DRS/A 1 filename1.htm Document
As confidentially submitted to the Securities and Exchange Commission on May 22, 2020.
This amended draft registration statement has not been publicly filed with the
Securities and Exchange Commission and all information herein remains strictly confidential.
Registration No. 333-
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
ArcherDX, Inc.
(Exact name of Registrant as specified in its charter)
 
Delaware
2835
38-3944751
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification Number)
2477 55th Street, Suite 202
Boulder, CO 80301
(877) 771-1093
(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)
 
Jason Myers
President and Chief Executive Officer
ArcherDX, Inc.
2477 55th Street, Suite 202
Boulder, CO 80301
(877) 771-1093
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
Copies to:
 
Brent D. Fassett
Matthew P. Dubofsky
Cooley LLP
380 Interlocken Crescent, Suite 900
Broomfield, CO 80021
(720) 566-4000
Ben Carver
General Counsel
ArcherDX, Inc.
2477 55th Street, Suite 202
Boulder, CO 80301
(877) 771-1093
Deanna Kirkpatrick
Marcel R. Fausten
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, NY 10017
(212) 450-4000
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
Smaller reporting company
 
 
 
 
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐
 
CALCULATION OF REGISTRATION FEE
Title of each Class of
Securities to be Registered
Proposed Maximum
Aggregate Offering
Price(1)(2)
Amount of
Registration Fee
Common stock, par value $0.01 per share
$
$
(1)
In accordance with Rule 457(o) under the Securities Act of 1933, as amended, the number of shares being registered and the proposed maximum offering price per share are not included in this table.
(2)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) of the Securities Act of 1933, as amended
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant will file a further amendment which specifically states that this Registration Statement will thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement will become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 



The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion dated             , 2020
PRELIMINARY PROSPECTUS
                 shares
archerlogo1a.jpg
Common stock
 
This is the initial public offering of shares of common stock of ArcherDX, Inc. We are offering              shares of our common stock.
Prior to this offering, there has been no public market for our common stock. It is currently estimated that the initial public offering price will be between $              and $              per share. We have applied to list our common stock on The Nasdaq Global Market under the symbol “RCHR.”
We are an “emerging growth company” as defined under the federal securities laws and, as such, we have elected to comply with certain reduced reporting requirements for this prospectus and may elect to do so in future filings. For information regarding these reduced reporting requirements, see “Prospectus summary—Implications of being an emerging growth company.”
See “Risk factors” beginning on page 13 to read about factors you should consider before buying our common stock.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
 
 
Per Share
 
Total
Initial public offering price
$
 
$
Underwriting discount(1) 
$
 
$
Proceeds, before expenses, to us
$
 
$
 
 
 
 
(1)
See the section titled “Underwriting” for additional information regarding compensation payable to the underwriters.
We have granted the underwriters the right to purchase up to an additional              shares of common stock from us at the initial public offering price, less the underwriting discount, for 30 days after the date of this prospectus.
 
The underwriters expect to deliver the shares against payment in New York, New York on                 , 2020.
J.P. Morgan
BofA Securities
 
 
Stifel
Evercore ISI
Prospectus dated                 , 2020.



Table of contents
Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectus we have prepared. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We and the underwriters are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus or any free writing prospectus is accurate only as of the date of its date, regardless of its time of delivery or of any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of our common stock and the distribution of this prospectus and any applicable free writing prospectus applicable to such jurisdictions.
Through and including                     , 2020 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

-i-


Prospectus summary
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk factors,” “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, all references in this prospectus to “Archer,” “ArcherDX,” the “company,” “we,” “our,” “us” or similar terms refer to ArcherDX, Inc. and, where appropriate, our subsidiary, the ArcherDX business unit of Enzymatics, Inc. and the ArcherDX, Inc. in existence from January 2013 to August 2013, as explained further in the Corporate Information Section below.
Overview
We are a leading genomics company democratizing precision oncology. We offer a suite of products and services that are highly accurate, personal, actionable and easy to use in local settings. This empowers clinicians to control the sample, data, patient care and economics. Additionally, our products and services enable biopharmaceutical companies to cost-effectively accelerate drug development. We believe these benefits will drive broader adoption of precision oncology throughout the therapeutic continuum, improving patient care. Our product development platform, with our proprietary Anchored Multiplex PCR, or AMP, chemistry at the core, has enabled us to develop industry-leading products and services that allow for therapy optimization and cancer monitoring.
We have developed and commercialized research use only, or RUO, products, we are developing in-vitro diagnostic, or IVD, products, and we offer services that meet the unique needs of our customers and their clinical applications. Our five RUO product lines consist of DNA-based VariantPlex, RNA-based FusionPlex, ctDNA-based LiquidPlex and RNA-based Immunoverse, which we collectively refer to as ArcherPlex, and Personalized Cancer Monitoring, or PCM. Our offerings include commercial RUO products and services that laboratories use to conduct genomic analysis for therapy optimization and cancer monitoring. We intend to submit STRATAFIDE, in 2020, and PCM, in the future, for United States Federal Drug Administration, or FDA, approval and/or clearance so they can be marketed as IVDs. STRATAFIDE and PCM have both received Breakthrough Device designation from the FDA, which offers potentially faster review through priority review for certain medical devices that provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating human diseases or conditions for which no approved or cleared treatment exists or that offer significant advantages over existing approved or cleared alternatives. Additionally, we offer Assay Designer and Designer Pro as services to clinical and biopharmaceutical customers, which allow them to customize biomarker targets and develop new applications. Our analyte- and sample-agnostic products and services enable clinicians to quickly and locally generate actionable genomic information to deliver industry-leading care to patients with solid tumors, blood cancers or sarcomas.
Since our inception in 2013, our product development platform has enabled us to efficiently develop over 325 unique RUO products, which have been sold to over 300 leading academic and reference laboratories and over 50 biopharmaceutical companies and contract research organizations, or CROs, across 40 countries to facilitate the analysis of over 375,000 samples. We have generated a large and growing body of comprehensive clinical evidence, consisting of over 200 peer-reviewed clinical and scientific publications, which we believe demonstrate our products’ performance for clinical applications. We believe our long-standing commercial relationships with top-tier academic institutions and reference laboratories demonstrate that we are well positioned to become the global leader in driving decentralized genomic testing.
Over the last several decades, advances in understanding cancer genetics and genomic technologies, including next generation sequencing, or NGS, have enabled genomic tumor profiling which refers to a characterization of the mutations unique to an individual’s cancer. The discipline of using genetic

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information from genomic tumor profiling to guide therapy optimization and cancer monitoring is referred to as precision oncology. Despite significant investment in research and the introduction of new treatments for cancer, broad adoption of precision oncology has been limited, especially in regional and community settings where approximately 85% of cancer patients receive care. Without precision oncology, late-stage cancer patients can suffer from poor prognosis and outcomes, and early-stage patients can suffer from inaccurate prognosis, resulting in unnecessary treatment with toxic therapies and delayed detection of recurrence. While precision oncology has historically been limited to late-stage patients with solid tumors, clinicians now see the opportunity to expand precision oncology into early-stage cancer. We believe democratizing precision oncology has the potential to turn advanced cancer into a manageable disease and elicit a cure in patients diagnosed with early-stage disease.
Therapy optimization
In the community and regional settings, the lack of infrastructure and expertise to implement genomic analysis is limiting clinicians’ ability to optimize therapy for patients through diagnosis, prognosis and therapy selection. Given the limitations of current centralized testing options, we believe empowering clinicians with our turnkey solution for therapy optimization will enable local testing and be a significant breakthrough in the standard of care. Our solution also benefits biopharmaceutical companies across a range of applications, including patient selection in global clinical trials. Additionally, our solution could help biopharmaceutical companies to identify new genomic targets for drug development and to commercialize the new drugs, once approved. Better access to genomic information can accelerate clinical trial enrollment and increase the probability of success of drug development in a target patient population.
Cancer monitoring
Clinicians are eager to expand precision oncology into early-stage cancer, when the cancer is typically easier to cure compared to late-stage cancer. Current monitoring methods, including imaging and cancer antigen tests, lack resolution and accuracy needed to monitor early-stage disease. Accessing circulating tumor DNA, or ctDNA, from routine blood draws is an effective and non-invasive way to monitor cancer to inform the course of treatment. Our solution is capable of detecting disease burden, including minimal residual disease, or MRD, even when other methodologies fail because we manufacture patient-specific ctDNA panels based upon the genomic tumor profile of their individual cancer. We believe our approach will revolutionize how cancer is managed by measuring cancer progression, measuring therapy effectiveness, determining a treatment regimen and refining therapy.
Barriers to the democratization of precision oncology
We believe that current genomic testing suffers from several major challenges. These barriers can be largely categorized as lack of accuracy, lack of utility, lengthy turnaround time in the clinical setting and lack of economic participation for providers. This has impeded broader adoption of precision oncology in therapy optimization and cancer monitoring, especially within community and regional health settings where the vast majority of cancer patients are treated.
Our Solution
Our solution delivers turnkey products for clinicians to drive the democratization of precision oncology. We refer to the democratization of precision oncology as allowing genomic testing in the community and regional settings, where 85% of cancer patients are treated, and where testing is currently limited or non-existent due to the lack of infrastructure and expertise to implement genomic analysis. Given the limitations of current centralized testing options, we believe empowering clinicians with our turnkey solution will enable local testing and be a significant breakthrough in the standard of care.
Our modular product development platform combines our high performance AMP chemistry, target-specific primers, ancillary reagents, and bioinformatics software to accurately detect simple and complex, as well as known and unknown, mutations. We are able to customize biomarker targets, which can be

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pooled in billions of possible combinations without negatively impacting accuracy or precision. This modularity allows us to quickly expand existing products and customize our products to develop new applications without needing to re-engineer the underlying technology. Our solution leverages scalable, easy-to-use, clinical-grade reagents and powerful bioinformatics software to produce a multitude of products with broad applications for both clinical and biopharmaceutical use.
We believe our solution addresses the barriers to democratization of precision oncology:
Accuracy: Although current tests can accurately detect common or simple mutations, most cannot accurately detect complex mutations, resulting in a high rate of false negatives and positives. These tests are designed with inherent biases which fundamentally limit their ability to detect both known and unknown alterations. We believe our purpose built AMP chemistry addresses these shortcomings by accurately detecting complex, as well as known and unknown, mutations. This allows us to provide actionable information to clinicians, enabling them to select therapies targeted to the appropriate mutation, and thereby better informing treatment.
Utility: Current tests generally take a “one-size-fits-all” approach, which limits their utility. Because our products are not limited to blood and tissue, they enable testing across a multitude of sample types, targeting DNA, RNA, and ctDNA in order to provide higher resolution and a more comprehensive view of mutations. Our product development platform enables rapid and efficient customization of biomarker targets, which means clinicians can specify which of our products they want to use to identify mutations that they believe are important in treating each patient’s disease. Together, we believe these features open additional areas of clinical application within therapy optimization for individual patients and cancer monitoring of early-stage cancer.
Turnaround time: Results from centralized genomic tests can take well over 20 days to be returned, depending on complexity and sample type. As late-stage cancer patients are likely to experience superior survival rates and outcomes when treated as soon as possible after diagnosis, lengthy turnaround times can prevent timely treatment. Our products enable local testing with potential times to run the test in a matter of days, accelerating time to results while also allowing the original clinician to maintain sample custody. The reduction in time to actionable results accelerates clinical decisions, which is critical for cancer patients where immediate treatment is important to achieve optimal outcomes.
Economics: The complexity of many genomic testing options requires significant resources and sophisticated infrastructure, which are typically limited to specialized academic or centralized facilities. As a result, hospitals often need to outsource their genomic testing, which incurs costs that are not reimbursed, presenting an additional hurdle to adoption. This particularly affects community and regional hospitals where approximately 85% of cancer patients are treated. Centralized labs that perform genomic testing receive the benefits of reimbursement and often retain possession of patients’ tumor biopsies and control patient data. We believe our platform will empower more hospitals and clinics to practice precision oncology and receive reimbursement for in-house testing that they would otherwise not receive if they send the testing out to centralized labs. In addition, clinicians can retain possession of patients’ tumor biopsies and control the data, which can be matched with clinical data to generate revenue from collaborators, such as biopharmaceutical companies. We believe this empowers providers in all patient care settings to participate in the economics of precision oncology testing.

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Our current products and pipeline
businessu01a.jpg
Our offerings include commercial RUO products and services that laboratories use to conduct genomic analysis for therapy optimization and cancer monitoring. Our RUO portfolio consists of five product lines: VariantPlex, FusionPlex, LiquidPlex and Immunoverse, which we collectively refer to as ArcherPlex, and PCM. There are multiple products within each of these lines, all of which can be customized. These RUO products allow for a range of applications and can be used individually or in combination, as desired.
We are pursuing regulatory clearances and/or approvals for STRATAFIDE, which is intended to be a universal IVD that utilizes AMP to measure clinically relevant genomic mutations for tumor profiling and companion diagnostic markers from both tissue and blood. We expect to launch STRATAFIDE as a regulated device in 2021, and we believe it has the potential to be the first-line tumor profiling test for any patient with a late-stage solid tumor (pan-tumor). In December 2018, the FDA granted Breakthrough Device designation to STRATAFIDE. We also intend to pursue regulatory clearances and approvals in specific markets outside the United States, including Japan and Europe. A specific companion diagnostic claim was submitted to the Japanese Pharmaceuticals and Medical Device Agency, or PMDA, in December 2019 and approved in March 2020. We intend to develop an additional universal IVD for blood cancers, similar to STRATAFIDE, for commercialization in both the United States and outside the United States.
We are also seeking FDA clearance and/or approval for PCM as an IVD to non-invasively and quantitatively measure cancer recurrence or progression, as well as therapeutic efficacy, to determine a treatment regimen and refine therapy. We believe PCM will improve patient outcomes across multiple clinical applications as a prognostic device for predicting recurrence of primary cancer after initial treatment. In January 2020, we received Breakthrough Device designation from the FDA for PCM. We are seeking additional regulatory approvals outside the United States and intend to expand into additional indications.
We also offer a suite of services to clinical and biopharmaceutical customers, which allow them to customize biomarker targets or develop new applications. Assay Designer is our online tool that

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customers can use to customize biomarker targets in their panels. Designer Pro is our advanced panel and application customization service. We also offer clinical trial assay and companion diagnostic development services to biopharmaceutical customers.
Our market opportunity
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We believe that democratizing precision oncology by providing personal, actionable, easy-to-use products in the local setting will improve patient care. Our turnkey products and services have applications in therapy optimization and cancer monitoring, representing a total global market opportunity we estimate to be approximately $45 billion. We estimate our opportunity in the United States to be approximately $20 billion and our opportunity outside the United States to be approximately $25 billion.
For therapy optimization, which includes diagnosis, prognosis and targeted therapy selection, we estimate a $5 billion total global market opportunity, which consists of a $1.3 billion market in the United States, a $1.7 billion market outside the United States and a $2 billion global opportunity with biopharmaceutical companies.
We estimate the total global cancer monitoring market is approximately $40 billion, which consists of a $15 billion market in the United States, $24 billion market outside the United States and $1 billion market with biopharmaceutical companies.
Our competitive advantages
We aim to democratize precision oncology by leveraging our core competitive advantages.
Our product development platform, featuring our proprietary AMP chemistry, provides accurate, actionable genomic information allowing clinicians to optimize treatment and monitor cancer. Our products allow for the identification of both simple and complex genomic mutations, providing clinicians with more actionable information to improve care.

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Our versatile product portfolio empowers clinicians to practice precision oncology by providing products and services that are personal and actionable. We provide a versatile product portfolio which allows clinicians to select a test based on the clinically relevant sample type, analyte, cancer type and biomarker targets.
Our easy-to-use, clinical-grade reagents allow our AMP technology to be deployed at the site of care near the patient. Our easy-to-use reagents enable our decentralized model, permitting any testing center or hospital with a compatible sequencer to run our assay near its patients, improving turnaround time. We believe enabling local genomic testing helps reduce significant upfront costs, adds flexibility of scale, and will bring precision oncology to all patients, anywhere.
Our product development platform can be adapted as new applications emerge. Our AMP chemistry enables customization of biomarker targets which can be pooled in billions of possible combinations while maintaining accuracy and precision. Our custom and fixed content panels follow the same manufacturing processes, varying only in the targeting mechanism, which enables us to easily adapt our products as our customers request new applications.
We believe we provide a compelling and differentiated value proposition to all stakeholders. We believe our platform empowers more hospitals and clinics to practice precision oncology and receive reimbursement for in-house testing. In addition, clinicians can retain possession of patients’ tumor biopsies and control the data, which they can match with clinical data to generate revenue from collaborative partners, such as biopharmaceutical companies. Most importantly, faster turnaround time can inform clinical decision making in a timelier manner, which is critical for cancer patients where immediate treatment is important to achieve optimal outcomes.
Our multi-faceted commercial capabilities and our regulatory and reimbursement expertise support our ability to bring our products to market globally. Along with our direct sales team, we leverage our medical sales liaisons, distributors, and the sales organizations of our reference lab and biopharmaceutical collaborators to further drive adoption.
We have intellectual property protection for our proprietary AMP chemistry and technology platform and its applications. Our patent portfolio includes 3 issued patents and 16 pending patent applications in the United States and 2 issued patents and 44 pending patent applications in foreign countries related to our AMP chemistry and technology platform and its applications .
Our strategy
Our goal is to bring precision oncology to all patients anywhere. To achieve this, we intend to:
Democratize precision oncology. We offer a suite of products and services that are personal, actionable and easy to use in local settings to advance the treatment of cancer and monitoring of patients by providing our turnkey solution to clinicians.
Pursue regulatory clearances and approvals for our products across the cancer care continuum. We submitted our first companion diagnostic to the Japanese PMDA in December 2019 and obtained approval in March 2020. We plan to submit STRATAFIDE to the FDA in the next 12 months and PCM to the FDA in the following years.
Enable new clinical applications with PCM. PCM is capable of high specificity with a low limit of detection, which allows for post-treatment monitoring of early-stage cancer in a cost- and time-efficient manner. PCM also enables the measurement of cancer progression and therapy effectiveness to refine or select a treatment regimen, and can bring precision oncology to earlier stages of cancer.
Embed our products and services with biopharmaceutical collaborators. We plan to continue to promote our products and services to create broader and deeper collaborations with current and new biopharmaceutical customers.

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Expand our global footprint. We are continuing to establish the infrastructure needed to deploy our turnkey solution globally and promote broader adoption. We will continue discussions with global regulatory and reimbursement agencies to obtain country-specific approvals.
Leverage our product development platform to identify and advance innovative products. We have established research and development capabilities that allow us to leverage innovations and operational efficiencies from one product across our platform.
Risk factors summary
Investing in our common stock involves substantial risk. The risks described in the section titled “Risk factors” immediately following this summary may cause us to not realize the full benefits of our strengths or may cause us to be unable to successfully execute all or part of our strategy. Some of the more significant challenges include the following:
We have incurred losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future, which could harm our future business prospects.
We may not be able to obtain regulatory clearance or approval of our IVD products, or even if approved, such products may not be approved for guideline inclusion, which could adversely affect our business, financial condition and results of operations.
To date, our revenues have been primarily generated by sales of our RUO products, but our future business growth is partially dependent upon regulatory approval and market acceptance of our IVD products, including STRATAFIDE and PCM. We have limited experience in developing, marketing and commercializing IVDs.
A large portion of our revenue is generated from a limited number of customers, and the loss of one or more of our customers or the failure to retain a significant amount of business from them could adversely affect our business, financial condition, and results of operations.
Our quarterly results may fluctuate significantly, which could adversely impact the value of our common stock.
One of our competitors has alleged that our AMP chemistry and products using AMP are infringing on its intellectual property, and we may be required to redesign our technology, obtain a license, cease using our AMP chemistry altogether and/or pay significant damages, among other consequences, any of which would have a material adverse effect on our business, financial condition and results of operations.
We intend to seek to market our IVD products for clinical diagnostic use and will be required to obtain regulatory clearance(s) or approval(s). Any such regulatory process would be expensive, time-consuming and uncertain both in timing and in outcome.
Our commercial success could be compromised if we do not receive coverage and adequate reimbursement for our products, including STRATAFIDE and PCM, if approved.
We are currently, and may be in the future, subject to claims against us alleging that we are infringing, misappropriating or otherwise violating the intellectual property rights of third parties, the outcome of which could have a material adverse effect on our business.
We are currently, and may be in the future, involved in lawsuits to defend or enforce our patents and proprietary rights. Such disputes could result in substantial costs or loss of productivity, delay or prevent the development and commercialization of our technology, products and services, prohibit our use of proprietary technology or sale of nucleic acid preparative and analytical methods and related products or services, or put our patents and other proprietary rights at risk.

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If we are not able to obtain, maintain, defend or enforce patent and other intellectual property protection for our nucleic acid preparative and analytical methods or related products or services, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products, services and technology similar or identical to ours, which could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.
We license patent rights from third-party owners. If such owners do not properly or successfully obtain, maintain or enforce the patents underlying such licenses, or if they retain or license to others any competing rights, our competitive position and business prospects may be adversely affected. If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our relationships with our licensors, we could lose license rights that are important to our business.
We have determined that there is substantial doubt about our ability to continue as a “going concern” for the next twelve months.
Corporate information
ArcherDX, Inc. was incorporated in January 2013, and subsequently merged into Enzymatics, Inc. in August 2013. In December 2014, the ArcherDX business unit spun out from Enzymatics, Inc. and was incorporated as ArcherDX, Inc. in Delaware. Our principal executive offices are located at 2477 55th Street, Suite 202, Boulder, CO 80301, and our telephone number is (877) 771-1093. Our website address is www.archerdx.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.
The ArcherDX logo and “Archer®” and our other registered and common law trade names, trademarks and service marks, including AMP, STRATAFIDE, LiquidPlex, Immunoverse™, VariantPlex® and FusionPlex®, are the property of ArcherDX, Inc. Other trade names, trademarks and service marks used in this prospectus are the property of their respective owners. Solely for convenience, the trademarks and trade names in this prospectus may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that their respective owners will not assert their rights thereto.
Implications of being an emerging growth company
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and therefore we may take advantage of certain exemptions from various public company reporting requirements, including not being required to have our internal control over financial reporting audited by our independent registered public accounting firm pursuant to Section 404 of the SarbanesOxley Act of 2002, or the SarbanesOxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and any golden parachute payments. We may take advantage of these exemptions until we are no longer an “emerging growth company.” We will cease to be an “emerging growth company” upon the earliest of: (1) the last day of the fiscal year following the fifth anniversary of this offering; (2) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (3) the date on which we have, during the previous rolling three-year period, issued more than $1.0 billion in nonconvertible debt securities; and (4) the date on which we are deemed to be a “large accelerated filer” as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act. In addition, the JOBS Act provides that an “emerging growth company” can delay adopting new or revised accounting standards until those standards apply to private companies. We have elected to take advantage of certain of the reduced disclosure obligations in the registration statement of which this prospectus is a part and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than you might receive from other public reporting companies in which you hold equity interests.

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The offering
Common stock offered by us
             shares
 
 
Common stock to be outstanding after this offering
             shares
 
 
Underwriters’ option to purchase additional shares of common stock offered by us
             shares
 
 
Use of proceeds
We estimate that the net proceeds from the sale of our common stock in this offering will be approximately $          million (or approximately $           million if the underwriters’ option to purchase additional shares of our common stock from us is exercised in full), assuming an initial public offering price of $             per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
 
 
 
The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock and facilitate our future access to the capital markets. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. We currently expect to use the net proceeds from this offering for research and development activities, including development of STRATAFIDE and PCM, and for working capital and general corporate purposes, including sales and marketing activities, operating expenses and capital expenditures. We may also use a portion of the remaining net proceeds, if any, to acquire or invest in complementary businesses, technologies or other assets. However, we do not have any agreements or commitments to enter into any such acquisitions or investments at this time. See the section titled “Use of Proceeds” for additional information.
 
 
Risk factors
You should carefully read the “Risk factors” beginning on page 13 and other information included in this prospectus for a discussion of facts that you should consider before deciding to invest in shares of our common stock.
 
 
Proposed Nasdaq trading symbol
“RCHR”
The number of shares of common stock that will be outstanding after this offering is based on                  shares of common stock outstanding as of March 31, 2020 (assuming the conversion of all outstanding shares of our convertible preferred stock into shares of common stock on March 31, 2020), and excludes:
5,418,687 shares of common stock issuable on the exercise of stock options outstanding as of March 31, 2020 under the 2015 Stock Incentive Plan, or the 2015 Plan, with a weighted-average exercise price of approximately $2.17 per share;
up to an aggregate of 800,000 shares of common stock which may be issued in connection with the acquisition of Baby Genes, Inc., or Baby Genes, pursuant to certain contingent consideration

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provisions of that certain Agreement and Plan of Merger, dated October 2, 2018 and as amended on March 4, 2020, or Baby Genes Merger Agreement, by and among us, ArcherDX Sub, Inc., and Baby Genes, if specified revenue thresholds are achieved;
          shares of common stock reserved for future issuance under our 2020 Equity Incentive Plan, or the 2020 Plan, as well as any future increases, including annual automatic evergreen increases, in the number of shares of common stock reserved for issuance under our 2020 Plan; and
          shares of common stock reserved for issuance under our 2020 Employee Stock Purchase Plan, or the ESPP, as well as any future increases, including annual automatic evergreen increases, in the number of shares of common stock reserved for future issuance under our ESPP.
In addition, unless we specifically state otherwise, the information in this prospectus assumes:
the issuance of                  shares of our Series B convertible preferred stock, or the Series B Preferred Stock, upon the automatic net exercise of a warrant to purchase shares of Series B Preferred Stock with an exercise price of $4.82 per share (such warrant outstanding as of December 31, 2019), or the Series B Warrant, in connection with this offering, based on an assumed offering price of                   , which is the midpoint of the estimated price range set forth on the cover page of this prospectus;
the issuance of 389,749 shares of Series A Preferred Stock pursuant to the Baby Genes Merger Agreement;
the automatic conversion of all outstanding shares of our Series A Preferred Stock, Series B Preferred Stock, and our Series C convertible preferred stock, or the Series C Preferred Stock, or collectively, the preferred stock, including shares issued as a result of the automatic net exercise of the Series B Warrant and the Series A Preferred Stock issuable pursuant to the Baby Genes Merger Agreement as described above, into an aggregate                   shares of common stock in connection with this offering;
the filing of our amended and restated certificate of incorporation, which will be in effect on the completion of this offering;
no exercise of the underwriters’ option to purchase up to an additional                  shares of common stock from us in this offering.

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Summary consolidated financial data
The summary consolidated statement of operations data for the years ended December 31, 2019 and 2018 and the summary consolidated balance sheet data as of December 31, 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated statement of operations data for the three months ended March 31, 2020 and 2019 and the summary consolidated balance sheet data as of March 31, 2020 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position and results of operations.  The summary consolidated financial data included in this section are not intended to replace the financial statements and related notes included elsewhere in this prospectus.
You should read the consolidated financial data set forth below in conjunction with our consolidated financial statements and the accompanying notes, the information in the “Selected consolidated financial data” and “Management’s discussion and analysis of financial condition and results of operations” sections contained elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected for any other period in the future.
 
