(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

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 13(a) of the Exchange Act. ☐

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

As of ~~July 31, 2020,~~ November 6, 2023,the registrant had ~~46,548,035~~23,703,672 shares of common stock, par value $0.001 per share, outstanding.

InAll share and per share information included in this Quarterly Report on Form 10-Q has been retroactively adjusted to reflect a 1-for-25 reverse stock split effected on January 3, 2023.

Biora TherapeuticsTM, ~~“Progenity,” “we,” “us” and “our” refer to Progenity, Inc.~~BIOJETTM, NAVICAPTM, and ~~our wholly-owned subsidiaries on a consolidated basis, unless the context otherwise provides.~~

~~Progenity® is a registered service mark~~GITRACTM are trademarks of ~~Progenity.~~Biora Therapeutics, Inc. Any other brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective holders.

See accompanying notes to unaudited condensed consolidated financial statements.

~~See accompanying notes to unaudited condensed consolidated financial statements.~~

1. Organization and Description of Business

~~Progenity,~~Biora Therapeutics, Inc. (the “Company” or ~~“Progenity”~~“Biora” or "Biora Therapeutics"), is a biotechnology company developing oral biotherapeutics that could enable new treatment approaches in the delivery of therapeutics. The Company's therapeutics pipeline includes two therapeutic delivery platforms:

•

NAVICAPTM Targeted Oral Delivery Platform: Targeted oral delivery of therapeutics to the site of disease in the gastrointestinal tract designed to improve outcomes for patients with Inflammatory Bowel Disease; and

•

BIOJETTM Systemic Oral Delivery Platform: Systemic oral delivery of biotherapeutics designed to replace injections with needle-free, oral delivery of large molecules for better management of chronic diseases.

Biora Therapeutics, a Delaware corporation, was formerly known as Progenity, Inc. (“Progenity”), and commenced operations in 2010 with its corporate office located in San Diego, California. ~~Progenity’s primary~~The Company's historical operations ~~include~~included a licensed Clinical ~~License~~Laboratory Improvement ~~Amendment~~Amendments and College of American Pathologists certified laboratory located in Michigan specializing in ~~the~~ molecular testing markets serving women’s health providers in the obstetric, gynecological, fertility, and maternal fetal medicine specialty areas in the United States.

~~The Company has expertise in~~ Previously, the national reference laboratory, clinical genetics, laboratory molecular testing, and biotechnology markets. Distribution is managed by a dedicated women’s health physician sales force and a field operations team who support all logistical functions in receiving clinical samples to the laboratory for analysis. The Company’sCompany's core business iswas focused on the ~~prenatal~~ carrier screening and noninvasive prenatal test market, targeting preconception planning and routine pregnancy management for genetic disease risk assessment. Through its former affiliation with Mattison Pathology, LLP, ~~(“Mattison”),~~ a Texas limited liability partnership doing business as Avero Diagnostics (“Avero”), ~~located in Lubbock and Dallas, Texas,~~ the Company’s operations ~~have expanded to provide~~also included anatomic and molecular pathology testing ~~products~~products.

In order to refocus efforts and resources on its research and development pipeline, in ~~the United States.~~

On June ~~10, 2020,~~2021, the Company announced a strategic transformation ("Strategic Transformation") that included the closure of the Progenity genetics laboratory and in December 2021, the Company sold Avero, together referred to as the Laboratory Operations. The Company has reported all revenues and expenses associated with its Laboratory Operations as discontinued operations, see Note 3 for additional information. In April 2022, the Company announced that it would rebrand to better reflect the current focus on its therapeutics pipeline, and changed its name to Biora Therapeutics, Inc.

On December 29, 2022, the Company filed a certificate of amendment (the "Certificate of Amendment") to its eighth amended ~~its~~and restated certificate of incorporation to ~~reflect~~effect, as of January 3, 2023, a ~~one-for-6.178~~1-for-25 reverse ~~stock~~ split of the Company’s common stock. The par value and the number of authorized shares of common stock were not adjusted as a result of the reverse stock split. All issued and outstanding shares of common stock and related per share amounts contained in the accompanying condensed consolidated financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented. The reverse stock split resulted in an adjustment to the respective Series A and B preferred stock conversion prices to reflect a proportional decrease in the number of shares of common stock to be issued upon conversion.

~~On June 23, 2020, the Company completed the initial public offering of its~~Company's common stock (the ~~“IPO”~~"Reverse Stock Split"). ~~In the IPO,~~On January 3, 2023, the Company ~~issued and sold 6,666,667 shares of its common stock, at a price to~~effected the public of $15.00 per share. The Company received approximately $88.7 million in net proceeds, after deducting underwriting discounts and commissions and other offering expenses payable by the Company. In connection with the IPO, on June 23, 2020, all outstanding Series A and B preferred stock and the outstanding convertible promissory note converted into shares of common stock and the outstanding warrant to purchase shares of convertible preferred stock became exercisableReverse Stock Split. See Note 2 for ~~shares of common stock.~~additional information.

Liquidity

As of ~~June~~September 30, ~~2020,~~2023, the Company had cash and cash equivalents of ~~$113.6~~$7.8 million, restricted cash of $4.8 million and an accumulated deficit of ~~$418.7~~$935.5 million. For the ~~six~~nine months ended ~~June~~September 30, ~~2020,~~2023, the Company reported a net loss of ~~$69.9~~$108.7 million and cash used in operating activities of ~~$44.4~~$34.8 million. The Company’s primary sources of capital have historically been the sale of common stock and warrants, private placements of preferred stock and the incurrence of debt. As of ~~June~~September 30, ~~2020,~~2023, the Company had ~~a $75.0~~$80.4 million ~~term loan~~of convertible senior notes, net ("Convertible Notes") outstanding ~~with a private equity firm~~ (see Note 7)~~, and mortgages outstanding of $3.2 million (see Note 8)~~. ~~Management~~While the Company has greatly reduced its cash burn following the Strategic Transformation, management does not ~~believe~~expect that the Company's current ~~available~~ cash and cash equivalents will be sufficient to fund ~~the Company’s planned expenditures and meet~~ its ~~obligations~~operations for at least 12 months ~~following~~from the ~~financial statement~~ issuance date ~~without raising~~of the condensed consolidated financial statements for the three and nine months ended September 30, 2023, and will require additional ~~funding.~~capital to fund the Company's operations. As a result, ~~there is~~ substantial doubt exists about the Company’s ability to continue as a going concern for 12 months following the issuance date of the condensed consolidated financial statements for the three and ~~six~~nine months ended ~~June~~September 30, ~~2020.~~ 2023.

The Company’s ability to continue as a going concern is dependent upon its ability to raise additional funding. Management believes that the Company’s liquidity position as of the date of this filing provides sufficient runway to achieve ~~critical R&D~~important research and development pipeline ~~milestones and show continued progress in the molecular testing activities in 2020.~~milestones. Management intends to raise additional capital through equity offerings and/or debt financings, or from other potential sources of liquidity, which may include new collaborations, licensing or other commercial agreements for one or more of ~~our~~the Company’s research programs or patent portfolios. or divestitures of the Company's assets. Adequate funding, if needed, may not be available to the Company on acceptable terms, or at all. OurThe Company’s ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the ~~recent~~ disruptions to, and volatility in, the credit and financial markets in the United States and ~~worldwide resulting from the ongoing COVID-19 pandemic.~~worldwide. If the Company is unable to raise capital when needed or on attractive terms, it would be forced to delay, reduce, or eliminate its research and development programs or other operations. If any of these events occur, the Company’s ability to achieve its operational goals would be adversely affected.

In March 2020, the World Health Organization declared the novel coronavirus disease (“COVID-19”) a pandemic. The COVID‑19 pandemic has negatively impacted the global economy, disrupted global supply chains and created significant volatility and disruption of financial markets. The Company has been materially and negatively affected by the COVID-19 pandemic; however, the extent of the impact of the COVID-19 pandemic on the Company’s operational and financial performance, including its ability to execute its business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and spread of the pandemic and related restrictions on travel and transports, all of which are uncertain and cannot be predicted. The Company could be negatively affected by the widespread outbreak of an illness or any other communicable disease, or any other public health crisis that results in economic and trade disruptions, including the disruption of global supply chains. An extended period of global supply chain and economic disruption could materially affect the Company’s business, results of operations, access to sources of liquidity and financial condition.

The estimates used for, but not limited to, determining the amount to be collected for accounts receivable, fair value of long-lived assets, and fair value of goodwill could be impacted by the pandemic. While the full impact of COVID-19 is unknown at this time, the Company has made appropriate estimates based on the facts and circumstances available as of the reporting date. These estimates may change as new events occur and additional information is obtained.

Basis of Presentation

The Company’s condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) forfor interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. The condensed consolidated financial statements include the accounts of Progenity, Inc., its wholly owned subsidiaries, and an affiliated professional partnership with Avero with respect to which the Company currently has a specific management arrangement. The Company has determined that Avero is a variable interest entity and that the Company is the primary beneficiary resulting in the consolidation of Avero as required by the accounting guidance for consolidation (see Note 3). All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in thethe Company’s ~~final prospectus~~Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the Securities and Exchange Commission, ~~on June 22, 2020~~.

~~Unaudited Interim Financial Information~~

~~The accompanying~~from which management derived the Company’s condensed consolidated balance sheet as of ~~June 30, 2020,~~December 31, 2022.

The condensed consolidated financial statements and notes thereto give retrospective effect to the ~~statements of operations~~Reverse Stock Split for all periods presented. All common stock, options exercisable for common stock, restricted stock units, warrants and per share amounts contained in the statements of stockholders’ deficit for the three and six months ended June 30, 2020 and 2019 and the statements of cash flows for the six months ended June 30, 2020 and 2019 are unaudited. The unaudited interimcondensed consolidated financial statements have been retrospectively adjusted to reflect the Reverse Stock Split for all periods presented. Concurrent with the Reverse Stock Split, the Company effected a reduction in the number of authorized shares of common stock from 350,000,000 shares to 164,000,000 shares.

Unaudited Interim Financial Information

The accompanying condensed consolidated financial statements are unaudited, have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, that are necessary ~~for~~to present fairly the fair statement of the Company’s financial position as of June 30, 2020, and the results of its operations and its cash flows for the three and six months ended June 30, 2020 and 2019. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2020 and 2019 are also unaudited. The results for the ~~three and six months ended June 30, 2020~~interim periods presented. Results are not necessarily indicative of results to be expected for the year ending December 31, ~~2020,~~2023, any other interim periods, or any future year or ~~period,~~ ~~particularly in light of the COVID-19 pandemic and its impact on domestic and global economies~~.period. The balance sheet as of December 31, ~~2019~~2022 included herein was derived from the audited financial statements as of that date. Certain disclosures have been condensed or omitted from the interim financial statements.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant items subject to such estimates include the ~~estimate of variable consideration in connection with the recognition of revenue, the valuation of Series B preferred stock, the~~ valuation of stock options, the valuation of goodwill, ~~and intangible assets,~~ accrual for reimbursement claims and settlements, the valuation of warrant liabilities, the valuation of assets held for sale, assessing future tax exposure and the realization of deferred tax assets, and the useful lives and the recoverability of property and equipment. The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities and recorded revenues and expenses that are not readily apparent from other sources. Actual results could differ from those estimates and assumptions.

