3,428,677
Convertible preferred stock, shares issued		1,687,010
Convertible preferred stock, shares outstanding		1,687,010
Convertible preferred stock, aggregate liquidation preference		7,472
Common stock, par value (in usd per share)	$ 0.001	$ 0.001
Common stock, shares authorized	75,000,000	90,000,000
Common stock, shares issued	15,188,861	1,894,277
Common stock, shares outstanding	15,188,861	1,894,277
Redeemable Convertible Preferred Stock [Member]
Redeemable convertible preferred stock, par value (in usd per share)	$ 0.001	$ 0.001
Redeemable convertible preferred stock, shares designated		15,216,336
Redeemable convertible preferred stock, shares issued		11,205,672
Redeemable convertible preferred stock, shares outstanding		11,205,672
Liquidation Preference		$ 51,695

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Equity Transactions and Share-Based Compensation

12 Months Ended

Dec. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Equity Transactions and Share-Based Compensation

Equity Transactions and Share-Based Compensation

Preferred Stock Warrant Liability

Prior to the IPO, the Company accounted for its freestanding warrants to purchase the Company's Series E and Series F Redeemable Convertible Preferred Stock as liabilities at fair value on its balance sheets. The warrants were subject to re-measurement at each balance sheet date, and the change in fair value, if any, was recognized as other expense. The Company estimated the fair value of these warrants at the respective balance sheet dates using the Black-Scholes option pricing model. The estimated fair value of the Company, calculated at each valuation date, was allocated to the shares of redeemable convertible preferred stock, convertible preferred stock, warrants to purchase shares of redeemable convertible preferred stock, and common stock, using a “hybrid” approach of the probability-weighted expected return method and the option pricing model. This approach treats the various components of the Company's capital structure as a series of call options on the proceeds expected from the sale of the Company or the liquidation of the Company's assets in the future. This approach defines the securities' fair values as functions of the current fair value of the Company and assumptions based on the securities' rights and preferences. These call options were then valued using the Black-Scholes option pricing model. As a result, the option-pricing model requires a number of assumptions to estimate the fair value including the anticipated timing of a potential liquidity event, such as an initial public offering, remaining contractual terms of the warrant, risk-free interest rates, expected dividend yield and the estimated volatility of the price of the underlying securities. The anticipated timing of a liquidity event utilized in these valuations was based on then current plans and estimates of the Company's board of directors and management regarding the IPO. These assumptions were highly judgmental.

The fair values of outstanding Series E and Series F Redeemable Convertible Preferred Stock warrants were estimated using the Black-Scholes option-pricing model with the following assumptions as of:

	Year Ended December 31,
	2012		2011
Expected term (in years)	0.25-0.5		0.5-1.0
Risk-free interest rate	0.0%-0.1%		0.1%-0.6%
Expected volatility	30	%	36	%
Expected dividend rate	0	%	0	%

The Company adjusted the liability for changes in fair value until the earlier of (i) exercise of the warrants, (ii) conversion of the warrants into warrants to purchase common stock upon an event such as the completion of the IPO or (iii) expiration of the warrants. Upon the completion of the IPO in January 2013, all warrants to purchase redeemable convertible preferred stock were converted into warrants to purchase common stock, and the preferred stock warrant liability was reclassified into additional paid-in capital at its then fair value of $0.4 million.

Common Stock Warrants

As of December 31, 2013, the following warrants to purchase common stock were outstanding:

Issuance Date	Number of Shares	Exercise Price	Expiration Date
2/7/2008	36,375	8.97	2/7/2015
3/31/2011	6,689	8.97	3/31/2018
12/20/2012	35,677	8.97	12/20/2022

These warrants are exercisable at any time upon their issuance date.

Equity Incentive Plans

On September 12, 1997, the Company's Board of Directors adopted the Stock Option Plan (the "1997 Plan") to create an additional incentive for key employees, directors and consultants or advisors of the Company. Both incentive stock options, which meet the requirements of Section 422 of the Internal Revenue Code, and nonqualified stock options, could be granted under the 1997 Plan. The 1997 Plan expired on September 12, 2007.

On October 25, 2007, the Company's Board of Directors adopted the 2007 Stock Incentive Plan (the "2007 Plan") to replace the expired 1997 Plan. The terms of the 2007 Plan are consistent with those of the 1997 Plan. On May 24, 2012, the Company's Board of Directors adopted, and stockholders subsequently approved, the 2012 Equity Incentive Plan (the "2012 Plan"). The 2012 Plan became effective immediately upon the completion of the IPO in January 2013, and no further shares may be issued under the 2007 Plan. In addition to grants of incentive stock options and nonqualified stock options (collectively, the "stock options"), the 2012 Plan also allows the Company to grant stock appreciation rights, restricted stock awards, restricted stock units ("RSUs"), performance-based stock or cash awards to key employees, directors and consultants or advisors of the Company. A maximum of 970,000 shares of the Company's common stock are reserved for issuance under the 2012 Plan, subject to adjustments for stock splits, stock dividends, evergreen feature and comparable restructuring activities. The 2012 Plan will terminate on May 24, 2022, unless sooner terminated by the Company's Board of Directors. To date, the Company's Board of Directors granted only stock options and RSUs. A maximum of 242,500 shares of the Company's common stock are reserved for issuance under the 2012 Employee Stock Purchase Plan (the "ESPP"). As of December 31, 2013, the Company has not granted any purchase rights under the ESPP.

The exercise price of all stock options and RSUs was determined by the Board of Directors, provided that such price for stock options was not to be less than the estimated fair market value of the Company’s stock on the date of grant. The stock options vest based on terms in the stock option agreements (generally over four years) and are exercisable after they have been granted for up to ten years from the date of grant. The RSUs granted to the Company's employees generally vest 100% on the three-year anniversary of the grant date. The RSUs granted to non-employee directors generally vest quarterly over a one-year period from the date of grant.

Stock Options

The following table summarizes stock option activity under the Company’s 1997 Plan, 2007 Plan and 2012 Plan for the year ended December 31, 2013:

	Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (Thousands)
Outstanding at December 31, 2012	2,056,849		$	5.55
Granted	513,444		8.00
Exercised	(537,177	)	2.95
Expired	(195,144	)	7.03
Forfeited	(186,646	)	10.04
Outstanding at December 31, 2013	1,651,326		$	6.48	$	864
Exercisable at December 31, 2013	1,234,900		$	5.79	$	864
Outstanding Vested and Expected to Vest at December 31, 2013	1,608,389		$	6.42	$	864

The aggregate intrinsic value represents the pre-tax intrinsic value, which is computed based on the difference between the exercise price and the estimated fair market value or the closing stock price as of December 31(the last day of trading for our calendar year end), and which represents the amount that would have been received by the option holders had all option holders exercised their stock options as of that date. The aggregate intrinsic value of options exercised for the years ended December 31, 2013, 2012 and 2011 was $1.4 million, $3.4 million and $0.4 million, respectively.

As of December 31, 2013, there were 449,659 shares available to be granted under the stock option plans discussed above.

The Company estimates the fair value of its stock options on the grant date using the Black-Scholes option pricing model. The fair value of both employee and non-employee director options is then amortized on a straight-line basis over the requisite service period of the awards. The exercise prices of all stock options granted was equal to the closing market price of the underlying common stock on the grant date. The weighted average assumptions used in the Black-Scholes valuation model for equity awards granted for the twelve months ended December 31, 2013 and 2012 are shown in the table below. As of December 31, 2013, there was $1.3 million of unrecognized compensation expense, net of estimated forfeitures, related to non-vested stock options, which is expected to be recognized over a weighted-average period of 2.3 years.

The Company determined the options' life based upon the use of the simplified method. As a newly public company, sufficient history to estimate the volatility and dividend yield of the Company's common stock is not available. The Company elected to utilize a peer group of comparable companies as a basis for the expected volatility assumption and dividend yield. The Company intends to continue to consistently apply this process using the peer group of comparable companies until a sufficient amount of historical information becomes available. The risk-free interest rate is based upon the yield of an applicable U.S. Treasury instrument. The weighted average grant date fair value per share of options granted for the years ended December 31, 2013, 2012 and 2011 was $3.52, $5.18 and $3.78, respectively.

The fair value of these stock options was estimated using the following weighted average assumptions:

	Year Ended December 31,
	2013		2012		2011
Expected dividend yield	0.0	%	0.0	%	0.0	%
Risk-free interest rate	1.2	%	0.8	%	2.0	%
Expected volatility	45.5	%	50.0	%	50.3	%
Expected life (in years)	5.8		5.6		5.6

The following table summarizes information about stock options outstanding as of December 31, 2013:

	Total Options Outstanding			Options Exercisable
Range of Exercise Prices	Number of Options	Weighted Average Exercise Price	Weighted Average Remaining Life in Years	Number of Options	Weighted Average Exercise Price	Weighted Average Remaining Life in Years
$1.87 – $2.45	259,547	$2.36		259,547	$2.36
$2.49	198,155	2.49		198,155	2.49
$3.88 – $4.23	98,527	4.00		98,527	4.00
$5.04 – $5.55	171,319	5.25		82,537	5.14
$5.63 – $5.98	143,147	5.68		113,855	5.63
$6.68 - $6.89	217,378	6.83		169,321	6.84
$9.01	58,103	9.01		41,985	9.01
$9.65 – $9.84	226,278	9.69		67,236	9.74
$11.11 – $11.44	201,466	11.40		155,327	11.39
$12.80	77,406	12.80		48,410	12.80
	1,651,326	6.48	6.8	1,234,900	5.79	6.0

Restricted Stock Units

Each RSU represents the contingent right to receive one share of common stock of the Company. The following table summarizes RSU activity under the Company's 2012 Plan for the year ended December 31, 2013:

	Number of Awards		Weighted Average Grant-Date Fair Value
Nonvested balance at December 31, 2012	—		$	—
Granted	142,869		7.07
Vested	(12,848	)	5.88
Forfeited	(21,813	)	9.65
Nonvested balance at December 31, 2013	108,208		$	6.70

The total fair value shares of outstanding common stock issued upon the vesting and settlement of RSUs during the year ended December 31, 2013 was $64,000.