Year Ended
December 31,
 
 
Three Months Ended March 31,
 
 
2018

 
2019

 
2019

 
2020

 
(in thousands)
 
(in thousands)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
Precision oncology products
$
16,025

 
$
22,644

 
$
4,380

 
$
7,006

Pharma development services
12,429

 
27,921

 
5,069

 
7,784

Total revenue
28,454

 
50,565

 
9,449

 
14,790

 
 
 
 
 
 
 
 
Costs & operating expenses
 
 
 
 
 
 
 
Cost of precision oncology products
4,033

 
7,335

 
1,068

 
2,313

Cost of pharma development services
6,230

 
9,212

 
1,706

 
3,399

Sales and marketing
7,215

 
15,428

 
2,644

 
5,324

Research and development
8,184

 
34,172

 
4,295

 
13,737

General and administrative
7,700

 
15,875

 
2,377

 
7,481

Contingent consideration

 
5,768

 
2,716

 
(35
)
Total operating expenses
33,362

 
87,790

 
14,806

 
32,219

Loss from operations
(4,908
)
 
(37,225
)
 
(5,357
)
 
(17,429
)
Interest expense, net
(1,160
)
 
(2,432
)
 

 
(893
)
Other income (expense), net
34

 
(824
)
 
(8
)
 
(995
)
Loss before income taxes
(6,034
)
 
(40,481
)
 
(5,365
)
 
(19,317
)
Income tax (benefit) expense
(481
)
 
497

 
1

 

Net loss and comprehensive loss
$
(5,553
)
 
$
(40,978
)
 
$
(5,366
)
 
$
(19,317
)
 
 
 
 
 
 
 
 

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March 31, 2020
 
Actual

 
Pro Forma(2)
 
Pro Forma
As Adjusted(3)
 
(in thousands)
Consolidated Balance Sheet Data:
 
 
 
 
 
Cash and cash equivalents
$
36,842

 
 
 
 
Total assets
97,503

 
 
 
 
Total current assets
66,282

 
 
 
 
Total current liabilities
31,132

 
 
 
 
Working capital(1)
35,150

 
 
 
 
Long-term debt, net
28,659

 
 
 
 
Convertible preferred stock
115,347

 
 
 
 
Accumulated deficit
(88,560
)
 
 
 
 
Total stockholders’ (deficit) equity
(84,121
)
 
 
 
 
 
 
 
 
 
 
(1)
Working capital is defined as current assets less current liabilities.
(2)
The pro forma consolidated balance sheet data gives effect to (a) the issuance of 389,749 shares of Series A Preferred Stock pursuant to the Baby Genes Merger Agreement, (b) the issuance of               shares of our Series B Preferred Stock issuable upon the automatic net exercise of the Series B Warrant in connection with this offering , assuming an initial public offering price of $             per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, (c) the automatic conversion of all of our outstanding shares of preferred stock (including the shares issuable pursuant to the Baby Genes Merger Agreement described in (a) and pursuant to the automatic net exercise of the Series B Warrant described in (b) above) into shares of common stock in connection with this offering, (d) the automatic conversion of contingent consideration for the Baby Genes Acquisition from Series A Preferred Stock to up to 800,000 shares of our common stock and the resulting reclassification of the remaining liability to additional paid-in capital, and (e) the filing and effectiveness of our amended and restated certificate of incorporation which will be in effect on the completion of this offering.
(3)
The pro forma as adjusted consolidated balance sheet data reflects (a) the items described in footnote (2) above and (b) our receipt of estimated net proceeds from the sale of shares of common stock that we are offering at an assumed initial public offering price of $               per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
A $1.00 increase (decrease) in the assumed initial public offering price of $               per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) each of cash and cash equivalents, total assets, working capital and total stockholders’ (deficit) equity by $               million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) each of cash and cash equivalents, total assets, working capital and total stockholders’ (deficit) equity by $               million, assuming the assumed initial public offering price of $               per share of common stock remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

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Risk factors
Investing in our common stock involves a high degree of risk. You should consider and read carefully all of the risks and uncertainties described below, as well as other information included in this prospectus, including our consolidated financial statements and related notes appearing elsewhere in this prospectus, before making an investment decision. The risks described below are not the only ones we face. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition and results of operations. In such case, the trading price of our common stock could decline, and you may lose some or all of your original investment.
Risks related to our business and strategy
We have incurred losses since our inception and we anticipate that we will continue to incur losses for the foreseeable future, which could harm our future business prospects.
We have historically incurred substantial net losses, including net losses of $5.6 million, $41.0 million , $5.4 million and $19.3 million for the years ended December 31, 2018 and 2019 and the three months ended March 31, 2019 and 2020, respectively. As of December 31, 2019 and March 31, 2020 , we had an accumulated deficit of $69.2 million and $88.6 million , respectively. Additionally, while our net losses increased by over $35.4 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 , and $14.0 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019, our total revenue increased by $22.1 million for the year ended December 31, 2019 compared to the year ended December 31, 2018 and $5.3 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. As a result, our losses grew at a faster rate than our revenues, and we cannot guarantee that this will not continue in future periods. We expect our losses to continue as we continue to devote a substantial portion of our resources to efforts to increase the adoption of, and reimbursement for, our products and services, improve these products and services, and research, develop and commercialize new products or new services. We have devoted a substantial portion of our resources to the development and commercialization of STRATAFIDE, a pan-solid tumor in vitro diagnostic, or IVD, and to research and development activities related to our Personalized Cancer Monitoring product, or PCM, for cancer monitoring, including clinical and regulatory initiatives to obtain diagnostic clearance and marketing approval. These losses have had, and will continue to have, an adverse effect on our working capital, total assets, and stockholders’ equity. Because of the numerous risks and uncertainties associated with our research, development and commercialization efforts, we are unable to predict when we will become profitable, and we may never become profitable. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of operations, and cash flows.
We may not be able to obtain regulatory clearance or approval of our IVD products, or even if approved, such products may not be approved for guideline inclusion, which could adversely affect our business, financial condition and results of operations.
A significant portion of our commercial strategy, including for STRATAFIDE and PCM, relies on receiving regulatory approvals with guideline inclusion to strengthen our position in establishing coverage and reimbursement of our IVD products with both public and private payors. If we do not receive such regulatory approvals in a timely manner or at all, or we are not successful in receiving such guideline inclusion, we may not be able to commercialize our IVD products. Additionally, third-party payors may be unwilling to provide sufficient coverage and reimbursement for our products necessary for hospitals and other healthcare providers to adopt our solutions as part of their oncological treatment strategy. We have also focused our efforts on the development of PCM for U.S. Food and Drug Administration, or FDA, clearance and approval as a prognostic device for predicting recurrence of a primary cancer after initial treatment, which can include surgery alone or surgery plus adjuvant therapy.

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Moreover, development of the data necessary to obtain regulatory clearance and/or approval of an IVD, such as STRATAFIDE, is time-consuming and carries with it the risk of not yielding the desired results. The performance achieved in published studies may not be repeated in later studies that may be required to obtain FDA clearance and/or approval or regulatory approvals in foreign jurisdictions. Limited results from earlier-stage verification studies may not predict results from studies in larger numbers of subjects drawn from more diverse populations over longer periods of time. Unfavorable results from ongoing preclinical and clinical studies could result in delays, modifications or abandonment of ongoing analytical or future clinical studies, or abandonment of a product development program, or may delay, limit or prevent regulatory approvals or clearances or commercialization of our product candidates, any of which may materially adversely affect our business, financial condition, and results of operations.
To date, our revenues have been primarily generated by sales of our research use only, or RUO, products, but our future business growth is partially dependent upon regulatory approval and market acceptance of our IVD products, including STRATAFIDE and PCM. We have limited experience in developing, marketing and commercializing IVDs.
Historically, our revenues and growth have been driven primarily by sales of our RUO products, but we anticipate that our future success will depend in large part on our ability to effectively introduce enhanced or new offerings of oncological in IVD products, such as STRATAFIDE. The development and launch of enhanced or new products and services, whether RUO or IVD, require the completion of certain clinical development and commercialization activities that are complex, costly, timeintensive and uncertain, and require us to accurately anticipate patients’, providers’ and, if applicable, payors’ attitudes and needs and emerging technology and industry trends. This process is conducted in various stages, and each stage presents the risk that we will not achieve our goals on a timely basis, or at all.
We have limited experience commercializing IVD products. As a result, we have limited experience forecasting future financial performance for our planned IVD products, including STRATAFIDE and PCM, and our actual results may fall below our financial guidance or other projections, or the expectations of analysts or investors, which could cause the price of our common stock to decline. We may experience research and development, regulatory, marketing and other difficulties that could delay or prevent our introduction of enhanced or new products or new services and result in increased costs and the diversion of management’s attention and resources from other business matters. For example, any genomic tests that we may enhance or develop may not prove to be clinically effective, or may not meet our desired target product profile or be offered at acceptable cost and with the sensitivity, specificity and other test performance metrics necessary to address the relevant clinical need or commercial opportunity; our genomic test performance in commercial settings may be inconsistent with our validation or other clinical data; we may not be successful in achieving market awareness and demand, whether through our own sales and marketing operations or entering into collaborative arrangements; the collaborative arrangements we enter into may not be successful or we may not be able to maintain those that are successful; healthcare providers may not order or use, or thirdparty payors may not reimburse for, any genomic tests that we may enhance or develop; we may not be able to obtain approval of any of our existing or future devices as a companion diagnostic for existing treatments approved by the FDA; or we may otherwise have to abandon a product or service in which we have invested substantial resources.
An important factor in our ability to commercialize our products is collecting data that supports the value proposition of our products. The data collected from any studies we complete may not be favorable or consistent with our existing data or may not be statistically significant or compelling to the medical community or to thirdparty payors seeking such data for purposes of determining coverage for our products. This is particularly true with respect to service defects and errors. Any of the foregoing could have a negative impact on our ability to commercialize our future products, which could have a material adverse effect on our business, financial condition and results of operations.

14



A large portion of our revenue is generated from a limited number of customers, and the loss of one or more of our customers or the failure to retain a significant amount of business from them could adversely affect our business, financial condition, and results of operations.
Our customer base is highly concentrated. Our customers are primarily (a) laboratories and hospitals with laboratories that purchase our products to perform their own next-generation sequencing, or NGS, tests and (b) biopharmaceutical companies that use our services to support clinical trials and other activities to obtain regulatory approval. For the three months ended March 31, 2020 and the years ended December 31, 2019 and 2018, our largest customer by revenue, Merck KGaA, Darmstadt, Germany, represented approximately 32%, 44% and 20%, respectively, of our total revenue. For the three months ended March 31, 2020 and each of the years ended December 31, 2019 and 2018, four customers accounted for 43%, 55% and 47% of our total accounts receivable, respectively. We expect that a relatively small number of customers will continue to account for a significant portion of our revenue for the foreseeable future. Our agreement with Merck KGaA, Darmstadt, Germany, does not have a defined term and Merck KGaA, Darmstadt, Germany, may terminate the agreement or any project agreement entered thereunder upon 30 days’ prior written notice. Our agreements with our other top customers provide similar termination rights.
Our future success is substantially dependent on our ability to maintain and grow our existing customer relationships and to establish new ones. The loss of one or more of our customers, including the loss of Merck KGaA, Darmstadt, Germany, whether through expiration or termination of our customer agreements, acquisitions, consolidations, bankruptcies of our customers or otherwise, or the failure to retain a significant amount of business from our customers, could harm our business, financial condition, and results of operations. For example, a customer that represented approximately 10% of our total products revenue in 2018 represented less than one percent of our total products revenue in 2019. In addition, even if our existing customers increase their volume of purchases, our average selling price could be reduced by volume discounts, which would lead to lower revenue per reaction sold compared to list pricing that is not discounted.
Many factors have the potential to impact our customer relations, including the type of support our customers and potential customers require and our ability to deliver it, our customers’ satisfaction with our products and services, and other factors that may be beyond our control. Furthermore, our customers may decide to decrease or discontinue their use of our products and services due to changes in research and product development plans, failures in their clinical trials, financial constraints, or utilization of internal testing resources or tests performed by other parties, or other circumstances outside of our control. A material decrease in our customer satisfaction or decrease in customer purchases could have a material adverse effect on our business, financial condition and results of operations.
We have determined that there is substantial doubt about our ability to continue as a “going concern” for the next twelve months.
As of March 31, 2020, we had $36.8 million in cash and cash equivalents. We have incurred losses and negative cash flows since our inception. Management believes that our existing cash and cash equivalents and available access to credit as of March 31, 2020 are not sufficient to satisfy our operating cash needs for at least one year after the date the financial statements are issued.
As revenue across our products and services is expected to grow, we expect our accounts receivable and inventory balances to increase. Any increase in accounts receivable and inventory may not be completely offset by increases in accounts payable and accrued expenses, which could result in greater working capital requirements. Moreover, following the closing of this offering, we expect to incur additional public company costs, including expenses related to legal, accounting, regulatory, and SEC compliance matters.
The financial statements contained elsewhere in this prospectus do not include any adjustments that might result from our inability to consummate this offering or our inability to continue as a going concern.

15



Our quarterly results may fluctuate significantly, which could adversely impact the value of our common stock.
Our quarterly results of operations, including our revenues, gross margin, net loss and cash flows, may vary significantly in the future as a result of a variety of factors, many of which are outside of our control, and periodtoperiod comparisons of our operating results may not be meaningful. In addition, our quarterly results have historically fluctuated primarily because of the variable timing of revenue from new or existing biopharmaceutical customers. Revenue from pharma development services can vary from quarter to quarter, sometimes significantly, based on the timing of contract execution, milestone-related progress, and other factors.
For example, we engage in conversations with customers regarding potential commercial opportunities on an ongoing basis. There is no assurance that any of these conversations will result in a commercial agreement, or if an agreement is reached, that the resulting relationship will be successful or that clinical studies conducted as part of the engagement will produce successful outcomes. Our customers’ clinical trials are expensive and can take years to complete, and their outcomes are inherently uncertain. Failure can occur at any time during the clinical trial process. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through pre-clinical studies and early clinical trials. Some of our biopharmaceutical customers may not have products approved for commercial sale and are not profitable. Some of these customers must continue to raise capital in order to continue their development programs and to potentially continue as our customers. If our customers’ clinical trials fail or they are unable to raise sufficient capital to continue investing in their clinical programs, our revenues from these customers may decrease or cease entirely. Furthermore, even if these customers have a drug approved for commercial sale, they may not choose to use our products as a companion diagnostic with their drug, thereby limiting our potential revenues.
In addition, to the extent that we continue to spend on our sales and marketing and research and development efforts, we expect to incur costs in advance of achieving the anticipated benefits of such efforts. Fluctuations in quarterly results due to the foregoing may cause our results to fall below our financial guidance or other projections, or the expectations of analysts or investors, which could cause the price of our common stock to decline. Accordingly, our quarterly results should not be relied upon as an indication of future performance.
One of our competitors has alleged that our Anchored Multiplex PCR, or AMP, chemistry and products using AMP are infringing on its intellectual property, and we may be required to redesign our technology, obtain a license, cease using our AMP chemistry altogether and/or pay significant damages, among other consequences, any of which would have a material adverse effect on our business, financial condition and results of operations.
Our AMP chemistry underlies all of our RUO products and is also the foundation of STRATAFIDE and PCM. As a result, our commercial success depends on our ability to continue developing, manufacturing, marketing and selling products based on AMP. On January 27, 2020, one of our competitors, Natera, Inc., or Natera, filed a complaint against us in the United States District Court for the District of Delaware, alleging that our products using AMP chemistry, and the manufacture, use, sale, and offer for sale of such products, infringe U.S. Patent No. 10,538,814. On April 15, 2020, Natera amended its complaint to allege that our products using AMP chemistry, including STRATAFIDE, PCM, LiquidPlex, ArcherMET, FusionPlex, and VariantPlex, and the manufacture, use, sale, and offer for sale of such products, infringe U.S. Patent No. 10,538,814, U.S. Patent No. 10,557,172, U.S. Patent No. 10,590,482, and U.S. Patent No. 10,597,708, or collectively, the Natera Asserted Patents, each of which are held by Natera. Natera seeks, among other things, damages and other monetary relief, costs and attorneys’ fees, and an order enjoining us from further infringement of such patents. For more information regarding our litigation with Natera, please see “Business—Legal proceedings.”
If any of our products or our use of AMP is found to infringe such patents, we could be required to redesign our technology or obtain a license from Natera to continue developing, manufacturing, marketing, selling and commercializing AMP and our products. However, we may not be successful in the

16



redesign of our technology or able to obtain any such license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving Natera and other third parties the right to use the same technologies licensed to us, and it could require us to make substantial licensing, royalty and other payments. We also could be forced, including by court order, to permanently cease developing, manufacturing, marketing and commercializing our products that are found to be infringing. In addition, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed any of the Natera Asserted Patents. Even if we were ultimately to prevail, our litigation with Natera could require us to divert substantial financial and management resources that we would otherwise be able to devote to our business.
This litigation is in its early stages and we therefore cannot reasonably estimate the final outcome, including our potential liability or any range of potential future charges associated with it. However, any finding of infringement by us of any of the Natera Asserted Patents could have a material adverse effect on our business, financial condition, results of operations, and prospects.
If our products and services do not perform as expected, our operating results, reputation and business will suffer.
Our success depends on the market’s confidence that we can provide reliable products that enable high quality diagnostic testing with high sensitivity and specificity and short turnaround times. There is no guarantee that the accuracy and reproducibility we have demonstrated to date will continue as our product deliveries increase and our product portfolio expands.
Our products and services use a number of complex and sophisticated biochemical and bioinformatics processes, many of which are highly sensitive to external factors. An operational, technological or other failure in one of these complex processes or fluctuations in external variables may result in sensitivity or specificity rates that are lower than we anticipate or result in longer than expected turnaround times. In addition, labs are required to validate their processes before using our products for clinical purposes. These validations are outside of our control. If our products do not perform, or are perceived to not have performed, as expected or favorably in comparison to competitive products, our operating results, reputation, and business will suffer, and we may also be subject to legal claims arising from product limitations, errors, or inaccuracies. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
In addition, our test reports for STRATAFIDE are planned to match identified mutations with FDA-approved targeted therapies or relevant clinical trials of targeted therapies, and in the case of our future companion diagnostic applications, we plan to include relevant companion diagnostic claims. If a patient or physician who orders a test using one of our products is unable to obtain, or be reimbursed for the use of, targeted therapies because they are not indicated in the FDA-approved label for treatment, the patient is unable to enroll in an identified clinical trial due to the enrollment criteria of the trial, or some other reason, the ordering physician may conclude the test report does not contain actionable information. If physicians do not believe our products consistently generate actionable information about their patients’ disease or condition, they may be less likely to use our products.
Operational, technical and other difficulties adversely affecting test performance, harm our reputation, may impact the commercial attractiveness of our products, and may increase our costs or divert our resources, including management’s time and attention, from other projects and priorities. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, we cannot provide assurance that our customers will always use our products in the manner in which we intend. Any intentional or unintentional misuse of our products by our customers could lead to substantial civil and criminal monetary and non-monetary penalties, and could cause us to incur significant legal and investigatory fees.

17



If our current or future products or services are not competitive in their intended markets, we may be unable to increase or sustain our revenues or achieve profitability.
We compete primarily in the biotechnology and pharmaceutical industries, which are characterized by rapid technological changes, frequent new product introductions, reimbursement challenges, emerging competition, evolving industry standards, intellectual property disputes, price competition, aggressive marketing practices and changing customer preferences. We face competition in the field of comprehensive genomic profiling from other companies, many of which are larger, more established and have more experience and more resources than we do. In particular, we compete with numerous companies in the life sciences research, clinical diagnostics and drug development spaces. Our competitors include, among others, Natera, QIAGEN N.V., Guardant Health, Inc., and Illumina, Inc., which we refer to as Illumina. Our competitors may have significantly greater financial resources and expertise in research and development, manufacturing, regulatory clearance approval and compliance, and sales and distribution than we do. Mergers and acquisitions involving life sciences research, clinical diagnostics or drug discovery companies in the personalized medicine space may result in even more resources being concentrated among a smaller number of our competitors. Our competitors also may obtain FDA or other regulatory clearance or approval for their products more rapidly than we may obtain clearance or approval for ours. We cannot assure you that research, discoveries or other advancements by other companies will not render our existing or potential products and services uneconomical or obsolete, or result in products and services that are superior or otherwise preferable to our current or future products and services.
Some of our competitors’ products and services are sold at a lower price than ours, which could cause sales of our products and services to decline or force us to reduce our prices, which would harm our revenues, operating income or market share. Moreover, we are increasingly subject to litigation from our competitors. See “Business—Legal proceedings.” If we are unable to compete successfully, we may be unable to increase or sustain our revenues or achieve profitability.
To remain competitive, we must continually research and develop improvements to our products and services. However, we cannot assure you that we will be able to develop and commercialize the improvements to our products and services on a timely basis. Our competitors may develop and commercialize competing or alternative products and services and improvements faster than we are able to do so, which would negatively affect our ability to increase or sustain our revenue or achieve profitability.
We may be unable to manage our future growth effectively, which could make it difficult to execute our business strategy.
We anticipate continued growth in our business operations both inside and outside the United States. Any future growth could create strain on our organizational, administrative, and operational infrastructure, including laboratory operations, quality control, customer service, and sales force management. Our ability to manage our growth properly will require us to continue to improve our operational, financial, and managerial controls, as well as our reporting systems and procedures.
In addition, as our volume grows, we will need to continue to increase our capacity to manufacture our products; implement customer service, billing, and general process improvements and expand our internal quality assurance program to support increased demand. We will also need additional scientific and technical personnel to process higher volumes of our products and services. Portions of our process are not automated and will require additional personnel to grow. We will also need to purchase additional equipment, some of which can take several months or more to procure, set up, and validate, as well as increase our software and computing capacity to meet increased demand. There is no assurance that any of these increases in scale, expansion of personnel, equipment, software and computing capacities, or process enhancements will be successfully implemented, or that we will have adequate space in our laboratory facilities to accommodate such required expansion.

18



As we commercialize our products, particularly PCM, we will need to incorporate new equipment, implement new technology systems, automated equipment and laboratory processes, hire new personnel with different qualifications, and procure additional laboratory and manufacturing space to allow us to further develop new services and manufacture our products.
Failure to manage this growth could result in turnaround time delays, higher service costs, declining service quality, deteriorating customer service, and slower responses to competitive challenges. A failure in any one of these areas could make it difficult for us to meet market expectations for our products and services and could damage our reputation, which in turn could have a material adverse effect on our business, financial condition and results of operations.
If we do not have the support of key opinion leaders or clinical data using our products is not published in peer-reviewed journals, it may be difficult to drive adoption of our products and establish them as a component of the standard of care for patients with cancer.
We have established relationships with leading oncology thought leaders at premier cancer institutions and oncology networks. If these key opinion leaders determine that our genomics platform, our existing products and services or other products and services that we develop are not clinically effective, that alternative technologies are more effective, or if they elect to use internally developed products or services, we may see lower demand for our products, and face difficulty establishing our products as an integral component of the applicable standard of care, which would limit our revenue growth and our ability to achieve profitability.
The publication of clinical data using our products in peerreviewed journals is also crucial to our success. We are unable to control when, if ever, results are published which may delay or limit broad adoption of our products. Peerreviewed publications that include clinical data relating to our products may be limited by many factors, including delays in the completion of, poor design of, or lack of compelling data from, clinical studies, as well as delays in the review, acceptance and publication process. If our products or underlying technology do not receive sufficient favorable exposure in peerreviewed publications, the rate of clinician adoption of our products and positive reimbursement coverage determinations for our products, even if approved with guideline inclusion, could be negatively affected.
If we are unable to successfully expand our sales and marketing to match our growth, our business may be adversely affected.
Our future sales will depend in large part on our ability to develop, and substantially expand, our sales force and to increase the scope of our marketing efforts. Our target market of laboratories, hospitals, clinicians and biopharmaceutical companies is a large and diverse market. As a result, we believe it is necessary to develop a sales force that includes sales representatives with specific technical backgrounds and industry expertise. Competition for such employees is intense. We may not be able to attract and retain personnel or be able to build an efficient and effective sales and marketing force, which could negatively impact sales and market acceptance of our services and limit our revenue growth and potential profitability.
Moreover, approximately 33%, 36% and 58% of our total revenues for the three months ended March 31, 2020, the year ended December 31, 2019 and the year ended December 31, 2018, respectively, were attributable to our U.S. direct sales. Sales and marketing activities in the healthcare space in the United States are subject to various rules and regulations. In addition, our marketing messaging can be complex and nuanced, and there may be errors or misunderstandings in our employees’ communication of such messaging. As we continue to grow our sales and marketing efforts in line with the growth in our business, we face an increased need to continuously monitor and improve our policies, processes and procedures to maintain compliance with a growing number and variety of laws and regulations, including with respect to consumer marketing. To the extent that there is any violation, whether actual, perceived or alleged, of our policies or applicable laws and regulations, we may incur additional training and compliance costs, may receive inquiries from third party payors or other third parties, or be held liable or

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otherwise responsible for such acts of non compliance. Any of the foregoing could adversely affect our business, financial condition and results of operations.
We rely on a limited number of suppliers or, in many cases, single suppliers, for laboratory equipment and materials and may not be able to find replacements or immediately transition to alternative suppliers.
We have sourced and will continue to source components of our technology, including sequencers, reagents, enzymes, tubes and other laboratory materials, from third parties. In particular, our sequencers and many of our reagents and enzymes are sole sourced.
For example, our planned STRATAFIDE and PCM products are currently being developed to use only Illumina’s sequencing platform. Without access to these sequencers, we would be unable to run our tests and commercialize our products. In addition, our product customers are required to use Illumina sequencers and reagents to run the tests that they develop based on our technology. Our failure to maintain a continued supply of the sequencers and reagents, along with the right to use certain hardware and software, would adversely impact our business, financial condition, and results of operations. In particular, while we are seeking to validate our tests on additional sequencing platforms, we have not, to date, validated any alternative sequencing platform on which our testing could be run in a commercially viable manner. These efforts will require significant resources, expenditures and time and attention of management, and there is no guarantee that we will be successful in implementing any such sequencing platforms in a commercially sustainable way. We also cannot guarantee that we will appropriately prioritize or select alternative sequencing platforms on which to focus our efforts, in particular given our limited product and research and development resources and various business initiatives, which could result in increased costs and delayed timelines or otherwise impact our business, financial condition, and results of operations.
Because we rely on thirdparty suppliers, we do not control the manufacture of the components of our technology, including whether such components will meet our quality control requirements, nor the ability of our suppliers to comply with applicable legal and regulatory requirements. In many cases, our suppliers are not contractually required to supply these components to the quality or performance standards that we require. If the supply of components we receive does not meet our quality control or performance standards, we may not be able to use the components, or if we use them not knowing that they are of inadequate quality, which occasionally occurs with respect to certain reagents, our tests may not work properly or at all, or they may provide erroneous results, and we may be subject to significant delays caused by interruption in production or manufacturing or to lost revenue from such interruption or from spoiled tests. In addition, any natural or other disaster, acts of war or terrorism, shipping embargoes, labor unrest or political instability or similar events at our thirdparty manufacturers’ facilities that cause a loss of manufacturing capacity would heighten the risks that we face.
In the event of any adverse developments with our suppliers, in particular for those products that are sole sourced, or if any of our suppliers modifies any of the components they supply to us, our ability to supply our products may be interrupted, and obtaining substitute components could be difficult or require us to redesign or revalidate our products. In addition, if we obtain FDA clearance, approval or authorization for any of our tests as an IVD, such issues with suppliers or the components that we source from suppliers could affect our commercialization efforts for such an IVD. Our failure to maintain a continued supply of components that meets our quality control requirements, or changes to or termination of our agreements or inability to renew our agreements with these parties or enter into new agreements with other suppliers, particularly in the case of sole suppliers, could result in the loss of access to important components of our tests and impact our test performance or affect our ability to perform our tests in a timely manner or at all, which could impair, delay or suspend our commercialization activities.
Moreover, in the event that we transition to a new supplier from any of our sole suppliers, doing so could be timeconsuming and expensive, may result in interruptions in our ability to supply our products to the market, could affect the performance of our tests or could require that we revalidate our processes and our other tests using replacement equipment and supplies, which could hinder the adoption of our