~~Operating segments are identified as components~~Restricted cash consists of ~~an enterprise about which separate discrete financial information is available~~amounts owed for evaluation by the chief operating decision maker or decision-making group in making decisions on how to allocate resources and assess performance. The Company views its operations and manages its business as one operating segment. All revenues are attributable to U.S.-based operations and all assets areinterest held in ~~the United States.~~

~~Revenue is recognized in accordance~~an escrow account with ~~the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606,~~ ~~Revenue from Contracts with Customers~~ ~~(“ASC 606”). In accordance with ASC 606, the Company follows~~ a five-step process to recognize revenues: 1) identify the contract with the customer, 2) identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligationsbalance of $4.8 million and ~~5) recognize revenues when the performance obligations are satisfied.~~

~~Revenue is primarily derived from providing molecular testing products, which are reimbursed through arrangements with third-party payors, laboratory distribution partners,~~$0 as of September 30, 2023 and amounts from individual patients. Third-party payors include commercial payors, such as health insurance companies, health maintenance organizations and government health benefit programs, such as Medicare and Medicaid. The Company’s contracts generally contain a single performance obligation, which is the delivery of the test results, and the Company satisfies its performance obligation at a point in time upon the delivery of the results, which then triggers the billing for the product. The amount of revenue recognized reflects the amount of consideration the Company expects to be entitled to (the “transaction price”) and considers the effects of variable consideration. Revenue is recognized when control of the promised product is transferred to customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those products.December 31, 2022, respectively.

Incremental costs incurred to obtain a contract are expensed as incurred because the related amortization period would have been one year or less. The costs are included in selling and marketing expenses.

The Company relies upon reimbursements from third-party government payors and private-payor insurance companies to collect accounts receivable. The Company’s significant third-party payors and their related accounts receivable balances and revenues as a percentage of total accounts receivable balances and revenues are as follows:

Accounts receivable is recorded at the transaction price and considers the effects of variable consideration. The total consideration the Company expects to collect is an estimate and may be fixed or variable. Variable consideration includes reimbursement from third-party payors, laboratory distribution partners, and amounts from individual patients, and is adjusted for disallowed cases, discounts, and refunds using the expected value approach. The Company monitors these estimates at each reporting period based on actual cash collections in order to assess whether a revision to the estimate is required.

Basic and diluted net loss per share attributable to common stockholders is presented in conformity with the two-class method required for participating securities. The Company considers all series of preferred stock to be participating securities as the holders of such stock are entitled to receive non-cumulative dividends on an as-converted basis in the event that a dividend is paid on common stock. Under the two-class method, the net loss attributable to common stockholders is not allocated to the preferred stock as the holders of preferred stock do not have a contractual obligation to share in the Company’s losses. Under the two-class method, net income is attributed to common stockholders and participating securities based on their participation rights. Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Net loss attributable to common stockholders is calculated by adjusting net loss with dividends to preferred stockholders, if any. As the Company has reported net losses for all periods presented, all potentially dilutive securities are antidilutive and, accordingly, basic net loss per share equals diluted net loss per share.

~~The Company did not have any other comprehensive income or loss for any of the periods presented, and therefore comprehensive loss was the same as the Company’s net loss.~~

~~In June 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-07,~~ ~~Improvements to Nonemployee Share-Based Payment Accounting~~. The standard simplifies the accounting for share-based payments granted to nonemployees for goods and services and aligns most of the guidance on such payments to the nonemployees with the requirements for share-based payments granted to employees. The Company adopted the new accounting standard in fiscal year 2020 using the retrospective transition method for each period presented, which did not have a material impact on the condensed consolidated financial statements.

~~In December 2019, the FASB issued ASU No. 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~ ~~which removes certain exceptions to the general principles of Topic 740,~~ ~~Accounting for Income Taxes~~ (“ASC 740”) and is intended to improve consistency and simplify GAAP in several other areas of ASC 740 by clarifying and amending existing guidance. The Company early adopted ASU No. 2019-12 for the quarter ended March 31, 2020, which did not have a material impact on the condensed consolidated financial statements.

~~In March 2020, the FASB issued ASU No. 2020-04,~~ ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting~~, which provides optional expedients and exceptions for GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. The amendments are effective for all entities as of March 12, 2020 through December 31, 2022. The adoption of the new accounting standard did not have a material impact on the condensed consolidated financial statements.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842), which supersedes FASB ASC Topic 840,~~ ~~Leases (Topic 840)~~, and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method for finance leases or on a straight-line basis over the term of the lease for operating leases. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. In November 2019, the FASB issued ASU No. 2019-10, ~~Leases (Topic 842): Effective Dates~~. The new standard is effective for the Company for annual reporting periods beginning after December 15, 2020. The Company is currently assessing the impact the new leasing standard will have on operations and financial position.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses, which requires the measurement of expected credit losses for financial instruments carried at amortized cost, such as accounts receivable, held at the reporting date based on historical experience, current conditions and reasonable forecasts. The main objective of this standard is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financing Instruments–Credit Losses, which included an amendment of the effective date. The Company adopted this standard on January 1, 2023, and it did not have a material impact on the condensed consolidated financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40)-Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for convertible instruments, amends the guidance on derivative scope

exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share calculations as a result of these changes. The standard is effective for the Company for annual reporting periods beginning after December 15, ~~2022.~~2023. The Company ~~does not expect~~is currently evaluating the impact the adoption of this standard tomay have ~~a significant impact~~ on its consolidated financial statements.

3. Strategic Transformation

Assets Held for Sale and Discontinued Operations

In ~~January 2017,~~June 2021, the ~~FASB issued ASU No. 2017-04,~~ ~~Intangibles—Goodwill~~Company announced its Strategic Transformation to reallocate resources to research and ~~Other (Topic 350): Simplifying~~development to better position the ~~Test~~business for ~~Goodwill Impairment~~.future growth. The ~~new standard will simplify~~plan included the ~~measurement of goodwill by eliminating step two~~closure of the ~~two-step impairment test. Step two measures~~Company's genetics laboratory in Ann Arbor, Michigan and the divestiture of Avero. This plan represented a ~~goodwill impairment loss by comparing the implied fair value of~~strategic business shift having a reporting unit’s goodwill with the carrying amount of that goodwill. The new guidance requires an entity to compare the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Additionally, an entity should consider income tax effects from any tax-deductible goodwillmajor effect on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The standard is effective for the Company for annual reporting periods beginning after December 15, 2021.Company's operations and financial results. The Company ~~does not expect~~classified the ~~adoption~~results of ~~this standard to have a material impact on~~ its Laboratory Operations as discontinued operations in its condensed consolidated ~~financial statements.~~

~~In August 2018, the FASB issued ASU No. 2018-13,~~ ~~Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information~~statements of operations and ~~modifies some disclosure requirements. The standard is effective for the Company for annual reporting periods beginning after December 15, 2019. The Company does not expect the adoption~~consolidated statements of ~~this standard to have a material impact on its consolidated financial statements.~~

~~3. Variable Interest Entity~~

In June 2015, the Company entered into a series of agreements with Avero. The Company entered into a purchase agreement to acquire certain assets from Mattison used in the operations of Avero. The purchase agreement was accounted for under the acquisition method in accordance with the provisions of ASC Topic 805, ~~Business Combinations~~. The Company entered into a nominee agreement which provides it with the right, but not the obligation, to purchase, or to designate a person(s) to purchase, the stock of Avero at any time for a nominal amount.

The Company also entered into a management services arrangement that authorizes the Company to perform the management services in the manner that it deems reasonably appropriate to meet the day-to-day business needs of Avero. The Company’s management services include funding ongoing operational needs, directing activities related to contract negotiation, billing, human resources, and legal and administrative matters and processes, among others. In exchange for the management services provided, the

Company is entitled to receive an annual management fee equal to the amount of the net operating income of Avero. The term of the agreement with Avero is 10 years, subject to automatic renewals. The agreement can be terminated by either party with a 90-day notice before the end of the term.

Through the management services arrangement with Avero, the Company has (1) the power to direct the activities of Avero that most significantly impact its economic performance, and (2) the obligation to absorb losses of Avero or the right to receive benefits from Avero that could potentially be significant to Avero. Based on these determinations, the Company has determined that Avero is a variable interest entity and that the Company is the primary beneficiary. The Company does not own any equity interest in Avero; however, as these agreements provide the Company the controlling financial interest in Avero, the Company consolidates Avero’s balances and activities within its consolidated financial statements.

In December 2018, Avero entered into a settlement agreement with Cigna (the “Cigna settlement obligation”) whereby Avero agreed to pay an aggregate amount of $12.0 million with an upfront payment of $6.0 million andcash flows. Additionally, the remaining $6.0 million to be paid over 24 months, beginning in February 2019. The Company guaranteed the $12.0 million Cigna settlement obligation. The Company provided financial support to Avero in the amount of $0.8 million and $1.5 million during the three and six months ended June 30, 2020, respectively, and $0.8 million and $1.5 million during the three and six months ended June 30, 2019, respectively, related to the Cigna settlement obligation (see Note 9). The Company did not provide any additional financial support to Avero during the three or six months ended June 30, 2020 and 2019, other than the Cigna settlement obligation and agreed upon management services.

~~The following table presents the~~ assets ~~and liabilities of Avero that are included~~have been reported as assets held for sale in the Company’s condensed consolidated balance sheets as of ~~June~~September 30, ~~2020~~2023 and December 31, ~~2019, in thousands.~~ 2022.

The ~~creditors~~following table presents the combined results of ~~Avero have~~ discontinued operations of the Laboratory Operations (in thousands) for the three and nine months ended September 30, 2022. There was no ~~recourse~~ gain or loss from discontinued operations for the three and nine months ended September 30, 2023:


	Three Months Ended		Nine Months Ended
	September 30, 2022
Revenues (1)	$	9,923	$	11,950
Operating expenses:
Selling, general and administrative		163		1,024
Total operating expenses		163		1,024
Net gain from discontinued operations	$	9,760	$	10,926

(1) Refer to Note 9 for further discussion regarding the partial reversal of a previously-established accrual related to a third-party claim of recoupment during the three months ended September 30, 2022.

The following table presents the carrying amounts of the remaining assets held for sale related to the ~~general credit of the Company, with the exception of $1.8 million and $1.9 million in mortgage payable guaranteed by the Company~~Laboratory Operations as of ~~June~~September 30, ~~2020~~2023 and December 31, ~~2019, respectively (see Note 8),~~2022 (in thousands):


	September 30, 2023		December 31, 2022

Current assets of disposal group held for sale
Property and equipment, net		2,509		2,603
Total current assets of disposal group held for sale (2)	$	2,509	$	2,603

(2) The Company is actively looking to sell the remaining assets of the Laboratory Operations and ~~$1.5 million~~has classified them as held for sale and ~~$3.0 million~~current in ~~remaining Cigna settlement obligation guaranteed by~~ the ~~Company as of June~~consolidated balance sheets at September 30, ~~2020~~2023 and December 31, ~~2019, respectively.~~2022, because they are expected to be sold within one year.

On October 6, 2023, the Company entered into a Purchase and Sale Agreement to sell the building located in Ann Arbor, Michigan included in current assets held for sale. The transaction closed in October 2023 and the Company received gross proceeds of $2.8 million, incurred closing expenses of $0.2 million and recorded a gain of $0.3 million upon closing.

Investment in Enumera Molecular, Inc.

In May 2022, the Company completed the divesture of its single-molecule detection platform. Under the terms of the agreements, the Company contributed intellectual property and fixed assets related to the single-molecule detection platform to a newly-formed entity, Enumera Molecular, Inc. ("Enumera"), which intends to develop and commercialize the platform. As of the transaction date, the Company received 25% minority ownership, on a fully-diluted basis, of 6,000,000 Series A-1 preferred shares with an estimated value of $6.0 million in exchange for the assets. The Company concluded, based on a technical evaluation of the facts, that Enumera is not a variable interest entity. The Company also evaluated the characteristics of the investment and determined that the preferred stock is not in-substance common stock that would require equity method accounting. The Company concluded the appropriate accounting treatment for the investment in Enumera to be that of an equity security with no readily determinable fair value and has recorded the investment at cost, less impairment, adjusted for subsequent observable price changes. The investment is included in other assets in the Company’s condensed consolidated balance sheets as of September 30, 2023 and December 31, 2022. No impairment was recorded as of September 30, 2023 or December 31, 2022.