The fair value of RSUs is estimated based on the closing price of the underlying common stock on the date of grant. For the purposes of expense recognition, the total number of shares expected to vest is adjusted for estimated forfeitures and the expense is recognized on a straight-line basis over the requisite service period. As of December 31, 2013, there was $0.3 million of unrecognized compensation expense, net of estimated forfeitures, related to unvested RSUs, which is expected to be recognized over a weighted-average period of 2.1 years.

Performance-based Restricted Stock Units

As of December 31, 2013, approximately 60,000 shares of performance-based restricted stock awards remained outstanding. These awards, granted in fiscal 2013, were granted to the Company’s Vice President of Sales, and will vest at levels ranging from 0% of shares granted to 100% of shares granted, dependent upon the achievement of certain revenue performance metrics for a term through the end of fiscal 2016.  No share based compensation expense was recognized through December 31, 2013.

For the years ended December 31, 2013, 2012 and 2011, the Company recorded stock-based compensation expense in the amount of $1.4 million, $1.2 million and $0.7 million, respectively. Net cash provided by operating and financing activities was unchanged by stock option activity for the years ended December 31, 2013, 2012 and 2011, as there were no excess tax benefits from stock-based compensation plans.

The Company recognized non-cash stock-based compensation expense, for both RSUs and stock options, to employees in its research and development, sales and marketing and general and administrative functions as follows (in thousands):

	Year Ended December 31,
	2013		2012		2011
Cost of revenues	$	38	$	46	$	8
Research and development	493		454		155
Sales and marketing	208		255		217
General and administrative	660		435		271
Total:	$	1,399	$	1,190	$	651

XML

Document and Entity Information (USD $)	12 Months Ended
	Dec. 31, 2013	Mar. 25, 2014	Jun. 30, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	LIPOSCIENCE INC
Entity Central Index Key	0001168197
Document Type	10-K
Document Period End Date	Dec. 31, 2013
Amendment Flag	false
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	FY
Document Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		15,223,053
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 77,795,555

XML

Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company recorded no provision for income taxes during the years ended December 31, 2013, 2012 and 2011.

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets are as follows as of (in thousands):

	December 31,
	2013			2012
Deferred tax assets (liabilities):
Net operating loss carryforwards	$	15,660		$	11,255
Research and development credits	2,691			1,963
Stock-based compensation	742			1,851
Allowance for uncollectible accounts receivable	291			471
Deferred rent	877			952
Accrued compensation	240			1,044
Depreciation and amortization	(1,153		)	(1,167		)
Other	208			165
Total deferred tax assets, net	19,556			16,534
Valuation allowance	(19,556		)	(16,534		)
Net deferred tax asset	$	—		$	—

At December 31, 2013 and 2012, the Company had federal net operating loss carryforwards of approximately $45.6 million and $32.9 million, respectively, state net economic loss carryforwards of approximately $41.4 million and $29.1 million, respectively, and research and development credit carryforwards of approximately $2.7 million and $2.0 million, respectively. The federal and state net operating loss carryforwards begin to expire in 2018 and 2015, respectively, and the research and development credit carryforwards begin to expire in 2018. The Company's federal and state net operating loss carryforwards include $3.3 million of excess tax benefits related to deductions from the exercise of nonqualified stock options. The tax benefit of these deductions has not been recognized in deferred tax assets. If utilized, the benefits from these deductions will be recorded as adjustments to additional paid-in capital. During 2013, the Company recorded approximately $1.1 million of adjustments to decrease deferred tax assets related to stock option activity from prior periods. As the Company is in a full valuation allowance position, there was no impact on net loss for the year ended December 31, 2013. For financial reporting purposes, a valuation allowance has been recognized to fully offset the deferred tax assets related to the carryforwards, based on the Company's assessment regarding the realizability of these net deferred tax assets in future periods. The total increase in valuation allowance of $3.0 million was allocable to current operating activities. The utilization of the loss carryforwards to reduce future income taxes will depend on the Company's ability to generate sufficient taxable income prior to the expiration of the loss carryforwards. In addition, the maximum annual use of net operating loss and research credit carryforwards is limited in certain situations where changes occur in stock ownership. There was no recognized tax benefit related to net operating loss carryforwards for the year ended December 31, 2013. The recognized tax benefit related to net operating loss carryforwards was approximately $0.4 million and $38,000 for the years ended December 31, 2012 and 2011, respectively.

The research and development credit, which had previously expired on December 31, 2011, was reinstated as part of the American Taxpayer Relief Act of 2012 enacted on January 2, 2013. This legislation retroactively reinstated and extended the credit from the previous expiration date through December 31, 2013. As a result, the Company adjusted its deferred tax assets in 2013 for the 2013 and 2012 research and development credits, which resulted in an increase to the deferred tax assets and a corresponding increase to the valuation allowance of $0.5 million and $0.4 million, respectively.

On July 23, 2013, North Carolina enacted House Bill 998, which reduced the corporate income tax rate from 6.9% in 2013 to 6% in 2014 and to 5% in 2015. As a result of the new enacted tax rate, the Company adjusted its deferred tax assets in 2013 by applying the lower rate, which resulted in a decrease to the deferred tax assets and a corresponding decrease to the valuation allowance of approximately $0.4 million.

The Small Business Jobs Act of 2010 was enacted on September 27, 2010. The new law allows research and development tax credits to offset both federal regular tax and federal alternative minimum tax of eligible small businesses. The provision is effective for any research and development credits generated during the tax year ended December 31, 2010 and to any carryback of such credits. The Company has determined that it qualifies as an eligible small business under these provisions and was able to offset its federal alternative minimum tax liability for the tax year ended December 31, 2012.

Taxes computed at the statutory federal income tax rate of 34% are reconciled to the provision for (benefit from) income taxes are as follows (in thousands):

	Year Ended December 31,
	2013					2012					2011
	Amount			% of Pretax Earnings		Amount			% of Pretax Earnings		Amount			% of Pretax Earnings
United States federal tax at statutory rate	$	(4,262	)	34.0	%	$	425		34.0	%	$	(186	)	34.0	%
State taxes (net of federal benefit)	(371		)	3.0		51			4.1		(25		)	4.5
Research and development credits	(912		)	7.3		15			1.2		(386		)	70.4
Meals & entertainment	314			(2.5	)	271			21.7		272			(49.7	)
Stock based compensation	230			(1.8	)	214			17.1		151			(27.6	)
Change in preferred stock warrant liability	(1		)	—		57			4.5		(97		)	17.7
Other nondeductible expenses	218			(1.7	)	—			—		98			(17.8	)
Stock compensation deferred tax asset adjustment	1,072			(8.6	)	—			—		—			—
Increase in unrecognized tax benefits	121			(1.0	)	—			—		51			(9.3	)
Change in valuation allowance	3,022			(24.1	)	(1,069		)	(85.5	)	126			(22.9	)
Other	569			(4.6	)	36			2.9		(4		)	0.7
Provision for (benefit from) income taxes	$	—		—	%	$	—		—	%	$	—		—	%

The Company had gross unrecognized tax benefits of approximately $0.4 million as of January 1, 2013. As of December 31, 2013, the total gross unrecognized tax benefits were approximately $0.5 million and of this total, none would reduce the Company’s effective tax rate if recognized. The Company does not anticipate a significant change in total unrecognized tax benefits or the Company’s effective tax rate due to the settlement of audits or the expiration of statutes of limitations within the next twelve months. Furthermore, the Company does not expect any cash settlement with the taxing authorities as a result of these unrecognized tax benefits as the Company has sufficient unutilized carryforward attributes to offset the tax impact of these adjustments.

The Company recognizes interest and penalties related to uncertain tax positions in the provision for income taxes. As of December 31, 2013 and 2012, the Company had no accrued interest or penalties related to uncertain tax positions.

The Company has analyzed its filing positions in all significant federal, state and foreign jurisdictions where it is required to file income tax returns, as well as open tax years in these jurisdictions. With few exceptions, the Company is no longer subject to US Federal and state and local tax examinations by tax authorities for years prior to 2010, although carryforward attributes that were generated prior to 2010 may still be adjusted upon examination by the IRS if they either have been or will be used in a future period. No income tax returns are currently under examination by taxing authorities.