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products and services, resulting in increased costs. Any of these occurrences could have a material adverse effect on our business, financial condition and results of operations.
We rely on third‑party laboratories to perform portions of our service offerings.
A large portion of our biopharmaceutical testing services is performed by thirdparty laboratories while the remaining portion is performed by thirdparty Clinical Laboratory Improvement Amendments of 1988, or CLIA, certified laboratories or our own CLIA-certified laboratory accredited by the College of American Pathologists, or CAP, in Golden, Colorado. The thirdparty laboratories are subject to contractual obligations to perform these services for us, but are not otherwise under our control. We therefore do not control the capacity and quality control efforts of these thirdparty laboratories other than through our ability to enforce contractual obligations on volume and quality systems, and we have no control over such laboratories’ compliance with applicable legal and regulatory requirements. We also have no control over the timeliness of such laboratories’ performance of their obligations to us, and the thirdparty laboratories that we have contracted with have in the past had, and occasionally continue to have, issues with delivering results to us or resolving issues with us within the time frames we expected or established in our contracts with them, which sometimes results in longer than expected turnaround times for, or negatively impacts the performance of, these tests and services. In the event of any adverse developments with these thirdparty laboratories or their ability to perform their obligations to us in a timely manner and in accordance with the standards that we and our customers expect, our ability to service our customers may be delayed, interrupted or otherwise adversely affected, which could result in a loss of customers and harm to our reputation. Furthermore, when these issues arise, we have had to expend time, management attention and other resources to address and remedy such issues.
We may not have sufficient alternative backup if one or more of the thirdparty laboratories that we contract with are unable to satisfy their obligations to us with sufficient performance, quality and timeliness. Any natural or other disaster, acts of war or terrorism, shipping embargoes, labor unrest or political instability or similar events at one or more of our thirdparty laboratories’ facilities that causes a loss of capacity would heighten the risks that we face. Changes to or termination of our agreements or inability to renew our agreements with these thirdparty laboratories or enter into new agreements with other laboratories that are able to perform such portions of our service offerings could impair, delay or suspend our efforts to market and sell these services. If any of these events occur, our business, financial condition, and results of operations could suffer.
If our laboratory facilities are insufficient, our ability to conduct our pharma development services or pursue our research and development efforts, and fulfill our contractual obligations may be jeopardized.
Our services revenue is derived in part from testing services performed at our laboratory facility in Golden, Colorado, for which we currently have no backup or redundant facility to perform such tests other than third-party laboratories. Our facilities and equipment could be harmed or rendered inoperable by natural or man-made disasters, including war, fire, earthquake, power loss, communications or Internet failure or interruption, or terrorism, which may render it difficult or impossible for us to provide these services for some period of time. The inability to provide these services or to reduce the backlog of analyses that could develop if one or more of our laboratories become inoperable, for even a short period of time, may result in the loss of customers or harm to our reputation, and we may be unable to regain those customers or repair our reputation in the future. Furthermore, our facilities and the equipment we use to perform our research and development work could be unavailable or costly and time-consuming to repair or replace. It would be difficult, time-consuming, and expensive to rebuild any of our facilities or license or transfer our proprietary technology to a third party, particularly in light of the licensure and accreditation requirements for commercial laboratories like ours. We may be unable to negotiate commercially reasonable terms with such third parties. Adverse consequences resulting from an interruption of our overall laboratory operations could harm relationships with our customers and regulatory authorities, and our reputation, and could affect our ability to generate revenue.

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We may also construct, acquire, or enter into relationships with third parties to procure additional laboratory space inside and outside the United States to support our existing and new services. If we are unable to obtain or are delayed in obtaining or establishing new laboratory space to support these commercialization and development efforts, we could fail to meet certain contractual obligations and agreed upon timelines with certain of our biopharmaceutical collaborators or provide existing services and develop and launch new services in certain territories, which could result in harm to our business and reputation, and adversely affect our business, financial condition, and results of operations. As we continue to transition some of our services to new laboratories, we could experience disruptions in overall laboratory operations and could require adjustments to meet regulatory requirements, resulting in our inability to meet customer turnaround time expectations. Any delays in this transition could result in slower realization of laboratory efficiencies anticipated from operating an additional laboratory facility. Adverse consequences resulting from an interruption of our overall laboratory operations could harm relationships with our customers and regulators, and our reputation, and could affect our ability to generate revenue.
We carry insurance for damage to our property and laboratory and the disruption of our business, but this insurance may not cover all of the risks associated with damage to our property or laboratory or disruption to our business, may not provide coverage in amounts sufficient to cover our potential losses, may be challenged by insurers underwriting the coverage, and may not continue to be available to us on acceptable terms, if at all.
Our research and development efforts to add additional indications to our IVD products, if approved, will be hindered if we are not able to contract with third parties for access to tissue samples.
Under standard clinical practice, tumor biopsies removed from patients are preserved and stored in formalin-fixed paraffin embedded, or FFPE, format, and liquid biopsies are taken with a blood draw and stored in blood collection tubes. In order to add additional indications to our IVD products, if approved, we will need to secure access to these FFPE tumor biopsy and liquid biopsy samples, as well as information pertaining to the clinical outcomes of the patients from which they were derived for our IVD development activities. Others compete with us for access to these samples. Additionally, the process of negotiating access to samples is lengthy because it typically involves numerous parties and approval levels to resolve complex issues such as usage rights, institutional review board approval, privacy rights, publication rights, intellectual property ownership and research parameters. If we are unable to negotiate access to tissue samples on a timely basis or on commercially reasonable terms, or at all, or if other laboratories or our competitors secure access to these samples before us, our ability to research, develop and commercialize future IVD products will be limited or delayed.
We have estimated the sizes of the markets for our current and future products and services, and these markets may be smaller than we estimate.
Our estimates of the annual addressable markets for our current products and services and those under development are based on a number of internal and third-party estimates, including, without limitation, the number of patients who have developed one or more of a broad range of cancers, the number of potential tests utilized per treatment course per patient, the frequency with which patients will be monitored post-treatment and early detection monitoring practices as well as the assumed rates at which such products and services will be reimbursed, or the assumed prices at which we can sell our current and future products and services for markets that have not been established. While we believe our assumptions and the data underlying our estimates are reasonable, these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates may change at any time, including as a result of factors outside our control, thereby reducing the predictive accuracy of these underlying factors. If the actual number of patients who would benefit from our products or services, the price at which we can sell future products and services or the annual addressable market for our products or services is smaller than we have estimated, it may impair our sales growth and have an adverse impact on our business, financial condition and results of operations.

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Unfavorable global economic conditions could adversely affect our business, financial condition, and results of operations.
We generated 67.4%, 64.3% and 41.8% of our revenues outside the United States, primarily in the European Union, or the EU, the United Kingdom and Japan, during the three months ended March 31, 2020, the years ended December 31, 2019 and 2018, respectively. Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. For instance, legal, political and economic uncertainty surrounding the exit of the United Kingdom from the EU may be a source of instability in international markets, adversely affect our operations in the EU and United Kingdom and pose additional risks to our business, financial condition, and results of operations. A severe or prolonged global economic downturn could result in a variety of risks to our business, including our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers and customers, possibly resulting in supply disruption or delays in their payments to us, respectively. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.
The loss or transition of a key member of our senior management team or our inability to attract and retain highly skilled scientists, clinicians, and salespeople could adversely affect our business.
Our success depends on the skills, experience, and performance of key members of our senior management team, in particular, Dr. Jason Myers, our President and Chief Executive Officer and Director, and Josh Stahl, our Chief Scientific Officer and Chief Operating Officer. The individual and collective efforts of these key members of our senior management will be important as we continue to develop our genetic analysis platform and additional products and services, and as we expand our commercial activities. The loss or incapacity of key members of our senior management team could adversely affect our operations if we experience difficulties in hiring qualified successors.
Our research and development programs and laboratory operations depend on our ability to attract and retain highly skilled scientists and technicians. We may not be able to attract or retain qualified scientists and technicians in the future due to the intense competition for qualified personnel among life science businesses, particularly in Boulder, Colorado. We also face competition from universities and public and private research institutions in recruiting and retaining highly qualified scientific personnel. We may have difficulties locating, recruiting, or retaining qualified sales people. Recruitment and retention difficulties can limit our ability to support our research and development and sales programs, which could in turn have an adverse effect on our business, financial condition, and results of operations.
If we were sued for product liability or professional liability, we could face substantial liabilities that exceed our resources.
The marketing, sale, and use of our products and services could lead to the filing of product liability claims were someone to allege that our products and services identified inaccurate or incomplete information regarding the genomic alterations of the tumor or malignancy analyzed, reported inaccurate or incomplete information concerning the available therapies for a certain type of cancer, or otherwise failed to perform as designed. We may also be subject to liability for errors in, a misunderstanding of, or inappropriate reliance upon the information we provide in the ordinary course of our business activities. A product liability or professional liability claim could result in substantial damages and be costly and time-consuming for us to defend.
We maintain service and professional liability insurance, but this insurance may not fully protect us from the financial impact of defending against product liability or professional liability claims. Any product liability or professional liability claim brought against us, with or without merit, could increase our insurance rates or prevent us from securing insurance coverage in the future. Additionally, any product liability lawsuit could damage our reputation or cause current clinical or biopharmaceutical collaborators

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to terminate existing agreements and potential clinical or biopharmaceutical collaborators to seek other collaborators, any of which could impact our results of operations.
Our products or services may be subject to product or service recalls in the future. A recall of products or services, either voluntarily or at the direction of the FDA or another governmental authority, or the discovery of serious safety issues with our products or services, could have a significant adverse impact on us.
The FDA has the authority to require the recall of commercialized products or services that are subject to FDA regulation. Manufacturers may, under their own initiative, recall a product or service if any deficiency is found. For reportable corrections and removals, companies are required to make additional periodic submissions to the FDA after initiating the recall, and often engage with the FDA on their recall strategy prior to initiating the recall. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of an unacceptable health risk, component failures, failures in laboratory processes, malfunctions, manufacturing errors, design or labeling defects, or other deficiencies and issues. Recalls of any of our commercialized products or services would divert managerial and financial resources and adversely affect our business, results of operations, financial condition and reputation. We may also be subject to liability claims, be required to bear other costs or take other actions that may negatively impact our future sales and our ability to generate profits. Companies are also required to maintain certain records of corrections and removals, even if these do not require reporting to the FDA. We may initiate voluntary recalls involving our commercialized products or services. A recall announcement by us could harm our reputation with customers and negatively affect our business, financial condition, and results of operations. In addition, the FDA or other agency could take enforcement action for failing to report the recalls when they were conducted.
If we initiate a recall, including a correction or removal, for one of our commercialized products or services, issue a safety alert, or undertake a field action or recall to reduce a health risk, this could lead to increased scrutiny by the FDA, other governmental and regulatory enforcement bodies, and our customers regarding the quality and safety of our products and services, and to negative publicity, including FDA alerts, press releases, or administrative or judicial actions. Furthermore, the submission of these reports could be used against us by competitors and cause customers to delay purchase decisions or cancel orders, which would harm our reputation.
We may acquire other businesses, form joint ventures, or make investments in other companies or technologies that could negatively affect our operating results, dilute our stockholders’ ownership, increase our debt, or cause us to incur significant expense.
Our business strategy may, from time to time, include pursuing acquisitions of businesses and assets. For example, in October 2018, we completed the acquisition of Baby Genes, Inc., or Baby Genes, or the Baby Genes Acquisition to provide us with a CLIA- and CAP-accredited lab. We may effect similar strategic acquisitions in the future. We also may pursue strategic alliances and joint ventures that leverage our proprietary genomics platform and industry experience to expand our offerings or distribution. We have limited experience with acquiring other companies. Negotiating these transactions and the formation of strategic alliances or joint ventures can be time-consuming, difficult, and expensive, and our ability to execute and/or close these transactions may be subject to third-party approvals, as well as governmental authorities, which are beyond our control. Consequently, we may not be able to complete such transactions on favorable terms or at all, and we can make no assurance that these transactions, once undertaken and announced, will close.
An acquisition or investment may result in unforeseen operating difficulties and expenditures, such as:
we could experience difficulty in integrating businesses, services, personnel, operations, and financial and other controls and systems, and retaining key employees;
we may assume by acquisition, joint venture, or strategic relationship unknown liabilities, known contingent liabilities that become realized, or known liabilities that prove greater than anticipated;

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we may have difficulty retaining the customers or employees of any acquired business;
we may incur debt, contingent liabilities, or future write-offs of intangible assets or goodwill, any of which could have a material adverse effect on our financial condition, results of operations, and cash flows;
we may enter a new market or business line in which we have no prior experience and may not successfully compete in that market or business line;
integration of an acquired company may disrupt ongoing operations and require management resources that we would otherwise focus on developing our existing business, and as a result, we cannot be assured that the anticipated benefits of any acquisition, technology license, strategic alliance, or joint venture would be realized; and
we may have interests that diverge from those of our joint venture partners or other strategic partners and we may not be able to direct the management and operations of the joint venture or other strategic relationship in the manner we believe is most appropriate, thereby exposing us to additional risk.
These challenges related to acquisitions or investments could adversely affect our business, financial condition, and results of operations.
To finance any acquisitions or joint ventures, we may choose to issue shares of our common stock as consideration, which could dilute the ownership of our stockholders. For instance, pursuant to the terms of the Baby Genes Merger Agreement, we issued 886,884 shares of our Series A Preferred Stock in February 2020, and we will issue an additional 389,749 shares of our Series A Preferred Stock immediately prior to the closing of this offering, which will subsequently convert into an equal number of shares of common stock. In addition, we may be required to issue an additional 800,000 shares of our common stock if we meet certain revenue thresholds in 2020. If the price of our common stock is low or volatile, we may not be able to acquire other companies or fund a joint venture project using our stock as consideration. We may also choose to finance any future acquisitions or joint ventures through additional indebtedness. The incurrence of such indebtedness would result in increased fixed payment obligations and could involve restrictive covenants, such as limitations on our ability to incur additional debt and acquire or license intellectual property rights, and other operating restrictions that could adversely impact our ability to conduct our business.
International expansion of our business exposes us to business, regulatory, political, operational, financial and economic risks associated with doing business outside the United States.
Because we and our distributors currently, and in the future may continue to, market our products and services outside the United States, if cleared, authorized or approved, our business is subject to risks associated with doing business outside the United States, including an increase in our expenses and diversion of our management’s attention from the development of future products and services. Accordingly, our business and financial results in the future could be adversely affected due to a variety of factors, including:
multiple, conflicting and changing laws and regulations such as privacy security and data use regulations, tax laws, export and import restrictions, economic sanctions and embargoes, employment laws, anti-corruption laws, regulatory requirements, reimbursement or payor regimes and other governmental approvals, permits and licenses;
failure by us or our distributors to obtain regulatory clearance, authorization or approval for the use of our products and services in various countries;
additional potentially relevant third-party patent rights;
complexities and difficulties in obtaining intellectual property protection and maintaining, defending and enforcing our intellectual property;

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difficulties in staffing and managing foreign operations;
employment risks related to hiring employees outside the United States;
complexities associated with managing multiple payor reimbursement regimes, government payors or patient self-pay systems;
difficulties in negotiating favorable reimbursement negotiations with governmental authorities;
logistics and regulations associated with shipping samples, including infrastructure conditions and transportation delays;
limits in our ability to penetrate international markets if we are not able to sell our products or conduct our testing or clinical diagnostic services locally;
financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products and services and exposure to foreign currency exchange rate fluctuations;
natural disasters, political and economic instability, including wars, terrorism and political unrest, outbreak of disease, boycotts, curtailment of trade and other business restrictions;
regulatory and compliance risks that relate to maintaining accurate information and control over sales and distributors’ activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act, or FCPA, its books and records provisions, or its anti-bribery provisions, or laws similar to the FCPA in other jurisdictions in which we may now or in the future operate, such as the United Kingdom’s Bribery Act of 2010, or the U.K. Bribery Act; and
onerous anti-bribery requirements of several member states in the EU, the United Kingdom, Japan, and other countries that are constantly changing and require disclosure of information to which U.S. legal privilege may not extend.
Any of these factors could significantly harm our future international expansion and operations and, consequently, our revenue and results of operations.
We may never obtain approval in any other foreign country, including Japan, for any of our products or services and, even if we do, we or our collaborators may never be able to commercialize them in any other jurisdiction, which would limit our ability to realize their full market potential.
In order to eventually market any of our current or future products and services in any particular foreign jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a jurisdiction-by-jurisdiction basis regarding quality, safety, performance and efficacy. In addition, clinical trials or clinical investigations conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory clearance, authorization or approval in one country does not guarantee regulatory clearance, authorization or approval in any other country. For example, the performance characteristics of our products and services may need to be validated separately in specific ethnic and genetic populations. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods.
Seeking foreign regulatory clearance, authorization or approval could result in difficulties and costs for us and our collaborators and require additional preclinical studies, clinical trials or clinical investigations which could be costly and time-consuming. Regulatory requirements and ethical approval obligations can vary widely from country to country and could delay or prevent the introduction of our products and services in those countries. The foreign regulatory clearance, authorization or approval process involves all of the risks and uncertainties associated with FDA clearance, authorization or approval. We currently sell our RUO products outside the United States but have no experience in obtaining regulatory clearance, authorization or approval in international markets other than Japan, where we have submitted

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a companion diagnostic device application to the Pharmaceuticals and Medical Devices Agency, or the PDMA. If we or our collaborators fail to comply with regulatory requirements in international markets or to obtain and maintain required regulatory clearances, authorizations or approvals in international markets, or if those approvals are delayed, our target market will be reduced and our ability to realize the full market potential of our products and services will be unrealized.
We depend on our information technology and telecommunications systems, and those of our third-party service providers, contractors and consultants, and any failure of these systems could harm our business.
We depend on our information technology and telecommunications systems and those of our third-party service providers, contractors and consultants for significant elements of our operations, including our laboratory information management system, our computational biology system, our knowledge management system, our business intelligence system, our customer relationship management system, and our online customer-facing portals for reporting and research. We have installed and are expanding a number of enterprise software systems that affect a broad range of business processes and functional areas, including, for example, systems handling human resources, financial controls and reporting, contract management, and other infrastructure operations. These information technology and telecommunications systems support a variety of functions, including laboratory operations, test validation, sample processing and tracking, quality control, customer service support, research and development activities, and general administrative activities. In addition, our third-party service providers depend upon technology and telecommunications systems provided by outside vendors.
Despite the implementation of preventative and detective security controls, such information technology and telecommunications systems are vulnerable to damage or interruption from a variety of sources, including telecommunications or network failures or interruptions, system malfunction, natural disasters, malicious human acts, terrorism and war. Failures or significant downtime of our information technology or telecommunications systems, or those used by our third-party service providers, contractors or consultants could prevent us from conducting our comprehensive genomic analyses, preparing and providing reports and data to clinicians, handling customer inquiries, conducting research and development activities, and managing the administrative aspects of our business.
If the information technology systems of our third-party service providers and other contractors and consultants become subject to disruptions, we may have insufficient recourse against such third parties and we may have to expend significant resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring. Any disruption or loss of information technology or telecommunications systems on which critical aspects of our operations depend could have an adverse effect on our business, financial condition and results of operations.
Security breaches, loss of data, and other disruptions of our or our third-party service providers’ information technology or telecommunications systems could result in a material disruption of our business and expose us to reputational damage and substantial liability.
In the ordinary course of our business, we and our third-party service providers collect, store and transmit sensitive data, including legally protected health information, personally identifiable information, intellectual property and proprietary business information owned or controlled by us or our customers, payors, and biopharmaceutical collaborators. In addition, we offer online customer-facing portals accessible through public web portals. It is critical that we collect, store and transmit sensitive data in a secure manner to maintain the confidentiality and integrity of such confidential information. We manage and maintain our applications and data utilizing a combination of on-site systems, managed data center systems, and cloud-based data center systems. These applications and related data encompass a wide variety of business-critical information including research and development information, commercial information, and business and financial information.
Although we take measures to protect such information from unauthorized access or disclosure, our information technology and infrastructure, and that of our third-party service providers may be vulnerable

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to attacks by hackers or malicious software, physical break-ins or breached due to inadvertent or intentional actions by our employees, third-party service providers, and/or other third parties, malfeasance or other disruptions. We also face the ongoing challenge of managing access controls to our information technology systems. If we do not successfully manage these access controls it further exposes us to risk of security breaches or disruptions. Any such security breaches or disruptions could compromise the security or integrity of our networks or result in the loss, misappropriation, and/or unauthorized access, use, modification or disclosure of, or the prevention of access to, sensitive data or confidential information (including trade secrets or other intellectual property, proprietary business information, and personal information). For example, any such event that leads to unauthorized access, use, or disclosure of personal information, including personal information regarding our customers or employees, could harm our reputation directly, compel us to comply with federal and/or state breach notification laws and foreign law equivalents, subject us to mandatory corrective action, and otherwise subject us to liability under laws and regulations that protect the privacy and security of personal information. If our or our vendors’ information systems are breached, sensitive data are compromised, surreptitiously modified, rendered inaccessible for any period of time or maliciously made public, or if we fail to make adequate or timely disclosures to the public or law enforcement agencies following any such event, whether due to delayed discovery or a failure to follow existing protocols, it could result in significant fines, penalties, orders, sanctions and proceedings or actions against us by governmental bodies or other regulatory authorities, clients or third parties. Any of the foregoing could result in significant legal and financial exposure and reputational damages that could potentially have a material adverse effect on our business, financial condition, results of operations and prospects.
Cyber-attacks are increasing in frequency and evolving in nature. We are at risk of attack by a variety of adversaries, including state-sponsored organizations, organized crime, hackers or “hactivists” (activist hackers), through the use of increasingly sophisticated methods of attack, including long-term, persistent attacks referred to as advanced persistent threats. The techniques used to obtain unauthorized access or sabotage systems include, among other things, computer viruses, malicious or destructive code, ransomware, social engineering attacks (including phishing and impersonation), hacking and denial-of-service attacks. For example, we have been subject to phishing incidents and we may experience additional incidents in the future. Our systems are also subject to compromise from internal threats, such as theft, misuse, unauthorized access or other improper actions by employees, vendors and other third parties with otherwise legitimate access to our systems. Given the unpredictability of the timing, nature and scope of information technology disruptions, there can be no assurance that any security procedures and controls that we or our third-party service providers have implemented will be sufficient to prevent cyber-attacks from occurring. The latency of a compromise is often measured in months, but could be years, and we may not be able to detect a compromise in a timely manner. New techniques may not be identified until they are launched against a target, and we may be unable to anticipate these techniques or detect an incident, assess its severity or impact, react or appropriately respond in a timely manner or implement adequate preventative measures, resulting in potential data loss or other damage to our information technology systems.
As the breadth and complexity of the technologies we use and the software and platforms we develop continue to grow, the potential risk of security breaches and cyber-attacks also increases. Our policies, employee training (including phishing prevention training), procedures and technical safeguards may be insufficient to prevent or detect improper access to confidential, proprietary or sensitive data, including personal data. In addition, the competition for talent in the data privacy and cybersecurity space is intense, and we may be unable to hire, develop or retain suitable talent capable of adequately detecting, mitigating or remediating these risks. As cybersecurity threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. The inability to implement, maintain and upgrade adequate safeguards could have a material adverse effect on our business.
We have numerous vendors and other third parties who receive personal data from us in connection with the services we offer our clients. In addition, we have migrated certain data, and may increasingly migrate data, to a cloud hosted by third-party vendors. Some of these vendors and third parties also

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have direct access to our systems. Due to applicable laws and regulations or contractual obligations, we may be held responsible for any information security failure or cyber-attack attributed to our vendors as they relate to the information we share with them. In addition, because we do not control our vendors and our ability to monitor their data security is limited, we cannot ensure the security measures they take will be sufficient to protect confidential, proprietary, or sensitive data, including personal data, or prevent cyber-attackers from gaining access to our infrastructure or data through our vendors or other third parties.
Regardless of whether an actual or perceived cyber-attack is attributable to us or our third-party service providers, such an incident could, among other things, result in improper disclosure of information, harm our reputation and brand, reduce the demand for our products and services, lead to loss of customer confidence in the effectiveness of our security measures, disrupt normal business operations or result in our systems or products and services being unavailable. In addition, it may require us to spend material resources to investigate or correct the breach and to prevent future security breaches and incidents. The costs related to significant security breaches or disruptions could be material and exceed the limits of any cybersecurity insurance we maintain, increase our risk of regulatory scrutiny, expose us to legal liabilities, including litigation, regulatory enforcement, indemnity obligations or damages for contract breach, divert the attention of management from the operation of our business and cause us to incur significant costs, any of which could affect our financial condition, operating results and our reputation. Moreover, there could be public announcements regarding any such incidents and any steps we take to respond to or remediate such incidents, and if securities analysts or investors perceive these announcements to be negative, it could, among other things, have a substantial adverse effect on the price of our common stock. In addition, our remediation efforts may not be successful. Any of the foregoing events could have a material adverse effect on our business, financial condition and results of operations.
We are subject to stringent privacy laws, information security laws, regulations, policies and contractual obligations related to data privacy and security and changes in such laws, regulations, policies and contractual obligations could adversely affect our business.
We are subject to numerous state, federal and foreign laws and regulations that govern the collection, transmission, storage, dissemination, use, privacy, confidentiality, security, availability, integrity, and other processing of individually identifiable information. The legislative and regulatory landscape for privacy and data protection continues to evolve in jurisdictions worldwide, and there has been an increasing focus on privacy and data protection issues with the potential to affect our business. Failure to comply with any of these laws and regulations could result in enforcement actions against us, including fines, imprisonment of company officials and public censure, claims for damages by affected individuals, damage to our reputation and loss of goodwill, any of which could have a material adverse effect on our business.
We and our third-party billing and collections provider collect, store, process and transmit sensitive data, including legally protected health information, personally identifiable information, intellectual property and proprietary business information. As we seek to expand our business, we are, and will increasingly become, subject to various laws, regulations and standards, as well as contractual obligations, relating to the collection, use, retention, security, disclosure, transfer and other processing of sensitive and personal information in the jurisdictions in which we operate. In many cases, these laws, regulations and standards apply not only to third-party transactions, but also to transfers of information between or among us, our subsidiaries and other parties with which we have commercial relationships. These laws, regulations and standards may be interpreted and applied differently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that will materially and adversely affect our business, financial condition and results of operations. The regulatory framework for data privacy, data security and data transfers worldwide is rapidly evolving and, as a result, interpretation and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future.