Licensing Agreements

In November 2022, the Company entered into a license agreement with Northwest Pathology, doing business as Avero Diagnostics (“Northwest”), pursuant to which the Company licensed its Preecludia rule-out test for preeclampsia to Northwest for commercial development (the “Northwest License Agreement”). Under the terms of the Northwest License Agreement, Northwest received the rights to assets and ~~liabilities exclude intercompany balances that eliminate~~intellectual property related to the Preecludia test and the Company will receive commercial milestone payments and royalties on net sales.

In June 2023, the Company entered into a purchase and license agreement with a diagnostics company pursuant to which the Company sold certain assets and licensed intellectual property related to preeclampsia for research and development (the “Preeclampsia Agreement”). Under the terms of the Preeclampsia Agreement, the Company received a one-time payment for the sale of assets, including rights to certain antibody sequences during the three months ended September 30, 2023 and recorded $1.5 million of other income.

In May 2023, the Company entered into a professional services agreement with an affiliate of Enumera, a related party. Pursuant to the agreement, the affiliate will assist in ~~consolidation:~~

selling legacy assets. The Company incurred $0.4 million in other expenses in connection with the agreement.

June 30,
2020

December 31,
2019

Assets of Avero that can only be used to settle obligations of Avero

Cash and cash equivalents

$
636

$
1,837

Accounts receivable, net

3,580

4,269

Inventory

2,221

2,572

Prepaid expenses and other current assets

1,268

1,181

Property and equipment, net

5,527

5,586

Other assets

30

30

Goodwill

6,219

6,219

Other intangible assets, net

4,307

4,771

Total assets of Avero that can only be used to settle obligations of Avero

$
23,788

$
26,465

Liabilities of Avero

Accounts payable

$
2,123

$
2,450

Accrued expenses and other accrued liabilities

4,409

5,630

Current portion of capital lease obligations

45

59

Current portion of mortgage payable

177

173

Capital lease obligations, net of current portion

27

50

Mortgage payable, net of current portion

1,638

1,733

Other long-term liabilities

468

467

Total liabilities of Avero

$
8,887

$
10,562

~~Revenue~~The Company's current revenue is related to license and collaboration agreements. Revenues historically were derived from contracts with healthcare insurers, government payors, laboratory partners and patients ~~in connection with sales of prenatal genetic, anatomic or molecular pathology tests. The Company enters into contracts with healthcare insurers~~ related to tests provided to patients who have health insurance coverage. Insurance carriers are considered third-party payors on behalf of the patients, and the patients who receive genetic, anatomic or molecular pathology test products are considered the customers. Tests may be billed to insurance carriers, patients, or a combination of insurance carriers and patients. The Company ~~also sells tests to laboratory partners, which are also considered to be customers. The Company’s~~ ~~test volumes began to decrease in the second half of March 2020 as a result of the COVID-19 pandemic spreading in the United States and resulting limitations and reordering of priorities~~

~~across the U.S. healthcare system. The Company expects test volumes to continue to be adversely affected by COVID-19 and cannot predict when volumes will return to normal.~~

In accordance with ASC 606, a performance obligation represents a promise in a contract to transfer a distinct good or service to a customer and the consideration should be allocated to each distinct performance obligation and recognized as revenue when or as the performance obligation is satisfied. The Company has evaluated its contracts ~~with healthcare insurers, government payors, laboratory partners and patients~~ and identified a single performance obligation, ~~in those contracts,~~ the delivery of a test result. The Company ~~satisfies~~satisfied its performance obligation at a point in time upon the delivery of the test result, at which point the Company ~~can bill~~billed for its products. The amount of revenue recognized ~~reflects~~reflected the transaction price and ~~considers~~considered the effects of variable ~~consideration, which is discussed below.~~

~~Once the Company satisfies its performance obligations upon delivery of a test result and bills for the product, the timing~~consideration. All of the ~~collection of payments may vary based on the payment practices~~historical test revenue is part of the ~~third-party payor.~~ Company's Laboratory Operations and has been included in discontinued operations in the condensed consolidated statements of operations.

The Company ~~bills patients directly for co-pays and deductibles that they are responsible for and also bills patients directly in cases where the customer does not have insurance.~~

~~The Company has~~had established an accrual for refunds of payments previously made by healthcare insurers based on historical experience and executed settlement agreements with healthcare insurers. ~~The~~Any refunds ~~are~~were accounted for as reductions in revenues in the statement of operations as an element of variable consideration. For example, during the three months ended June 30, 2020, the Company accrued $10.3 million for refunds to government payors related to reimbursement for the Company’s Preparent expanded carrier screening tests during 2019 and early 2020. In the United States, the American Medical Association (“AMA”) generally assigns specific billing codes for laboratory tests under a coding system known as Current Procedure Terminology (“CPT”), which we and our ordering healthcare providers must use to bill and receive ~~reimbursement~~ ~~for our molecular tests.~~ Effective January 1, 2019, the AMA issued a CPT code for genetic testing for severe inherited conditions that includes sequencing of at least 15 genes, which affects potential reimbursement for the Company’s Preparent expanded carrier screening tests. As part of the Company’s work to improve its compliance program, including its internal auditing and monitoring function, the Company commissioned a third-party review of its billing processes. In connection with that audit, the Company identified that it had not effectively transitioned to the implementation of the new CPT code in 2019, and as a result the Company received an overpayment of approximately $10.3 million from government payors during 2019 and early 2020. The final analysis of the amount of the overpayment is still being completed, but as a result of the analysis to date, during the three months ended June 30, 2020, the Company accrued $10.3 million for refunds to government payors. The Company’s deadline to report and return the overpayment to the government programs is 60 days from the time the overpayment was determined and quantified, thus the Company expects to repay this amount to the relevant government programs by early October 2020.

The transaction price is an estimate and may be fixed or variable. Variable consideration includes reimbursement from healthcare insurers, government payors, and patients and is adjusted for estimates of disallowed cases, discounts, and refunds using the expected value approach. Tests billed to healthcare insurers and directly to patients can take up to six months to collect and the Company may be paid less than the full amount billed or not paid at all. For insurance carriers and government payors, management utilizes the expected value method using a portfolio of relevant historical data for payors with similar reimbursement characteristics. The portfolio estimate is developed using historical reimbursement data from payors and patients, as well as known current reimbursement trends not reflected in the historical data. Such variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. The Company monitors these estimates at each reporting period based on actual cash collections and the status of settlement agreements with third-party payors, in order to assess whether a revision to the estimate is required. Both the initial estimate and any subsequent revision to the estimate contain uncertainty and require the use of judgment in the estimation of the transaction price and application of the constraint for variable consideration. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect revenue and earnings in the period such variances become known. The consideration expected from laboratory partners is generally a fixed amount.

The Company periodically ~~updates~~updated its estimate of the variable consideration recognized for previously delivered performance obligations. These updates resulted in ~~a reduction of $6.1~~anadditional $0.1 million and ~~$18.9~~$2.0 million of revenue ~~reported~~ for the three and ~~six~~nine months ended ~~June~~September 30, ~~2020, respectively, and an increase of $15.1 million and $15.5 million of revenue reported for the three and six months ended June 30, 2019,~~2022, respectively. These amounts included (i) adjustments for actual collections versus estimated variable consideration as of the beginning of the reporting period and (ii) cash collections and the related recognition of revenue in the current period for tests delivered in prior periods due to the release of the constraint on variable consideration, offset by (iii) reductions in revenue for the accrual for reimbursement claims and settlements described in Note 9.

~~Disaggregation of Revenues~~

~~The following table shows a further disaggregation of revenues by payor type (in thousands):~~

Three Months Ended
June 30,

Six Months Ended
June 30,

2020

2019

2020

2019

Commercial third-party payors

$
18,030

$
48,040

$
39,592

$
85,793

Government health benefit programs(1)

(2,922
)

8,310

(9,065
)

16,945

Patient/laboratory distribution partners

2,158

880

3,567

1,999

Total revenues

$
17,266

$
57,230

$
34,094

$
104,737

____________

(1) The revenue amounts include accruals for reimbursement claims and settlements included in the estimates of variable consideration recorded during the three and six months ended June 30, 2020. Revenue recognized reflect the effects of variable consideration, and include adjustments for estimates of disallowed cases, discounts, and refunds. The variable consideration includes reductions in revenues for the accrual for reimbursement claims and settlements.

5. Balance Sheet Components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):


	June 30, 2020		December 31, 2019		September 30, 2023		December 31, 2022
Prepaid expenses	$	6,000	$	6,476	$	3,179	$	3,634
Other current assets		130		1,370		172		565
Total	$	6,130	$	7,846	$	3,351	$	4,199

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):


	September 30, 2023			December 31, 2022
Computers and software	$	1,396		$	2,715
Building and leasehold improvements		803			750
Laboratory equipment		565			958
Furniture, fixtures, and office equipment		871			1,138
Construction in progress		5			92
Total property and equipment		3,640			5,653
Less accumulated depreciation and amortization		(2,404	)		(3,999	)
Property and equipment, net	$	1,236		$	1,654

Depreciation expense was $0.1 million and $0.4 million for the three and nine months ended September 30, 2023, respectively, and $0.2 million and $0.7 million for the three and nine months ended September 30, 2022, respectively.

Other Assets

June 30,
2020

December 31,
2019

Computers and software

$
13,699

$
13,913

Building and leasehold improvements

9,466

9,491

Laboratory equipment

6,242

5,580

Furniture, fixtures, and office equipment

1,663

1,633

Construction in progress

1,635

1,493

Land

1,091

1,091

Total property and equipment

33,796

33,201

Less accumulated depreciation and amortization

(18,071
)

(17,310
)
Property and equipment, net

$
15,725

$
15,891

~~Capital leases included in property and equipment, net~~Other assets consisted of the following (in thousands):

June 30,
2020

December 31,
2019

Capital leases

$
2,520

$
3,692

Less accumulated depreciation and amortization

(1,731
)

(2,239
)
Capital leases included in property and equipment, net

$
789

$
1,453


	September 30, 2023		December 31, 2022
Investment in Enumera	$	6,000	$	6,000
Other		314		201
Total	$	6,314	$	6,201

Depreciation expense was $1.0 million and $2.0 million for the three and six months ended June 30, 2020, respectively, and $0.9 million and $1.8 million for the three and six months ended June 30, 2019, respectively.

~~Intangible Assets, Net~~

~~Intangible assets, net consisted of the following (in thousands):~~

June 30, 2020

Cost

Accumulated
amortization

Net

Payor relationships

$
7,230

$
(3,675
)

$
3,555

Trade names

1,410

(717
)

693

Noncompete agreements

384

(325
)

59

Intangible assets, net

$
9,024

$
(4,717
)

$
4,307

December 31, 2019

Cost

Accumulated
amortization

Net

Payor relationships

$
7,230

$
(3,314
)

$
3,916

Trade names

1,410

(646
)

764

Noncompete agreements

384

(293
)

91

Intangible assets, net

$
9,024

$
(4,253
)

$
4,771

Amortization expense of intangible assets was $0.2 million and $0.5 million for the three and six months ended June 30, 2020, respectively, and $0.2 million and $0.5 million for the three and six months ended June 30, 2019, respectively.