The following is a tabular reconciliation of the Company's change in gross unrecognized tax positions (in thousands):

	Year Ended December 31,
	2013		2012		2011
Beginning balance	$	369	$	369	$	327
Gross decreases for tax positions related to current periods	—		—		(9		)
Gross increases for tax positions related to current periods	121		—		51
Ending balance	$	490	$	369	$	369

XML

Statements of Comprehensive (Loss) Income (USD $) In Thousands, except Share data, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Revenues	$ 52,383	$ 54,798	$ 45,807
Cost of revenues	10,742	10,060	8,529
Gross profit	41,641	44,738	37,278
Operating expenses:
Research and development	12,742	10,004	7,808
Sales and marketing	27,724	22,402	21,305
General and administrative	11,855	10,386	8,550
Total operating expenses	52,321	42,792	37,663
(Loss) income from operations	(10,680)	1,946	(385)
Other expense:
Interest income	93	13	13
Interest expense	(1,942)	(540)	(350)
Loss on extinguishment of long-term debt	0	0	(59)
Other (expense) income	(6)	(169)	233
Total other expense	(1,855)	(696)	(163)
Net (loss) income	(12,535)	1,250	(548)
Accrual of dividends on redeemable convertible preferred stock	0	0	(613)
Net (loss) income attributable to common stockholders – basic	(12,535)	246	(1,161)
Net (loss) income attributable to common stockholders – diluted	(12,535)	359	(1,161)
Net (loss) income per share attributable to common stockholders - basic (in usd per share)	$ (0.85)	$ 0.14	$ (0.69)
Net (loss) income per share attributable to common stockholders - diluted (in usd per share)	$ (0.85)	$ 0.13	$ (0.69)
Weighted average shares used to compute basic net (loss) income per share attributable to common stockholders	14,819,787	1,715,408	1,674,018
Weighted average shares used to compute diluted net (loss) income per share attributable to common stockholders	14,819,787	2,814,323	1,674,018
Comprehensive (loss) income	(12,535)	1,250	(548)
Preferred Stock [Member]
Other expense:
Undistributed earnings allocated	0	(1,004)	0
Common Stock [Member]
Other expense:
Undistributed earnings allocated	$ 0	$ 113	$ 0

XML

Restricted Cash

12 Months Ended

Dec. 31, 2013

Restricted Cash and Investments [Abstract]

Restricted Cash

Restricted Cash

As of December 31, 2013 and December 31, 2012, money market funds totaling $0.5 million and certificates of deposit totaling $1.5 million, respectively, were pledged as security for the Company's office and laboratory space operating lease. These funds may be released by the bank upon the achievement of minimum sales and cash flow levels and upon the satisfaction of specified financial ratios.

XML

Property and Equipment

12 Months Ended

Dec. 31, 2013

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and Equipment

Property and equipment consists of the following as of (in thousands):

	December 31,
	2013			2012
Laboratory equipment	$	9,929		$	9,415
Office equipment, furniture and fixtures	3,535			3,497
Leasehold improvements	3,229			2,652
Software	2,218			1,793
Customer-use assets	841			—
Construction in progress	6,811			5,778
	26,563			23,135
Less accumulated depreciation	(12,608		)	(11,642		)
Property and equipment, net	$	13,955		$	11,493

Customer-use assets represent the Company's Vantera system placed at customer sites, to which title and risk of loss is retained by the Company, for the customer's use in performing the NMR LipoProfile tests sold by the Company.

For the years ended December 31, 2013, 2012 and 2011, the Company recorded depreciation expense of $1.6 million, $1.3 million and $0.5 million, respectively.

During the year ended December 31, 2013, the Company recognized a $0.4 million loss on sale of assets, measured at fair value less cost to sell, in connection with the sale of a Vantera system to a medical research center for research and development purposes. This loss on sale of assets is recorded as research and development expense within the statement of comprehensive (loss) income. Additionally, the Company retired substantially depreciated assets during the year ended December 31, 2013 with a net book value of approximately $47,000.

For the year ended December 31, 2012, the Company disposed of $30,000 of damaged assets. There was no such loss on disposal for the year ended December 31, 2011.

XML

Description of Business and Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and include all adjustments necessary for the fair presentation of the Company's financial position, results of operations and cash flows for the periods presented.

Use of Estimates

In preparing the financial statements, management must make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the date of the financial statements and reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates and assumptions used.

Revenue Recognition

The Company currently derives revenue from sales of its NMR LipoProfile test to clinical diagnostic laboratories and clinicians for use in patient care, from contract research arrangements and from sales of ancillary tests for use in patient care requested in conjunction with the NMR LipoProfile test.

Revenues from diagnostic tests for patient care, which consist of sales of the NMR LipoProfile test performed at the Company's laboratory facility and at third party clinical diagnostic laboratory facilities (see “The Vantera System Placement Arrangements” below) and sales of ancillary tests, are recognized on the accrual basis when the following revenue recognition criteria are met: (1) persuasive evidence that an arrangement exists; (2) services have been rendered or at the time final results are reported; (3) the fee is fixed or determinable; and (4) collectability is reasonably assured. Testing services provided for patient care are covered by clinical diagnostic laboratories through negotiated contracts with commercial insurance carriers, programs with commercial insurance carriers (including managed care organizations) and various governmental programs, primarily Medicare.

Billings for diagnostic tests for patient care under governmental and physician-based programs are included in revenues net of contractual adjustments. These contractual adjustments represent the difference between the final settlement amount paid by the program and the estimated settlement amount based on either the list price for tests performed or the reimbursement rate set by commercial insurance carriers or governmental programs. Estimated contractual adjustments are updated either upon notification from payors as to changes in existing reimbursement rates, which are typically received prior to changes going into effect, or upon a material variance between the final settlement and the estimated contractual adjustment originally established when the revenues were recognized. To date, the Company's final settlement adjustments have not been material.

Revenues from contract research arrangements are generally derived from studies conducted by academic institutions and pharmaceutical companies. The specific methodology for revenue recognition is determined on a case-by-case basis according to the facts and circumstances applicable to a given agreement. The Company's output, measured in terms of full-time equivalent level of effort or processing a set of diagnostic tests under a contractual protocol, typically triggers payment obligations under these agreements. Revenues are recognized as costs are incurred or diagnostic tests are processed. Contract research costs include all direct material and labor costs, equipment costs and fringe benefits. Advance payments received in excess of revenues recognized are classified as deferred revenue until such time as the revenue recognition criteria have been met.

Billing for diagnostic testing services for patient care is complex. In most cases, tests are performed in advance of payment and without certainty as to the outcome of the billing process, which may negatively affect revenues, cash flow and profitability. Payments are received from a variety of payors, including clinical diagnostic laboratories, commercial insurance carriers (including managed care organizations), governmental payors (primarily Medicare) and individual patients. Each payor typically has different billing requirements, and the billing requirements of many payors have become increasingly stringent.

The Company generally assumes the financial risk related to collection, including the potential uncollectibility of accounts and the other complex factors identified above. For sales of its NMR LipoProfile test to clinical diagnostic laboratories, the clinical diagnostic laboratories are responsible for obtaining reimbursement from third-party payors or directly from patients. Delays in collection and uncollectible bills may negatively affect the Company's revenues, cash flow and profitability.

The Vantera System Placement Arrangements

The Company's automated clinical analyzer, the Vantera system, was cleared by the FDA in August 2012 and became commercially available in December 2012. The Company started placing the Vantera system on-site with certain selected clinical diagnostic laboratories as well as leading medical centers and hospital outreach laboratories during the second quarter of 2013.

The Company's Vantera system placement arrangements (or “placement arrangements”) are generally negotiated and accounted for as operating leases. Arrangement consideration is determined based on the test volume and the negotiated price-per-reportable NMR LipoProfile test result. The placement arrangements typically include lease and non-lease deliverables. Lease deliverables include the right to use the Vantera system and related maintenance and support, while non-lease deliverables consist of the NMR LipoProfile test and consumables. Lease deliverables are accounted for in accordance with specific leasing guidance while non-lease deliverables are accounted for in accordance with the multiple-element arrangement guidance.

The Company evaluates each non-lease deliverable to determine whether it represents a separate unit of accounting. A deliverable is considered a separate unit of accounting when the delivered item has stand-alone value and delivery of the undelivered element is probable and within the Company's control. The Company has determined that both the NMR LipoProfile test and consumables have separate units of accounting. The NMR LipoProfile test is the Company's most significant deliverable under these placement arrangements.

The Company allocates revenue to each deliverable at the inception of the placement arrangement, based on its estimated stand-alone value in relation to the combined estimated stand-alone value of all deliverables, or the relative selling price method. Revenue allocated to each deliverable is then recognized when the basic revenue recognition criteria, as described above, is met for each deliverable.

The Company applies the following selling price hierarchy in determining the selling price for each deliverable:

• Vendor-specific objective evidence (“VSOE”) if available-the price charged for a deliverable when it is sold separately and, in other instances, using the price established by management having the relevant authority.

• Third-party evidence (“TPE”) if VSOE is not available-the price of the vendor's or any competitor's largely interchangeable products or services in standalone sales to similarly situated customers.

• Estimated selling price (“ESP”) if neither VSOE or TPE is available-the price best estimated by the vendor and at which the vendor would transact if the deliverable would have been sold by the vendor regularly on a standalone basis.

The Company has determined that only the selling price of its NMR LipoProfile test is based on VSOE. The Company does not sell the license to use the Vantera system, the consumables or related maintenance and support separately on a regular basis and therefore it does not have the evidence to support VSOE for these deliverables. Due to the high degree of customization involved with these deliverables, the Company has determined that there is no comparable TPE for these deliverables. Since these deliverables have neither VSOE nor TPE, the allocation of revenue to them has been based on the Company's ESP.