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There are numerous U.S. federal and state laws and regulations related to the privacy and security of personal information. These laws and regulations include HIPAA, as amended by HITECH, which establishes a set of national privacy and security standards for the protection of protected health information, or PHI, by health plans, healthcare clearinghouses and certain healthcare providers, referred to as covered entities, and the business associates with whom such covered entities contract for services. HIPAA requires covered entities and business associates to develop and maintain policies and procedures with respect to PHI that is used or disclosed, including the adoption of administrative, physical and technical safeguards to protect such information and ensure the confidentiality, integrity and availability of electronic protected health information. For instance, we offer private cloud-based bioinformatics software to help physicians and laboratories more efficiently use our products. The software maintains security safeguards that are designed to be consistent with HIPAA, as amended by HITECH, but we cannot guarantee that these safeguards will not fail or that they will not be deemed inadequate in the future. In addition, we could be subject to periodic audits for compliance with the HIPAA Privacy and Security Standards by the U.S. Department of Health and Human Services, or HHS and our customers. HIPAA also implemented the use of standard transaction code sets and standard identifiers that covered entities must use when submitting or receiving certain electronic healthcare transactions, including activities associated with the billing and collection of healthcare claims. The United States Office of Civil Rights may impose penalties on a covered entity for a failure to comply with a requirement of HIPAA. Penalties will vary significantly depending on factors such as the date of the violation, whether the covered entity knew or should have known of the failure to comply, or whether the covered entity’s failure to comply was due to willful neglect. These penalties include civil monetary penalties of $100 to $50,000 per violation, up to an annual cap of $1,500,000. However, a single breach incident can result in violations of multiple standards. A person who knowingly obtains or discloses individually identifiable health information in violation of HIPAA may face a criminal penalty of up to $50,000 and imprisonment up to one year. The criminal penalties increase to $100,000 and up to five years’ imprisonment if the wrongful conduct involves false pretenses, and to $250,000 and up to 10 years’ imprisonment if the wrongful conduct involves the intent to sell, transfer, or use identifiable health information for commercial advantage, personal gain, or malicious harm. HIPAA also authorizes state attorneys general to file suit on behalf of their residents. Courts may award damages, costs and attorneys’ fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue us in civil court for violations of HIPAA, its standards have been used as the basis for duty of care in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI. Furthermore, in the event of a breach as defined by HIPAA, the covered entity has specific reporting requirements under HIPAA regulations. In the event of a significant breach, the reporting requirements could include notification to the general public. Enforcement activity can result in reputational harm, and responses to such enforcement activity can consume significant internal resources. Additionally, if we are unable to properly protect the privacy and security of protected health information, we could be found to have breached our contracts. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can be complex and we cannot be sure how these regulations will be interpreted, enforced or applied to our operations.
In addition, many states in which we operate have laws that protect the privacy and security of sensitive and personal information. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to sensitive and personal information than federal, international or other state laws, and such laws may differ from each other, which may complicate compliance efforts. For example, the California Consumer Privacy Act of 2018, or the CCPA, which increases privacy rights for California residents and imposes stringent data privacy and security obligations on companies that process their personal information, came into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. The CCPA was amended in September 2018 and November 2019, and it is possible that further amendments will be enacted, but

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even in its current form it remains unclear how various provisions of the CCPA will be interpreted and enforced. New legislation proposed or enacted in Illinois, Massachusetts, Nevada, New Jersey, New York, Rhode Island, Washington and other states, and a proposed right to privacy amendment to the Vermont Constitution, imposes, or has the potential to impose, additional obligations on companies that collect, store, use, retain, disclose, transfer and otherwise process confidential, sensitive and personal information, and will continue to shape the data privacy environment nationally. State laws are changing rapidly and there is discussion in Congress of a new federal data protection and privacy law to which we would become subject if it is enacted. All of these evolving compliance and operational requirements impose significant costs that are likely to increase over time, may require us to modify our data processing practices and policies, divert resources from other initiatives and projects, and could restrict the way products and services involving data are offered, all of which may have a material and adverse impact on our business, financial condition and results of operations.
Laws, regulations and standards in many jurisdictions apply broadly to the collection, use, retention, security, disclosure, transfer and other processing of personal information, which impose significant compliance obligations. For example, in the European Economic Area, or the EEA, and the United Kingdom, the collection and use of personal data, including clinical trial data, is governed by the provisions of the General Data Protection Regulation, or the GDPR. The GDPR came into effect in May 2018, superseding the European Union Data Protection Directive, and imposing more stringent data privacy and security requirements on companies in relation to the processing of personal data of EU data subjects. The GDPR, together with national legislation, regulations and guidelines of the EU member states and the United Kingdom governing the processing of personal data, impose strict obligations and restrictions on the ability to collect, use, retain, protect, disclose, transfer and otherwise process personal data, including health data from clinical trials and adverse event reporting. In particular, the GDPR includes obligations and restrictions concerning the consent and rights of individuals to whom the personal data relates, the transfer of personal data out of the EEA or the United Kingdom, security breach notifications and the security and confidentiality of personal data. The GDPR authorizes data processing penalties and fines for certain violations of up to 4% of global annual revenue or €20 million, whichever is greater. Such fines are in addition to any civil litigation claims by data subjects. European data protection authorities may interpret the GDPR and national laws differently and impose additional requirements, which contributes to the complexity of processing personal data in or from the EEA or United Kingdom. Guidance on implementation and compliance practices is often updated or otherwise revised. Further, while the United Kingdom enacted the Data Protection Act 2018 in May 2018 that supplements the GDPR and has publicly announced that it will continue to regulate the protection of personal data in the same way post-Brexit for a period of time, Brexit has created uncertainty with regard to the future regulation of data and data protection in the United Kingdom. Other countries also are considering or have passed legislation requiring local storage, processing or security of data, or similar requirements, which could increase the cost and complexity of delivering our products and services.
We make public statements about our use and disclosure of personal information through our privacy policy, information provided on our internet platform and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policy and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices. Any failure, real or perceived, by us to comply with our posted privacy policies or with any legal or regulatory requirements, standards, certifications or orders or other privacy or consumer protection-related laws and regulations applicable to us could cause our customers to reduce their use of our products and services and could materially and adversely affect our business, financial condition and results of operations. In many jurisdictions, enforcement actions and consequences for non-compliance can be significant and are rising. In addition, from time to time, concerns may be expressed about whether our products, services or processes compromise the privacy of customers and others. Concerns about our practices with regard to the collection, use, retention, security, disclosure, transfer and other processing of personal information or

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other privacy-related matters, even if unfounded, could damage our reputation and materially and adversely affect our business, financial condition and results of operations.
Many statutory requirements, both in the United States and abroad, include obligations for companies to notify individuals of security breaches involving certain personal information, which could result from breaches experienced by us or our third-party service providers. For example, laws in all 50 U.S. states and the District of Columbia require businesses to provide notice to consumers whose personal information has been disclosed as a result of a data breach. These laws are not consistent, and compliance in the event of a widespread data breach is difficult and may be costly. Moreover, states have been frequently amending existing laws, requiring attention to changing regulatory requirements. We also may be contractually required to notify customers or other counterparties of a security breach. Although we may have contractual protections with our third-party service providers, contractors and consultants, any actual or perceived security breach could harm our reputation and brand, expose us to potential liability or require us to expend significant resources on data security and in responding to any such actual or perceived breach. Any contractual protections we may have from our third-party service providers, contractors or consultants may not be sufficient to adequately protect us from any such liabilities and losses, and we may be unable to enforce any such contractual protections.
We expect that there will continue to be new proposed laws and regulations concerning data privacy and security, and we cannot yet determine the impact such future laws, regulations and standards may have on our business. New laws, amendments to or re-interpretations of existing laws, regulations, standards and other obligations may require us to incur additional costs and restrict our business operations. Because the interpretation and application of health-related and data protection laws, regulations, standards and other obligations are still uncertain, and often contradictory and in flux, it is possible that the scope and requirements of these laws may be interpreted and applied in a manner that is inconsistent with our practices and our efforts to comply with the evolving data protection rules may be unsuccessful. If so, this could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our business. In addition, these privacy regulations may differ from country to country, and may vary based on whether testing is performed in the United States or in the local country and our operations or business practices may not comply with these regulations in each country.
In addition to the possibility of fines, lawsuits, regulatory investigations, public censure, other claims and penalties, and significant costs for remediation and damage to our reputation, we could be materially and adversely affected if legislation or regulations are expanded to require changes in our data processing practices and policies or if governing jurisdictions interpret or implement their legislation or regulations in ways that negatively impact our business. Complying with these various laws could cause us to incur substantial costs or require us to change our business practices and compliance procedures in a manner adverse to our business. Any inability to adequately address data privacy or security-related concerns, even if unfounded, or to comply with applicable laws, regulations, standards and other obligations relating to data privacy and security, could result in additional cost and liability to us, harm our reputation and brand, damage our relationships with customers and have a material and adverse impact on our business.
Our business activities are subject to the FCPA and similar anti-bribery and anti-corruption laws.
Our business activities are subject to the FCPA and similar anti-bribery or anti-corruption laws, regulations or rules of other countries in which we operate, including the U.K. Bribery Act. The FCPA generally prohibits offering, promising, giving, or authorizing others to give anything of value, either directly or indirectly, to a non-U.S. government official in order to influence official action, or otherwise obtain or retain business. The FCPA also requires public companies to make and keep books and records that accurately and fairly reflect the transactions of the corporation and to devise and maintain an adequate system of internal accounting controls. Our business is heavily regulated and therefore involves significant interaction with public officials, including officials of non-U.S. governments. Additionally, in many other countries, the healthcare providers who prescribe biopharmaceuticals are employed by their government, and the purchasers of biopharmaceuticals are government entities; therefore, our dealings

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with these prescribers and purchasers are subject to regulation under the FCPA. Recently, the U.S. Securities and Exchange Commission, or the SEC, and Department of Justice have increased their FCPA enforcement activities with respect to biotechnology companies. There is no certainty that all of our employees, agents, contractors, or those of our affiliates, will comply with all applicable laws and regulations, particularly given the high level of complexity of these laws. Violations of these laws and regulations could result in fines, criminal sanctions against us, our officers, or our employees, the closing down of our facilities, requirements to obtain export licenses, cessation of business activities in sanctioned countries, implementation of compliance programs, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or more countries and could materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, and our business, prospects, operating results, and financial condition.
Our employees, principal investigators, consultants, and commercial partners may engage in misconduct or other improper activities, including non-compliance with regulatory standards and requirements.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants, and commercial partners. Misconduct by these parties could include intentional failures to comply with the regulations of the FDA and non-United States regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the United States and abroad, report financial information or data accurately, or disclose unauthorized activities to us. In particular, sales, marketing, and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing, and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs, and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical studies, which could result in regulatory sanctions and cause serious harm to our reputation. We currently have a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, and our code of conduct and the other precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses, or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with these laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could result in the imposition of significant fines or other sanctions, which could have a significant impact on our business. Whether or not we are successful in defending against such actions or investigations, we could incur substantial costs, including legal fees, and divert the attention of management in defending ourselves against any of these actions or investigations.
If we use hazardous materials in a manner that causes injury, we could be liable for damages.
Our activities currently require the use of hazardous chemicals and biohazardous waste, including chemical, biological agents and compounds, blood and bone marrow samples, and other human tissue. We cannot eliminate the risk of accidental contamination or injury to employees or third parties from the use, storage, handling, or disposal of these materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed our resources or any applicable insurance coverage we may have. Additionally, we are subject on an ongoing basis to federal, state, and local laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste services. The cost of compliance with these laws and regulations may become significant and could negatively affect our business, financial condition and results of operations.

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We and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting in the past. Any failure to maintain effective internal control over financial reporting could harm us.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles, or GAAP. Under standards established by the United States Public Company Accounting Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected and corrected on a timely basis.
For example, in connection with the audit of the fiscal year ended December 31, 2018, we and our independent registered public accounting firm identified a material weakness in our internal controls over financial reporting related to the accuracy of valuations performed during the year. Specifically, our process to select an outside valuation specialist with the requisite competency and to review the work performed by such specialist was deemed to be not operating effectively. We have taken steps to address this weakness, including hiring a new third-party valuation firm. We have not identified material weaknesses in internal control over financial reporting during 2019. However, neither we nor our independent registered public accounting firm tested the effectiveness of our internal control over financial reporting. We cannot assure you that we will not suffer from other material weaknesses in the future.
Upon completion of this offering, we will be required to document and test our internal controls over financial reporting pursuant to Section 404 of Sarbanes–Oxley Act of 2002, or the Sarbanes–Oxley Act, so that our management can certify as to the effectiveness of our internal controls over financial reporting. Likewise, our independent registered public accounting firm will be required to provide an attestation report on the effectiveness of our internal control over financial reporting at such time as we cease to be an “emerging growth company,” as defined in the Jumpstart our Business Startups Act of 2012, or the JOBS Act. At such time, our independent registered public accounting firm may issue a report that is adverse if a material weakness is identified.
If our senior management is unable to conclude that we have effective internal control over financial reporting, or to certify the effectiveness of such controls, or if our independent registered public accounting firm cannot render an unqualified opinion on management’s assessment and the effectiveness of our internal control over financial reporting, or if material weaknesses in our internal controls are identified in the future, we could be subject to regulatory scrutiny and a loss of public confidence, which could have a material adverse effect on our business and our stock price. In addition, if we do not maintain adequate financial and management personnel, processes and controls, we may not be able to manage our business effectively or accurately report our financial performance on a timely basis, which could cause a decline in our common stock price and adversely affect our business, financial condition, and results of operations.
If a clinical trial subject’s informed consent is challenged or proven invalid, unlawful, or otherwise inadequate for our purposes, our product development efforts may be hindered and we could become involved in legal challenges.
We have implemented measures designed to ensure that all clinical data and genomic and other biological samples that we receive from our biopharmaceutical collaborators have been collected from subjects who have provided appropriate informed consent for purposes that extend to our product development activities. We seek to ensure such data and samples are provided to us in a subject de-identified manner. We also implemented measures in an effort to ensure that the subjects from whom the data and samples are collected do not have any proprietary or commercial rights to the data or any discoveries derived from them. Our biopharmaceutical collaborators conduct clinical trials in a number of different countries. The collection of data and samples in many different countries results in complex legal questions regarding the adequacy of informed consent and the status of genomic material under a

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large number of different legal systems. Therefore, in addition to the measures we have implemented, we rely on our biopharmaceutical and contract laboratories to comply with the subject’s informed consent and with applicable local law and international regulation. The subject’s informed consent obtained in any particular country could be challenged in the future, and those informed consents could prove invalid, unlawful, or otherwise inadequate for our purposes. Any findings against us, or our biopharmaceutical collaborators, could deny us access to or force us to stop using some of our clinical samples, which would hinder our molecular information product development efforts. We could become involved in legal challenges, which could consume our management and financial resources.
Shutdowns of the U.S. federal government could materially impair our business and financial condition.
Development of our planned future products and services and/or regulatory approval may be delayed for reasons beyond our control. For example, over the last several years the U.S. government has shut down several times and certain regulatory agencies, such as the FDA and the SEC have had to furlough critical FDA, SEC and other government employees and stop critical activities. If a prolonged government shutdown or budget sequestration occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Further, in our operations as a public company, future government shutdowns could impact our ability to access the public markets, such as through the declaration of effectiveness of registration statements, and obtain necessary capital in order to properly capitalize and continue our operations.
The outbreak of COVID-19 could materially adversely affect our business, financial condition and results of operations.
The recent outbreak of COVID-19 is negatively impacting worldwide economic and commercial activity and financial markets, as well as increasing demand for certain reagents that we use in our products and that are also used in certain COVID-19 test kits. COVID-19 has also resulted in significant business and operational disruptions, including business closures, supply chains disruptions, travel restrictions, stay-at-home orders and limitations on the availability of workforces. The full impact of COVID-19 is unknown and is rapidly evolving. C urrent customers, including hospitals, labs, and other medical centers, may delay or cancel product orders due to operational disruptions within their organizations, enrollment for the clinical trials we support may decline due to the various travel restrictions, and our biopharmaceutical collaborators may cancel or delay their companion diagnostic development and research programs due to decrease in enrollment, economic disruptions, current focus by the healthcare industry on combatting COVID-19, or other factors. The extent to which COVID-19 negatively impacts our business and operations will depend on the severity, location and duration of the effects and spread of COVID-19, the actions undertaken by national, regional and local governments and health officials to contain the virus or treat its effects, how quickly and to what extent economic conditions improve and normal business and operating conditions resume, and whether the supply of PCR-related reagents will remain sufficient to satisfy market demand and any impact on its pricing . To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this ‘‘Risk factors’’ section, such as those relating to our reliance on a limited number of suppliers and our need to raise additional capital to fund our existing operations.
Risks related to regulatory and reimbursement matters
We intend to seek to market our IVD products for clinical diagnostic use and will be required to obtain regulatory clearance(s) or approval(s). Any such regulatory process would be expensive, time-consuming and uncertain both in timing and in outcome.
Our currently available products are labeled as RUO, and are not intended for diagnostic use. While we have focused initially on the RUO products only, our strategy is to expand our product line to encompass products that are intended to be used as IVDs. Such IVD products will be subject to regulation by the FDA as medical devices, including requirements for regulatory clearance or approval of such products before they can be marketed. Accordingly, we will be required to obtain FDA 510(k) clearance or

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premarket approval in order to sell our products in a manner consistent with FDA laws and regulations. Such regulatory approval processes or clearances are expensive, time-consuming and uncertain; our efforts may never result in any premarket approval, or PMA, or 510(k) approval or clearance for our products; and failure by us to obtain or comply with such approvals and clearances could have an adverse effect on our business, financial condition or operating results.
If we successfully obtain such approvals, we will be subject to a substantial number of additional requirements for medical devices, including establishment registration, device listing, Quality Systems Regulations, or QSRs, which cover the design, testing, production, control, quality assurance, labeling, packaging, servicing, sterilization (if required), and storage and shipping of medical devices (among other activities), product labeling, advertising, recordkeeping, post-market surveillance, post-approval studies, adverse event reporting, and correction and removal (recall) regulations. We may be required to expend significant resources to ensure ongoing compliance with the FDA regulations and/or take satisfactory corrective action in response to enforcement action, which may have a material adverse effect on the ability to design, develop, and commercialize products using our technology as planned. Failure to comply with these requirements may subject us to a range of enforcement actions, such as warning letters, injunctions, civil monetary penalties, criminal prosecution, recall and/or seizure of products, and revocation of marketing authorization, as well as significant adverse publicity. If we fail to obtain, or experience significant delays in obtaining, regulatory approvals for IVD or other products, such products may not be able to be launched or successfully commercialized in a timely manner, or at all.
Laboratory developed tests, or LDTs, are a subset of IVD tests that are designed, manufactured and used within a single laboratory. The FDA maintains that LDTs are medical devices and has for the most part exercised enforcement discretion for most LDTs. A significant change in the way that the FDA regulates any LDTs that our customers develop using our RUO components could affect our business. If the FDA requires laboratories to undergo premarket review and comply with other applicable FDA requirements in the future, the cost and time required to commercialize an LDT will increase substantially, and may reduce the financial incentive for laboratories to develop LDTs, which could reduce demand for our RUO products.
Our commercial success could be compromised if we do not receive coverage and adequate reimbursement for our products, including STRATAFIDE and PCM, if approved.
We currently generate revenue for our products through our agreements with our customers, including biopharmaceutical companies, academic institutions and molecular labs, who use our products for research purposes. Therefore, the commercial success of our RUO products depends charging our customers reasonable pricing for the RUO products. However, in the future, we intend to generate revenue on our products from several sources, including third-party payors, laboratory services intermediaries, and self-paying individuals. The commercial success of our commercial products, including STRATAFIDE and PCM, if approved, will depend on the extent to which our customers receive coverage and adequate reimbursement from third-party payors, including as managed care organizations and government payors (e.g., Medicare and Medicaid). Coverage and reimbursement by a payor may depend on a number of factors, including a payor’s determination that our commercial products, once approved, are:
not experimental or investigational;
medically necessary;
appropriate for the specific patient;
cost-effective;
supported by peer-reviewed publications; and
included in clinical practice guidelines.

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Because there is no uniform policy of coverage and reimbursement in the United States, each payor generally determines for its own enrollees or insured patients whether to cover or otherwise establish a policy to reimburse our genomic tests, and seeking payor approvals is a time-consuming and costly process. We cannot be certain that coverage for our current and our planned future products will be provided in the future by additional payors or that existing agreements, policy decisions or reimbursement levels will remain in place, remain adequate, or be fulfilled under existing terms and provisions. If we cannot obtain coverage and adequate reimbursement from private and governmental payors such as Medicare and Medicaid for our current products or new products that we may develop in the future, demand for our devices may decline or may not grow as we expect, which could limit our ability to generate revenue and have a material adverse effect on our financial condition, results of operations and cash flow. Further, we may experience delays and interruptions in the receipt of payments from payors due to missing documentation and/or other issues, which could cause delay in collecting our revenue.
In addition, the coverage and reimbursement market is ever changing and we are not in control of how our competitors’ coverage and pricing strategies are established. Some of our competitors have widespread brand recognition and substantially greater financial and technical resources and development, production and marketing capabilities than we do. Others may develop lower-priced, less complex tests that payors and physicians could view as functionally equivalent to our products, which could force us to lower the list price of our tests and impact our operating margins and our ability to achieve and maintain profitability. Payors may compare our products to our competitors and utilize them as precedence, which may impact our coverage and/or reimbursement. In addition, technological innovations that result in the creation of enhanced diagnostic tools that are more effective than ours may enable other clinical laboratories, hospitals, physicians or medical providers to provide specialized diagnostic tests similar to ours in a more patient-friendly, efficient or cost-effective manner than is currently possible. If we cannot compete successfully against current or future competitors, we may be unable to increase or create market acceptance and sales of our products, which could prevent us from increasing or sustaining our revenue or achieving or sustaining profitability.
We expect to rely on third parties in conducting a portion of future clinical studies of diagnostic products that may be required by the FDA or other regulatory authorities, and those third parties may not perform satisfactorily.
We do not have the ability to independently conduct clinical trials for drug approvals without a biopharmaceutical partner or other studies that may be required to obtain FDA and other regulatory clearance or approval for future diagnostic products. Accordingly, we expect that we would rely on third parties, such as biopharmaceutical companies, laboratories, clinical investigators, consultants, and collaborators to conduct such studies if needed. Our reliance on these third parties for clinical and other development activities would reduce our control over these activities. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised, we may not be able to obtain regulatory clearance or approval.
Complying with numerous regulations pertaining to our laboratory licensing is an expensive and time-consuming process, and any failure to comply could result in substantial penalties.
We sell our RUO products to CLIA laboratories that validate them for use in their own LDTs. CLIA is a federal law regulating clinical laboratories that perform testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease. Our own clinical laboratory must be certified under CLIA in order for us to perform testing on human specimens. CLIA is intended to ensure the quality and reliability of clinical laboratories in the United States by mandating specific standards in the areas of personnel qualifications, administration, and participation in proficiency testing, patient test management, quality control, quality assurance and inspections. We have a current certificate of accreditation under CLIA to perform high complexity testing, and our laboratory is accredited by CAP, one of six CLIA-approved accreditation organizations. To renew this certificate, we are subject to survey and inspection every two years. Moreover, CLIA and CAP inspectors may make periodic

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inspections of our clinical laboratory outside of the renewal process. The failure to comply with CLIA or CAP requirements can result in enforcement actions, including the revocation, suspension, or limitation of our CLIA and/or CAP certificate of accreditation, as well as a directed plan of correction, state on-site monitoring, civil money penalties, civil injunctive suit and/or criminal penalties. We must maintain CLIA compliance and certification to be eligible to bill for assays provided to Medicare beneficiaries. If we were to be found out of compliance with CLIA program requirements and subjected to sanctions, our business and reputation could be harmed. Even if it were possible for us to bring our laboratory back into compliance, we could incur significant costs to achieve such compliance in addition to losing revenue during any period in which our laboratory was not operational.
In addition, our laboratory is located in Golden, Colorado and is required by state law to maintain a state laboratory license; as we expand our geographic focus, we may need to obtain laboratory licenses from additional states. In addition, we hold licenses from the states of California, Pennsylvania, Maryland, and Rhode Island to test specimens from patients in those states or received from ordering physicians in those states. Currently, we do not maintain a license necessary to obtain specimens from residents of the state of New York. Other states and foreign jurisdictions may have similar requirements or may adopt similar requirements in the future. Finally, we may be subject to additional regulation in foreign jurisdictions if we seek to expand international distribution of our assays outside the United States.
If we were to lose our CLIA certification or our state laboratory licenses, whether as a result of a revocation, suspension or limitation, we would no longer be able to offer certain services, which would limit our revenues and harm our business. If we were to lose, or fail to obtain, a license in any other state where we are required to hold a license, we would not be able to test specimens from those states. If we were to lose our CAP accreditation, our reputation for quality, as well as our business, financial condition and results of operations, could be significantly and adversely affected.
We are subject to federal and state healthcare fraud and abuse laws and regulations and could face substantial penalties if we are unable to fully comply with such laws.
We are or expect to become subject to health care fraud and abuse regulation and enforcement by both the federal government and the states in which we conduct our business. These health care laws and regulations include, for example:
the federal Anti-Kickback Statute, or the AKS, which prohibits, among other things, persons or entities from soliciting, receiving, offering or providing remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in return for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or services for which payment may be made under a federal health care program such as the Medicare and Medicaid programs;
the federal physician self-referral prohibition, commonly known as the Stark Law, which prohibits physicians from referring Medicare or Medicaid patients to providers of “designated health services” with whom the physician or a member of the physician’s immediate family has an ownership interest or compensation arrangement, unless a statutory or regulatory exception applies;
HIPAA, which established additional federal civil and criminal liability for, among other things, knowingly and willfully executing a scheme to defraud any health care benefit program or making false statements in connection with the delivery of or payment for health care benefits, items or services;
HIPAA, as amended by HITECH and its implementing regulations, which imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information;
federal false claims and civil monetary penalties laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to the federal government;

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the federal Physician Payments Sunshine Act requirements under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively, the ACA, which require certain manufacturers of drugs, devices, biologics and medical supplies to report to the Centers for Medicare and Medicaid Services, or CMS, information related to payments and other transfers of value made to or at the request of covered recipients, such as physicians, as defined by such law, and teaching hospitals, and certain ownership and investment interests held by physicians and their immediate family members;
the Stark Law, which prohibits, among other things, physicians who have a financial relationship, including an investment, ownership or compensation relationship with an entity, from referring Medicare patients for designated health services, which include clinical laboratory services, unless an exception applies; 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 payor, including commercial insurers.
Further, the ACA, among other things, amended the intent requirement of the federal AKS and certain criminal health care fraud statutes. Where the intent requirement has been lowered, a person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. In addition, the government may now assert that a claim including items or services resulting from a violation of the federal AKS constitutes a false or fraudulent claim for purposes of the false claims statutes. Moreover, these laws may change significantly and adversely in the future.
Any action brought against us for violation of these laws or regulations, 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. If our operations are found to be in violation of any of these laws and regulations, we may be subject to any applicable penalty associated with the violation, including, among others, significant administrative, civil and criminal penalties, damages, fines, disgorgement, imprisonment, integrity oversight and reporting obligations, and exclusion from participation in government funded healthcare programs such as Medicare and Medicaid. Additionally, we could be required to refund payments received by us, and we could be required to curtail or cease our operations. Any of the foregoing consequences could seriously harm our business, financial condition, and results of operations.
Healthcare policy changes may have a material adverse effect on our business, financial condition and results of operations.
The ACA, enacted in March 2010, made a number of substantial changes in the way healthcare is financed by both governmental and private insurers. Among other ways in which the ACA may significantly impact our business, the ACA includes: provisions regarding coordination and promotion of research on comparative clinical effectiveness of different technologies and procedures; initiatives to revise Medicare payment methodologies; and initiatives to promote quality indicators in payment methodologies.
On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, or Texas District Court Judge, ruled that the entire ACA is invalid based primarily on the fact that the legislation enacted on December 22, 2017, informally known as Tax Cuts and Jobs Act, or the TCJA, repealed the tax-based shared responsibility payment imposed by the ACA, on certain individuals who fail to maintain qualifying health coverage for all or part of a year, which is commonly referred to as the “individual mandate.” Additionally, on December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the Texas District Court Judge’s ruling that that the individual mandate was unconstitutional and remanded the case back to the district court to determine whether the remaining provisions of the ACA are invalid as well. It is unclear how this decision, future decisions, subsequent appeals, and other efforts to repeal and replace the ACA will impact the ACA.