~~The future amortization of intangible assets at June 30, 2020 was (in thousands):~~

Year ending December 31,

Remainder of 2020

$
464

2021

891

2022

864

2023

864

2024

864

Thereafter

360

Total future minimum lease payments

$
4,307

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

	June 30, 2020		December 31, 2019
Accrual for reimbursement claims and settlements, current	$	56,763	$	60,386
Commission and bonus		6,494		6,357
					September 30, 2023		December 31, 2022
Accrual for reimbursement claims and settlements, current (1)					$	8,287	$	8,372
Commissions and bonuses						2,037		1,433
Vacation and payroll benefits		7,352		5,506		1,326		1,724
Accrued professional services		3,648		5,322		711		307
Other		4,153		6,044
Accrued interest						6,842		890
Lease liabilities, current						962		893
Insurance financing						959		445
Contract liabilities						42		47
Other (2)						3,148		2,050
Total	$	78,410	$	83,615	$	24,314	$	16,161

(1) Revenues related to Laboratory Operations have all been discontinued; amounts related to the revenue reserve generated from the Laboratory Operations remain on the balance sheet.

(2) Included in this amount are contracts that the Company is responsible for that were expensed in discontinued operations in 2021.

Other Long-term Liabilities

Other long-term liabilities consisted of the following (in thousands):


	September 30, 2023		December 31, 2022
Lease liabilities, net of current portion		1,051		601
Other (1)		2,516		4,095
Total	$	3,567	$	4,696

(1) Included in this amount are contracts that the Company is responsible for that were expensed in discontinued operations in 2021.

~~The Company's financial assets and liabilities carried at fair value are comprised of investment assets that include money market funds.~~ Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the ~~reporting~~measurement date.

The authoritative guidance establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. ~~The three-level hierarchy for the inputs to valuation techniques is summarized as follows:~~

~~Level 1 - Quoted prices in active markets for identical assets and liabilities that the Company has the ability to access.~~

~~Level 2 - Observable market-based inputs or unobservable inputs that are corroborated by market data, such as quoted prices, interest rates, and yield curves.~~

~~Level 3 - Inputs that are unobservable data points that are not corroborated by market data.~~

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The three-level hierarchy for the inputs to valuation techniques is summarized as follows:

Level 1 - Quoted prices in active markets for identical assets and liabilities that the Company has the ability to access.

Level 2 - Observable market-based inputs or unobservable inputs that are corroborated by market data, such as quoted prices, interest rates, and yield curves.

Level 3 - Inputs that are unobservable data points that are not corroborated by market data.

There were no significant transfers between these fair value measurement classifications during the nine months ended September 30, 2023 and 2022.

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value (in thousands):

Quoted Prices for
Identical Assets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

June 30, 2020

Money market funds(1)

$
105,173

$
—

$
—

December 31, 2019

Money market funds(1)

$
24,432

$
—

$
—

____________

(1) Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets.


	Level 1		Level 2		Level 3
September 30, 2023
Warrant liabilities	$	—	$	—	$	41,325

December 31, 2022
Money market funds (1)	$	5	$	—	$	—
Warrant liabilities	$	—	$	—	$	3,538

(1) Included in cash, cash equivalents and restricted cash in the accompanying condensed consolidated balance sheets.

The Company’s ~~policy is to recognize transfers between levels at the end~~Level 3 liabilities consist of the ~~reporting period. There~~warrant liabilities resulting from equity financings (see Note 10) and the Convertible Note exchange (see Note 7). The Company uses the Black-Scholes Model to value the warrant liabilities at inception and on subsequent valuation dates. This model incorporates transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, and volatility. The significant unobservable input for the Level 3 warrant liabilities includes volatility. Given the limited period of time the Company’s stock has been traded in an active market, the expected volatility is estimated by taking the average historical price volatility for industry peers, consisting of several public companies in the Company’s industry that are similar in size, stage, or financial leverage, over a period of time commensurate to the expected term of the warrants. At September 30, 2023 and December 31, 2022, the fair value of the warrant liabilities were ~~no significant transfers between Level 1~~estimated using the Black-Scholes Model with the following inputs and ~~Level 2 during~~assumptions:


	September 30, 2023		December 31, 2022
Risk-free interest rate	4.6% - 4.8%		4.0%
Expected volatility	96.5% - 99.4%		106.2% - 107.1%
Stock price	$	2.17	$	3.30
Expected life (years)	2.7 - 4.6		3.6 - 5.4

A summary of the ~~three and six months ended June 30, 2020 and 2019.~~changes in the warrant liabilities is presented below (in thousands):

~~Fair Value of Financial Instruments~~


Balance at December 31, 2022	$	3,538
Recognition of new warrant liabilities		44,439
Change in fair value of warrant liabilities		(6,652	)
Balance at September 30, 2023	$	41,325

The carrying value of the Company’s accounts receivable, income tax receivable, accounts payable, and accrued expenses and other current liabilities are considered to be representative of their respective fair values because of their short-term nature.

The carrying value of the Company’s mortgages payable approximates their estimated fair value because the instruments bear interest at rates and have terms that are comparable to those available to the Company for similar loan instruments at June 30, 2020 and December 31, 2019.

~~The carrying value of the Company’s note payable to a related party~~Convertible Notes does not approximate its fair value because the ~~instrument bears interest at a rate that is not comparable to those available~~carrying value of the Convertible Notes reflects the balance of unamortized discount related to the ~~Company for a similar loan instrument~~derivative liability associated with the value of the conversion feature assessed at ~~June~~inception.The carrying value of the Company’s Convertible Notes, net of discount, was $80.4 million and $127.8 million at September 30, ~~2020~~2023 and December 31, ~~2019. The carrying value and~~2022, respectively. Based on unadjusted quoted prices in active market

obtained from third-party pricing services, the Company determined the fair value of the ~~Company’s term loan (the “2017 Term Loan”)~~Convertible Notes was ~~$75.0~~$45.7 million and ~~$78.1~~$71.8 million ~~respectively, at June~~as of September 30, ~~2020,~~2023 and ~~$75.0 million and $79.8 million, respectively, at~~ December 31, ~~2019. The carrying~~2022, respectively.

In December 2020, the Company issued a total of $168.5 million principal amount of Convertible Notes in a private offering of the ~~2017 Term Loan is presented on~~Convertible Notes pursuant to Rule 144A under the ~~accompanying condensed consolidated balance sheets net~~Securities Act of ~~discount on the note~~1933, as amended (the "Securities Act"). The Convertible Notes were issued pursuant to, and ~~debt issuance cost.~~

~~On October 27, 2017,~~are governed by, an indenture, dated as of December 7, 2020, by and between the Company ~~entered into a Credit~~ and ~~Security Agreement and a Series B Convertible Preferred Stock Purchase Agreement with a private equity firm (the “2017 Transaction”~~The Bank of New York Mellon Trust Company, N.A., as trustee (“Indenture”). The ~~2017 Transaction provided for the 2017 Term Loan, the issuance of Series B Preferred Stock (the “Series B Preferred Stock”)~~Convertible Notes are due on December 1, 2025, unless earlier repurchased, redeemed or converted, and ~~the issuance of a warrant to purchase Series B Preferred Stock (the “Series B Preferred Stock Purchase Warrant”). The 2017 Term Loan accrues~~accrue interest at a rate per annum equal to ~~9.5%~~7.25% payable semi-annually in arrears on June 1 and December 1 of each year, with the initial payment on June 1, 2021. The outstanding principal amount of Convertible Notes was $82.7 million and $132.7 as of September 30, 2023 and December 31, 2022, respectively. The Company recognized interest expense on the Convertible Notes of $2.3 million and $7.1 million for the three and nine months ended September 30, 2023, respectively, and $2.4 million and $7.2 million for the three and nine months ended September 30, 2022, respectively.

The Convertible Notes are the Company's senior, unsecured obligations and are (i) equal in right of payment with the Company's existing and future senior, unsecured indebtedness; (ii) senior in right of payment to the Company's existing and future indebtedness that is ~~due October 27,~~expressly subordinated to the Convertible Notes; (iii) effectively subordinated to the Company's existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company's subsidiaries.

At any time, noteholders may convert their Convertible Notes at their option into shares of the Company’s common stock, together, if applicable, with cash in lieu of any fractional share, at the then-applicable conversion rate. The initial conversion rate is 11.1204 shares of common stock per $1,000 principal amount of Convertible Notes, which represents an initial conversion price of approximately $89.92 per share of common stock. Noteholders that converted their Convertible Notes before December 1, 2022 were, in certain circumstances, entitled to an additional cash payment representing the present value of any remaining interest payments on the Convertible Notes through December 1, 2022. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain dilutive events. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

The ~~2017 Term Loan contains customary covenants, including~~Convertible Notes are redeemable, in whole and not in part, at the Company’s option at any time on or after December 1, 2023, at a ~~requirement~~cash redemption price equal to ~~maintain a minimum unrestricted cash balance at all times~~the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if the last reported sale price per share of the Company’s common stock exceeds 130% of the conversion price on (i) each of at least ~~$5.0 million.~~ 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. In addition, calling the Convertible Notes will constitute a Make-Whole Fundamental Change, which will result in an increase to the conversion rate in certain circumstances for a specified period of time.

The ~~Company is~~Convertible Notes have customary provisions relating to the occurrence of “Events of Default” (as defined in ~~compliance~~the Indenture), which include the following: (i) certain payment defaults on the Convertible Notes (which, in the case of a default in the payment of interest on the Convertible Notes, will be subject to a 30-day cure period); (ii) the Company’s failure to send certain notices under the Indenture within specified periods of time; (iii) the Company’s failure to comply with certain covenants in the ~~2017 Term Loan covenants. The 2017 Term Loan is secured by~~Indenture relating to the Company’s ability to consolidate with or merge with or into, or sell, lease or otherwise transfer, in one transaction or a series of transactions, all ~~tangible and intangible property and~~or substantially all of the assets of the Company and its subsidiaries, taken as a whole, to another person; (iv) a default by the Company in its other obligations or agreements under the Indenture or the Convertible Notes if such default is not cured or waived within 60 days after notice is given in accordance with the ~~exception~~Indenture; (v) certain defaults by the Company or any of its ~~intellectual property.~~subsidiaries with respect to indebtedness for borrowed money of at least $7.5 million; (vi) the rendering of certain judgments against the Company or any of its subsidiaries for the payment of at least $7.5 million, where such judgments are not discharged or stayed within 60 days after the date on which the right to appeal has expired or on which all rights to appeal have been extinguished; and (vii) certain events of bankruptcy, insolvency and reorganization involving the Company or any of the Company’s significant subsidiaries. As of both September 30, 2023 and December 31, 2022, the Company was in compliance with all such covenants.

The ~~total proceeds of $124.2 million from the 2017 Transaction were allocated~~Convertible Notes had a conversion option which was required to be bifurcated upon issuance and periodically remeasured to fair value separately as an embedded derivative. The conversion option included additional interest payments payable to the ~~2017 Term Loan, Series B Preferred Stock,~~

noteholders if converted prior to December 1, 2022. The conversion feature was bifurcated and recorded separately as an embedded derivative as (1) the conversion feature was not clearly and closely related to the debt instrument and was not considered to be indexed to the Company’s equity, (2) the conversion feature standing alone meets the definition of a derivative, and (3) the Convertible Notes are not remeasured at fair value each reporting period with changes in fair value recorded in the consolidated statement of operations. As of December 31, 2022, the conversion option has expired and there is no longer an embedded derivative.