The Company's process for determining ESP for its deliverables considers all reasonably available information including both market data and conditions, as well as entity specific factors that may vary depending upon the facts and circumstances related to each deliverable. Key factors considered in developing ESP relating to deliverables include cost structures, established pricing and approval policies and customization of the product or service and industry pricing. The Company regularly reviews ESP and maintains internal controls over the establishment and updates of these estimates.

Shipping and Handling

The Company does not bill its customers for shipping and handling charges. All charges relating to inbound and outbound freight costs are incurred by the Company and recorded within cost of revenues.

Fair Value of Financial Instruments

The Company measures certain financial assets and liabilities at fair value based on the price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants.

Cash and Cash Equivalents

The Company invests its available cash balances in cash, money market funds and certificates of deposits. The Company considers all highly liquid instruments purchased with original maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents are stated at cost and the carrying amounts approximate fair value. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. Management believes that the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held. Additionally, the Company has established guidelines regarding approved investments and maturities of investments, which are designed to maintain safety and liquidity.

Accounts Receivable

Accounts receivable are primarily amounts due from clinical diagnostic laboratories, commercial insurance companies (including managed care organizations), governmental programs (primarily Medicare), physicians, and individual patients.

Accounts receivable are reported net of an allowance for uncollectible accounts and contractual allowance adjustments. The process of estimating the collection of accounts receivable involves significant assumptions and judgments. Specifically, the accounts receivable allowance is based on management's analysis of current and past due accounts, collection experience in relation to amounts billed, changes in reimbursement levels, known contract terms, channel mix, any specific customer collection issues that have been identified and other relevant information. The Company's provision for uncollectible accounts is recorded as bad debt expense and included in general and administrative expenses. Historically, the Company has not experienced credit loss related to its customers or payors significantly in excess of its reserves. Although the Company believes amounts provided are adequate, the ultimate amounts of uncollectible accounts receivable could be in excess of the amounts provided.

Inventories

Inventories consist of materials and spare parts to service the Vantera system. Inventories are valued at the lower of cost or net realizable value. The cost of inventories is maintained using the average-cost method.

Property and Equipment

Property and equipment are stated at cost. Property and equipment financed under capital leases are initially recorded at the present value of minimum lease payments at the inception of the lease. Amortization of assets financed under capital leases is included with purchased property and equipment as part of depreciation and amortization.

Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Property and equipment under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or estimated useful life of the asset. Depreciable lives range from three to ten years for laboratory equipment, customer-use assets, office equipment and furniture and fixtures and three years for software.

Intangible Assets

Intangible assets include patent costs, trademark costs and technology licenses that are capitalized and amortized over estimated useful lives (generally nine to twenty years) using the straight-line method. Patent costs are expensed if the patent is not granted. On an ongoing basis, the Company assesses the recoverability of its intangible assets by determining its ability to generate undiscounted future cash flows sufficient to recover the unamortized balances over the remaining useful lives. Intangible assets determined to be unrecoverable are expensed in the period in which the determination is made.

Impairment of Long-Lived Assets

The Company evaluates its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may be impaired and assesses their recoverability based upon anticipated future cash flows. If changes in circumstances lead the Company to believe that any of its long-lived assets may be impaired, the Company will (a) evaluate the extent to which the remaining book value of the asset is recoverable by comparing the future undiscounted cash flows estimated to be associated with the asset to the asset's carrying amount and (b) write-down the carrying amount to market value or discounted cash flow value to the extent necessary.

Redeemable Convertible Preferred Stock

The Company had historically classified its redeemable convertible preferred stock, for which the Company did not control the redemption, outside of permanent equity. The Company had recorded redeemable convertible preferred stock at fair value upon issuance, net of any issuance costs or discounts, and the carrying value was increased by periodic accretion to its redemption value. These increases were effected through charges against additional paid-in capital. Upon closing of the IPO, all outstanding redeemable convertible preferred stock as well as convertible preferred stock was reclassified to additional paid-in capital.

Preferred Stock Warrant Liability

The Company had historically accounted for its freestanding warrants to purchase the Company's Series E and Series F Redeemable Convertible Preferred Stock as liabilities at fair value on the accompanying balance sheets. The warrants were subject to re-measurement at each balance sheet date, and the change in fair value, if any, was recognized as other income or expense. As a result of the IPO, the preferred stock warrant liability was reclassified to additional paid-in capital upon the conversion of warrants to purchase preferred stock into warrants to purchase common stock (see Note 11, "Preferred Stock Warrant Liability")

Research and Development Expenses

Research and development expenses include all costs associated with the development of NMR technology products and are charged to expense as incurred. Research and development expenses include direct costs and an allocation of indirect costs, including amortization, depreciation, telephone, rent, supplies, insurance and repairs and maintenance.

Financing Costs

The Company capitalizes direct financing costs, which are included as other noncurrent assets on the Company's balance sheets. The Company accretes debt discounts, which are included as a direct deduction from the face amount of the financing. Debt financing costs and debt discounts are deferred and amortized to interest expense using the effective interest method over the life of the related debt. The related expense is included in interest expense in the Company's statements of comprehensive (loss) income.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of the Company's assets and liabilities and their financial statement reported amounts. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company accounts for uncertainties in income taxes by utilizing a two-step process for evaluating tax positions to determine the amount of tax benefit to be recognized. First, the tax position is evaluated to determine whether it is more likely than not to be sustained upon examination by taxing authorities. If the tax position is deemed more likely than not to be sustained, the tax benefit is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company’s policy for recording interest and penalties related to uncertain tax provisions is to record them as a component of provision for income taxes.

Advertising

Advertising costs, which are included in sales and marketing expenses, are expensed as incurred.

Stock-Based Compensation

The Company accounts for stock-based compensation arrangements with employees and non-employee directors using a fair value method that requires the recognition of compensation expense for costs related to all stock-based payments, including stock options and restricted stock units. The fair value method requires the Company to estimate the fair value of stock options on the date of grant using an option pricing model. The fair value of restricted stock units is estimated based on the closing price of the Company's stock on the date of grant, and for the purposes of expense recognition, the total new number of shares expected to vest is adjusted for estimated forfeitures.

Stock-based compensation costs for stock options are based on the fair value of the underlying option calculated using the Black-Scholes option-pricing model on the date of grant for stock options and recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. Determining the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, forfeiture rates and expected term. The expected volatility rates are estimated based on the actual volatility of comparable public companies over the expected term. The expected term represents the average time that options are expected to be outstanding based on the mid-point between the vesting date and the end of the contractual term of the award. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has not paid dividends and does not anticipate paying a cash dividend in the foreseeable future and, accordingly, uses an expected dividend yield of zero. The risk-free interest rate is based on the rate of U.S. Treasury securities with maturities consistent with the estimated expected term of the awards. The measurement of nonemployee share-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period over which services are received.

Segment Reporting

The Company operates in one operating segment. The Company's chief operating decision maker (the “CODM”), its chief executive officer, manages the Company's operations on an integrated basis for purposes of allocating resources. When evaluating the Company's financial performance, the CODM reviews separate revenue information for the Company's patient care testing and its research services, while all other financial information is reviewed on a combined basis. All of the Company's principal operations and decision-making functions are located in the United States. Accordingly, the Company has determined that it has a single reporting segment.

Leases

Leases

Leases are classified as either capital or operating leases.   Leases that transfer substantially all the benefits and risks of ownership of the asset to the Company are accounted for as capital leases.   All other leases are accounted for as operating leases wherein rental payments are expensed in a manner that results in the total rent payments being recognized on a straight-line basis over the term of the lease. The Company records rent holidays, rent concessions and rent escalations on a straight-line basis over the lease term and records the difference between expense and cash payments as deferred rent. Leasehold improvement incentives received from landlord are recorded as deferred rent and amortized over the lease term on a straight-line basis. Deferred rent is included in other long-term liabilities on the accompanying balance sheets.

Recent Accounting Pronouncements

In July 2013, the FASB issued ASU No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendments in this update provide clarification, and are intended to reduce diversity in practice, on the financial statement presentation of unrecognized tax benefits. The guidance specifies that an unrecognized tax benefit (or a portion thereof) shall be presented in the financial statements as a reduction to a deferred tax asset when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. If such deferred tax asset is not available at the reporting date to settle additional income taxes resulting from the disallowance of a tax position, or the entity does not plan to use the deferred tax asset for such purpose given the option, the unrecognized tax benefit shall be presented in the financial statements as a liability and shall not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. For public companies, the amendments that are subject to this update are effective for interim and annual reporting periods beginning after December 15, 2013, with early adoption permitted. The Company’s current practice is consistent with the amendments in this update. The Company expects that the new guidance will have no material impact on the Company’s financial statements.

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Employee Benefit Plan

12 Months Ended

Dec. 31, 2013

Postemployment Benefits [Abstract]

Employee Benefit Plan

Employee Benefit Plan

The Company has adopted a defined contribution plan (the "Employee Benefit Plan") that qualifies under Section 401(k) of the Internal Revenue Code. All employees of the Company who have attained 21 years of age are eligible for participation in the Employee Benefit Plan after thirty days of employment.

Under the Employee Benefit Plan, participating employees may defer up to the Internal Revenue Service annual contribution limit. On July 1, 2012, the Company increased its employer match from 25% to 50% of the first 6% that an eligible participant contributes each year. The Company paid $0.7 million, $0.4 million and $0.2 million during the years ended December 31, 2013, 2012 and 2011, respectively, in employer match contributions to the Employee Benefit Plan.