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In addition, other legislative changes have been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of 2011, among other things, included aggregate reductions to Medicare payments to providers and suppliers of 2% per fiscal year, starting in 2013, and, following passage of the Bipartisan Budget Act of 2015, will remain in effect through 2029 unless additional congressional action is taken. The full impact on our business of the ACA and the sequester law is uncertain. Furthermore, on January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
We cannot predict whether future healthcare initiatives will be implemented at the federal or state level, or how any future legislation or regulation may affect us. The expansion of government’s role in the U.S. healthcare industry as a result of the ACA’s implementation, and changes to the reimbursement amounts paid by Medicare and other payors for our current genomic tests and our planned future genomic tests, may reduce our profits, if any, and have a materially adverse effect on our business, financial condition, results of operations and cash flows. Moreover, Congress has proposed on several occasions to impose a 20% coinsurance payment requirement on patients for clinical laboratory tests reimbursed under the Medicare Clinical Laboratory Fee Schedule, which would require us to bill patients for these amounts and may decrease our testing volume. In the event that Congress were to ever enact such legislation, the cost of billing and collecting for our genomic tests could often exceed the amount actually received from the patient.
Under the Protecting Access to Medicare Act of 2014, or PAMA, which was signed to law in April 2014, clinical laboratories subject to the law must report certain data for the Medicare-covered clinical laboratory tests that they furnish. The reported data must include the payment rate (reflecting all discounts, rebates, coupons and other price concessions) and the volume of each test that was paid by each private payor (including health insurance issuers, group health plans, Medicare Advantage plans and Medicaid managed care organizations). The CMS final rule implementing PAMA was issued June 17, 2016 indicating that data reporting for the new PAMA process would begin in 2017 and, beginning in 2018, the Medicare payment rate for covered clinical laboratory tests, with some exceptions, would be based on the weighted median of the reported private third-party payor payments for the test, as calculated using data collected by applicable laboratories during the specified data collection period and reported to CMS during a specified data reporting period. This revised reimbursement methodology is expected to generally result in relatively lower reimbursement under Medicare for clinical diagnostic lab tests than has been historically available. The reporting period under the PAMA has been delayed until 2021. As a result, data collected during the original data collection period of January 1, 2019 through June 30, 2019 now must be reported between January 1, 2021 and March 31, 2021. Data reporting will thereafter resume on a three year reporting cycle beginning in 2024. The resulting change in reimbursement methodology applicable to our tests may reduce our Medicare reimbursement rate and adversely affect our business, financial condition and results of operations.
We cannot predict the impact changes to these laws or the implementation of, or changes to, any other laws applicable to us in the future may have on our business, financial condition and results of operations.
Payors from whom we receive reimbursement may withdraw or decrease the amount of reimbursement provided for our products at any time in the future.
Our commercial success also depends on our ability to obtain and maintain coverage and adequate reimbursement from those payors that elect not to cover and reimburse our products, withdraw coverage and stop providing reimbursement for our products in the future or may reimburse our products only on a case-by-case basis. Managing reimbursement on a case-by-case basis is time consuming and contributes to an increase in the number of days it takes us to collect accounts receivable and increases our risk of non-payment. Negotiating reimbursement on a case-by-case basis also typically results in the provision of reimbursement at a significant discount to the list price of our products.

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Further, even if we obtain written agreements regarding coverage and reimbursement with certain payors, these agreements are not guarantees of indefinite coverage in an adequate amount. For example, these agreements are typically terminable without cause by either party and are typically renewable annually, and the applicable payor could opt against renewal upon expiration. In addition, the terms of certain of our written arrangements may require us to seek pre-approval from the payor or put in place other controls and procedures prior to conducting a test for a customer. To the extent we fail to follow these requirements, we may fail to receive some or all of the reimbursement payments to which we are otherwise entitled. These payors must also conclude that our claim satisfies the applicable contractual criteria. In addition, our written agreements regarding reimbursement with payors may not guarantee us the receipt of reimbursement payments at what we believe to be the applicable contracted rate for each reimbursement claim that we submit to such payors. If payors withdraw coverage for our products or reduce the reimbursement amounts for our products, our ability to generate revenue could be limited, which may have a material adverse effect on our business, financial condition, results of operations, and cash flow.
Changes in tax law could adversely affect our business and could differ materially from the financial statements provided herein.
The rules dealing with U.S. federal, state and local income taxation are constantly under review by the Internal Revenue Service, the U.S. Treasury Department and other governmental bodies. Changes to tax laws (which changes may have retroactive application) could adversely affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future. Future changes in tax laws could have a material adverse effect on our business, financial condition, results of operations, and cash flow. We urge investors to consult with their legal and tax advisers regarding the implication of potential changes in tax laws on an investment in our common stock.
Certain U.S. state tax authorities may assert that we have a state nexus and seek to impose state and local income taxes which could adversely affect our results of operations.
We currently file state income tax returns in certain states. There is a risk that certain state tax authorities where we do not currently file a state income tax return could assert that we are liable for state and local income taxes based upon income or gross receipts allocable to such states. States are becoming increasingly aggressive in asserting a nexus for state income tax purposes. We could be subject to state and local taxation, including penalties and interest attributable to prior periods, if a state tax authority in which we do not currently file a state income tax return successfully asserts that our activities give rise to a taxable nexus. Such tax assessments, penalties and interest may adversely affect our results of operations.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2019, we had federal and state net operating loss carryforwards of approximately $56.4 million due to prior period losses, some of which, if not utilized, will begin to expire in 2034 for federal and state purposes. Our federal research and development tax credits are approximately $0.9 million. The federal research and development tax credits will expire in 2035 if not utilized. These net operating loss and research tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities, which could adversely affect our profitability.
Under the TCJA, federal net operating losses incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating losses is limited. It is uncertain if and to what extent various states will conform to the TCJA. In addition, under Sections 382 and 383 of the U.S. Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change” (generally defined as a greater than 50 percentage-point cumulative change (by value) in the equity ownership of certain stockholders over a rolling three-year period), the corporation’s ability to use its pre-change net operating losses and other pre-change tax attributes to offset its post-change taxable

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income or taxes may be limited. We have not completed an analysis to determine whether any such limitations have been already triggered. We may also experience ownership changes as a result of this offering or future issuances of our stock or as a result of subsequent shifts in our stock ownership, some of which are outside our control. Therefore, as a result of ownership changes with respect to our common stock, our ability to use our current net operating losses and other pre-change tax attributes to offset post-change taxable income or taxes could be subject to limitation. We will be unable to use our net operating losses if we do not attain profitability sufficient to offset our available net operating losses prior to their expiration.
Risks related to our intellectual property
We are currently, and may be in the future, subject to claims against us alleging that we are infringing, misappropriating or otherwise violating the intellectual property rights of third parties, the outcome of which could have a material adverse effect on our business.
Our commercial success depends in part upon our ability to develop, manufacture, market and sell our products and services and use our technology without infringing, misappropriating or otherwise violating the patents or other intellectual property or proprietary rights of third parties. Litigation relating to infringement, misappropriation or other violations of patents and other intellectual property rights in biotechnology industry is common, including patent infringement lawsuits, trade secret lawsuits, interferences, oppositions, and inter-partes review, post-grant review and reexamination proceedings before the United States Patent and Trademark Office, or the USPTO, and corresponding international patent offices. The various markets in which we plan to operate are subject to frequent and extensive litigation regarding patents and other intellectual property rights. In addition, many companies in intellectual property-dependent industries, including the biotechnology industry, have employed intellectual property litigation as a means to gain an advantage over their competitors. Numerous United States, EU and other internationally issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing and commercializing nucleic acid preparative and analytical technology, and as the biotechnology industry expands and more patents are issued, the risk increases that our products, services and technology may be subject to intellectual property related claims by third parties. There are many issued and pending patents that claim aspects of oligonucleotide chemistry and modifications that we may need to apply to our therapeutic candidates. There are also many issued patents that claim targeting genes or portions of genes that may be relevant for nucleic acid preparative and analytical methods that we wish to develop. Thus, it is possible that one or more organizations will hold patent rights to which we will need a license. If those organizations refuse to grant us a license to such patent rights on reasonable terms, we may be unable to develop, manufacture, market, sell and commercialize products or services or perform research and development or other activities covered by these patents.
For example, as described above, Natera, one of our competitors, has filed suit against us alleging that our AMP chemistry and our existing products (including STRATAFIDE, PCM, LiquidPlex, ArcherMET, FusionPlex and VariantPlex) infringe the Natera Asserted Patents. If we are found to infringe any of the Natera Asserted Patents, it would have a material adverse effect on our business. For information regarding our litigation with Natera, please see “ Risk factors Risks related to our business and strategy One of our competitors has alleged that our Anchored Multiplex PCR, or AMP, chemistry and products using AMP are infringing on its intellectual property, and we may be required to redesign our technology, obtain a license, cease using our AMP chemistry altogether and/or pay significant damages, among other consequences, any of which would have a material adverse effect on our business, financial condition and results of operations.
In the future, we may also be subject to third-party claims and similar adversarial proceedings or litigation regarding any infringement, misappropriation or other violation by us of patent or other intellectual property rights of third parties. If any such claim or proceeding is brought against us, our collaborators or our third-party service providers, our development, manufacturing, marketing, sales and other commercialization activities could be similarly adversely affected. Even if we believe third-party

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intellectual property claims are without merit, there is no assurance that a court would find in our favor on questions of infringement, validity, enforceability, or priority. A court of competent jurisdiction could hold that third party patents asserted against us are valid, enforceable, and infringed, which could materially and adversely affect our ability to develop, manufacture, market, sell and commercialize any of our products or services. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. If we are found to infringe any third party’s patents or other intellectual property rights, and we are unsuccessful in demonstrating that such patents or other intellectual property are invalid or unenforceable, we could be required to obtain a license from such third party to continue developing, manufacturing, marketing, selling and commercializing our products and services. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Even if we were able to obtain a license, it could be non-exclusive, which would give our competitors and other third parties access to the same technologies licensed to us, and it could require us to make substantial licensing, royalty and other payments. We also could be forced, including by court order, to cease developing, manufacturing, marketing, selling and commercializing the infringing product or technology. In addition, we could be found liable for significant monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property right. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar material adverse effect on our business, financial condition, results of operations, and prospects.
Some claimants may have substantially greater resources than we do and may be able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time than we could. In addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us. In addition, if the breadth or strength of protection provided by the patents and patent applications we own or in-license is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future technology. In addition, intellectual property litigation, regardless of its outcome, may cause negative publicity, adversely impact prospective customers, cause product shipment delays or prohibit us from manufacturing, marketing, selling or otherwise commercializing our products, services and technology.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal responsibilities. In addition, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or commercialization activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Uncertainties resulting from patent and other intellectual property litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace, our ability to raise additional funds, and could otherwise have a material adverse effect on our business, financial condition, results of operations, and prospects.

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We are currently, and may be in the future, involved in lawsuits to defend or enforce our patents and proprietary rights. Such disputes could result in substantial costs or loss of productivity, delay or prevent the development and commercialization of our technology, products and services, prohibit our use of proprietary technology or sale of nucleic acid preparative and analytical methods and related products or services, or put our patents and other proprietary rights at risk.
Competitors and other third parties may infringe, misappropriate or otherwise violate our patents and intellectual property rights or the patents and intellectual property rights of our licensors. The enforcement of such claims can be expensive and time consuming. In an infringement proceeding, a court may decide that a patent owned or in-licensed by us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our owned and in-licensed patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our owned or in-licensed patents at risk of being invalidated or interpreted narrowly.
For example, in July 2018, we and the General Hospital Corporation d/b/a Massachusetts General Hospital, which we refer to as MGH, filed a lawsuit in the United States District Court for the District of Delaware against QIAGEN Sciences LLC and several of its affiliates, as well as a named QIAGEN executive, for, among other things, infringement of U.S. Patent No. 10,017,810, or the ’810 Patent, and trade secret misappropriation and related tort claims. We are seeking damages and a permanent injunction. In October 2019, we amended our complaint to allege infringement of both the ’810 Patent and U.S. Patent No. 10,450,597, or the ’597 Patent. The defendants have asserted defenses that, among other things, the ’810 Patent and ’597 Patent are not infringed and are invalid. The parties are currently conducting fact discovery, and a jury trial is scheduled to begin in May 2021. For more information regarding this litigation, please see “Business—Legal proceedings.” Should the court rule that any or all of the claims of the ’810 Patent and ’597 Patent are not infringed or invalid, such a ruling could limit our ability to stop others from using or commercializing similar or identical nucleic acid preparative and analytical methods as those used by us, as well as similar or identical products and services provided by us, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
If we were to initiate other legal proceedings against any other third party to enforce a patent covering our technology, the defendant could assert that our patent is invalid or unenforceable. In patent litigation in the United States and Europe, defendants alleging invalidity or unenforceability are common. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness, lack of written description or non-enablement. Third parties might allege unenforceability of our patents because during prosecution of the patent an individual connected with such prosecution withheld relevant information, or made a misleading statement. Third parties may also raise challenges to the validity of our patent claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post-grant review, inter partes review, interference proceedings, derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings). Such proceedings could result in the revocation of, cancellation of, or amendment to our patents in such a way that they no longer cover our technology or products. The outcome of proceedings involving assertions of invalidity and unenforceability, including during patent litigation, is unpredictable. With respect to the validity of patents, for example, we cannot be certain that there is no invalidating prior art of which we and the patent examiner were unaware during prosecution, but that an adverse third party may identify and submit in support of such assertions of invalidity. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our technology. Such a loss of patent protection could have a material adverse effect on our business. Our patents and other intellectual property rights also will not protect our technology if competitors design around our protected technology without infringing our patents or other intellectual property rights.
Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our personnel from their normal

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responsibilities. In addition, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing, or commercialization activities. We may not have sufficient financial or other resources to conduct such litigation or proceedings adequately. Uncertainties resulting from patent and other intellectual property litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace, our ability to raise additional funds, and could otherwise have a material adverse effect on our business, financial condition, results of operations, and prospects.
If we are not able to obtain, maintain, defend or enforce patent and other intellectual property protection for our nucleic acid preparative and analytical methods or related products or services, or if the scope of the patent and other intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products, services and technology similar or identical to ours, which could have a material adverse effect on our competitive position, business, financial conditions, results of operations, and prospects.
Our success depends in part on our ability to obtain, maintain, defend and enforce patents and other forms of intellectual property rights, including in-licenses of intellectual property rights of others, for our nucleic acid preparative and analytical methods or related products or services, as well as our ability to preserve our trade secrets, to prevent third parties from infringing, misappropriating or otherwise violating our intellectual property and proprietary rights. Our ability to protect our nucleic acid preparative and analytical methods and related products or services from unauthorized use by third parties depends on the extent to which valid and enforceable patents cover them or they are effectively protected as trade secrets. Although we have rights to issued patents that relate to aspects of our AMP chemistry, other aspects of our patent portfolio are in earlier stages of prosecution, and we do not own or license any issued patents related to other aspects of our products and technology, including our instruments and techniques. For information regarding our patent portfolio, please see “Business—Intellectual property.” The patent position of biotechnology companies generally is highly uncertain, involves complex legal and factual questions, and has been the subject of much litigation in recent years. As a result, the issuance, scope, validity, enforceability, and commercial value of our patent rights are highly uncertain. There can be no assurance that our patent rights will not be invalidated or held to be unenforceable, will adequately protect our technology, products or services or provide any competitive advantage, or that any of our pending or future patent applications will issue as valid and enforceable patents. Our ability to obtain and maintain patent protection for our nucleic acid preparative and analytical methods and related products or services is uncertain due to a number of factors, including that:
we or our licensors may not have been the first to invent the technology covered by our pending patent applications or issued patents;
we or our licensors may not be the first to file all patent applications covering our nucleic acid preparative and analytical methods or related products or services, as patent applications in the United States and most other countries are confidential for a period of time after filing;
our methods and related products may not be patentable;
our disclosures in patent applications may not be sufficient to meet the statutory requirements for patentability;
any or all of our pending patent applications may not result in issued patents;
others may independently develop identical, similar or alternative technologies;

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others may design around our patent claims to produce competitive technologies or methods or products that fall outside of the scope of our patents;
we may fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection;
we may not seek or obtain patent protection in countries that may eventually provide us a significant business opportunity;
any patents issued to us may not provide a basis for commercially viable methods or products, may not provide any competitive advantages or may be successfully challenged by third parties;
a third party may challenge our patents and, if challenged, a court may not hold that our patents are valid, enforceable and infringed;
a third party may challenge our patents in various patent offices and, if challenged, we may be compelled to limit the scope of our allowed or granted claims or lose the allowed or granted claims altogether;
the patents of others could harm our business;
our competitors could conduct research and development activities in countries where we will not have enforceable patent rights and then use the information learned from such activities to develop competitive methods or products for sale in our major commercial markets; and
the growing scientific and patent literature relating to nucleotide analysis, including our own patents and publications, may make it increasingly difficult or impossible to patent new nucleic acid preparative and analytical methods and related products or services in the future.
Even if we have or obtain patents covering our nucleic acid preparative and analytical methods and related products or services, we may still be barred from making, using and selling such methods, products, or services because of the patent rights of others. Others may have filed, and in the future may file, patent applications covering compositions, products or methods that are similar or identical to ours, which could materially affect our ability to successfully develop our technology or to successfully commercialize any approved assays alone or with collaborators. Patent applications in the U.S. and elsewhere are generally published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our nucleic acid preparative and analytical methods and related products or services could have been filed by others without our knowledge. Additionally, pending claims in patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies or related products and services. These patent applications may have priority over patent applications filed by us.
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. We may be subject to third party pre-issuance submissions of prior art to the USPTO, or become involved in opposition, derivation, revocation, reexamination, post-grant and inter partes review, or interference proceedings challenging our patent rights. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our products, services and technology and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize products or provide services without infringing third-party patent rights. Moreover, we, or our licensors, may have to participate in interference proceedings declared by the USPTO to determine priority of invention or in post-grant challenge proceedings, such as oppositions in a foreign patent office, that challenge priority of invention or other features of patentability. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical products, services and

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technology, or limit the duration of the patent protection of our products, services and technology. Such proceedings also may result in substantial cost and require significant time from our employees and management, even if the eventual outcome is favorable to us.
Furthermore, we cannot guarantee that any patents will be issued from any of our pending or future patent applications. The standards applied by the USPTO and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in biotechnology patents. As such, we do not know the degree of future protection that we will have on our proprietary products, services and technology. Thus, even if our patent applications issue as patents, they may not issue in a form that will provide us with meaningful protection, prevent competitors from competing with us or otherwise provide us with any competitive advantage. While we will endeavor to protect our technology with intellectual property rights such as patents, as appropriate, the process of obtaining patents is time-consuming, expensive and sometimes unpredictable.
In addition, third parties may be able to develop technology that is similar to, or better than, ours in a way that is not covered by the claims of our patents, or may have blocking patents that could prevent us from marketing our products or practicing our own patented technology. Moreover, patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed and the life of a patent, and the protection it affords, is limited. Without patent protection for current or future methods and related products and services, we may face competing technology. Given the amount of time required for the development and testing, and regulatory review where necessary, patents protecting such technology might expire before or shortly after such technology is commercialized. As a result, our patent portfolio may not provide us with sufficient rights to exclude others from commercializing technology similar or identical to that we or our collaborators may develop.
Moreover, certain of our patents and patent applications are, and others may in the future be, co-owned with third parties. If we are unable to obtain an exclusive license to any such third party co-owners’ interest in such patents or patent applications, such co-owners may be able to use or license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such co-owners of our patents in order to enforce such patents against third parties, and such cooperation may not be provided to us. Any of the foregoing could have a material adverse effect on our business, financial conditions, results of operations, and prospects.
We license patent rights from third-party owners. If such owners do not properly or successfully obtain, maintain or enforce the patents underlying such licenses, or if they retain or license to others any competing rights, our competitive position and business prospects may be adversely affected. If we fail to comply with our obligations in the agreements under which we license intellectual property rights from third parties or otherwise experience disruptions to our relationships with our licensors, we could lose license rights that are important to our business.
We do not solely own any issued patents. Therefore, we do, and will continue to, rely on intellectual property rights licensed from third parties to protect our technology, including licenses that give us rights to third-party intellectual property that is necessary or useful for our business. For example, we are dependent on a license from MGH for certain patent rights related to our AMP technology. If our license agreement with MGH were to terminate for any reason, we may be required to cease the development, manufacturing, marketing, selling and commercialization of our AMP technology and our products and services. For more information regarding this license agreement, please see “Business—Intellectual property.”
We also may license additional third-party intellectual property in the future. Our success will depend in part on the ability of our licensors to obtain, maintain, protect and enforce patent protection for our licensed intellectual property, in particular, those patents to which we have secured exclusive rights. Our licensors may not successfully prosecute the patent applications licensed to us. Even if patents issue or are granted, our licensors may fail to maintain these patents, may determine not to pursue litigation

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against other companies that are infringing these patents, or may pursue litigation less aggressively than we would. Further, we may not obtain exclusive rights, which would allow for third parties to develop competing products. Without protection for, or exclusive right to, the intellectual property we license, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive business position and harm our business prospects.
Our existing license agreements, including our license agreement with MGH, impose, and we expect that future license agreements will impose, various development, commercialization, funding, milestone, royalty, diligence, sublicensing, insurance, patent prosecution and enforcement, and other obligations on us. If we breach any of these obligations, we may be required to pay damages and the licensor may have the right to terminate the license, which could result in us being unable to commercialize any nucleic acid preparative and analytical methods and related products or services that are covered by these agreements, which could materially adversely affect the value of any such technology and our business. Termination of these agreements or reduction or elimination of our rights under these agreements may result in our having to negotiate new or reinstated agreements with less favorable terms, or cause us to lose our rights under these agreements, including our rights to important intellectual property or technology. In addition, while we cannot currently determine the amount of the royalty obligations we would be required to pay on sales of future assays or products, if any, the amounts may be significant. The amount of our future royalty obligations will depend on the technology and intellectual property we use in the assays, products and services that we successfully develop and commercialize, if any. Therefore, even if we successfully develop and commercialize assays, products and services, we may be unable to achieve or maintain profitability.
We may need to outsource and rely on third parties for aspects of the development, sales and marketing of any assays and products covered under our current and future license agreements. Delay or failure by these third parties could adversely affect the continuation of our license agreements with our licensors. If we fail to comply with any of our obligations under these agreements, or we are subject to a bankruptcy, our licensors may have the right to terminate the license, in which event we would not be able to market any assays or products covered by the license.
In addition, disputes may arise under our license agreements, including regarding the payment of the royalties or other payments due to licensors in connection with our exploitation of the rights we license from them. For example, licensors may contest the basis of royalties we retained and claim that we are obligated to make payments under a broader basis. In addition to the costs of any litigation we may face as a result, any legal action against us could increase our payment obligations under the respective agreement and require us to pay interest and potentially damages to such licensors.
In some cases, patent prosecution of our licensed technology is controlled solely by the licensor. Therefore, we cannot be certain that these patents and patent applications will be prepared, filed, prosecuted, and maintained in a manner consistent with the best interests of our business. If such licensor fails to obtain and maintain patent or other protection for the proprietary intellectual property we license from such licensor, we could lose our rights to such intellectual property or the exclusivity of such rights, and our competitors could market competing technology using such intellectual property. In that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we or our collaborators may be unable to develop or commercialize the affected technology, which could harm our business significantly. Our license agreements also limit the exclusive and non-exclusive rights granted to us to use the licensed intellectual property and technology to a particular field of use. As a result, we may not be able to prevent competitors from developing and commercializing products and technology that may use this technology in other fields of use.
Disputes may arise regarding intellectual property subject to a license agreement, including those relating to:
the scope of rights, if any, granted under the license agreement and other interpretation-related issues;

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the amounts of royalties, milestones or other payments due under the license agreement;
whether and the extent to which our technology and processes infringe, misappropriate or otherwise violate intellectual property of the licensor that is not subject to the license agreement;
our right to sublicense patent and other rights to third parties under collaborative development relationships;
our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
the ownership of inventions and know-how resulting from the creation or use of intellectual property by our licensors and by us and our collaborators; and
the priority of invention of patented technology.
The agreements under which we currently license intellectual property or technology from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology, or increase what we believe to be our financial or other obligations under the relevant agreement. Such disputes may be costly to resolve and may divert management’s attention away from day-to-day activities. If disputes over intellectual property that we have licensed from third parties prevent or impair our ability to maintain our licensing arrangements on acceptable terms, we or our collaborators may be unable to successfully develop and commercialize the affected technology, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by government patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Obtaining and maintaining a patent portfolio entails significant expense, including periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and patent applications. These expenditures can be at numerous stages of prosecuting patent applications and over the lifetime of maintaining and enforcing issued patents. We may or may not choose to pursue or maintain protection for particular intellectual property in our portfolio. If we choose to forgo patent protection or to allow a patent application or patent to lapse purposefully or inadvertently, our competitive position could suffer. Furthermore, we employ reputable law firms and other professionals to help us comply with the various procedural, documentary, fee payment and other similar provisions we are subject to and, in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. There are situations, however, in which failure to make certain payments or noncompliance with certain requirements in the patent process can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, our competitors might be able to enter the market, which would have a material adverse effect on our business.
Legal action that may be required to enforce our patent rights can be expensive and may involve the diversion of significant management time. There can be no assurance that we will have sufficient financial or other resources to file and pursue infringement claims, which typically last for years before they are concluded. In addition, these legal actions could be unsuccessful and result in the invalidation of our patents, a finding that they are unenforceable or a requirement that we enter into a licensing agreement with or pay monies to a third party for use of technology covered by our patents. We may or may not choose to pursue litigation or other actions against those that have infringed on our patents, or have used them without authorization, due to the associated expense and time commitment of monitoring these activities. If we fail to successfully protect or enforce our intellectual property rights, our competitive position could suffer, which could harm our results of operations.