In September 2023, certain related party holders of Convertible Notes exchanged an aggregate of $50.0 million principal amount for a combination of 9,235,281 shares of the Company's common stock, 7,399,226 pre-funded warrants at an exercise price of $0.001 per share and warrants to purchase up to 16,634,507 shares of common stock at an exercise price of $3.01 per share. The warrants are exercisable on or after September 18, 2023 until September 18, 2026 and the ~~Series B Preferred Stock Purchase Warrant based~~pre-funded warrants have no expiration date. The pre-funded warrants and the warrants (together, the "September Warrants") are subject to certain exercise limitations, including a limitation on the ~~relative~~ability to exercise if the holder’s beneficial ownership would exceed 49.9%. As the Convertible Notes were exchanged for an amount over the fair value of shares issuable under the ~~term loan, equity, and warrant issued. As a result,~~original conversion terms, the Company ~~allocated proceeds~~recorded an inducement loss of ~~$65.7~~$53.2 million, included in other (expense) income, net in the condensed consolidated statements of operations. Pursuant to ASC 815, the ~~2017 Term Loan. As~~Company deemed the ~~proceeds allocated~~September Warrants to be classified as a liability at fair value initially with subsequent changes in fair value recorded in earnings. The September Warrants were recorded at a fair value of $35.1 million determined using the ~~2017 Term Loan are lower than~~Black-Scholes Model. The warrant liability was remeasured at $36.8 million as of September 30, 2023 and the ~~stated loan~~Company recognized a loss on warrant liability in the amount of ~~$75.0~~$1.7 million in the ~~resulting $9.3~~condensed consolidated statements of operations during the three months ended September 30, 2023.

As of September 30, 2023 and December 31, 2022, the unamortized debt discount was $2.3 million and $4.9 million, respectively. The Company amortizes the debt discount ~~is amortized as interest expense~~ using the effective interest method over the term of the ~~loan.~~Convertible Notes, resulting in an effective interest rate of approximately 8.7%. The amortization of the Convertible Notes debt discount was $0.4 million and $1.1 million for the three and nine months ended September 30, 2023, respectively, and $0.3 million and $1.0 million for the three and nine months ended September 30, 2022, respectively, and was included in interest expense, net in the condensed consolidated statements of operations.

8. Related Party Transactions

As of ~~both June~~September 30, ~~2020~~2023 affiliates of Athyrium Capital Management, LP (“Athyrium”) held 10,929,765 shares, or 46.7%, of the Company's common stock outstanding, 7,399,226 pre-funded warrants and warrants to purchase up to 16,634,507 and 824,136 shares of common stock at exercise prices of $3.01 and $8.22, respectively. As of December 31, 2022, Athyrium held 1,694,484 shares, or 19.0%, respectively, of the Company's common stock outstanding and warrants to purchase up to 824,136 shares of common stock at an exercise price of $8.22.

Athyrium also held $53.5 million and $103.5 million aggregate principal amount of Convertible Notes as of September 30, 2023 and December 31, ~~2019,~~2022, respectively. In September 2023, Athyrium exchanged an aggregate of $50.0 million principal amount for a combination of 9,235,281 shares of the ~~outstanding unpaid principal under the 2017 Term Loan was $75.0 million. The unamortized discount on the 2017 Term Loan was $5.9 million~~Company's common stock, 7,399,226 pre-funded warrants and ~~$6.0 million as~~warrants to purchase up to 16,634,507 shares of ~~June~~common stock at an exercise price of $3.01 (see Note 7). As of September 30, ~~2020~~2023 and December 31, ~~2019, respectively. During~~2022, the ~~three months ended June 30, 2020 and 2019, the Company recognized~~accrued interest expense onrelated to the ~~2017 Term Loan of $2.5~~Convertible Notes held by Athyrium was $6.1 million and ~~$2.2~~$0.6 million, ~~inclusive~~respectively. As of ~~$0.7 million and $0.4~~September 30, 2023, $4.8 million of ~~discount amortization for~~ the ~~three months ended June 30, 2020~~interest owed is being held in an escrow account and 2019, respectively. During the six months ended June 30, 2020 and 2019, the Company recognized interest expense on the 2017 Term Loan of $4.7 million and $4.4 million, inclusive of $1.1 million and $0.8 million of discount amortization for the six months ended June 30, 2020 and 2019, respectively.is considered restricted cash.

In ~~connection with the IPO, on June 18, 2020, the Series B Preferred Stock Purchase Warrant became exercisable for 400,160 shares of common stock~~.

~~On March 31, 2020,~~November 2022, the Company entered into ~~the First Amendment~~a securities purchase agreement with affiliates of Athyrium relating to the ~~Credit Agreement (the “Credit Agreement Amendment”), with the collateral agent~~offering and ~~lender party thereto, providing for the payment~~sale of interest due and payable as of March 31, 2020 in shares of Series B Preferred Stock, and further providing for the payment of interest due and payable as of June 30, 2020 in shares of our Series B Preferred Stock in the event the IPO has not been consummated by such date. Pursuant to the Credit Agreement Amendment, the Company concurrently entered into a Series B Preferred Stock Subscription Agreement (the “Subscription Agreement”), with the lender, which provided for the issuance of 967,130 shares of Series B Preferred Stock at a subscription price of $2.25 per share, as payment for interest due and payable as of March 31, 2020 and all applicable fees as set forth in the Credit Agreement Amendment.

~~On May 8, 2020, the Company entered into an unsecured convertible promissory note (the “Note”) with an existing investor pursuant to a note purchase agreement, in~~ an aggregate ~~principal amount~~ of $15.0 million, with an annual interest rate of 8.0% and a maturity date of May 8, 2022. The Note was convertible into (i) common stock upon an initial public offering at the lesser of the conversion price then in effect and a conversion price equal to 80% of the public offering price (or, if not a “qualified IPO” as defined in the Company’s certificate of incorporation, at the election of a majority of the holders), (ii) on the maturity date or at the election of a majority of the holders, Series B preferred stock at an initial conversion price of $13.90 per share subject to certain adjustments, or (iii) at the election of a majority of the holders, shares of another class of equity securities issued by the Company in a future financing at 80% of the price per share of such class of equity securities issued in such offering. Interest under the Note was not generally payable except that if the Note is not converted pursuant to its terms on or prior to the maturity date and there are not sufficient authorized and unissued shares of Series B preferred stock for issuance upon the conversion of the Note on the maturity date, then the Company is required to pay all outstanding principal and any accrued and unpaid interest under the Note in cash. If the holders of the Note have not elected to convert the Note prior to, or in connection with, any sale transaction or a liquidation, dissolution or winding up of the Company, either voluntary or involuntary, then, upon any such sale transaction or liquidation, dissolution or winding up of the Company, the Company would have been required to pay in cash the outstanding principal balance of the Note, together with accrued and unpaid interest thereon, plus a make whole premium of 50% of the aggregate principal amount (less accrued and unpaid interest). The Company evaluated the economic features embedded in the Note and identified features that were required to be bifurcated and accounted for separately as a derivative. Accordingly, a derivative liability of $3.6 million was recorded on the issuance date of the Note and $3.8 million was subsequently reclassified to equity representing the fair value of the derivative liability on the date of extinguishment. The change in the fair value of the derivative liability of $0.2 million is included in interest and other income

~~(expense), net in the accompanying condensed consolidated statements of operations. In June 2020, in connection with completion of the IPO, the Note was converted into 1,250,000~~500,250 shares of common stock and all obligations under the Note were extinguished. Upon the conversion, the Company recorded a $3.6 million loss on extinguishment of the debt, which represented the difference between the carrying value of the Note and the derivative liability and the fair value of theaccompanying warrants to purchase 500,250 shares of common stock, at a combined purchase price of $7.50 per share and accompanying warrant in a registered direct offering. The warrants have an exercise price of $8.22 per share and will become exercisable commencing six months following the date of issuance and will expire five years following the initial exercise date. The Company received approximately $3.8 million in gross proceeds from the offering as an in-kind payment. The in-kind payment was in the form of a waiver of the Company’s cash interest payment obligation of approximately $3.8 million due on certain of the Company’s 7.25% Convertible Senior Notes due 2025 held by affiliates of Athyrium for the payment date occurring on December 1, 2022. Additionally, the Company agreed with Athyrium to amend outstanding warrants previously issued in 2021 to purchase up to 323,886 shares of common stock with an exercise price of $71.00 per share. The warrants have an amended exercise price of $8.22 per share, will become exercisable on May 9, 2023 and will expire five years following the initial exercise date.

In November 2022, the Company entered into a securities purchase agreement with an institutional investor relating to the offering and sale of an aggregate of 800,000 shares of common stock and accompanying warrants to purchase 800,000 shares of common stock, at a combined purchase price of $7.50 per share and accompanying warrant in a registered direct offering (see Note ~~holder~~10). Following this transaction, the institutional investor became a related party due to greater than 5% ownership. On January 12,

2023, the Company issued warrants to purchase 90,000 shares of ~~$3.4 million combined with amortization~~common stock to the institutional investor in exchange for the investor’s agreement to waive the lockup provisions contained in the November 2022 securities purchase agreement. As of March 31, 2023 this institutional investor held less than 5% of the Company's outstanding common stock and is no longer considered a related debt discount of $0.2 million. The loss on extinguishment of debt was included in the interest and other income (expense), net in the accompanying condensed consolidated statements of operations for the three and six months endedparty.

In June ~~30, 2020.~~

~~8. Mortgages Payable~~

~~In January 2014,~~2023, the Company ~~executed~~entered into a ~~mortgage~~securities purchase agreement with ~~Comerica Bank for $1.8 million for~~certain institutional and accredited investors relating to the ~~purpose~~offering and sale of ~~acquiring property located~~1,509,434 shares of common stock in ~~Ann Arbor, Michigan, which is used for laboratory testing~~a registered direct offering at an offering price of $5.30 per share. In addition, in a concurrent private placement, the Company issued unregistered warrants to purchase 3,018,868 shares of common stock (see Note 10) to the same investors. Following this transaction, the institutional and ~~research purposes. The mortgage matures in 2024 and requires monthly principal and interest payments at a fixed interest rate of 2.94% plus a floating rate at LIBOR.~~accredited investors became related parties due to greater than 5% ownership. As of ~~each~~September 30, 2023 the institutional and accredited investors held less than 5% of ~~June 30, 2020~~the Company's outstanding common stock and December 31, 2019, the outstanding balance of this mortgage was $1.4 million. The Company also has a mortgage with American Bank of Commerce (originally executed in February 2008) outstanding on Avero’s property located in Lubbock, Texas, which is used primarily for laboratory testing. The mortgage matures in 2029 and requires monthly principal and interest payments at an interest rate of 4.25%. As of June 30, 2020 and December 31, 2019, the outstanding balance of this mortgage was $1.8 million and $1.9 million, respectively.are no longer considered related parties.

~~As of June 30, 2020, the minimum principal payments under the mortgages payable were as follows (in thousands):~~

Year ending December 31,

Minimum
Mortgages
Payable Payments
Obligations

Remainder of 2020

$
122

2021

253

2022

265

2023

277

2024

1,323

Thereafter

957

Total future minimum payments

3,197

Less current portion of mortgages payable

(247
)
Mortgages payable, net of current portion

$
2,950

9. Commitments and Contingencies

Operating Leases

The Company has entered into various noncancelable operating lease agreements, primarily for office space, laboratory space, and ~~vehicles, which expire over~~equipment. In March 2023, the ~~next two~~Company signed an amended lease agreement for certain office space in San Diego, California to ~~four years. Minimum rent payments under operating leases are recognized on a straight-line basis over~~decrease the office space and extend the term ofto June 2025. In August 2023, the ~~lease. Rent expense~~Company signed a 36-month lease agreement for office space in Dallas, Texas. Cash paid for operating leases was ~~$2.0~~$0.9 million and ~~$4.2~~$1.2 million for the ~~three and six~~nine months ended ~~June~~September 30, ~~2020, respectively,~~2023 and ~~$2.2 million and $4.3 million, respectively, for the three and six months ended June 30, 2019.~~2022, respectively.