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Net (Loss) Income Per Share

12 Months Ended

Dec. 31, 2013

Earnings Per Share [Abstract]

Net (Loss) Income Per Share

Net (Loss) Income Per Share

Net (Loss) Income Per Share

The Company computes basic net (loss) income per share by dividing net (loss) income by the weighted average number of shares of common stock outstanding for the period, without consideration for common share equivalents. Diluted net (loss) income per share is computed on the basis of the weighted average number of shares of common stock plus dilutive potential common share equivalents during the period, consisting of incremental common shares deemed outstanding from the assumed exercise of common stock options, warrants and restricted stock units. The dilutive effect of common share equivalents is reflected in diluted earnings per shares by application of treasury stock method. Under the treasury stock method, earnings per share data is computed as if the common share equivalents were outstanding at the beginning of the period (or at the time of issuance, if later) and as if the funds obtained from exercise of the common share equivalents were used to purchase common stock at the average market price during the period.

Prior to the IPO, the Company computed net (loss) income per share in accordance with the accounting guidance regarding the computation of earnings or net loss per share by companies that have issued securities other than common stock that contractually entitle the holder to participate in earnings and dividends. Basic net (loss) income per share was computed by dividing net (loss) income allocable to common stockholders, which was net (loss) income after deduction of any required returns to preferred stockholders prior to paying dividends to the common stock and assuming current income for the period had been distributed based on the respective rights of the common and preferred stockholders to receive dividends, by the weighted average number of shares of common stock outstanding during the period. Diluted net (loss) income per share was computed on the basis of the weighted average number of shares of common stock plus dilutive potential common shares outstanding during the period. Since the Company's participating preferred stock was not contractually required to share in the Company's losses, in applying the two-class method to compute basic net (loss) income per share, no allocation was made to preferred stock if a net loss existed.

Because of their anti-dilutive effect, the following common stock equivalents, consisting of convertible preferred shares, redeemable convertible preferred shares, common stock options, warrants and restricted stock units, have been excluded from the diluted loss per share calculations for the respective periods presented:

	Year Ended December 31,
Anti-Dilutive Common Share Equivalents:	2013	2012	2011
Convertible Preferred Stock (Series A, A-1, B, B-1, C, and C-1)	—	1,222,211	1,222,211
Redeemable Convertible Preferred Stock (Series D, D-1, E and F)	—	5,772,348	5,763,606
Common Stock Options and Warrants	1,730,067	382,869	2,266,155
Restricted Stock Units	108,208	—	69,821
	1,838,275	7,377,428	9,321,793

A reconciliation of the numerator and denominator used in the computation of basic and diluted net (loss) income per share allocable to common stockholders follows (in thousands, except share and per share data):

	Year Ended December 31,
	2013			2012			2011
Historical net (loss) income per share:
Numerator:
Net (loss) income	$	(12,535	)	$	1,250		$	(548	)
Less: Accrual of dividends on Series F redeemable convertible preferred stock	—			—			(613		)
Less: Undistributed earnings allocated to participating preferred shares	—			(1,004		)	—
Net (loss) income attributable to common stockholders – basic	(12,535		)	246			(1,161		)
Add: Undistributed earnings re-allocated to common stockholders	—			113			—
Net (loss) income attributable to common stockholders – diluted	$	(12,535	)	$	359		$	(1,161	)
Denominator:
Weighted average common shares outstanding – basic	14,819,787			1,715,408			1,674,018
Dilutive effect of common stock equivalent shares resulting from common stock options and warrants	—			1,098,915			—
Weighted average common shares outstanding – diluted	14,819,787			2,814,323			1,674,018
Net (loss) income per common share:
Net (loss) income per share attributable to common stockholders – basic	$	(0.85	)	$	0.14		$	(0.69	)
Net (loss) income per share attributable to common stockholders – diluted	$	(0.85	)	$	0.13		$	(0.69	)

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Equity Transactions and Share-Based Compensation (Narrative) (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum number of shares reserved for issuance	970,000
Shares authorized under Employee Stock Purchase Plan (ESPP)	242,500
Exercises in period, aggregate intrinsic value	$ 1,400,000	$ 3,400,000	$ 400,000
Shares available for grant under plans	449,659
Weighted average grant-date fair value, options granted, (in usd per share)	$ 3.52	$ 5.18	$ 3.78
Allocated share-based compensation expense	1,399,000	1,190,000	651,000
Number of shares outstanding	108,208
Restricted Stock Units (RSUs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense, nonvested awards	300,000
Unrecognized compensation expense, nonvested awards, period for recognition	2 years 1 month 6 days
Fair value of shares vested	64,000
Number of shares outstanding		0
Restricted Stock Units (RSUs) [Member] | Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	3 years
Award vesting percentage	100.00%
Restricted Stock Units (RSUs) [Member] | Non-Employee Director [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting percentage	25.00%
Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting period	4 years
Award exercise period	10 years
Unrecognized compensation expense, nonvested awards	1,300,000
Unrecognized compensation expense, nonvested awards, period for recognition	2 years 3 months 18 days
Performance Shares [Member] | Vice President of Sales [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares outstanding	60,000
Performance Shares [Member] | Vice President of Sales [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting percentage	0.00%
Performance Shares [Member] | Vice President of Sales [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting percentage	100.00%
Preferred Stock Warrant Liability [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Reclassification to additional paid in capital upon the IPO	$ 410,000	$ 138,000	$ 152,000

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Accrued Expenses

12 Months Ended

Dec. 31, 2013

Payables and Accruals [Abstract]

Accrued Expenses

Accrued Expenses

Accrued expenses consist of the following as of (in thousands):

	December 31,
	2013		2012
Accrued wages and benefits	$	1,893	$	1,541
Accrued bonus	589		2,200
Other accrued liabilities	1,262		1,608
Total accrued expenses	$	3,744	$	5,349

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Long-Term Debt and Line of Credit

12 Months Ended

Dec. 31, 2013

Debt Disclosure [Abstract]

Long-Term Debt and Line of Credit

Long-Term Debt and Line of Credit

The Company had total debt with a carrying value of $15.8 million and $15.7 million as of December 31, 2013 and 2012, respectively. Long-term debt consists of the following (in thousands):

	December 31,
	2013			2012
Long-term debt to financial institutions	$	16,000		$	16,000
Less unamortized debt discount	(184		)	(292		)
Long-term debt, less unamortized debt discount	$	15,816		$	15,708

Credit Facility

On December 20, 2012, the Company entered into a credit facility with Square 1 and Oxford Finance and repaid the outstanding balance under a previous facility. The current credit facility consists of $16.0 million in term loans and a revolving line of credit of up to $6.0 million in borrowing capacity, subject to certain limitations relating to the Company's eligible accounts receivable. In connection with entering into the current credit facility, the Company issued warrants to these financial institutions to purchase an aggregate of 73,564 shares of Series E redeemable convertible preferred stock at an exercise price of $4.35 per share. The Company determined the fair value of the warrants at issuance to be $0.2 million. In connection with the IPO, the warrants converted into warrants to purchase common stock (see Note 11, "Preferred Stock Warrant Liability"). At December 31, 2013, total unamortized debt issuance costs incurred in connection with the current credit facility were $64,000.

As of December 31, 2013, under the credit facility, the term loans carry interest at a fixed annual rate of 9.5% and are payable in monthly installments of interest only through January 2014 and then principal and interest thereafter in monthly installments through July 2016. Advances under the revolving line of credit, which matures in January 2014, carry a variable interest rate equal to the greater of 6.25% or the institution's prime rate plus 3.0%.

As of December 31, 2012, the Company had borrowed $5.0 million under the revolving line of credit. During the three months ended March 31, 2013, the Company paid off outstanding balances under the revolving line of credit and there was no amount outstanding as of December 31, 2013.

Borrowings under the credit facility are secured by substantially all of the Company's tangible assets. The covenants set forth in the loan and security agreement require, among other things, that the Company maintain a specified liquidity ratio, measured monthly, that begins at 1.25 and is reduced to 1.0 over the term of the credit facility. The Company is also required to achieve minimum three-month trailing revenue levels relative to projections approved by the Company's Board of Directors (2013 Revenue to Plan Covenant), and beginning in 2014 such three-month trailing revenue levels must also be equal to or greater than the revenues for the same period for the prior year (2014 Revenue to Plan Covenant).

In June 2013, the Company discovered that it had failed to comply with the covenant set forth in the loan agreement related to minimum three-month trailing revenue levels against prior period for the measuring periods from March 2013 to May 2013. On June 11, 2013, the Company entered into a first amendment to the loan agreement to waive the noncompliance with this covenant for the measuring periods described above, and to eliminate the necessity of complying with this financial covenant through the end of 2013.

The Company executed a second amendment to the loan agreement, with an effective date as of October 31, 2013, to amend the 2013 Revenue to Plan Covenant with a minimum annual revenue level for 2013 of at least $50 million, and to modify the projected annual revenue levels to be at least $55 million under the 2014 Revenue to Plan Covenant. In addition, the maturity date for advances under the revolving line of credit was extended to January 19, 2014 from December 19, 2013. As of December 31, 2013 and 2012, the Company was in compliance with all financial and non-financial covenants under this credit facility, as modified.