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We may not be successful in obtaining necessary rights to any product candidates we may develop through acquisitions and in-licenses.
We currently have rights to intellectual property, through licenses from third parties, to identify and develop product candidates. Many pharmaceutical companies, biotechnology companies, and academic institutions are competing with us and filing patent applications potentially relevant to our business. In order to avoid infringing these third party patents, we may find it necessary or prudent to obtain licenses from such third party intellectual property holders. However, we may be unable to secure such licenses or otherwise acquire or in-license any compositions, methods of use, processes, or other intellectual property rights from third parties that we identify as necessary for our business. The licensing or acquisition of third party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. If we are unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights we have, it could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Some of our intellectual property has been discovered through government funded programs and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S.-based companies, and compliance with such regulations may limit our exclusive rights and our ability to contract with non-U.S. manufacturers.
Our intellectual property rights may be subject to a reservation of rights by one or more third parties. For example, certain intellectual property rights that we have licensed from MGH have been generated through the use of U.S. government funding and are therefore subject to certain federal regulations. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or future processes and related products and services pursuant to the Bayh-Dole Act of 1980, or the Bayh-Dole Act. These U.S. government rights include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has what are referred to as “march-in rights” to, under certain limited circumstances, require the licensor to grant exclusive, partially exclusive or non-exclusive licenses to any of these inventions to a third party if it determines that (1) adequate steps have not been taken to commercialize the invention and achieve practical application of the government-funded technology, (2) government action is necessary to meet public health or safety needs, (3) government action is necessary to meet requirements for public use under federal regulations or (4) we fail to meet requirements of federal regulations. The U.S. government also has the right to take title to these inventions if we or our licensors fail to disclose the invention to the government or fail to file an application to register the intellectual property within specified time limits. These rights may permit the government to disclose our confidential information to third parties. In addition, our rights in such inventions may be subject to certain requirements to manufacture products embodying such inventions in the United States. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources. To the extent any of our future owned or licensed intellectual property is also generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply. Any exercise by the government of such rights could have a material adverse effect on our competitive position, business, financial condition, results of operations and prospects.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
There are numerous recent changes to the patent laws and proposed changes to the rules of the USPTO which may have a significant impact on our ability to protect our technology and enforce our intellectual

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property rights. For example, the Leahy-Smith America Invents Act, or the AIA, enacted in September 2011, resulted in significant changes to the U.S. patent system. An important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned from a “first-to-invent” to a “first-to-file” system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. Under a “first-to-file” system, assuming the other requirements for patentability are met, the first inventor to file a patent application generally will be entitled to a patent on the invention regardless of whether another inventor had made the invention earlier. A third party that files a patent application in the USPTO after that date but before us could therefore be awarded a patent covering an invention of ours even if we made the invention before it was made by the third party. Circumstances could prevent us from promptly filing patent applications on our inventions.
The AIA provided opportunities for third parties to challenge any issued patent in the USPTO. Those provisions apply to all of our U.S. patents, regardless of when issued. Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not have been invalidated if first challenged by the third party as a defendant in a district court action. These provisions could increase the uncertainties and costs surrounding the prosecution of our or our licensors’ patent applications and the enforcement or defense of our or our licensors’ issued patents.
In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, some of which either narrow the scope of patent protection available in certain circumstances or weaken the rights of patent owners in certain situations. For example, the 2013 decision by the U.S. Supreme Court in Association for Molecular Pathology v. Myriad Genetics, Inc. precludes a claim to a nucleic acid having a stated nucleotide sequence which is identical to a sequence found in nature and unmodified. We currently are not aware of an immediate impact of this decision on our patents or patent applications because we are developing nucleic acid products that are not found in nature. However, this decision has yet to be clearly interpreted by courts and by the USPTO. We cannot assure you that the interpretations of this decision or subsequent rulings will not adversely impact our patents or patent applications. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing U.S. patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future. In addition, the European patent system is relatively stringent in the type of amendments that are allowed during prosecution, but the complexity and uncertainty of European patent laws has also increased in recent years. Complying with these laws and regulations could limit our ability to obtain new patents in the future that may be important for our business.
In addition, changes in, or different interpretations of, patent laws in the United States and other countries may permit others to use our discoveries or to develop and commercialize our technology without providing any compensation to us, or may limit the scope of patent protection that we are able to obtain. The laws of some countries do not protect intellectual property rights to the same extent as U.S. laws, and those countries may lack adequate rules and procedures for defending our intellectual property rights.
If the patent applications we hold or have in-licensed with respect to our current and future technology fail to issue, if the validity, breadth or strength of protection of our patent rights is threatened, or if such patent rights fail to provide meaningful exclusivity for our methods and related products that we or our collaborators may develop, it could dissuade companies from collaborating with us, encourage competitors to develop competing technology and threaten our or our collaborators’ ability to commercialize future nucleic acid preparative and analytical methods and related products or services. Any such outcome could have a material adverse effect on our business.

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We will not seek to protect our intellectual property rights in all jurisdictions throughout the world, and we may not be able to adequately enforce our intellectual property rights even in the jurisdictions where we seek protection.
Filing, prosecuting and defending patents in all countries and jurisdictions throughout the world would be prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States, assuming that rights are obtained in the United States. In-licensing patents covering our technology in all countries throughout the world may similarly be prohibitively expensive, if such opportunities are available at all. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States, even in jurisdictions where we do pursue patent protection. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, even in jurisdictions where we do pursue patent protection, or from selling or importing our technology in and into the United States or other jurisdictions.
We generally apply for patents in those countries where we intend to make, have made, use, offer for sale or sell nucleic acid preparative and analytical methods and related products or services and where we assess the risk of infringement to justify the cost of seeking patent protection. However, we may not seek protection in all countries where we will commercialize our products and services and we may not accurately predict all the countries where patent protection would ultimately be desirable. If we fail to timely file a patent application in any such country or major market, we may be precluded from doing so at a later date. Competitors may use our technology in jurisdictions where we do not pursue and obtain patent protection to develop their own assays and products and may export otherwise infringing assays and products to territories where we have patent protection, but where our ability to enforce our patent rights is not as strong as in the United States. These assays and products may compete with technologies that we or our collaborators may develop, and our patents or other intellectual property rights may not be effective or sufficient to prevent such competition.
The laws of some other countries do not protect intellectual property rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries. In addition, the legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to biopharmaceuticals or biotechnologies. As a result, many companies have encountered significant difficulties in protecting and defending intellectual property rights in certain jurisdictions outside the United States. Such issues may make it difficult for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many other countries, including countries in the EU, have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third party, which could materially diminish the value of those patents and could limit our potential revenue opportunities. Accordingly, our and our licensors’ efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we own or license.
Furthermore, proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, subject our patents to the risk of being invalidated or interpreted narrowly, subject our patent applications to the risk of not issuing or provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate, and the damages or other remedies awarded to us, if any, may not be commercially meaningful, while the damages and other remedies we may be ordered to pay such third parties may be significant.

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Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patent protection for certain aspects of our technology, we also consider trade secrets, including confidential and unpatented know-how, important to the maintenance of our competitive position. We protect trade secrets and confidential and unpatented know-how, in part, by entering into non-disclosure and confidentiality agreements with parties who have access to such knowledge, such as our employees, corporate collaborators, outside scientific collaborators, contract research organizations, or CROs, contract manufacturers, consultants, advisors and other third parties. We also enter into confidentiality and invention or patent assignment agreements with our employees and consultants that obligate them to maintain confidentiality and assign their inventions to us. We cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or proprietary technology and processes or that the assignment agreements that have been entered into are self-executing. Despite these efforts, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, or claim ownership in intellectual property that we believe is owned by us. Monitoring unauthorized uses and disclosures of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property will be effective. In addition, we may not be able to obtain adequate remedies for such breaches. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, some courts in the U.S. and certain foreign jurisdictions are less willing or unwilling to protect trade secrets.
Moreover, our competitors or other third parties may independently develop knowledge, methods and know-how equivalent to our trade secrets or seek to reverse engineer our technology for which we do not have patent protection. If any of our trade secrets were to be lawfully obtained or independently developed by a competitor or other third parties, we would have no right to prevent them from using that technology or information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a competitor, our competitive position would be harmed.
We are also subject both in the U.S. and outside the U.S. to various regulatory schemes regarding requests for the information we provide to regulatory authorities, which may include, in whole or in part, trade secrets or confidential commercial information. While we are likely to be notified in advance of any disclosure of such information and would likely object to such disclosure, there can be no assurance that our challenge to the request would be successful. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations, and prospects.
We may be subject to claims that our employees, consultants, or advisors have wrongfully used or disclosed trade secrets or other confidential information of their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
Many of our employees, consultants, and advisors are currently or were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants, and advisors do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these individuals have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

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In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations, and prospects.
If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be infringing on other marks. Any trademark litigation could be expensive. We may not be able to protect our rights to these trademarks and trade names or may be forced to stop using these names, which we need for name recognition by potential collaborators or customers in our markets of interest. If we are unable to establish name recognition based on our trademarks and trade names, we may not be able to compete effectively and our business may be adversely affected.
Our use of “open source” software could subject our proprietary software to general release, adversely affect our ability to sell our products or provide our services, and subject us to possible litigation.
A portion of the products or technologies licensed, developed or distributed by us incorporate so-called “open source” software and we may incorporate open source software into other products or technologies in the future. Such open source software is generally licensed by its authors or other third parties under open source licenses. Some open source licenses contain requirements that we disclose source code for modifications we make to the open source software and that we license such modifications to third parties at no cost. In some circumstances, distribution of our software in connection with open source software could require that we disclose and license some or all of our proprietary code in that software as well as distribute our products that use particular open source software at no cost to the user. We monitor our use of open source software in an effort to avoid uses in a manner that would require us to disclose or grant licenses under our proprietary source code, however, there can be no assurance that such efforts will be successful. Open source license terms are often ambiguous and such use could inadvertently occur. There is little legal precedent governing the interpretation of many of the terms of certain of these licenses, and the potential impact of these terms on our business may result in unanticipated obligations regarding our products and technologies. Companies that incorporate open source software into their products have, in the past, faced claims seeking enforcement of open source license provisions and claims asserting ownership of open source software incorporated into their product. If an author or other third party that distributes such open source software were to allege that we had not complied with the conditions of an open source license, we could incur significant legal costs defending ourselves against such allegations. In the event such claims were successful, we could be subject to significant damages or be enjoined from the distribution of our products. In addition, if we combine our proprietary software with open source software in certain ways, under some open source licenses we could be required to release the source code of our proprietary software, which could substantially help our competitors develop products and services that are similar to or better than ours and otherwise have a material adverse effect on our business.
Intellectual property rights do not necessarily address all potential threats.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
others may be able to make products or provide services that are similar to ours but that are not protected by our intellectual property;

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we or our licensors might not have been the first to make the inventions covered by our patents;
we or our licensors might not have been the first to file patent applications covering certain of our or their inventions;
others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;
it is possible that our pending patent applications or those that we may own in the future will not lead to issued patents;
issued patents for which we have rights may be held invalid or unenforceable, including as a result of legal challenges by our competitors;
our competitors might conduct activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products and services in our commercial markets;
we may not develop additional proprietary technologies that are patentable;
the patents of others may harm our business; and
we or our licensors may choose not to file a patent in order to maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such intellectual property.
Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Risks related to our financial condition and capital requirements
We may need to raise additional capital to fund our existing operations, further develop our genetic analysis platform, commercialize new products and services, and expand our operations.
We may seek to sell common or preferred equity or convertible debt securities, enter into another credit facility or another form of third-party funding, or seek other debt financing. We may also need to raise capital sooner or in larger amounts than currently anticipated for numerous reasons, including because of lower demand for our products and services as a result of failure to obtain regulatory approvals for our IVD and companion diagnostics, or if such approvals are obtained, lower than currently expected rates of reimbursement from commercial third-party payors or government payors or other risks described in this prospectus.
We may also consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities, or for other reasons, including to:
increase our sales and marketing efforts to facilitate market adoption of our services and address competitive developments;
fund development and marketing efforts of any future services;
further expand our laboratory operations domestically and outside the United States;
expand our technologies into other types of cancers;
acquire, license or invest in technologies, including information technologies;
acquire or invest in complementary businesses or assets; and
finance capital expenditures and general and administrative expenses.

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Our present and future funding requirements will depend on many factors, including:
our ability to achieve revenue growth;
our ability to secure domestic and international regulatory approval for our products;
our rate of progress in establishing reimbursement arrangements for our approved products, if any, with domestic and international commercial third-party payors and government payors;
the cost of expanding our laboratory operations and offerings, including our sales and marketing efforts;
our rate of progress in, and cost of the sales and marketing activities associated with, establishing adoption of and reimbursement for our services;
our rate of progress in, and cost of research and development activities associated with, services in research and early development;
the effect of competing technological and market developments;
costs related to international expansion; and
the potential cost of and delays in research and development as a result of any regulatory oversight applicable to our services.
The various ways we could raise additional capital carry potential risks. If we raise funds by issuing equity securities, our stockholders’ ownership interests will be diluted. Any equity securities we issue could also provide for rights, preferences, or privileges senior to those of holders of our common stock. If we raise funds by issuing debt securities, those debt securities would have rights, preferences, and privileges senior to those of holders of our common stock. If we raise funds through borrowings pursuant to a credit agreement, the incurrence of such indebtedness would result in increased fixed payment obligations and could involve restrictive covenants, such as limitations on our ability to incur additional debt and acquire or license intellectual property rights, and other operating restrictions that could adversely impact our ability to conduct our business. If we raise funds through collaborations and alliances and licensing arrangements, we might be required to relinquish significant rights to our genomics platform, technologies or services, or grant licenses on terms that are unfavorable to us.
Additional equity or debt financing might not be available on reasonable terms, if at all. If we cannot secure additional funding when needed, we may have to delay, reduce the scope of, or eliminate one or more research and development programs or sales and marketing initiatives. In addition, we may have to work with a partner on one or more of our development programs, which could lower the economic value of those programs to us.
Lastly, if we are unable to obtain the requisite amount of financing needed to fund our planned operations, it could have a material adverse effect on our business and ability to continue operating as a going concern.
Our Credit Agreement with Perceptive Credit contains restrictions that limit our flexibility in operating our business.
In May 2019, we entered into a credit agreement and guaranty, subsequently amended in April 2020, or, as amended, the Credit Agreement, with Perceptive Credit Holdings II, LP, or Perceptive Credit, an affiliate of Perceptive Life Sciences Master Fund LTD, or Perceptive Life. The Credit Agreement provides for a $30 million senior secured term loan and a $15 million revolving senior secured delayed draw loan facility, or the Delayed Draw Loan Facility. The Credit Agreement is guaranteed by all of our subsidiaries (other than immaterial foreign subsidiaries) and is secured by a lien on substantially all of our and our subsidiaries assets, including, but not limited to, shares of our subsidiaries, our current and future intellectual property, insurance, trade and intercompany receivables, inventory and equipment and

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contract rights. The Credit Agreement requires us to meet specified minimum cash and revenue requirements, as described below, and contains various affirmative and negative covenants that limit our ability to engage in specified types of transactions. These covenants, which are subject to customary exceptions, limit our ability to, among other things:
sell, lease, transfer or otherwise dispose of certain assets;
acquire another company or business or enter into a merger or similar transaction with third parties;
incur additional indebtedness;
make investments;
enter into inbound and outbound licenses of intellectual property;
encumber or permit liens on certain assets; and
pay dividends and make other restricted payments with respect to our common stock.
In addition, we are required to deposit into controlled accounts all cash or other payments received in respect of any and all of our accounts receivable or any other contract or right and interest, and, at all times, to maintain a minimum aggregate balance of $3 million in cash in one or more such controlled accounts. These accounts are required to be maintained as cash collateral accounts securing our obligations under the Credit Agreement. Until such obligations have been discharged, our ability to use cash amounts held in these controlled accounts in the operation of our business will be limited.
The Credit Agreement also requires us to maintain certain revenue requirements. As of the last day of each fiscal quarter, we must have received recurring revenue for the twelve consecutive previous months of at least $38,710,000, as of March 31, 2020, increasing quarterly to $102,628,000 as of March 31, 2023:
Our ability to draw on the Delayed Draw Loan Facility is contingent on our compliance with the covenants described above and certain other covenants, as well as our achievement of designated revenue milestones. These milestones include, for any period of twelve consecutive months ending no later than June 30, 2020, generating at least $48,000,000 in revenue. The inability to draw on the Delayed Draw Loan Facility may adversely affect our performance and results of operations.
Our board of directors or management team could believe that taking any one of these actions would be in our best interests and the best interests of our stockholders. As such, if we are unable to complete any of these actions because Perceptive Credit does not provide its consent, it could adversely impact our business, financial condition, and results of operations. In the event of a default, including, among other things, our failure to make any payment when due or our failure to comply with any provision of the Credit Agreement, subject to customary grace periods, Perceptive Credit could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. If we are unable to repay those amounts, Perceptive Credit could proceed against the collateral granted to them to secure such indebtedness, which could have a material adverse effect on our business, financial condition, and results of operations.
Perceptive Credit’s interests as a lender may not always be aligned with our interests or with Perceptive Life’s interests as a stockholder. If our interests come into conflict with those of Perceptive Credit, including in the event of a default under the Credit Agreement, Perceptive Credit may choose to act in its self-interest, which could adversely affect the success of our current and future collaborative efforts with Perceptive Life.
Additionally, in connection with the first amendment to the Credit Agreement, we issued and delivered to Perceptive Credit a warrant entitling it to purchase up to 323,333 fully paid and nonassessable shares of Series B Preferred Stock at $4.82 per share, the original issue price of the Series B Preferred Stock. We refer to this warrant as the Delayed Draw Warrant. The Delayed Draw Warrant expires on April 27, 2027.

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Upon exercise of the Delayed Draw Warrant, our stockholders, including investors who purchase shares of common stock in this offering, will experience additional dilution. See “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources”.
If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our operating results could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.
The preparation of our financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. For example, in connection with the revenue accounting standard, ASC 606, management makes judgments and assumptions based on our interpretation of the new standard. The revenue standard is principle-based and interpretation of those principles may vary from company to company based on their unique circumstances. It is possible that interpretation, industry practice and guidance may evolve as we apply the standard. If our assumptions underlying our estimates and judgments relating to our critical accounting policies change or if actual circumstances differ from our assumptions, estimates or judgments, our operating results may be adversely affected and could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.
Risks related to our common stock and the offering
Our stock price may be volatile, and the value of our common stock may decline.
The market price of our common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control, including, but not limited to:
actual or anticipated fluctuations in our financial condition or results of operations;
variance in our financial performance from expectations of securities analysts;
changes in the pricing of our products and services;
changes in our projected operating and financial results;
changes in laws or regulations applicable to our products and services;
the results of our clinical trials;
announcements by us or our competitors of significant business developments, acquisitions, or new offerings;
significant data breaches of our company, providers, vendors or pharmacies;
our involvement in litigation;
future sales of our common stock by us or our stockholders, as well as the anticipation of lock-up releases;
changes in senior management or key personnel;
negative publicity, such as whistleblower complaints or unsupported allegations made by short sellers, about us or our products or services;
the trading volume of our common stock;

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changes in investor perceptions of us or our industry;
changes in the anticipated future size and growth rate of our market;
general economic, political, regulatory, industry, and market conditions; and
natural disasters or major catastrophic events.
These and other factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In recent years, stock markets in general, and the market for life science technology companies in particular (including companies in the genomics, biotechnology, diagnostics and related sectors), have experienced significant price and volume fluctuations that have often been unrelated or disproportionate to changes in the operating performance of the companies whose stock is experiencing those price and volume fluctuations. Broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. These fluctuations may be even more pronounced in the trading market for our stock shortly following this offering. Following periods of such volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Because of the potential volatility of our stock price, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.
Prior to this offering, there has been no public market for shares of our common stock and an active trading market for our common stock may never develop or be sustained.
No public market for our common stock currently exists. An active public trading market for our common stock may not develop following the completion of this offering, or if developed, it may not be sustained. The lack of an active market may impair your ability to sell your shares at the time you wish to sell them or at a price that you consider reasonable. The lack of an active market may also reduce the fair value of your shares. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration. The initial public offering price of shares of our common stock has been determined by negotiation between us and the underwriters and may not be indicative of prices that will prevail following the completion of this offering. The market price of shares of our common stock may decline below the initial public offering price, and you may not be able to resell your shares of our common stock at or above the initial public offering price.
Future sales of our common stock in the public market could cause the market price of our common stock to decline.
Sales of a substantial number of shares of our common stock in the public market following the completion of this offering, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities.
All of our directors and officers and the holders of substantially all of our capital stock and securities convertible into our capital stock are subject to lock-up agreements that restrict their ability to transfer shares of our capital stock for 180 days from the date of this prospectus. These lock-up agreements limit the number of shares of capital stock that may be sold immediately following this offering. Subject to certain limitations, substantially all of these shares will become eligible for sale upon expiration of the 180-day lock-up period. J.P. Morgan Securities LLC and BofA Securities, Inc. may, in their sole discretion, permit our stockholders who are subject to these lock-up agreements to sell shares prior to the expiration of the lock-up agreements.
In addition, there were 5,418,687 shares of common stock issuable upon the exercise of options outstanding as of March 31, 2020. We intend to register all of the shares of common stock issuable upon

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exercise of such outstanding options or other equity incentives we may grant in the future, for public resale under the Securities Act of 1933, as amended, or the Securities Act. The shares of common stock will become eligible for sale in the public market to the extent such options are exercised, subject to the lock-up agreements described above and compliance with applicable securities laws.
Further, based on shares outstanding as of March 31, 2020, holders of approximately               shares, or               % of our capital stock after the completion of this offering, will have rights, subject to some conditions, to require us to file registration statements covering the sale of their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.
There are also 1,189,749 shares of Series A Preferred Stock issuable in connection with the Baby Genes Merger Agreement, as well as 646,667 and 323,333 shares of Series B Preferred Stock issuable in connection with the Series B Warrant and the Delayed Draw Warrant, respectively. The issuance of shares in connection with any subsequent issuance could depress the market price of our common stock.
We are unable to predict the effect that such issuances and/or sales may have on the prevailing market price of our common stock.
If you purchase shares of common stock in this offering, you will experience immediate and substantial dilution in your investment. You will experience further dilution if we issue additional equity or equity-linked securities in the future.
The initial public offering price of our common stock is substantially higher than the pro forma net tangible book value per share of our common stock immediately after this offering. If you purchase shares of our common stock in this offering, you will suffer immediate dilution of $               per share, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to the sale of          shares of common stock in this offering and an anticipated public offering price of $               per share, the midpoint of the price range set forth on the cover page of this prospectus. See the section titled “Dilution.”
If we issue additional shares of common stock, or securities convertible into or exchangeable or exercisable for shares of common stock, our stockholders, including investors who purchase shares of common stock in this offering, will experience additional dilution, and any such issuances may result in downward pressure on the price of our common stock.
We are an “emerging growth company” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an “emerging growth company”, as defined in the JOBS Act. For so long as we remain an emerging growth company, we are permitted by SEC rules and plan to rely on exemptions from certain disclosure requirements that are applicable to other SEC-registered public companies that are not emerging growth companies.
These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes–Oxley Act, not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As a result, the information we provide stockholders will be different from the information that is available with respect to other public companies. In this prospectus, we have not included all of the executive compensation related information that would be required if we were not an emerging growth company. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

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We do not expect to pay any dividends for the foreseeable future. Investors in this offering may never obtain a return on their investment.
You should not rely on an investment in our common stock to provide dividend income. We have never declared or paid cash dividends on our capital stock, and we do not anticipate that we will pay any dividends to holders of our common stock in the foreseeable future. Instead, we plan to retain all available funds and future earnings to fund the development and expansion of our business. In addition, our Credit Agreement with Perceptive Credit contains, and any future credit facility or financing we obtain may contain, terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our common stock.
If securities analysts do not publish research or reports about our business or if they publish negative evaluations of our common stock, the price of our common stock could decline.
The trading market for our common stock will rely in part on the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or securities analysts. If no or few analysts commence coverage of us, the trading price of our common stock could decrease. Even if we do obtain analyst coverage, if one or more of the analysts covering our business downgrade their evaluations of our common stock, the price of our common stock could decline. If one or more of these analysts cease to cover our common stock, we could lose visibility in the market for our common stock, which in turn could cause the price of our common stock to decline.
We will incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to compliance with our public company responsibilities and corporate governance practices.
As a public company, we will incur significant legal, accounting, and other expenses that we did not incur as a private company, which we expect to further increase after we are no longer an emerging growth company. The Sarbanes–Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the Nasdaq Stock Market, or Nasdaq, and other applicable securities rules and regulations impose various requirements on public companies. Our management and other personnel devote a substantial amount of time to compliance with these requirements. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time- consuming and costly. We cannot predict or estimate the amount of additional costs we will incur as a public company or the specific timing of such costs.
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
We will have broad discretion in the application of the net proceeds to us from this offering, including for any of the purposes described in the section titled “Use of proceeds,” and you will not have the opportunity as part of your investment decision to assess whether the net proceeds are being used appropriately. Because of the number and variability of factors that will determine our use of the net proceeds from this offering, our ultimate use may vary substantially from our currently intended use. Investors will need to rely upon the judgment of our management with respect to the use of proceeds. Pending use, we may invest the net proceeds from this offering in short-term, investment-grade, interest-bearing securities, such as money market accounts, certificates of deposit, commercial paper, and guaranteed obligations of the United States government that may not generate a high yield for our stockholders. If we do not use the net proceeds that we receive in this offering effectively, our business, financial condition, results of operations and prospects could be harmed, and the market price of our common stock could decline.