The components of lease expense were as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating lease costs	$	311	$	399	$	1,104	$	1,135

Supplemental weighted-average information related to operating leases is as follows:


	September 30,
	2023			2022
Weighted-average remaining lease term (years)		2.3			2.2
Weighted-average discount rate		9.7	%		7.8	%

As of ~~June~~September 30, ~~2020, net minimum~~2023, future lease payments under the non-cancelable operating leases were as follows (in thousands):

Year ending December 31,

Minimum
Operating
Lease
Payments

Remainder of 2020

$
3,927

2021

5,148

2022

2,911

2023

996

2024 and thereafter

38

Total future minimum lease payments

$
13,020


Year ending December 31,	Minimum Operating Lease Payments
2023 (remaining)	$	347
2024		1,019
2025		590
2026		264
2027 and thereafter		18
Total minimum lease payments		2,238
Less: interest		(225	)
Present value of lease liabilities	$	2,013

Contingencies

~~Capital Leases~~

The Company has entered into various capital lease agreements, primarily for equipment. The outstanding leases have a weighted average imputed interest rate of 5.98% per annum. As of June 30, 2020, the future minimum payments under the capital leases were as follows (in thousands):

Year ending December 31,

Minimum
Capital
Lease
Payments

Remainder of 2020

$
331

2021

324

2022 and thereafter

47

Total minimum lease payments

702

Less amounts representing interest

(30
)
Present value of minim capital lease payments

672

Less current portion of capital lease obligations

(516
)
Capital lease obligations, net of current portion

$
156

~~Contingencies~~

The Company, in the ordinary course of its business, can be involved in lawsuits, threats of litigation, and audit and investigative demands from third parties. While management is unable to predict the exact outcome of such matters, it is management’s current belief that any potential liabilities of Biora resulting from these contingencies, individually or in the aggregate, could have a material impact on the Company’s financial position and results of operations.

The regulations governing government reimbursement programs (e.g., Medicaid, Tricare, and Medicare) and commercial payor reimbursement programs are complex and may be subject to interpretation. As a former provider of services to patients covered under government and commercial payor programs, post payment review audits, and other forms of reviews and investigations are routine. The Company believes it ~~complies~~complied in all material respects with the statutes, regulations, and other requirements applicable to its former laboratory operations.

Federal Investigations

In April 2018, the Company received a civil investigative demand from an Assistant U.S. Attorney (“AUSA”) for the Southern District of New York ~~(“SDNY”)~~ and a Health Insurance Portability and Accountability Act subpoena issued by an AUSA for the Southern District of California (“SDCA”). around legacy commercial practices. In May 2018, the Company received a subpoena from the State of New York Medicaid Fraud Control Unit. Since that time, the Company has cooperated with federal civil and criminal investigations, and state civil investigations, regarding discontinued legacy billing practices for its non-invasive prenatal testing and microdeletion tests and the provision of alleged kickbacks or inducements to physicians and patients. The civil investigations also include inquiries about the Company’s laboratory licenses, its enrollment in state Medicaid programs, and the laboratories that performed testing for the Company.

On March 31, 2020, the Company reached an agreement on the monetary terms with the U.S. Department of Justice (the “DOJ”) and the State of New York (with the State of New York Attorney General representing or facilitating the interests of all States participating in the settlement (collectively, the “State AGs”)) with respect to relevant government health benefit programs to resolve all of the government’s outstanding civil and criminal investigations, including the investigations by the AUSA for the SDCA and the AUSA for SDNY, as well as the investigation by the State AGs. The terms of this agreement in principle contemplate that the Company will enter into a civil settlement agreement providing that the Company will pay $49.0 million in the aggregate over a five-year period, structured as follows: $8.0 million upon entering into the settlement; $4.0 million in December 2020; $5.0 million in December 2021; $7.0 million in December 2022; $8.0 million in December 2023; $9.0 million in December 2024; and $8.0 million in December 2025 for a release of the civil claims and that the Company will enter into a non-prosecution agreement to resolve all criminal allegations.

On July 21, 2020, ~~and~~ July 23, 2020 and October 1, 2020, the Company entered into agreements (the "Agreements") with certain governmental agencies and the 45 states participating in the settlement (“State AGs”) to resolve, with respect to such agencies and State AGs, all of such agencies’ and State AGs’ outstanding civil, and, where applicable, federal criminal investigations described above. ~~Specifically,~~The Company did not make any payments during the nine months ended September 30, 2022. In November 2022, the Company ~~has~~ entered ~~into:~~

~~a civil settlement~~into an agreement ~~effective~~to extend the deadline for the Company’s payment due on December 31, 2022 to July 23, 2020, with the DOJ through the AUSA for SDNY, and on behalf of the Office of Inspector General of the Department of Health and Human Services (the “OIG”), and with the relator named therein (the “SDNY Civil Settlement Agreement”);

~~a civil settlement agreement, effective~~15, 2023. In July 23, 2020, with the DOJ through the AUSA for SDCA, and on behalf of the Defense Health Agency, the Tricare Program and the Office of Personnel Management, which administers the Federal Employees Health Benefits Program (the “SDCA Civil Settlement Agreement”);

~~a non-prosecution agreement, effective July 21, 2020, with the AUSA for SDCA (the “Non-Prosecution Agreement”); and~~

a corporate integrity agreement, effective July 21, 2020, with the OIG (the “Corporate Integrity Agreement” and, together with the SDNY Civil Settlement Agreement, the SDCA Civil Settlement Agreement, and the Non-Prosecution Agreement, the “Agreements”).

~~The financial terms of the Agreements are substantially the same as the agreement on the monetary terms.~~

~~SDNY Civil Settlement Agreement~~

~~The SDNY Civil Settlement Agreement requires~~2023 the Company made payments of $1.7 million and entered into agreements to ~~pay a settlement amount of approximately $19.4 million, which includes approximately $9.7 million designated as restitution~~extend the deadline for the remaining payments to the ~~U.S. federal government. The settlement amount is payable in six installments as follows:~~following:

•

approximately ~~$9.1 million within 14 business days of July 23, 2020;~~

~~approximately $1.6~~$2.8 million on or before ~~December 31, 2020;~~

January 1, 2024; and

•

approximately ~~$2.0~~$2.6 million on or before ~~December 31, 2021;~~

~~approximately $2.8 million on or before December 31, 2022;~~

~~approximately $3.2 million on or before December 31, 2023; and~~

~~approximately $0.8 million on or before December 31,~~July 1, 2024.

The remaining amounts payable to the government ~~other than the initial $9.1 million payment,~~ will be subject to interest at a rate of ~~1.25%~~1.25% per annum, and any or all amounts may be paid earlier at the option of the Company. As of December 31, 2022, the Company’s accrual consisted of $7.1 million in accrued expenses. As of September 30, 2023, the Company’s accrual consisted of $5.3 million in accrued expenses.

Furthermore, the Company has agreed that, if during calendar years 2020 through 2023, and so long as amounts payable to the government remain unpaid, the Company receives any civil settlement, damages awards, or tax refunds, to the extent that the amounts exceed ~~$5.0~~$5.0 million in a calendar year, it will pay ~~26%~~26% of the amount received in such civil settlement, damages award, or tax refunds as an accelerated payment onof the scheduled amounts set forth above, ~~first as a dollar-for-dollar acceleration of the scheduled payment due in December 2025 and then as an accelerated payment of the scheduled payments due in each prior year,~~ up to a maximum total acceleration of ~~$4.2~~$4.1 million. ~~As previously reported,~~The Company did not receive any tax refunds during the ~~three~~nine months ended March 31, 2020, the Company recorded a discrete tax benefit of $37.7 million related to the net operating loss carryback provisions available under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) for taxes paid by the Company in years 2013, 2014, 2015 and 2017 (the “CARES Act Tax Benefit”). In June 2020, the Company received a tax benefit payment of approximately $22.7 million for a portion of the CARES Act Tax Benefit, and because this tax refund was received prior to the effective date of the SDNY Civil Settlement Agreement, pursuant to the Company’s agreement with the government on monetary terms, the payment to be made within 14 business days of July 23, 2020, includes an added payment of approximately $5.9 million and the SDNY Civil Settlement Agreement reflects a corresponding reduction in the previously agreed upon payment term and subsequent payment amounts. In addition, if the Company receives the remaining payment

~~in full for the CARES Act Tax Benefit, the Company will pay an accelerated payment to the government under the SDNY Civil Settlement Agreement of approximately $3.9 million.~~

~~Additionally, under the SDNY Civil Settlement Agreement, the U.S. federal government and the relator agreed to dismiss all civil claims asserted by the relator under the~~ ~~qui tam~~ ~~provisions of the federal False Claims Act.~~

~~SDCA Civil Settlement Agreement~~

The SDCA Civil Settlement Agreement requires the Company to pay a settlement amount of approximately $16.4 million, which includes approximately $10.0 million designated as restitution to the U.S. federal government. The settlement amount is payable in six installments as follows:

~~approximately $7.7 million within ten days of July 21, 2020;~~

~~approximately $1.3 million on or before December 31, 2020;~~

~~approximately $1.7 million on or before December 31, 2021;~~

~~approximately $2.3 million on or before December 31, 2022;~~

~~approximately $2.7 million on or before December 31, 2023; and~~

~~approximately $0.7 million on or before December 31, 2024.~~

The amounts payable to the government, other than the initial $7.7 million payment, will be subject to interest at a rate of 1.25% per annum, and any or all amounts may be paid earlier at the option of the Company.

On July 21, 2020, the Company issued a promissory note to the U.S. federal government for the full settlement amount in connection with the SDCA Civil Settlement Agreement (the “Promissory Note”). The Promissory Note contains customary events of default and related acceleration of payment provisions. In addition, the Promissory Note provides, among other terms, that, if during calendar years 2020 throughSeptember 30, 2023 and so long as amounts payable to the government remain unpaid, the Company receives any civil settlement, damages awards, or tax refunds, to the extent that the amounts exceed $5.0 million in a calendar year, it will pay 22% of the amount received in such civil settlement, damages award, or tax refunds as an accelerated payment on the scheduled amounts set forth above, first as a dollar-for-dollar acceleration of the scheduled payment due in December 2024 and then as an accelerated payment of the scheduled payments due in each prior year, up to a maximum total acceleration of approximately $3.4 million. Because the Company received a tax benefit payment of approximately $22.7 million for a portion of the CARES Act Tax Benefit in June 2020 and because this tax refund was received prior to the effective date of the Promissory Note, the payment to be made within ten days of July 21, 2020 includes an added payment of $4.9 million, and the Promissory Note reflects a corresponding reduction in the previously agreed upon payment term and subsequent payment amounts. In addition, if the Company receives the remaining payment in full for the CARES Act Tax Benefit, the Company will pay an accelerated payment to the government under the SDCA Civil Settlement Agreement of approximately $3.3 million.2022.

~~Non-Prosecution Agreement~~

Effective July 21, 2020, the Company entered into the Non-Prosecution Agreement, pursuant to which the Company agreed with the DOJ to (i) pay the restitution provided for under the SDCA Civil Settlement Agreement, (ii) not commit any felonies, (iii) continue to implement a compliance and ethics program designed to prevent and detect violations of applicable fraud and kickback laws throughout its operations and (iv) fulfill certain other disclosure, reporting and cooperation obligations. The DOJ agreed that it will not prosecute the Company for any conduct described in the Non-Prosecution Agreement provided that the Company performs its obligations under the Non-Prosecution Agreement during the period from July 21, 2020 through July 21, 2021. The Non-Prosecution Agreement provides that the DOJ may unilaterally, upon notice to the Company, extend the term of the agreement in 6-month increments, for a maximum total term of 24 months (that is, two 6-month extensions).