On January 19, 2014, the Company entered into a third amendment to the loan agreement. Under the loan agreement as amended, the Company must maintain a minimum revenue level for 2014 measured monthly on a trailing 12 month basis, that begins at $50 million and is reduced to $45 million through December 2014, as its 2014 Revenue to Plan Covenant and must also comply with certain monthly reporting covenants. The term loans continue to carry interest at a fixed annual rate of 9.5%, however as a result of the third amendment, are payable in monthly installments of interest only through January 2015 and then principal and interest thereafter in monthly installments through July 2017. In addition, the maturity date for advances under the revolving line of credit has been extended from January 19, 2014 to February 19, 2015. As a result of the third amendment, which extended the period of time when principal payments are due past December 31, 2014, the current amount outstanding under the loan agreement at December 31, 2013 was classified as long term on the balance sheet.

As of December 31, 2013, the annual principal payments on long-term debt and revolving line of credit reflecting the third amendment mentioned above, are as follows (in thousands):

2014	$	—
2015	5,432
2016	6,489
2017	4,079
	$	16,000

See Note 16 for subsequent event leading to the reclassification of the long term debt to current classification.

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Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders' Equity

12 Months Ended

Dec. 31, 2013

Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders' Equity (Deficit) [Abstract]

Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders' Equity

Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders’ Equity

Stockholders’ Equity

On January 10, 2013, the Company effected a 0.485-for-1 reverse stock split of the Company's outstanding common stock, which resulted in an adjustment to the preferred stock conversion price to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion. Accordingly, all shares and per share amounts for all periods presented in the accompanying financial statements and notes to financial statements have been adjusted retroactively, where applicable, to reflect the reverse stock split and adjustment of the preferred share conversion ratios.

On January 30, 2013, the Company completed its IPO, which resulted in the sale of 5,750,000 shares of its common stock in the IPO, at a price to the public of $9.00 per share, for aggregate gross proceeds of $51.8 million. The Company raised a total of $44.4 million in net proceeds after deducting underwriting discounts and commissions of $3.4 million and offering costs of $4.0 million. Some of the $4.0 million of offering costs were paid prior to the closing of the IPO. Legal, accounting and other costs directly associated with the IPO were capitalized and recorded as deferred offering costs prior to the closing of the IPO. The total offering costs and underwriting discount and commissions of $7.4 million were reclassified to additional paid-in capital upon the closing of the IPO.

12,892,682 shares of the Company's outstanding preferred stock were automatically converted into a total of 6,994,559 shares of its common stock, and the then-outstanding preferred stock warrant liability was reclassified to additional paid-in capital upon the conversion of warrants to purchase preferred stock into warrants to purchase common stock. As of December 31, 2013, there were 15,188,861 shares of common stock outstanding.

Each share of common stock has the right to one vote per share. The holders of common stock are also entitled to receive dividends as and when declared by the Company’s Board of Directors, whenever funds are legally available.

Convertible Preferred Stock

As of December 31, 2012, there were 3,428,677 shares designated and 1,687,010 shares issued and outstanding of Series A, A-1, B, B-1, C and C-1 Convertible Preferred Stock, with an aggregate liquidation preference of $7.5 million.

Upon the closing of the IPO, all outstanding shares of the Company’s convertible preferred stock were converted into 1,222,211 shares of common stock.

Redeemable Convertible Preferred Stock

Redeemable Convertible Preferred Stock consisted of the following as of December 31, 2012 (in thousands):

	Authorized	Issued and Outstanding	Liquidation Preference		Carrying Value		Common Stock Issuable Upon Conversion
Series D Redeemable Convertible Preferred Stock	3,544	500	$	2,612	$	2,612	291
Series D-1 Redeemable Convertible Preferred Stock	3,480	2,980	15,556		15,556		1,734
Series E Redeemable Convertible Preferred Stock	5,059	4,719	20,527		20,795		2,289
Series F Redeemable Convertible Preferred Stock	3,133	3,006	13,000		18,338		1,458
	15,216	11,205	$	51,695	$	57,301	5,772

Upon the closing of the IPO, all outstanding shares of the Company’s redeemable convertible preferred stock were converted into 5,772,348 shares of common stock.

Prior to the conversion, the holders of the Convertible and Redeemable Convertible Preferred Stock had the following rights and preferences:

Voting Rights - The holders of preferred stock had the right to vote based on the number of common shares they would receive upon conversion.

Transfer Restrictions - The holders of each share of preferred stock were subject to transfer restrictions.

Dividends  - The holders of Series F Preferred Stock were entitled to receive prior, and in preference to, the holders of any other class or series of capital stock of the Company, dividends at the rate of $0.348 per annum per share of the Series F Preferred Stock (the Series F Dividend), payable in cash and out of funds legally available. The Series F Dividend was cumulative and accrued on a daily basis for a period of five years from the original issue date of the Series F Preferred Stock to its maximum of $5.2 million, which occurred on August 2, 2011. The balance of this Series F Dividend was reflected in the carrying amount of Series F on the balance sheet as of December 31, 2012. Concurrently with the closing of the IPO, the Company paid $5.2 million to holders of its Series F redeemable convertible preferred stock in full satisfaction of accrued dividends on such shares immediately prior to their conversion to common stock. Holders of Series E, D, and D-1 were entitled to receive, out of funds legally available, noncumulative dividends at a rate of 8% per annum of the original price per share, if declared by the Board of Directors of the Corporation. No dividends have been declared or paid by the Company through conversion date.

Liquidation - All Redeemable Convertible Preferred Stock had a liquidation preference of its original conversion price per share and any amount equal to declared or accrued but unpaid dividends. Other Convertible Preferred Stock had a liquidation preference of its original purchase price per share and any amount equal to declared or accrued but unpaid dividends. In the event the Company was liquidated, holders of Series F Preferred Stock were entitled to receive their liquidation preference, before any distribution or payment to the other preferred stockholders or holders of the common stock. Any remaining assets or surplus after payment to Series F holders were to be distributed to the holders of the Company's other series of preferred stock with liquidation terms as defined in the Company's certificate of incorporation, as amended and restated.

Conversion - Each share of preferred stock was convertible into common stock at the option of the holder at any time after the date of issuance and without payment of additional consideration. Each share of the preferred stock automatically converted into shares of common stock at the applicable conversion price upon the closing of the IPO. The conversion price for Series A-1, B-1, C-1, D-1, E and F were subject to a full-ratchet dilution adjustment in the event the Company issues additional securities at a purchase price less than the applicable conversion price for each series. The original conversion price was the amount of consideration received for each share of preferred stock. No full-ratchet dilution adjustment was required through conversion date. The adjusted conversion price upon the IPO was adjusted for the 0.485-for-1 reverse stock split effected on January 10, 2013. Upon the closing of the IPO, the adjusted conversion prices per share ranged from $3.87 to $8.97.

Preemptive Rights - The holders of preferred stock were not entitled to preemptive rights to acquire or subscribe for additional shares of securities that the Company authorizes to be issued. The holders of Series D, D-1, E and F had contractual rights of first refusal (which expire upon a Qualified Public Offering) to participate in certain future offerings of stock by the Company on a pro rata basis.

Redemption - At any time on or after on August 2, 2011, the holders of at least 40% of the issued and outstanding shares of Series D, D-1, E and F (the Electing Holders) could request the Company redeem all of their shares of each Series at a price for each share equal to its original purchase price (subject to adjustment in the event of stock dividends, stock splits, combinations, etc.), plus any accrued but unpaid dividends. Upon election by the Electing Holders to redeem their shares of Series D, D-1, E or F, the Company should pay cash to the holders for the redemption value in three equal installments over three years at an interest rate of 8% per annum from the date of the initial payment until the redemption amount is paid in full. No redemption was requested through conversion date.

Common Stock Reserved for Future Issuance

The Company had reserved shares of common stock for future issuance as summarized in the table below.

	December 31, 2013
Outstanding Common Stock Warrants	78,741
Outstanding employee stock options	1,651,326
Unvested restricted stock units	108,208
Shares authorized under Employee Stock Purchase Plan (ESPP)	242,500
Possible future issuance under stock option plan	449,659
Total shares reserved	2,530,434

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Income Taxes (Narrative) (Details) (USD $)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2010
Operating Loss Carryforwards [Line Items]
Increase in deferred tax assets, research and development credits	$ 500,000	$ 400,000
Decrease in deferred tax assets, change in enacted tax rate	(400,000)
Decrease in deferred tax assets, valuation allowance, change in enacted tax rate	(400,000)
Adjustments to decrease deferred tax assets related to stock option activity from prior periods	1,100,000
Provision or benefit for income taxes	0	0	0
Increase in valuation allowance	3,000,000
Tax benefit recognized related to net operating loss carryforwards	0	400,000	38,000
Unrecognized tax benefits	490,000	369,000	369,000	327,000
Unrecognized tax benefits that would impact effective tax rate	0
Federal [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards	45,600,000	32,900,000
State and Local Jurisdiction [Member]
Operating Loss Carryforwards [Line Items]
Operating loss carryforwards	41,400,000	29,100,000
Federal and State Jurisdiction [Member]
Operating Loss Carryforwards [Line Items]
Excess tax benefits related to deductions from the exercise of nonqualified stock options	3,300,000
Research and Development Credit Carryforward [Member]
Operating Loss Carryforwards [Line Items]
Tax credit carryforward, amount	$ 2,700,000	$ 2,000,000

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Commitments and Contingencies (Details) (USD $) In Millions, unless otherwise specified	12 Months Ended
	Dec. 31, 2013 sqft	Dec. 31, 2012	Dec. 31, 2011
Loss Contingencies [Line Items]
Area of leased office and laboratory space	83,000
Fixed scheduled rent escalations	$ 0.9
Operating leases, rent expense	1.1	1.2	1.2
Leasehold Improvements [Member]
Loss Contingencies [Line Items]
Lease incentives	1.8
Standby Letters of Credit [Member] | Letter of Credit [Member]
Loss Contingencies [Line Items]
Line of credit facility, current borrowing capacity	$ 0.5	$ 1.5