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Our management and principal stockholders own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
As of March 31, 2020, our executive officers, directors and five percent or greater stockholders and their respective affiliates, beneficially own, in the aggregate, approximately               % of our outstanding common stock, assuming the conversion of all our outstanding convertible preferred stock. Upon the closing of this offering, assuming that we sell the number of shares reflected on the cover page of this prospectus, that same group will beneficially own, in the aggregate, approximately               % of our outstanding common stock. As a result, after this offering, these stockholders, if they act together, will be able to exercise considerable influence over matters requiring stockholder approval, including the election of directors, amendments of our organizational documents and approval of any merger, sale of substantially all our assets or other significant corporate transactions. This concentration of ownership may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you or other stockholders may feel are in your or their best interest as one of our stockholders.
As a result of being a public company, we are obligated to develop and maintain proper and effective internal controls over financial reporting, and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our common stock.
We will be required, pursuant to Section 404 of the Sarbanes–Oxley Act to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the fiscal year ending December 31, 2021, which is the year covered by the second annual report following the completion of our initial public offering. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting in our first annual report required to be filed with the SEC following the date we are no longer an emerging growth company if we are not a non-accelerated filer at such time. We have recently commenced the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404 of the Sarbanes–Oxley Act, but we may not be able to complete our evaluation, testing and any required remediation in a timely fashion once initiated. Our compliance with Section 404 of the Sarbanes–Oxley Act will require that we incur substantial accounting expenses and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404 of the Sarbanes–Oxley Act.
If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities. Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.
Our amended and restated certificate of incorporation that we intend to adopt effective upon the closing of this offering will designate the state courts in the State of Delaware of, if no state court located within the State of Delaware has jurisdiction, the federal court for the District of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could discourage lawsuits against us or our directors, officers, or employees.
Our amended and restated certificate of incorporation that we intend to adopt effective upon the completion of this offering will provide that, to the fullest extent permitted by law, unless we consent in

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writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery does not have jurisdiction, any state court located within the State of Delaware, or if all such state courts lack jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for the following types of actions or proceedings under Delaware statutory or common law: (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a breach of a fiduciary duty owed by any current or former director, officer or other employee, to us or our stockholders; (3) any action or proceeding asserting a claim against us or any of our current or former directors, officers or other employees, arising out of or pursuant to any provisions of the Delaware General Corporation Law, our amended and restated certificate of incorporation, or our amended and restated bylaws; (4) any action or proceeding to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws; (5) any action or proceeding as to which the Delaware General Corporation Law confers jurisdiction to the Court of Chancery of the State of Delaware; and (6) any action asserting a claim against us, or any of our directors, officers or other employees, that is governed by the internal affairs doctrine, in all cases to the fullest extent permitted by law and subject to the court’s having personal jurisdiction over the indispensable parties named as defendants. The amended and restated certificate of incorporation we intend to adopt effective upon closing of this offering states that these choice of forum provisions will not apply to suits brought to enforce a duty or liability created by the Securities Act, the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. This amended and restated certificate of incorporation will further provide that, unless we consent in writing to the selection of an alternative forum, the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act .
These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees and may discourage these types of lawsuits. Furthermore, if a court were to find the choice of forum provisions contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.
Our amended and restated certificate of incorporation that we intend to adopt effective upon the closing of this offering and Delaware law may inhibit a takeover of us, which could limit the price investors might be willing to pay in the future for our common stock and could entrench management.
Our amended and restated certificate of incorporation that we intend to adopt effective upon the completion of this offering will contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best interests. These provisions include a staggered board of directors and the ability of the board of directors to designate the terms of and issue new series of preferred shares, which may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.
We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make more difficult the removal of management and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.

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Special note regarding forward-looking statements
This prospectus contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations or financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these words or other similar terms or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
our expectations regarding our revenue, expenses and other operating results;
the anticipated cost, timing or outcome of any patent litigation or other proceeding relating to our owned patents, licensed patents or patent applications, including our litigation with Natera;
future investments in our business, our anticipated capital expenditures and our estimates regarding our capital requirements, future revenues, expenses, reimbursement rates and needs for additional financing;
the timing or outcome of any of our domestic and international regulatory submissions;
impact from future regulatory, judicial, and legislative changes or developments in the United States and foreign countries;
our ability to acquire new customers and successfully engage new and existing customers;
the costs and success of our marketing efforts, and our ability to promote our brand;
our ability to increase demand for our products and services, obtain favorable coverage and reimbursement determinations from third-party payers and expand geographically;
our expectations of the reliability, accuracy and performance of our products and services, as well as expectations of the benefits to patients, clinicians and providers of our products and services;
our efforts to successfully develop and commercialize our products and services, including our ability to successfully conduct clinical trials;
our ability to successfully develop additional revenue opportunities and expand our product and service offerings, including our recently launched offerings;
our ability to successfully commercialize our products and services through strategic or commercial partnerships, such as our agreements with Illumina and our ability to enter into additional such partnerships in the future;
the scope of protection we establish and maintain for, and developments or disputes concerning, our intellectual property or other proprietary rights, data-privacy and security breaches, as well as the integrity of our information and telecommunications systems;
our ability to attract, and reliance on, collaborators such as medical institutions, contract laboratories, laboratory partners and other third parties;
the performance of our third-party suppliers and manufacturers;
our ability to effectively manage our growth, including our ability to expand our network of specialists, retain and recruit personnel, and maintain our culture;
our ability to compete effectively with existing competitors and new market entrants;

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our ability to successfully acquire and integrate other businesses, form joint ventures or make investments in other companies;
the impact on our business of economic or political events or trends;
the size and growth potential of the markets for our products and services, and our ability to serve those markets; and
the rate and degree of market acceptance of our products and services.
You should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained in this prospectus primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. The outcome of the events described in these forward-looking statements is subject to risks, uncertainties and other factors described in the section titled “Risk factors” and elsewhere in this prospectus. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this prospectus. The results, events and circumstances reflected in the forward-looking statements may not be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject as of the date of this prospectus. These statements are based on information available to us as of the date of this prospectus, and while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete, and our beliefs and opinions may change based on new or additional information made available to us in the future. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements.
The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward-looking statements made in this prospectus to reflect events or circumstances after the date of this prospectus or to reflect new information or the occurrence of unanticipated events, except as required by law. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments.

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Market, industry and other data
This prospectus contains statistical data, estimates and forecasts that are based on independent industry publications or other publicly available information, as well as other information based on our internal sources. This information involves many assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and other publicly available information. Further, while we believe our internal research is reliable, such research has not been verified by any third party. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk factors,” that could cause results to differ materially from those expressed in these publications and other publicly available information.

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Use of proceeds
We estimate that we will receive net proceeds from the sale of the common stock that we are offering of approximately $       million (or approximately $       million if the underwriters exercise their option to purchase additional shares of our common stock from us in full) based on an assumed initial public offering price of $       per share of common stock, the midpoint of the estimated price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
A $1.00 increase (decrease) in the assumed initial public offering price of $       per share of common stock would increase (decrease) the net proceeds to us from this offering by approximately $       million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) the net proceeds to us from this offering by approximately $       million, assuming the assumed initial public offering price of $       per share of common stock remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The principal purposes of this offering are to increase our capitalization and financial flexibility, create a public market for our common stock and facilitate our future access to the capital markets. As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to us from this offering. We currently expect to use the net proceeds from this offering for:
research and development activities, including development of STRATAFIDE and PCM,
regulatory submission and commercialization of our first IVD product, STRATAFIDE, and additional follow-on companion diagnostic claims for STRATAFIDE,
commercialization activities relating to STRATAFIDE, and
working capital and general corporate purposes, including sales and marketing activities, operating expenses and capital expenditures. We may also use a portion of the net proceeds, if any, to acquire or invest in complementary businesses, technologies or other assets. However, we do not have any agreements or commitments to enter into any such acquisitions or investments at this time.
Although we currently anticipate that we will use the net proceeds from this offering as described above, there may be circumstances where a reallocation of funds is necessary. For instance, we anticipate that the net proceeds from this offering will be sufficient to fund our development of STRATAFIDE through approval and/or clearance by the FDA, but we cannot guarantee that to be the case. We also anticipate that the net proceeds from this offering will allow for development of PCM, although additional funds will be needed to support regulatory submission for approval and/or clearance of PCM and commercialization of PCM. If the net proceeds from this offering are insufficient to fund development of STRATAFIDE and PCM through approval and/or clearance by the FDA, we may raise additional capital, including through the sale of our common or preferred equity or convertible debt securities, entry into another credit facility or another form of third-party funding, or other debt financing. The amounts and timing of our actual expenditures will depend upon numerous factors, including our commercialization efforts, demand for our products, rates of reimbursement, the costs of equipment, the progress of our research and development efforts, our operating costs and the other factors described in the section titled “Risk factors.” Accordingly, we will have broad discretion over how to use the net proceeds to us from this offering. We intend to invest the net proceeds to us from the offering that are not used as described above in investment-grade, interest-bearing instruments and U.S. government securities.

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Dividend policy
We have never declared or paid cash dividends on our capital stock. We currently intend to retain all available funds and future earnings, if any, to fund the development and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination regarding the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. In addition, we have entered into, and may enter into agreements in the future, that contain restrictions on payments of cash dividends.

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Capitalization
The following table sets forth our cash and capitalization as of March 31, 2020:
on an actual basis;
on a pro forma basis, giving effect to (1) the issuance of 389,749 shares of Series A Preferred Stock pursuant to the Baby Genes Merger Agreement, (2) the issuance of                 shares of our Series B Preferred Stock issuable upon the automatic net exercise of the warrant to purchase Series B Preferred Stock, or the Series B Warrant, in connection with this offering, assuming an initial public offering price of $             per share, the midpoint of the estimated price range set forth on the cover page of this prospectus , (3) the automatic conversion of all of our outstanding shares of preferred stock (including the shares issuable pursuant to the Baby Genes Merger Agreement described in (1) above and pursuant to the automatic net exercise of the Series B Warrant described in (2) above) into shares of common stock in connection with this offering, (4) the automatic conversion of contingent consideration for the Baby Genes Acquisition from Series A Preferred Stock to up to 800,000 shares of our common stock and the resulting reclassification of the remaining liability to additional paid-in capital, and (5) the filing and effectiveness of our amended and restated certificate of incorporation which will be in effect on the completion of this offering; and
on a pro forma as-adjusted basis, giving effect to (1) the pro forma adjustments set forth above and (2) our receipt of estimated net proceeds from the sale of shares of our common stock that we are offering at an assumed initial public offering price of $       per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
You should read this table together with the sections titled “Selected consolidated financial data” and “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and related notes included elsewhere in this prospectus.
 
As of March 31, 2020
 
Actual 

 
Pro Forma (unaudited) 
 
Pro Forma
As Adjusted  (unaudited)
 
(in thousands except share and per share amounts)
Cash and cash equivalents
$
36,842

 
$
 
$
Long-term debt
$
28,659

 
$
 
$
Convertible preferred stock, $0.001 par value; 28,293,525 shares authorized, 26,130,896 shares issued and outstanding, actual; and no shares authorized, issued and outstanding, pro forma and pro forma as adjusted
115,347

 
 
 
 
Stockholders’ (deficit) equity:
 
 
 
 
 
Common stock, $0.01 par value; 45,000,000 authorized; 9,246,778 shares issued and outstanding, actual;       shares authorized and       shares issued and outstanding, pro forma; and       shares authorized and       shares issued and outstanding, pro forma as adjusted
92

 
 
 
 
Additional paid-in capital
4,347

 
 
 
 
Accumulated deficit
(88,560
)
 
 
 
 
Total stockholders’ (deficit) equity
$
(84,121
)
 
$
 
$
Total capitalization
$
59,885

 
$
 
$
 
 
 
 
 
 

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A $1.00 increase (decrease) in the assumed initial public offering price of $       per share of common stock, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) each of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization by approximately $       million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) each of our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) equity and total capitalization by approximately $       million, assuming the assumed initial public offering price of $       per share of common stock, the midpoint of the estimated price range set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The       million shares of our common stock outstanding, pro forma, and the         million shares of our common stock outstanding, pro forma as adjusted, excludes:
5,418,687 shares of common stock issuable on the exercise of stock options outstanding as of March 31, 2020 under the 2015 Plan, with a weighted-average exercise price of approximately $2.17 per share;
up to an aggregate of 800,000 shares of common stock which may be issued in connection with the Baby Genes Acquisition, pursuant to certain earn-out provisions if specified revenue thresholds are achieved;
       shares of common stock reserved for future issuance under our 2020 Plan, as well as any future increases, including annual automatic evergreen increases, in the number of shares of common stock reserved for issuance under our 2020 Plan; and
       shares of common stock reserved for issuance under our ESPP, as well as any future increases, including annual automatic evergreen increases, in the number of shares of common stock reserved for future issuance under our ESPP.

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Dilution
If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of common stock and the pro forma as adjusted net tangible book value per share immediately after this offering.
Our historical net tangible book value as of March 31, 2020 was $25.7 million, or $2.78 per share. Net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of our shares of common stock outstanding as of March 31, 2020. Our pro forma net tangible book value as of March 31, 2020 was $         million, or $         per share. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of our shares of common stock outstanding as of March 31, 2020 , after giving effect to (1) the issuance of 389,749 shares of Series A Preferred Stock pursuant to the Baby Genes Merger Agreement, (2) the issuance of              shares of our Series B Preferred Stock issuable upon the automatic net exercise of the Series B Warrant in connection with this offering, assuming an initial public offering price of $         per share, the midpoint of the estimated price range set forth on the cover page of this prospectus , (3) the automatic conversion of all of our outstanding shares of preferred stock (including the shares issuable pursuant to the Baby Genes Merger Agreement described in (1) above and issuable pursuant to the automatic net exercise of the Series B Warrant described in (2) above) into shares of common stock in connection with this offering, (4) the automatic conversion of contingent consideration for the Baby Genes Acquisition from Series A Preferred Stock to up to 800,000 shares of our common stock and the resulting reclassification of the remaining liability to additional paid-in capital and (5) the filing and effectiveness of our amended and restated certificate of incorporation which will be in effect on the completion of this offering.
After giving effect to the sale by us of         shares of common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2020 would have been $         million, or $         per share. This amount represents an immediate increase in pro forma as adjusted net tangible book value of $         per share to our existing stockholders and an immediate dilution in pro forma as adjusted net tangible book value of $         per share to new investors purchasing common stock in this offering. We determine dilution by subtracting the pro forma as adjusted net tangible book value per share after this offering from the amount of cash that a new investor paid for a share of common stock. The following table illustrates this dilution on a per share basis:
Assumed initial public offering price per share
 
 
$
Historical net tangible book value per share as of March 31, 2020
$
2.78

 
 
Increase in historical net tangible book value per share attributable to the pro forma adjustments described above
 
 
 
Pro forma net tangible book value per share as of March 31, 2020
 
 
 
Increase in pro forma as adjusted net tangible book value per share attributable to new investors purchasing shares in this offering
 
 
 
Pro forma as adjusted net tangible book value per share after this offering
 
 
 
Dilution in pro forma as adjusted net tangible book value per share to new investors participating in this offering
 
 
$
 
 
 
 
The dilution information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of this offering. A $1.00 increase (decrease) in the assumed initial public offering price of $       per share of common stock, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value per share after this offering by $       per share and increase (decrease) the dilution to new investors by $       per share, in each case assuming the number of shares of common stock offered by us,

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as set forth on the cover page of this prospectus, remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of 1,000,000 shares in the number of shares of common stock offered by us would increase (decrease) our pro forma as adjusted net tangible book value by approximately $       per share and decrease (increase) the dilution to new investors by approximately $       per share, in each case assuming the assumed initial public offering price of $       per share of common stock remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
If the underwriters exercise their option to purchase additional shares of common stock in full, the pro forma net tangible book value per share, as adjusted to give effect to this offering, would be $       per share, and the dilution in pro forma net tangible book value per share to investors in this offering would be $       per share.
The following table summarizes, as of March 31, 2020, on a pro forma as adjusted basis as described above, the number of shares of our common stock, the total consideration and the average price per share (1) paid to us by existing stockholders, and (2) to be paid by new investors acquiring our common stock in this offering at an assumed initial public offering price of $         per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, before deducting underwriting discounts and commissions and estimated offering expenses payable by us. The table below assumes no exercise of the underwriters’ option to purchase additional shares of common stock.
 
Shares Purchased
 
 
Total Consideration
 
 
Average Price
Per Share
 
Number
 
Percent

 
Amount
 
Percent

 
Existing stockholders
 
 
%

 
 
 
%

 
 
New investors
 
 
 
 
 
 
 
 
 
Totals
 
 
100.0
%
 
$
 
100.0
%
 
 
 
 
 
 
 
 
 
 
 
 
A $1.00 increase (decrease) in the assumed initial public offering price of $       per share of common stock, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) the total consideration paid by new investors and total consideration paid by all stockholders by approximately $       million, assuming that the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
The information set forth in the table and calculations above are based on shares of common stock outstanding as of March 31, 2020 (assuming the conversion of all outstanding shares of our convertible preferred stock into shares of common stock on March 31, 2020), and excludes:
5,418,687 shares of common stock issuable on the exercise of stock options outstanding as of March 31, 2020 under the 2015 Plan, with a weighted-average exercise price of approximately $2.17 per share;
up to an aggregate of 800,000 shares of common stock which may be issued in connection with the Baby Genes Acquisition, pursuant to contingent consideration provisions if specified revenue thresholds are achieved;
       shares of common stock reserved for future issuance under the 2020 Plan, as well as any future increases, including annual automatic evergreen increases, in the number of shares of common stock reserved for issuance under the 2020 Plan; and
       shares of common stock reserved for issuance under our ESPP, as well as any future increases, including annual automatic evergreen increases, in the number of shares of common stock reserved for future issuance under our ESPP.

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To the extent that any outstanding options or warrants are exercised or new options are issued under our stock-based compensation plans, or we issue additional warrants, convertible securities or shares of our common stock or our convertible preferred stock in the future, there will be further dilution to investors participating in this offering.

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Selected consolidated financial data
The selected consolidated statement of operations data for the years ended December 31, 2019 and 2018 and the selected consolidated balance sheet data as of December 31, 2019 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated statements of operations data for the three months ended March 31, 2020 and 2019 and the selected consolidated balance sheet data as of March 31, 2020 have been derived from our unaudited interim condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements, and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position and results of operations. The selected consolidated financial data included in this section are not intended to replace the financial statements and related notes included elsewhere in this prospectus.

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You should read the consolidated financial data set forth below in conjunction with our consolidated financial statements and the accompanying notes and the information in “Management’s discussion and analysis of financial condition and results of operations” contained elsewhere in this prospectus. Our historical results are not necessarily indicative of the results to be expected for any other period in the future.
 
Year Ended
December 31,
 
 
Three Months Ended
March 31,
 
 
2018

 
2019

 
2019

 
2020

 
(in thousands, except share and per share data)
Consolidated Statements of Operations Data:
 
 
 
 
 
 
 
Revenue
 
 
 
 
 
 
 
Precision oncology products
$
16,025

 
$
22,644

 
$
4,380

 
$
7,006

Pharma development services
12,429

 
27,921

 
5,069

 
7,784

Total revenue
28,454

 
50,565

 
9,449

 
14,790

 
 
 
 
 
 
 
 
Costs & operating expenses
 
 
 
 
 
 
 
Cost of precision oncology products
4,033

 
7,335

 
1,068

 
2,313

Cost of pharma development services
6,230

 
9,212

 
1,706

 
3,399

Sales and marketing
7.215

 
15.428

 
2,644

 
5,324

Research and development
8.184

 
34.172

 
4,295

 
13,737

General and administrative
7,700

 
15,875

 
2,377

 
7,481

Contingent consideration

 
5,768

 
2,716

 
(35
)
Total operating expenses
33,362

 
87,790

 
14,806

 
32,219

Loss from operations
(4,908
)
 
(37,225
)
 
(5,357
)
 
(17,429
)
Interest expense, net
(1,160
)
 
(2,432
)
 

 
(893
)
Other income (expense), net
34

 
(824
)
 
(8
)
 
(995
)
Loss before income taxes
(6,034
)
 
(40,481
)
 
(5,365
)
 
(19,317
)
Income tax (benefit) expense
(481
)
 
497

 
1

 

Net loss and comprehensive loss
$
(5,553
)
 
$
(40,978
)
 
$
(5,366
)
 
$
(19,317
)
Basic and diluted loss per common share
$
(0.61
)
 
$
(4.50
)
 
$
(0.59
)
 
$
(2.10
)
Basic and diluted weighted-average common shares outstanding(1)
9,059,508

 
9,113,833

 
9,059.703

 
9,196.159

Pro forma basic and diluted loss per common share(1)(2)
 
 
 
 
 
 
 
Pro forma basic and diluted weighted-average common shares outstanding(1)(2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
See Note 15 to our consolidated financial statements included elsewhere in this prospectus for a description of how we compute basic and diluted net loss per share of common stock.
(2)
The pro forma consolidated financial data gives effect to (a) the issuance of 389,749 shares of Series A Preferred Stock pursuant to the Baby Genes Merger Agreement, (b) the issuance of          shares of our Series B Preferred Stock issuable upon the automatic net exercise of the Series B Warrant in connection with this offering, assuming an initial public offering price of $             per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, (c) the automatic conversion of all of our outstanding shares of convertible preferred stock (including the shares issuable pursuant to the Baby Genes Merger Agreement described in (a) and issuable pursuant to the automatic net exercise of the Series B Warrant described in (b)) into shares of common stock in connection with this offering, (d) the automatic conversion of contingent consideration for the Baby Genes Acquisition from Series A Preferred Stock to up to 800,000 shares of our common stock and the resulting reclassification of the remaining liability to additional paid-in capital and (e) the filing and effectiveness of our amended and restated certificate of incorporation which will be in effect on the completion of this offering.

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December 31,
 
 
March 31

 
2018

 
2019

 
2020

 
(in thousands)
 
(in thousands)
Consolidated Balance Sheet Data:
 
 
 
Cash and cash equivalents
$
9,324

 
$
59,492

 
$
36,842

Total assets
29,475

 
106,796

 
97,503

Total current assets
19,231

 
83,290

 
66,282

Total current liabilities
9,059

 
18,377

 
31,132

Working capital(1)
10,172

 
64,913

 
35,150

Long-term debt, net

 
28,572

 
28,659

Convertible preferred stock
42,180

 
110,154

 
115,347

Accumulated deficit
(28,265
)
 
(69,243
)
 
(88,560
)
Total stockholders’ deficit
(25,095
)
 
(65,239
)
 
(84,121
)
 
 
 
 
 
 
(1)
Working capital is defined as current assets less current liabilities.