Corporate Integrity Agreement

In connection with the resolution of the investigated matters, and in exchange for the ~~OIG’s~~Office of Inspector General of the Department of Health and Human Services ("OIG") agreement not to exercise its authority to permissively exclude the Company from participating in federal healthcare programs, effective July 21, 2020, the Company entered into a five-year Corporate Integrity Agreement with the OIG. The Corporate Integrity Agreement requires, among other matters, that the Company maintain a Compliance Officer, a Compliance Committee, board review and oversight of certain federal healthcare compliance matters, compliance programs, and disclosure programs; provide management certifications and compliance training and education; engage an independent review organization to conduct claims and arrangements reviews; and

implement a risk assessment and internal review process.~~The~~ In view of the Company's Strategic Transformation, including cessation of its Laboratory Operations and related billing for services, effective March 7, 2023 the OIG agreed to suspend the Company’s ~~failure to comply with its~~ obligations under the Corporate Integrity ~~Agreement could result in monetary penalties and/or~~Agreement.

California Subpoena

On July 19, 2021, the Company ~~being excluded~~received a subpoena from ~~participating in federal healthcare programs.~~

~~State Settlement Agreements~~

~~In addition,~~the California Attorney General’s Office, Division of Public Rights (the "OAG"), requesting documents and information related to the Company's former genetic testing practices, the Company's former non-invasive prenatal tests ("NIPT"), particularly those with a nexus to California patients. The OAG alleged that the Company ~~has negotiated~~violated California Business and Professions Code sections 17200 et seq. and 17500 et seq., in a ~~resolution~~complaint filed September 12, 2023 in the Superior Court of claims by various participating states (the “States”) with respect to the investigated matters. The Company expects the States to complete their respective settlement approval processes two to six weeks following the date that this Quarterly Report is filed, after which the Company expects to separately enter into settlement agreements to resolve the outstanding state claims with the State of ~~New York~~California (case no. 23CV008397) for injunctive and ~~each~~other relief. The Company and OAG settled the matter via a stipulated entry of Final Judgment and Permanent Injunction that was entered and ordered by the ~~other participating states (collectively,~~Court on September 25, 2023. Pursuant to the ~~“State Settlement Agreements”). The agreement on~~order, the ~~monetary terms with~~Company paid civil penalties in the ~~States includes~~total amount of $0.2 million.

Payor Dispute

On November 16, 2020, the Company received a letter from Anthem, Inc. (“Anthem”) informing the Company that Anthem is seeking recoupment for historical payments made by Anthem in an aggregate ~~payment~~amount of approximately ~~$13.2 million~~$27.4 million. The historical

payments for which Anthem is seeking recoupment are claimed to relate primarily to discontinued legacy billing practices for the Company’s former NIPT and microdeletion tests and secondarily to discontinued legacy billing practices involving the implementation of a new Current Procedure Terminology code for reimbursement for the Company’s former Preparent expanded carrier screening tests. Management disputes this claim of recoupment with Anthem in full, with offsets for amounts owed by Anthem to the ~~States over a five year period pursuant to~~Company. Management had previously established an accrual for the ~~collective settlements,~~estimated probable loss for a total payment by the Company of $49.0 million (plus interest) payable under the Agreements and the State Settlement Agreements to settle the investigated matters. The State Settlement Agreements are expected to include acceleration provisions similar to the SDNY Civil Settlement Agreement and the SDCA Civil Settlement Agreements described below upon the Company’s receipt of civil settlements, damages awards, and tax refunds, with the amount of acceleration and timing subject to such receipts.

~~Settlement Accruals~~

As of December 31, 2019, the Company had accrued an aggregate of $35.8 million associated with a potential settlement with the DOJ and the participating State AGs within accrued expenses and other current liabilities and as a reduction of revenue as reflected on the consolidated balance sheet of the Company as of December 31, 2019 and consolidated statement of operations forthis matter. During the year ended December 31, ~~2019. In addition, in the quarter ended March 31, 2020,~~2022, the Company ~~accrued an additional $13.2 million with respect to~~reversed this accrual for a substantial majority portion of the ~~total amount to be paid under the agreement~~matter in ~~principle to the DOJ~~view of applicable statute of limitations and ~~the participating State AGs, and additional amounts for related costs as of and for the quarterly period ended March 31, 2020. Furthermore,~~reflected this change in ~~connection with recording a discrete tax benefit of $37.7 million related to the net operating loss (“NOL”) carryback provisions available under the CARES Act legislation, the~~revenue within discontinued operations.

The Company has ~~agreed~~historically negotiated and settled similar claims with the government that, if during calendar years 2020 through 2023, and as long as amounts payable to the government remain unpaid, it receives any civil settlement, damages awards, or tax refunds, to the extent that the amounts exceed $5.0 million in a calendar year, the Company will pay 65% of the amount received in such civil settlement, damages award, or tax refunds as an accelerated payment on the scheduled amounts set forth above, first as a dollar-for-dollar acceleration of the scheduled payment due in December 2025 and then as an accelerated payment of the scheduled payments due in each prior year, up to a maximum total acceleration of $24.96 million. During the three months ended March 31, 2020, we recorded a discrete tax benefit of $37.7 million related to the NOL carryback provisions available under the CARES Act legislation, and if fully paid, the Company expects that the total accelerated payments to the government will be $24.5 million. As of June 30, 2020,third-party payors. Although the Company’s ~~accrual consists of $19.7 million~~practice in ~~accrued expenses and~~resolving disputes with other ~~current liabilities and $29.3 million in other long-term liabilities.~~ ~~Until~~similar large commercial payors has generally led to agreed settlement amounts substantially less than the ~~final State Settlement Agreements are approved and signed by the States,~~originally claimed amount, there can be no assurance that the ~~amount we have accrued~~Company will be ~~sufficient to cover our obligations relating to this matter. Our obligations could also increase, potentially materially, depending on~~successful in a ~~number of factors including whether~~similar settlement amount in any ongoing or future dispute. Historical settlement amounts and payment time periods may not the agreement on the monetary terms with the States is finalized, whether an individual State or States opt out of the settlement prior to approval in order to pursue a separate action or resolution, the termsbe indicative of the final ~~approved agreements and the parties to the~~ settlement. terms with Anthem, if any.

~~Payor Settlement Agreements~~

On June 21, 2018, the Company received a letter from Cigna alleging damages related to contract terms. On December 5, 2018, Cigna and the Company entered into a settlement agreement whereby Avero agreed to pay an aggregate amount of $12.0 million with an upfront payment of $6.0 million and the remaining $6.0 million to be paid over 24 months. For the year ended December 31, 2018, the Company recorded a charge of $12.0 million associated with this claim in its consolidated statements of operations as a reduction to revenue. As of June 30, 2020, the remaining settlement accrual related to Cigna is $1.5 million in accrued expenses and other current liabilities.

On June 25, 2018, the Company received a letter from Aetna’s external legal counsel that included various allegations relating to the Company’s past practices. In November 2019, the Company and Aetna entered into a settlement agreement for $15.0 million, to be paid in installment payments through December 2020. During the year ended December 31, 2018, the Company recorded a charge of $15.0 million associated with this claim in its consolidated statements of operations as a reduction to revenue. As of June 30, 2020, the Company’s accrual consists of $7.5 million in accrued expenses and other current liabilities.

On October 18, 2018, the Company received a letter from UnitedHealth Group that included various allegations relating to the Company’s past practices. On September 30, 2019, the Company entered into a settlement agreement with United HealthCare Services, Inc. and UnitedHealthcare Insurance Company (“United”) in which the Company agreed to pay an aggregate amount of

$30.0 million. The settlement is to be paid with an upfront payment of $2.0 million, and the remaining balance to be paid every six months starting December 31, 2019, with the first two installment payments of $5.0 million each, and $6.0 million each thereafter. As of June 30, 2020, the remaining settlement accrual related to United is $23.0 million consisting of $17.0 million in accrued expenses and other current liabilities and $6.0 million in other long-term liabilities.

Payor Recoveries

As noted above, the regulations governing government reimbursement programs (e.g., Medicaid, Tricare, and Medicare) and commercial payor reimbursement programs are complex and may be subject to interpretation. As a former provider of services to patients covered under government reimbursement and commercial payor programs, ~~post payment~~the Company is routinely subject to post-payment review audits and other forms of reviews and ~~investigations are routine.~~investigations. For example, the Company currently disputes several managed Medicaid payor recoupment requests aggregating to $1.1 million. If a third-party payor successfully challenges that a payment to the Company for prior testing was in breach of contract or otherwise contrary to policy or law, they may recoup such payment. The Company may also decide to negotiate and settle with a third-party payor in order to resolve an allegation of overpayment. In the ordinary course of business, the Company addresses and evaluates a number of such claims from payors. In the past, the Company has negotiated and settled these types of claims with third-party payors. The Company may be required to resolve further disputes in the future. While management is unable to predict the exact outcome of any such claims, it is management’s current belief that any potential liabilities resulting from these contingencies, individually or in the aggregate, could have a material impact on the Company’s financial position and results of operations.

~~In connection with~~Ravgen Lawsuit

On December 22, 2020, Ravgen, Inc. ("Ravgen") filed suit in the ~~third-party review~~District of Delaware (D. Del. Civil Action No. 1:20-cv-1734)
asserting the Company’s infringement of two Ravgen patents based on the Company's former NIPT testing business. The complaint seeks monetary damages and injunctive relief. The Company responded to the complaint on March 23, 2021. Management believes the claims in Ravgen’s complaint are without merit, and the Company is vigorously defending against them. On March 1, 2022 the court ordered a stay of the ~~Company’s coding~~litigation pending resolution of patent validity challenges made against the two patents in inter partes review proceedings currently pending before the Patent Trial and ~~billing processes described in Note 4, which identified that the Company had not effectively transitioned to the implementation~~Appeal Board of the ~~new CPT code~~United States Patent and Trademark Office. On February 13, 2023 the court ordered the stay lifted. Given the uncertainty of litigation and the legal standards that must be met for, reimbursement for the Company’s Preparent expanded carrier screening tests during 2019 and early 2020, the Company reviewed its reimbursement from commercial payors for these tests over the same time period. The Company may need to engage with payors in order to determine if any amounts could be subject to recovery or recoupment, as it is customarily done with commercial payors. Any amounts subject to recovery or recoupment will dependamong other things, success on the interpretation of widely variable payor medical and billing policies. The Company will not know if any overpayments exist until it completes this engagement with individual commercial payors. If negotiations with payors result in claims or conclusions that overpayments have been made, this could have a material impact onmerits, the ~~Company’s financial results and position. The~~ Company is unable to predict the ultimate outcome of this matter, and ~~is unable to make a meaningful~~therefore cannot estimate of the ~~amount~~reasonably possible loss or range of loss, if any, that ~~could~~may result from this action.