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Income Taxes (Unrecognized Tax Position Reconciliation) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward]
Unrecognized tax positions, beginning balance	$ 369	$ 369	$ 327
Gross decreases for tax positions related to current periods	0	0	(9)
Gross increases for tax positions related to current periods	121	0	51
Unrecognized tax positions, ending balance	$ 490	$ 369	$ 369

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Schedule of Deferred Tax Assets

Significant components of the Company's deferred tax assets are as follows as of (in thousands):

	December 31,
	2013			2012
Deferred tax assets (liabilities):
Net operating loss carryforwards	$	15,660		$	11,255
Research and development credits	2,691			1,963
Stock-based compensation	742			1,851
Allowance for uncollectible accounts receivable	291			471
Deferred rent	877			952
Accrued compensation	240			1,044
Depreciation and amortization	(1,153		)	(1,167		)
Other	208			165
Total deferred tax assets, net	19,556			16,534
Valuation allowance	(19,556		)	(16,534		)
Net deferred tax asset	$	—		$	—

Schedule of Effective Income Tax Rate Reconciliation

Taxes computed at the statutory federal income tax rate of 34% are reconciled to the provision for (benefit from) income taxes are as follows (in thousands):

	Year Ended December 31,
	2013					2012					2011
	Amount			% of Pretax Earnings		Amount			% of Pretax Earnings		Amount			% of Pretax Earnings
United States federal tax at statutory rate	$	(4,262	)	34.0	%	$	425		34.0	%	$	(186	)	34.0	%
State taxes (net of federal benefit)	(371		)	3.0		51			4.1		(25		)	4.5
Research and development credits	(912		)	7.3		15			1.2		(386		)	70.4
Meals & entertainment	314			(2.5	)	271			21.7		272			(49.7	)
Stock based compensation	230			(1.8	)	214			17.1		151			(27.6	)
Change in preferred stock warrant liability	(1		)	—		57			4.5		(97		)	17.7
Other nondeductible expenses	218			(1.7	)	—			—		98			(17.8	)
Stock compensation deferred tax asset adjustment	1,072			(8.6	)	—			—		—			—
Increase in unrecognized tax benefits	121			(1.0	)	—			—		51			(9.3	)
Change in valuation allowance	3,022			(24.1	)	(1,069		)	(85.5	)	126			(22.9	)
Other	569			(4.6	)	36			2.9		(4		)	0.7
Provision for (benefit from) income taxes	$	—		—	%	$	—		—	%	$	—		—	%

Schedule of Unrecognized Tax Benefits Roll Forward

The following is a tabular reconciliation of the Company's change in gross unrecognized tax positions (in thousands):

	Year Ended December 31,
	2013		2012		2011
Beginning balance	$	369	$	369	$	327
Gross decreases for tax positions related to current periods	—		—		(9		)
Gross increases for tax positions related to current periods	121		—		51
Ending balance	$	490	$	369	$	369

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Redeemable Convertible Preferred Stock, Convertible Preferred Stock and Stockholders' Equity (Redeemable Convertible Preferred Stock) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Temporary Equity [Line Items]
Authorized		15,216,336
Issued and Outstanding		11,205,000
Liquidation Preference		$ 51,695
Carrying Value	0	57,301
Common Stock Issuable Upon Conversion		5,772,000
Series D Redeemable Convertible Preferred Stock [Member]
Temporary Equity [Line Items]
Authorized		3,544,000
Issued and Outstanding		500,000
Liquidation Preference		2,612
Carrying Value		2,612
Common Stock Issuable Upon Conversion		291,000
Series D-1 Redeemable Convertible Preferred Stock [Member]
Temporary Equity [Line Items]
Authorized		3,480,000
Issued and Outstanding		2,980,000
Liquidation Preference		15,556
Carrying Value		15,556
Common Stock Issuable Upon Conversion		1,734,000
Series E Redeemable Convertible Preferred Stock [Member]
Temporary Equity [Line Items]
Authorized		5,059,000
Issued and Outstanding		4,719,000
Liquidation Preference		20,527
Carrying Value		20,795
Common Stock Issuable Upon Conversion		2,289,000
Series F Redeemable Convertible Preferred Stock [Member]
Temporary Equity [Line Items]
Authorized		3,133,000
Issued and Outstanding		3,006,000
Liquidation Preference		13,000
Carrying Value		18,338
Common Stock Issuable Upon Conversion		1,458,000
Redeemable Convertible Preferred Stock [Member]
Temporary Equity [Line Items]
Authorized		15,216,336
Liquidation Preference		51,695
Carrying Value	$ 0	$ 57,301

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Quarterly Results of Operations

12 Months Ended

Dec. 31, 2013

Quarterly Financial Information Disclosure [Abstract]

Quarterly Results of Operations

Quarterly Results of Operations

The following is a summary of the unaudited quarterly results of operations (in thousands):

	Quarterly Period Ended
	March 31, 2013			June 30, 2013			September 30, 2013			December 31, 2013
Revenues	$	13,616		$	13,311		$	12,738		$	12,718
Gross profit	10,766			10,695			10,130			10,050
Loss from operations	(2,332		)	(1,995		)	(4,179		)	(2,174		)
Net loss	(2,848		)	(2,444		)	(4,627		)	(2,616		)
Net loss attributable to common stockholders – basic(1)	(2,848		)	(2,444		)	(4,627		)	(2,616		)
Net loss attributable to common stockholders – diluted(1)	(2,848		)	(2,444		)	(4,627		)	(2,616		)
Net loss per share attributable to common stockholders – basic(1)	(0.19		)	(0.17		)	(0.31		)	(0.17		)
Net loss per share attributable to common stockholders – diluted(1)	(0.19		)	(0.17		)	(0.31		)	(0.17		)

	Quarterly Period Ended
	March 31, 2012		June 30, 2012		September 30, 2012			December 31, 2012
Revenues	$	13,783	$	13,894	$	13,564		$	13,557
Gross profit	11,465		11,217		10,937			11,119
Income (loss) from operations	1,503		372		(214		)	285
Net income (loss)	1,269		269		(481		)	193
Net income (loss) attributable to common stockholders – basic(1)	248		54		(481		)	38
Net income (loss) attributable to common stockholders – diluted(1)	381		81		(481		)	56
Net income (loss) per share attributable to common stockholders – basic(1)	0.15		0.03		(0.28		)	0.02
Net income (loss) per share attributable to common stockholders – diluted(1)	0.13		0.03		(0.28		)	0.02

(1) These amounts are computed independently for each of the periods presented above and, therefore, may not add up to the total for the year presented in the statements of comprehensive (loss) income.

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Cash and Cash Equivalents (Tables)

12 Months Ended

Dec. 31, 2013

Cash and Cash Equivalents [Abstract]

Schedule of Cash and Cash Equivalents

Cash and cash equivalents consist of the following as of (in thousands):

	December 31,
	2013		2012
Cash	$	49,574	$	4
Certificates of deposit	—		5,253
Money market funds	—		19,511
Total cash and cash equivalents	$	49,574	$	24,768

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Net (Loss) Income Per Share (Anti-Dilutive Common Share Equivalents) (Details)	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive common share equivalents	1,838,275	7,377,428	9,321,793
Convertible Preferred Stock (Series A, A-1, B, B-1, C, and C-1) [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive common share equivalents	0	1,222,211	1,222,211
Redeemable Convertible Preferred Stock (Series D, D-1, E and F) [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive common share equivalents	0	5,772,348	5,763,606
Common Stock Options and Warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive common share equivalents	1,730,067	382,869	2,266,155
Restricted Stock Units [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive common share equivalents	108,208	0	69,821

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Accounts Receivable and Revenues (Receivables and Allowance for Doubtful Accounts) (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013	Dec. 31, 2012
Receivables [Abstract]
Accounts receivable	$ 6,760	$ 6,526
Less allowance for uncollectible accounts receivable	(939)	(1,377)
Accounts receivable, net	5,821	5,149
Allowance for Doubtful Accounts Receivable [Roll Forward]
Balance at beginning of period	1,377	1,676
Provision for bad debt expense	212	818
Write-off, net of recoveries	(650)	(1,117)
Balance at end of period	$ 939	$ 1,377