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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 together with our financial statements and related notes and other financial information appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk factors” section of this prospectus, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a leading genomics company democratizing precision oncology. We offer a suite of products and services that are highly accurate, personal, actionable and easy to use in local settings. This empowers clinicians to control the sample, data, patient care and economics. Additionally, our products and services enable biopharmaceutical companies to cost-effectively accelerate drug development. We believe these benefits will drive broader adoption of precision oncology throughout the therapeutic continuum, improving patient care. Our product development platform, with our proprietary AMP chemistry at the core, has enabled us to develop industry-leading products and services that allow for therapy optimizing and cancer monitoring.
We have developed and commercialized RUO products, we are developing IVD products, and we offer services that meet the unique needs of our customers and their clinical applications. Our five RUO product lines consist of DNA-based VariantPlex, RNA-based FusionPlex, ctDNA-based LiquidPlex and RNA-based Immunoverse, which we collectively refer to as ArcherPlex, and PCM. There are multiple products within each of these lines, all of which can be customized. These RUO products allow for a range of applications and can be used individually or in combination, as desired. Our offerings include commercial RUO products and services that laboratories use to conduct genomic analysis for therapy optimization and cancer monitoring. We intend to submit STRATAFIDE, in 2020, and PCM, in the future, for FDA approval and/or clearance so they can be marketed as IVDs. STRATAFIDE and PCM have both received Breakthrough Device designation from the FDA. Additionally, we offer Assay Designer and Designer Pro as services to clinical and biopharmaceutical customers, which allow them to customize biomarker targets and develop new applications. Our analyte- and sample-agnostic products and services enable clinicians to quickly and locally generate actionable genomic information to deliver industry-leading care to patients with solid tumors, blood cancers or sarcomas.
Since our inception in 2013, our product development platform has enabled us to efficiently develop over 325 unique RUO products, which have been sold to over 300 leading academic and reference laboratories and over 50 biopharmaceutical companies and contract research organizations, or CROs, across 40 countries to facilitate the analysis of over 425,000 samples. We have generated a large and growing body of comprehensive clinical evidence, consisting of over 200 peer-reviewed clinical and scientific publications, which we believe demonstrate our products’ performance for clinical applications. We believe our long-standing commercial relationships with top-tier academic institutions and reference laboratories demonstrate that we are well positioned to become the global leader in driving decentralized genomic testing.
We are pursuing regulatory clearances and/or approvals for STRATAFIDE, which is intended to be a universal IVD that utilizes AMP to measure clinically relevant genomic mutations for tumor profiling and companion diagnostic markers from both tissue and blood. We expect to launch STRATAFIDE as a regulated device in 2021, and we believe it has the potential to be the first-line tumor profiling test for any patient with a late-stage solid tumor (pan-tumor). We are seeking additional regulatory approvals outside

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the United States. We intend to develop an additional universal IVD for blood cancers, similar to STRATAFIDE.
We are also seeking FDA clearance and/or approval for PCM as an IVD to non-invasively and quantitatively measure cancer recurrence or progression, as well as therapeutic efficacy, to determine a treatment regimen and refine therapy. We believe PCM will improve patient outcomes across multiple clinical applications as a prognostic device for predicting recurrence of primary cancer after initial treatment. We are seeking additional regulatory approvals outside the United States and intend to expand into additional indications.
As of March 31, 2020, we employed 39 sales representatives in the United States to market our RUO products to clinical customers, which include academic and reference laboratories, for development into laboratory-developed tests. We employed 5 sales representatives to market our products and services to biopharmaceutical companies. We expect to expand this commercial presence ahead of regulatory clearances and/or approvals of our pipeline products. Outside the United States, we market our products and services to clinical customers in over 40 countries through our targeted sales organization of 15 sales representatives and over 20 distributors.
We generated total revenue of $28.5 million and $50.6 million for the years ended December 31, 2018 and 2019, respectively, and $9.4 million and $14.8 million for the three months ended March 31, 2019 and 2020, respectively. We also incurred net losses of $(5.6) million and $(41.0) million in the years ended December 31, 2018 and 2019, respectively, and $(5.4) million and $(19.3) million for the three months ended March 31, 2019 and 2020, respectively.
Historical financing activities
Our historical financing arrangements have included the sale of convertible preferred stock, the issuance of convertible notes and entry into term loans. For the year ended December 31, 2019, we sold $15.0 million and $55.0 million of Series B Preferred Stock and Series C Preferred Stock, respectively, and we entered into a $45.0 million credit facility with Perceptive under which we have drawn an aggregate of $30.0 million. For the year ended December 31, 2018, we issued (i) $15.0 million of Series A Preferred Stock for cash and (ii) $22.6 million of Series A Preferred Stock upon conversion of then outstanding convertible promissory notes.  We have also historically issued warrants to purchase shares of our Series A Preferred Stock and Series B Preferred Stock to certain of our lenders. These warrants are recorded as a liability and adjusted to fair value each reporting period.   The warrant to purchase 227,115 shares of Series A Preferred Stock was exercised in the three months ended March 31, 2020.
Baby Genes acquisition
In October 2018, we acquired Baby Genes, through which we acquired a CLIA- and CAP-accredited laboratory to further support our biopharmaceutical customers’ development and clinical trial programs.  Under the Baby Genes Merger Agreement, we may pay aggregate consideration of up to 3.5 million shares of Series A Preferred Stock to the stockholders of Baby Genes. At closing, we issued 1.4 million of these shares. In February 2020, we issued an additional 0.9 million of these shares for achievement of a 2019 revenue target. We will issue up to an additional 0.4 million of these shares immediately prior to the closing of this offering and we may issue up to an additional 0.8 million of these shares if a 2020 revenue target is achieved. This contingent consideration is recorded as a liability and adjusted to fair value each reporting period through other income or expenses. 
COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of Coronavirus, a global pandemic. This outbreak has caused major disruptions to businesses and markets worldwide as the virus spread and has resulted in governments around the world implementing stringent measures to help control the spread of the virus, including “shelter in place” and “stay at home” orders, travel restrictions, business and school closures, and other measures. Because of the nature of our operations, we are currently considered to be an essential business so, to date, our operations have only

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been partially affected by this order. The partial disruption, even temporary, may impact our operations and overall business. We have modified our business practices, including mandating that all non-essential personnel work remotely, significantly restricting employee travel, and canceling various planned sales activities, including conferences and internal and external sales meetings. The long term operational impacts of these changes are still being evaluated. Our supply chain has not yet experienced significant disruptions resulting from the pandemic. We are actively evaluating our key suppliers’ abilities to meet our demand as well as the capabilities of our customers to receive products. While we have not yet experienced a notable negative impact on the demand for our products or services, current customers, including hospitals, labs, and other medical centers, may delay or cancel product orders due to operational disruptions within their organizations, enrollment for the clinical trials we support may decline due to the various travel restrictions, and our biopharmaceutical collaborators may cancel or delay their companion diagnostic development and research programs due to decreases in enrollment, economic disruptions,shift in focus by the healthcare industry on combating COVID-19, or other factors.
The ultimate impact of the COVID-19 pandemic on our business and financial condition will depend on many factors, including the duration of the outbreak and the mitigation requirements affecting our operations. We will continue to evaluate the impact of the COVID-19 pandemic on our business. See also “Risk factors— Risks related to our business and strategy The outbreak of COVID-19 could materially adversely affect our business, financial condition and results of operations.
Components of results of operations
Revenue
We derive our revenue from two sources: (i) precision oncology products and (ii) pharma development services.
Precision oncology products. Precision oncology product revenue is generated from sales of our genomic products, which can be sold alone or in combination with a service performance obligation. When sold in combination, we use our precision oncology products to provide clinical research and clinical trial services to our customers.
Our products are configured to accommodate the differing NGS test volume requirements of our customers. Our products are typically configured to include reagents sufficient to perform 8 to 96 NGS tests. We refer to the set of reagents needed to perform an NGS test as a “reaction”. Management views reactions sold as a key measure of our operating performance. Since inception, we have sold over 425,000 reactions.
Pricing of our products varies based on our customer mix, as customers require differing volumes of reactions and levels of customization. Generally, the average selling price of our RUO products increases as the level of customization increases. Conversely, the average selling price of our RUO products decreases as the volume of reactions sold to a single customer increases due to volume discounts.
From the company’s inception through March 31, 2020, precision oncology product revenue has been comprised primarily of sales of our ArcherPlex RUO products for therapy optimization as well as our PCM products for cancer monitoring. We anticipate that the launch of STRATAFIDE and PCM IVD products, if cleared and/or approved, will enable us to expand our customer base, to include additional hospitals and other point of care providers that do not currently purchase our RUO products, but may utilize our IVD products. In addition, based on current comparable reimbursement rates, we believe reimbursement from third-party payors on our IVD products will enable us to sell IVD products at a higher price than our RUO products.
We recognize revenue on precision oncology product sales once product shipment has occurred or upon the completion of services when the product and service are a combined performance obligation. Payments from our customers are typically due within 90 days from invoice date. We have a diverse range of customers in our RUO product business and no single customer accounted for more than 10% of our precision oncology product revenue for the year ended December 31, 2019 or for the three

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months ended March 31, 2020.
Pharma development services. Pharma development services revenue is generated primarily from services provided to biopharmaceutical companies related to companion diagnostic development, clinical research, and clinical trial services across the research, development, and commercialization phases of collaborations.
For companion diagnostic development, we collaborate with biopharmaceutical companies to develop assays for clinical utility studies and clinical trials. As part of these collaborations, we provide services related to regulatory filings with the FDA in the United States, and various international regulatory agencies, to support companion diagnostic device submissions. Under these collaborations we generate revenue from achievement of milestones, provision of on-going support, and related pass-through costs and fees. We generally have distinct performance obligations for development milestones related to our development of a companion diagnostic device. We use a cost plus a margin approach to estimate the standalone value of our companion diagnostic development service performance obligations. Revenue is recognized over time using input and output methods based on our surveys of performance completed to date toward each milestone.
Clinical research activities and clinical trial service revenue are generated primarily from custom assay design services and sample processing activities, separate from revenue generated by the related product component. Revenue is recognized as samples are processed or scope of work is completed, based on contracted agreements with biopharmaceutical companies.
Historically, revenues from pharma development services have been driven by a small number of biopharmaceutical customers who use our services in connection with their product development. For example, one biopharmaceutical customer in Europe accounted for 76% and 57% of our pharma development services revenue for the year ended December 31, 2019, and the three months ended March 31, 2020, respectively. We are actively seeking to diversify our pharma development services revenue across multiple biopharmaceutical customers. The timing of revenue from biopharmaceutical collaborations may be difficult to forecast, because it is dependent on each biopharmaceutical company’s decisions and clinical trial progress.
Costs and operating expenses
Cost of precision oncology products. Cost of precision oncology products generally consists of the cost of materials and consumables, personnel-related expenses, freight, royalties, professional services, equipment and allocated overhead costs associated with the manufacturing of products. Allocated overhead costs include allocated occupancy costs and information technology costs.
Cost of pharma development services. Cost of pharma development services generally consists of personnel-related expenses, the cost of consumables and equipment expenses associated with sample processing, costs paid to CROs for lab services and clinical trial support, and allocated overhead costs. Allocated overhead costs include allocated occupancy costs and information technology costs. Costs associated with processing samples are recognized regardless of whether revenue is recognized with respect to that performance obligation. Additional costs associated with companion diagnostic development services for biopharmaceutical companies also include, but are not limited to, contractors and professional services, regulatory fees, and commercialization fees.
Costs incurred for process development, feasibility, or analytical and clinical validation activities that would have otherwise been incurred for product development for STRATAFIDE and PCM IVD and reported as costs of pharma development services are reported as research and development expenses.
Sales and marketing. Our sales and marketing expenses include costs associated with our sales and marketing organization, medical affairs, and personnel focused on market access and reimbursement activities. These expenses consist primarily of personnel-related costs, travel, marketing-related expenses, as well as allocated overhead costs. Allocated overhead costs include allocated occupancy costs and information technology costs.

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We have made investments in our sales and marketing organization which have helped drive revenue growth. In the near term, we expect our sales and marketing expenses to increase in absolute dollars, and as a percentage of revenue, as we expand our sales force and marketing efforts, and further increase our presence within the United States, Europe, and Asia. We believe that continuing to increase these activities, inside and outside the United States, will drive further awareness and adoption of our product and service offerings. In the long term, we expect these expenses to gradually and modestly decrease as a percentage of revenue, though they may vary as a percentage from period to period due the timing and amount of these expenses.
Research and development. We conduct research and development activities for product and service offerings across therapy optimization and cancer monitoring. Expenditures made for research and development include personnel-related expenses, laboratory supplies, biorepository and sequencing costs, consulting services, and allocated overhead costs. Allocated overhead costs include allocated occupancy costs and information technology costs.
Research and development expenses include our clinical collaboration expenses with academic and other research institutions. While our clinical collaboration expenses have historically been a small portion of our overall research and development expenses, we believe these collaboration investments are critical to advancing our product development and building awareness of our products and services. As a result, we expect our clinical collaboration expenses to increase in future periods.
A portion of our research and development expenses include costs incurred for process development, feasibility, or analytical and clinical validation activities that also meet the performance obligations under contracts to provide companion diagnostics services.
In the near term, we expect our research and development expenses will continue to increase in absolute dollars, and as a percentage of revenue, as we continue to advance development of STRATAFIDE and PCM. In the long term, we expect these expenses to gradually and modestly decrease as a percentage of revenue, though they may vary as a percentage from period to period due to the timing and amount of these expenses.
General and administrative. Our general and administrative expenses include costs for our executive, accounting and finance, legal and human resources functions. These expenses consist primarily of personnel-related expenses, as well as professional services fees such as audit, tax and legal services, and general corporate costs and allocated overhead costs, which include occupancy costs and information technology costs.
In the near term, we expect that our general and administrative expenses will continue to increase in absolute dollars, and as a percentage of revenue, primarily due to increased litigation costs, and increased headcount and public company costs, including expenses related to legal, accounting, regulatory, director and officer insurance premiums and investor relations. In the long term, we expect these expenses to gradually and modestly decrease as a percentage of revenue, though they may vary as a percentage from period to period due the timing and amount of these expenses.
Contingent consideration expense. Our contingent consideration expense is the change in fair value of the shares of Series A Preferred Stock issued for contingent consideration in connection with the Baby Genes Acquisition from the acquisition date of Baby Genes to the share issuance date in February 2020 and the estimated change in fair value of the remaining shares of the Series A Preferred Stock expected to be issued as part of the consideration paid in connection with the Baby Genes Acquisition. The contingent consideration is subject to re-measurement at each balance sheet date with gains and losses reported in our consolidated statements of operations and comprehensive income.
Interest expense, net
Interest income consists of interest earned on our cash and cash equivalents. Our interest income has not been significant to date but we expect interest income to increase in 2020 based on investment of the net proceeds from this offering.

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Interest expense for the year ended December 31, 2019 consists primarily of interest payable on the amounts outstanding under the Credit Agreement with Perceptive and costs to extinguish our previous line of credit. Interest expense for the three months ended March 31, 2020 consists primarily of interest payable on the amounts outstanding under the Credit Agreement. As of December 31, 2019 and March 31, 2020, we had $30.0 million of principal outstanding under the Credit Agreement which accrues interest at an annual rate equal to the sum of 8.25% plus the greater of (i) one month LIBOR or (ii) 2.75%.
Other income, net
Other income is primarily comprised of changes in the fair value of the liability for the Series A Warrant, prior to its exercise in March 2020, and Series B Warrant, which is expected to be reclassified to stockholders’ equity upon completion of this offering.
Income tax (benefit) expense
For the years ended December 31, 2018 and 2019, and for the three months ended March 31, 2019 and 2020, income tax (benefit) expense is primarily related to the Baby Genes Acquisition and is not expected to be material in future periods due to a valuation allowance recorded against our net operating losses.
Comparison of the three months ended March 31, 2020 and 2019
 
Three Months Ended
March 31,
 
 
Change
 
(in thousands, except percentages)
2019

 
2020

 
$

 
%

Revenue
 
 
 
 
 
 
 
Precision oncology products
$
4,380

 
$
7,006

 
$
2,626

 
60
 %
Pharma development services
5,069

 
7,784

 
2,715

 
54
 %
Total revenue
9,449

 
14,790

 
5,341

 
57
 %
Costs & operating expenses
 
 
 
 
 
 
 
Cost of precision oncology products
1,068

 
2,313

 
1,245

 
117
 %
Cost of pharma development services
1,706

 
3,399

 
1,693

 
99
 %
Sales and marketing
2,644

 
5,324

 
2,680

 
101
 %
Research and development
4,295

 
13,737

 
9,442

 
220
 %
General and administrative
2,377

 
7,481

 
5,104

 
215
 %
Contingent consideration
2,716

 
(35
)
 
(2,751
)
 
(101
)%
Total operating expenses
14,806

 
32,219

 
17,413

 
118
 %
Loss from operations
(5,357
)
 
(17,429
)
 
(12,072
)
 
225
 %
Interest expense, net

 
(893
)
 
(893
)
 
*

Other expense, net
(8
)
 
(995
)
 
(987
)
 
*

Loss before income taxes
(5,365
)
 
(19,317
)
 
(13,952
)
 
260
 %
Income tax expense
1

 

 
(1
)
 
(100
)%
Net loss
(5,366
)
 
(19,317
)
 
(13,951
)
 
260
 %
 
*
Not meaningful
Revenue
Total revenue was $14.8 million for the three months ended March 31, 2020 compared to $9.4 million for the three months ended March 31, 2019 , an increase of $5.3 million , or 57% .
Precision oncology products revenue was $7.0 million for the three months ended March 31, 2020 compared to $4.4 million for the three months ended March 31, 2019 , an increase of $2.6 million , or 60% . The increase in precision oncology products revenue was primarily attributable to (i) a 54% increase in

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the number of reactions sold for the three months ended March 31, 2020 to approximately 37,000, from approximately 24,000 for the three months ended March 31, 2019 , and (ii) an increase in average selling price on products primarily resulting from shifts in our customer mix.
Pharma development services revenue was $7.8 million for the three months ended March 31, 2020 compared to $5.1 million for the three months ended March 31, 2019 , an increase of $2.7 million , or 54% . The increase was primarily attributable to an increase in the number of companion diagnostic development agreements with multiple biopharmaceutical partners signed in the period and associated activity, primarily an increase in milestone-driven revenue and revenue associated with prospective clinical trial services.
Cost and operating expenses
Cost of precision oncology products
Cost of precision oncology products was $2.3 million for the three months ended March 31, 2020 compared to $1.1 million for the three months ended March 31, 2019 , an increase of $1.2 million , or 117% . The increase year over year was primarily attributable to an increase in revenue resulting in an increase in labor and materials costs of $0.8 million as well as increased professional services costs, freight and royalties. Furthermore, we incurred higher costs related to process development and production of reactions used in prospective clinical trials of $0.2 million.
Cost of pharma development services
Cost of pharma development services was $3.4 million for the three months ended March 31, 2020 compared to $1.7 million for the three months ended March 31, 2019 , an increase of $1.7 million , or 99% . The increase in the cost of pharma development services was primarily attributable to an increase in lab supplies and services costs of $1.7 million, primarily related to increased clinical trial and analytical validation activity.
Sales and marketing
Sales and marketing expense was $5.3 million for the three months ended March 31, 2020 compared to $2.6 million for the three months ended March 31, 2019 , an increase of $2.7 million , or 101% . The increase was primarily attributable to an increase in personnel costs of $2.0 million related to expansion of our sales and marketing teams, an increase of $0.3 million in travel and conference costs, and an increase of $0.2 million in professional services fees.
Research and development
Research and development expense was $13.7 million for the three months ended March 31, 2020 compared to $4.3 million for the three months ended March 31, 2019 , an increase of $9.4 million , or 220% . The increase was primarily attributable to a $5.1 million increase in materials, lab services, and consulting services for the development of our STRATAFIDE and PCM products, a $2.8 million increase in personnel costs as we increased headcount to support development of our technology, and an increase of $1.5 million related to allocated overhead and depreciation costs.
General and administrative
General and administrative expense was $7.5 million for the three months ended March 31, 2020 compared to $2.4 million for the three months ended March 31, 2019 , an increase of $5.1 million , or 215% . The increase was primarily attributable to increased personnel costs of $1.9 million related to an increase in headcount, higher legal costs of $1.5 million primarily related to an increase in costs from the litigation we initiated against QIAGEN Sciences, higher professional services costs of $1.2 million, and an increase of $0.5 million for higher allocated overhead, depreciation, and other costs.

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Contingent consideration
Contingent consideration for the three months ended March 31, 2019 of $2.7 million was attributable to the change in fair value of the contingent consideration for the Baby Genes Acquisition. There was not a significant change in the fair value for the three months ended March 31, 2020.
Interest expense, net
Interest income was $0.1 million for the three months ended March 31, 2020 . We had no interest income for the three months ended March 31, 2019 . Our interest income for the three months ended March 31, 2020 consisted of interest earned on our cash and cash equivalents, which increased primarily as a result of our proceeds from the issuance of Series C Preferred Stock in December 2019.
Interest expense was $1.0 million for the three months ended March 31, 2020 . We had no interest expense for the three months ended March 31, 2019 . The increase in interest expense was primarily attributable to our draw down of $30.0 million from the Credit Agreement in May 2019.
Other expense
Other expense of $1.0 million for the three months ended March 31, 2020 was primarily due to the increase in fair value of our Series A Warrant, until its exercise in March 2020, and our Series B Warrant.
Income tax (benefit) expense
Income tax expense was not material due to incurred losses and a valuation allowance recorded against deferred tax assets.
Recent Developments
For a discussion of the risks presented by the COVID-19 pandemic to our results of operations, see the “Risk factors” section of this report.

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Comparison of the years ended December 31, 2019 and 2018
 
Year Ended
December 31,
 
 
Change
 
(in thousands, except percentages)
2018

 
2019

 
$

 
%

Revenue
 
 
 
 
 
 
 
Precision oncology products
$
16,025

 
$
22,644

 
$
6,619

 
41
 %
Pharma development services
12,429

 
27,921

 
15,492

 
125
 %
Total revenue
28,454

 
50,565

 
22,111

 
78
 %
Costs & operating expenses
 
 
 
 
 
 
 
Cost of precision oncology products
4,033

 
7,335

 
3,302

 
82
 %
Cost of pharma development services
6,230

 
9,212

 
2,982

 
48
 %
Sales and marketing
7,215

 
15,428

 
8,213

 
114
 %
Research and development
8,184

 
34,172

 
25,988

 
318
 %
General and administrative
7,700

 
15,875

 
8,175

 
106
 %
Contingent consideration

 
5,768

 
5,768

 
*

Total operating expenses
33,362

 
87,790

 
54,428

 
163
 %
Loss from operations
(4,908
)
 
(37,225
)
 
(32,317
)
 
658
 %
Interest expense, net
(1,160
)
 
(2,432
)
 
(1,272
)
 
110
 %
Other income (expense), net
34

 
(824
)
 
(858
)
 
*

Loss before income taxes
(6,034
)
 
(40,481
)
 
(34,447
)
 
571
 %
Income tax (benefit) expense
(481
)
 
497

 
978

 
(203
)%
Net loss
(5,553
)
 
(40,978
)
 
(35,425
)
 
638
 %
 
*
Not meaningful
Revenue
Total revenue was $50.6 million for the year ended December 31, 2019 compared to $28.5 million for the year ended December 31, 2018 , an increase of $22.1 million , or 78% .
Precision oncology products revenue was $22.6 million for the year ended December 31, 2019 compared to $16.0 million for the year ended December 31, 2018, an increase of $6.6 million, or 41%. The increase in precision oncology products revenue was primarily attributable to (i) a 33% increase in the number of reactions sold for the year ended December 31, 2019 to approximately 124,000, from approximately 93,000 for the year ended December 31, 2018, (ii) an increase in average selling price on products primarily resulting from shifts in our customer mix.
Pharma development services revenue was $27.9 million for the year ended December 31, 2019 compared to $12.4 million for the year ended December 31, 2018, an increase of $15.5 million, or 125%. The increase was primarily attributable to increased development and regulatory support activity in the development of companion diagnostics for pharmaceutical companies resulting from multiple companion diagnostic agreements signed in late 2018 and throughout 2019.
Cost and operating expenses
Cost of precision oncology products
Cost of precision oncology products was $7.3 million for the year ended December 31, 2019 compared to $4.0 million for the year ended December 31, 2018, an increase of $3.3 million, or 82%. The increase in cost of revenue year over year was primarily attributable to an increase in revenue resulting in an increase in materials costs of $2.1 million as well as increased freight and royalties.

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Cost of pharma development services
Cost of pharma development services was $9.2 million for the year ended December 31, 2019 compared to $6.2 million for the year ended December 31, 2018, an increase of $3.0 million, or 48%. The increase in the cost of pharma development services primarily consisted of an increase in professional services costs of $2.6 million, primarily related to an increase in companion diagnostic development activity, and increased personnel costs of $0.4 million.
Sales and marketing
Sales and marketing expense was $15.4 million for the year ended December 31, 2019 compared to $7.2 million for the year ended December 31, 2018, an increase of $8.2 million, or 114%. The increase was primarily due to an increase in personnel costs of $4.6 million related to expansion of the sales and marketing teams, an increase of $1.5 million in professional services fees, including for market research studies, an increase of $1.5 million in travel and conference costs, and an increase of $0.6 million related to allocated overhead costs.
Research and development
Research and development expense was $34.2 million for the year ended December 31, 2019 compared to $8.2 million for the year ended December 31, 2018, an increase of $26.0 million, or 318%. The increase was primarily attributable to a $14.3 million increase in external costs attributed to the development of our STRATAFIDE and PCM technology, primarily including materials, lab services, and consulting services, a $7.5 million increase in personnel costs as we increased headcount to support development of our technology, and a $3.5 million increase in allocated overhead costs.
General and administrative
General and administrative expense was $15.9 million for the year ended December 31, 2019 compared to $7.7 million for the year ended December 31, 2018, an increase of $8.2 million, or 106%. The increase was primarily attributable to higher legal costs of $3.7 million primarily related to the litigation we initiated against QIAGEN Sciences, and from increased personnel costs of $3.6 million related to an increase in headcount.
Contingent consideration
Contingent consideration expense was $5.8 million for the year ended December 31, 2019 and is the change in the estimated fair value of the expected shares of Series A Preferred Stock to be issued as part of the consideration in connection with the Baby Genes Acquisition, which was completed in October 2018.
Interest expense, net
Interest income was $0.2 million for year ended December 31, 2019. We had no interest income in the year ended December 31, 2018. Our interest income in the year ended December 31, 2019 consisted of interest earned on our cash and cash equivalents, which increased primarily as a result of sales of Series B Preferred Stock and Series C Preferred Stock.
Interest expense was $2.6 million for the year ended December 31, 2019 compared to $1.2 million for the year ended December 31, 2018, an increase of $1.4 million, or 123%. The increase in interest expense was driven by our draw down of $30.0 million from the Credit Agreement in May 2019. Interest expense for the year ended December 31, 2018 was primarily related to interest payable on our convertible promissory notes and a related-party note payable, which were converted to Series A Preferred Stock in March 2018.

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Other income (expense)
Other income (expense) was $(0.8) million for the year ended December 31, 2019. This was primarily due to the increase in fair value of our Series A Warrant and Series B Warrant liabilities.
Income tax (benefit) expense
Income tax expense was $0.5 million for the year ended December 31, 2019, compared to an income tax benefit of $0.5 million for the year ended December 31, 2018, both of which were related to the Baby Genes Acquisition.
Going concern, liquidity and capital resources
We have incurred losses and negative cash flows since our inception. As of March 31, 2020, we had an accumulated deficit of $88.6 million . We have funded our operations to date principally from the sale of convertible preferred stock, the issuance of convertible notes, entry into term loans and, to a lesser extent, products and services revenue. As of March 31, 2020, we had cash and cash equivalents of $36.8 million . We intend to raise additional capital through this offering.  If we are unable to raise additional capital through this offering, we will need to seek other forms of financing and take other actions to preserve cash, such as by selling additional common or preferred equity or convertible debt securities or entering into additional credit facilities or other forms of third-party funding. Additional capital may not be available on reasonable terms, or at all .
We evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern over the next twelve months through May 2021, which is one year from the date the interim financial statements were issued. Our cash requirements include, but are not limited to, investments in the research and development of our technologies and sales and marketing, capital expenditures, and working capital requirements. Based on such evaluation and our current plans, management believes that, without additional capital raised from this offering or other financings, our existing cash and cash equivalents and available access to credit as of March 31, 2020 are not sufficient to satisfy our operating cash needs for at least one year after the date the financial statements were issued. These factors raise substantial doubt about our ability to continue as a going concern for a period of twelve months subsequent to the issuance of these financial statements. The financial statements included elsewhere in this prospectus have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The financial statements do not reflect any adjustments relating to the recoverability and reclassification of assets and liabilities that might be necessary if we are unable to continue as a going concern.  Please see also “Risk factors — Risks related to our financial condition and capital requirements — We have determined that there is substantial doubt about our ability to continue as a “going concern” for the next twelve months.”
As revenue across our products and services is expected to grow, we expect our accounts receivable and inventory balances to increase. Any increase in accounts receivable and inventory may not be completely offset by increases in accounts payable and accrued expenses, which could result in greater working capital requirements. Moreover, following the closing of this offering, we expect to incur additional public company costs, including expenses related to legal, accounting, regulatory, and SEC compliance matters.
We plan to utilize the existing cash and cash equivalents on hand primarily to fund our commercial and marketing activities associated with our clinical products and services, continued research and development initiatives and scaling of our operations with our anticipated growth.
The COVID-19 pandemic and the measures imposed to contain this pandemic have impacted and are expected to continue to impact our business. The impact of the COVID-19 pandemic on our business and financial condition will depend on many factors, including the duration of the outbreak and the mitigation requirements affecting our operations, and healthcare delivery and society in general. We will continue to evaluate the impact of the COVID-19 pandemic on our business. While we have not yet

87



experienced a notable negative impact on the demand for our products or services, current customers, including hospitals, labs, and other medical centers, may delay or cancel product orders due to operational disruptions within their organizations, enrollment for the clinical trials we support may decline due to the various travel restrictions, and our biopharmaceutical collaborators may cancel or delay their companion diagnostic development and research programs due to economic disruptions, or other factors. See also “Risk factors— Risks related to our business and strategy The outbreak of COVID-19 could materially adversely affect our business, financial condition and results of operations.
Cash flows
The following table summarizes our uses and sources of cash for each of the periods presented (in thousands):
 
Year Ended
December 31,
 
 
Three Months Ended
March 31,
 
 
2018

 
2019

 
2019

 
2020

Cash used in operating activities
$
(4,603
)
 
$
(37,454
)
 
$
(2,118
)