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Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit) (USD $) In Thousands, except Share data, unless otherwise specified	Total	Redeemable Convertible Preferred Stock [Member]	Convertible Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Accumulated Deficit [Member]
Balance at beginning of period at Dec. 31, 2010		$ 55,843
Balance at beginning of period at Dec. 31, 2010	(40,632)		1	2	8,060	(48,695)
Balance at beginning of period (in shares) at Dec. 31, 2010		11,086,581
Balance at beginning of period (in shares) at Dec. 31, 2010				1,625,333
Balance at beginning of period (in shares) at Dec. 31, 2010			1,687,010
Increase (Decrease) in Temporary Equity [Roll Forward]
Issuance of shares of common stock under equity incentive plans and warrant agreements (in shares)		101,150
Issuance of shares of common stock under equity incentive plans and warrant agreements		440
Reclassification of preferred stock warrant liabilities to redeemable convertible preferred stock upon exercises		152
Accretion on redeemable convertible preferred stock		115
Accrual of Series F dividends		613
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of common stock under equity incentive plans and warrant agreements (in shares)				70,152
Issuance of shares of common stock under equity incentive plans and warrant agreements	186			0	186
Accretion on redeemable convertible preferred stock	(115)				(115)
Accrual of Series F dividends	(613)				(613)
Stock-based compensation expense	651				651
Net (loss) income	(548)					(548)
Balance at end of period at Dec. 31, 2011		57,163
Balance at end of period at Dec. 31, 2011	(41,071)		1	2	8,169	(49,243)
Balance at end of period (in shares) at Dec. 31, 2011		11,187,731
Balance at end of period (in shares) at Dec. 31, 2011				1,695,485
Balance at end of period (in shares) at Dec. 31, 2011			1,687,010
Increase (Decrease) in Temporary Equity [Roll Forward]
Issuance of shares of common stock under equity incentive plans and warrant agreements (in shares)		17,941
Issuance of shares of common stock under equity incentive plans and warrant agreements		138
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of shares of common stock under equity incentive plans and warrant agreements, net of withholding for employee taxes (in shares)				198,792
Issuance of shares of common stock under equity incentive plans and warrant agreements, net of withholding for employee taxes	(925)			0	(925)
Stock-based compensation expense	1,190				1,190
Net (loss) income	1,250					1,250
Balance at end of period at Dec. 31, 2012	57,301	57,301
Balance at end of period at Dec. 31, 2012	(39,556)		1	2	8,434	(47,993)
Balance at end of period (in shares) at Dec. 31, 2012		11,205,672
Balance at end of period (in shares) at Dec. 31, 2012	1,894,277			1,894,277
Balance at end of period (in shares) at Dec. 31, 2012	1,687,010		1,687,010
Increase (Decrease) in Temporary Equity [Roll Forward]
Conversion of preferred stock to common stock (in shares)		(11,205,672)
Conversion of preferred stock to common stock		(52,101)
Payments of Series F redeemable convertible preferred stock accrued dividends		(5,200)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock (in shares)				5,750,000
Issuance of common stock	51,750			6	51,744
Stock issuance costs	(7,396)				(7,396)
Conversion of preferred stock to common stock (in shares)			(1,687,010)	6,994,559
Conversion of preferred stock to common stock	52,102		(1)	7	52,096
Conversion of preferred warrants to common stock	410				410
Issuance of shares of common stock under equity incentive plans (in shares)				550,025
Issuance of shares of common stock under equity incentive plans	1,584			0	1,584
Stock-based compensation expense	1,399				1,399
Net (loss) income	(12,535)					(12,535)
Balance at end of period at Dec. 31, 2013	0	0
Balance at end of period at Dec. 31, 2013	$ 47,758		$ 0	$ 15	$ 108,271	$ (60,528)
Balance at end of period (in shares) at Dec. 31, 2013		0
Balance at end of period (in shares) at Dec. 31, 2013	15,188,861			15,188,861
Balance at end of period (in shares) at Dec. 31, 2013			0

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Accounts Receivable and Revenues

12 Months Ended

Dec. 31, 2013

Receivables [Abstract]

Accounts Receivable and Revenues

Accounts Receivable and Revenues

Accounts receivable, net, consists of the following as of (in thousands):

	December 31,
	2013			2012
Accounts receivable	$	6,760		$	6,526
Less allowance for uncollectible accounts receivable	(939		)	(1,377		)
Accounts receivable, net	$	5,821		$	5,149

Activity for the allowance for uncollectible accounts receivable is as follows (in thousands):

	Year Ended December 31,
	2013			2012
Balance at beginning of period	$	1,377		$	1,676
Provision for bad debt expense	212			818
Write-off, net of recoveries	(650		)	(1,117		)
Balance at end of period	$	939		$	1,377

Revenues consist of the following (in thousands):

	Year Ended December 31,
	2013			2012			2011
Gross billings	$	53,751		$	56,603		$	48,292
Less contractual adjustments	(1,368		)	(1,805		)	(2,485		)
Revenues	$	52,383		$	54,798		$	45,807

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Equity Transactions and Share-Based Compensation (Restricted Stock Unit Activity) (Details) (USD $)	12 Months Ended
	Dec. 31, 2013
Number of Awards
Nonvested at end of period (in shares)	108,208
Restricted Stock Units (RSUs) [Member]
Number of Awards
Nonvested at beginning of period (in shares)	0
Granted (in shares)	142,869
Vested (in shares)	(12,848)
Forfeited (in shares)	(21,813)
Weighted Average Grant-Date Fair Value
Nonvested at beginning of period (in usd per share)	$ 0.00
Granted (in usd per share)	$ 7.07
Vested (in usd per share)	$ 5.88
Forfeited (in usd per share)	$ 9.65
Nonvested at end of period (in usd per share)	$ 6.70

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Subsequent Events (Details) (USD $)			1 Months Ended	3 Months Ended
	Dec. 31, 2013	Dec. 31, 2012	Jan. 31, 2014 Subsequent Event [Member] position	Mar. 28, 2014 Subsequent Event [Member]
Subsequent Event [Line Items]
Expected reduction in number of positions			24
Total expected charges for severance and other benefits				$ 400,000
Long- term debt reclassified to current	$ 15,816,000	$ 0

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Accounts Receivable and Revenues (Tables)

12 Months Ended

Dec. 31, 2013

Receivables [Abstract]

Schedule of Accounts Receivable, Net

Accounts receivable, net, consists of the following as of (in thousands):

	December 31,
	2013			2012
Accounts receivable	$	6,760		$	6,526
Less allowance for uncollectible accounts receivable	(939		)	(1,377		)
Accounts receivable, net	$	5,821		$	5,149

Allowance for Uncollectible Accounts Receivable Rollforward

Activity for the allowance for uncollectible accounts receivable is as follows (in thousands):

	Year Ended December 31,
	2013			2012
Balance at beginning of period	$	1,377		$	1,676
Provision for bad debt expense	212			818
Write-off, net of recoveries	(650		)	(1,117		)
Balance at end of period	$	939		$	1,377

Schedule of Gross and Net Revenue

Revenues consist of the following (in thousands):

	Year Ended December 31,
	2013			2012			2011
Gross billings	$	53,751		$	56,603		$	48,292
Less contractual adjustments	(1,368		)	(1,805		)	(2,485		)
Revenues	$	52,383		$	54,798		$	45,807

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Fair Value Measurement (Financial Instruments Measured at Fair Value) (Details) (Fair Value, Measurements, Recurring [Member], USD $) In Thousands, unless otherwise specified	Dec. 31, 2013	Dec. 31, 2012
Level I [Member]
Assets
Total assets measured at fair value	$ 502	$ 26,269
Liabilities
Preferred stock warrant liability	0	0
Total liabilities measured at fair value	0	0
Level III [Member]
Assets
Total assets measured at fair value	0	0
Liabilities
Preferred stock warrant liability	0	412
Total liabilities measured at fair value	0	412
Total [Member]
Assets
Total assets measured at fair value	502	26,269
Liabilities
Preferred stock warrant liability	0	412
Total liabilities measured at fair value	0	412
Certificates of Deposits [Member] | Level I [Member]
Assets
Cash and cash equivalents	0	5,253
Certificates of Deposits [Member] | Level III [Member]
Assets
Cash and cash equivalents	0	0
Certificates of Deposits [Member] | Total [Member]
Assets
Cash and cash equivalents	0	5,253
Money Market Funds [Member] | Level I [Member]
Assets
Cash and cash equivalents	502	21,016
Money Market Funds [Member] | Level III [Member]
Assets
Cash and cash equivalents	0	0
Money Market Funds [Member] | Total [Member]
Assets
Cash and cash equivalents	$ 502	$ 21,016

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Leases

The Company leases an aggregate of approximately 83,000 square feet of office and laboratory space under a long-term lease agreement that expires on September 30, 2022. The lease contains fixed scheduled rent escalations, $0.9 million of rent concession and $1.8 million of leasehold improvement incentives. In connection with the lease, the Company obtained a $1.5 million letter of credit secured by restricted cash (see Note 6). In June 2013, the required amount for the letter of credit secured by restricted cash was reduced to $0.5 million. The Company also leases office equipment and software licenses through operating leases.

Future minimum lease payments required under the non-cancelable operating leases in effect as of December 31, 2013 are as follows (in thousands):

2014	$	1,239
2015	1,272
2016	1,310
2017	1,022
2018	1,361
Thereafter	5,309
Total minimum lease payments	$	11,513

Rent expense is calculated on a straight-line basis over the term of the lease. The Company incurred rent expense of $1.1 million, $1.2 million and $1.2 million during the years ended December 31, 2013, 2012 and 2011, respectively.

Legal Contingencies

The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company's management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company's business, financial condition, results of operations or cash flows.

Indemnification

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company's exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but that have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. The Company may, however, record charges in the future as a result of these indemnification obligations.

In accordance with its Certificate of Incorporation and Bylaws, the Company has indemnification obligations to its directors, and has the authority to indemnify its officers and employees, for certain events or occurrences, subject to certain limits, while they are serving at the Company's request in such capacity. There have been no claims to date, and the Company has director and officer insurance that enables it to recover a portion of any amounts paid for future potential claims.

In addition to the indemnification provided for in its Certificate of Incorporation and Bylaws, the Company has also entered into separate indemnification agreements with each of its directors, which agreements provide such directors with indemnification rights under certain circumstances.