IPO Litigation

On June 23, 2020, the Company closed its IPO. Lawsuits were filed on August 28, 2020 and September 11, 2020 against the Company, certain of its executive officers and directors, and the underwriters of the IPO. On December 3, 2020, the U.S. District Court for the Southern District of California consolidated the two actions, appointed Lin Shen, Lingjun Lin and Fusheng Lin to serve as Lead Plaintiffs, and approved Glancy Prongay & Murray LLP to be Lead Plaintiffs’ Counsel. Lead Plaintiffs filed their first amended complaint on February 4, 2021. Together with the underwriters of the IPO, the Company moved to dismiss the first amended complaint. On September 1, 2021, the court granted the Company's motion to dismiss, dismissing Lead Plaintiffs’ claims without prejudice. On September 22, 2021, Lead Plaintiffs filed their second amended complaint. Together with the underwriters of the IPO, the Company moved to dismiss the second amended complaint on November 15, 2021. On January 13, 2023, the court again granted our motion to dismiss, dismissing Lead Plaintiffs’ claims for failure to state a claim without prejudice. On February 3, 2023, Lead Plaintiffs filed their third amended complaint, adding information allegedly produced to Plaintiffs in response to freedom of information requests. The third amended complaint alleges that the Company’s registration statement and related prospectus for the IPO contained false and misleading statements and omissions in violation of the Securities Act by failing to disclose that (i) the Company had overbilled government payors for Preparent tests beginning in 2019 and ending in or before early 2020; (ii) there was a high probability that the Company had received, and would have to refund, a material amount of overpayments from government payors for Preparent tests; (iii) in February 2020 the Company ended a supposedly improper marketing practice on which the competitiveness of the Company's business depended; and (iv) the Company was suffering from material negative trends with respect to testing volumes, average selling prices for its tests, and revenues. Lead Plaintiffs seek certification as a class, unspecified

compensatory damages, interest, costs and expenses including attorneys’ fees, and unspecified extraordinary, equitable, and/or injunctive relief. The Company filed a motion to dismiss the third amended complaint with prejudice on March 20, 2023, which the court granted on July 12, 2023. Lead Plaintiffs filed a notice of appeal on August 11, 2023. The Company will continue to vigorously defend against these claims. Subject to a reservation of rights, the Company is advancing expenses subject to indemnification to the underwriters of the IPO.

On June 4, 2021, a purported shareholder filed a lawsuit in the U.S. District Court for the SDCA, claiming to sue derivatively on behalf of the Company. The complaint names certain of the Company’s officers and directors as defendants, and names the Company as a nominal defendant. Premised largely on the same allegations as the above-described securities lawsuit, it alleges that the individual defendants breached their fiduciary duties to the Company, wasted corporate assets, and caused the Company to issue a misleading proxy statement in violation of the Securities Exchange Act of 1934, as amended. The complaint seeks the award of unspecified damages to the Company, equitable and injunctive remedies, and an order directing the Company to reform and improve its internal controls and board oversight. It also seeks the costs and disbursements associated with bringing suit, including attorneys’, consultants’, and experts’ fees. The case is stayed pending the resolution of the appeal in the above-described securities lawsuit. The Company intends to vigorously defend against these claims.

On August 17, 2021, the Company received a letter purportedly on behalf of a stockholder of the Company demanding that the Company's board of directors investigate and take action against certain of the Company’s current and former officers and directors to recover damages for alleged breaches of fiduciary duties and related claims arising out of the IPO litigation discussed above. This matter is pending the outcome of the companion securities litigation.

Given the uncertainty of litigation, the preliminary stages of the litigation and other matters described above, and the legal standards that must be met for, among other things, success on the merits, the Company is unable to predict the ultimate outcome of these actions, and therefore cannot estimate the reasonably possible loss or range of loss, if any, ~~unfavorable outcome related to this matter.~~that may result from these actions.

10. Stockholders’ Equity

Common Stock

On January 3, 2023, the Company effected a 1-for-25 reverse stock split of the Company's common stock. The Reverse Stock Split, which has been retroactively reflected throughout the condensed consolidated financial statements, reduced the authorized shares of the Company to 164,000,000 and did not change the par value of the Company's common stock.

PIPE Financings

In February 2021, the Company entered into a securities purchase agreement for a private placement with certain institutional and accredited investors for an aggregate of 174,825 units, representing (i) 174,825 shares of the Company’s common stock and (ii) warrants to purchase up to 174,825 shares of common stock. The warrants are exercisable for cash at an exercise price of $171.50 per share, subject to adjustments as provided under the terms of the warrants. The warrants were immediately exercisable and expire on the fifth anniversary of the date of issuance.

In June 2021, the Company entered into a securities purchase agreement for a private placement with certain institutional and accredited investors for an aggregate of 647,773 units, representing (i) 627,773 shares of the Company’s common stock (ii) warrants to purchase up to 647,773 shares of common stock and (iii) pre-funded warrants to purchase up to 20,000 shares of common stock. The warrants are exercisable for cash at an exercise price of $71.00 per share, subject to adjustments as provided under the terms of the warrants. The warrants were immediately exercisable and expire on the fifth anniversary of the date of issuance.

Registered Offerings

In August 2021, the Company issued and sold an aggregate of (i) 1,600,000 shares of common stock and (ii) warrants to purchase 1,600,000 shares of common stock in an underwritten public offering. Each share was sold together with one warrant to purchase one share of common stock at a combined public offering price of $25.00 per share of the common stock and the accompanying warrant. The warrants have an exercise price of $25.00 per share, are exercisable at any time, and will expire five years following the date of issuance. In addition, the Company granted the underwriter a 30-day option to purchase up to 240,000 shares of common stock ("Overallotment Stock Option") and/or warrants to purchase 240,000 shares of common stock (“Overallotment Warrant Option”) at a price of $24.75 per share of common stock and/or $0.25 per warrant.

Pursuant to ASC 815, the Company deemed the Overallotment Stock Option to meet the scope exception for equity classification, and the warrants and Overallotment Warrant Option to be classified as a liability (collectively, the "Warrant Liability") at fair value initially with subsequent changes in fair value recorded in earnings. The Overallotment Warrant Option was partially

exercised in August 2021 for warrants to purchase an aggregate of 77,280 shares of common stock and the remaining Overallotment Warrant Option expired in September 2021. The Warrant Liability was remeasured at September 30, 2022 and the Company recognized a gain on warrant liability in the amount of $15.4 million in the condensed consolidated statements of operations during the nine months ended September 30, 2022. The Warrant Liability was remeasured at $0.5 million as of December 31, 2022. The Warrant Liability was remeasured at $0.2 million at September 30, 2023 and the Company recognized a gain on warrant liability in the amount of $0.4 million in the condensed consolidated statements of operations during the nine months ended September 30, 2023.

In November 2022, the Company entered into a securities purchase agreement with certain institutional and accredited investors relating to the offering and sale of an aggregate of (i) 1,300,250 shares of common stock and (ii) warrants to purchase 1,300,250 shares of common stock in registered direct offering (the “November 2022 Offering”). Each share was sold together with one warrant to purchase one share of common stock at a combined public offering price of $7.50 per share of the common stock and the accompanying warrant. The Company received approximately $9.0 million in net proceeds, after deducting placement agent fees and offering expenses. Approximately $3.8 million of the gross proceeds were received in the form of a waiver of the Company's December 1, 2022 interest payment on the Convertible Notes. The warrants have an exercise price of $8.22 per share, are exercisable six months following the date of issuance, and will expire five years following the initial exercise date.

Additionally, the Company agreed with certain institutional investors to amend outstanding warrants previously issued (i) in the February Units to purchase up to 104,895 shares of common stock with an exercise price of $171.50 per share and (ii) in the June Units to purchase up to 403,887 shares of common stock with an exercise price of $71.00 per share. Accordingly, the Company agreed to (i) lower the exercise price of such existing warrants to $8.22 per share, (ii) provide that such existing warrants, as amended, will not be exercisable until May 9, 2023 and (iii) extend the original expiration date of such existing warrants to May 9, 2028.

Pursuant to ASC 815, the Company deemed the warrants to be classified as a liability at fair value initially with subsequent changes in fair value recorded in earnings. The warrants were recorded at a fair value of $6.0 million determined using the Black-Scholes Model. As the total fair value of the warrant liability and common stock exceeds the in-kind payment proceeds of $3.8 million, the Company recorded an extinguishment loss of the $1.6 million excess to other income, net in the consolidated statements of operations. The Company incurred a total of $0.8 million in issuance costs, which were allocated between the warrants and common stock on a relative fair value basis. The modified warrants are equity classified both before and after the modification and were fair valued as of the date of the amendment, this resulted in an increase in the value of the warrants and an additional $0.9 million was recorded to additional paid in capital on the condensed consolidated balance sheet. The warrant liability was remeasured at $3.0 million as of December 31, 2022. The warrant liability was remeasured at $1.4 million as of September 30, 2023 and the Company recognized a loss on warrant liability in the amount of $1.5 million in the condensed consolidated statements of operations during the nine months ended September 30, 2023.

In January 2023, the Company issued warrants to purchase 90,000 shares of common stock to an institutional investor in exchange for the investor’s agreement to waive the lockup provisions contained in the November 2022 Offering securities purchase agreement. The warrant has an exercise price of $8.22, is exercisable beginning on May 9, 2023 and expires on May 9, 2028. Pursuant to ASC 815, the Company deemed the warrants to be classified as a liability at fair value initially with subsequent changes in fair value recorded in earnings. The warrants were recorded at a fair value of $0.4 million determined using the Black-Scholes Model. The warrant liability was remeasured at $0.1 million as of September 30, 2023 and the Company recognized a gain on warrant liability in the amount of $0.3 million in the condensed consolidated statements of operations during the nine months ended September 30, 2023.

In June 2023, the Company entered into a securities purchase agreement with certain institutional and accredited investors relating to the offering and sale of 1,509,434 shares of common stock in a registered direct offering at an offering price of $5.30 per share (the "June 2023 Offering"). In addition, in a concurrent private placement with the same investors, the Company issued unregistered warrants to purchase 3,018,868 shares of common stock. The warrants have an exercise price of $5.05 per share, are exercisable at any time, and will expire three years following the date of issuance. The Company received approximately $7.3 million in net proceeds, after deducting placement agent fees and offering expenses.

Pursuant to ASC 815, the Company deemed the warrants to be classified as a liability at fair value initially with subsequent changes in fair value recorded in earnings. The warrants were recorded at a fair value of $9.0 million determined using the Black-Scholes Model. As the total fair value of the warrant liability exceeds the gross proceeds of $8.0 million, the Company recorded a loss of the $1.0 million excess to gain (loss) on warrant liabilities in the consolidated statements of operations. Accordingly, there were no proceeds allocated to the common stock issued as part of this transaction. The Company incurred a total of $0.7 million in issuance costs, which were allocated between the warrants and common stock on a relative fair value basis. The warrant liability was remeasured at $2.8 million as of September 30, 2023 and the Company recognized a gain on warrant liability in the amount of $4.0 million in the condensed consolidated statements of operations during the three months ended September 30, 2023.

At-The-Market Sales Agreement and Offering

In November 2021, the Company entered into an At Market Issuance Sales Agreement ("ATM Sale Agreement") with B. Riley Securities, Inc., BTIG, LLC, and H.C. Wainwright & Co. LLC ("Agents"), pursuant to which the Company may offer and sell shares of common stock having an aggregate offering price of up to $90.0 million from time to time, in “at the market” offerings through the Agents. In connection with the November 2022 Offering, the aggregate price was reduced to $70.0 million. The Company further reduced the aggregate offering price to $12.0 million in connection with the June 2023 Offering. As of October 9, 2023, the aggregate offering price was increased to $37.6 million. Sales of the shares of common stock, if any, will be made at prevailing market prices at the time of sale, or as otherwise agreed with the Agents. The Agents will receive a commission from the Company of up to 3.0% of the gross proceeds of any shares of common stock sold under the ATM Sale Agreement. The following table provides information on the shares sold under the ATM Sale Agreement for the three and nine months ended September 30, 2023 and 2022.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net proceeds (in millions)	$	0.2	$	1.8	$	12.7	$	6.6
Number of shares		82,916		110,293		2,936,025		264,535
Weighted average purchase price	$	2.19	$	17.09	$	4.54	$	31.90

Preferred Stock

Pursuant to the Company’s eighth amended and restated certificate of incorporation, which went into effect immediately prior to the completion of the IPO, the Company iswas authorized to issue ~~350 million shares of common stock~~ ~~and 10 million~~10,000,000 shares of undesignated preferred ~~stock. Each holder~~stock. This amount and the par value of ~~common~~preferred stock ~~is entitled to~~remained unchanged after the Reverse Stock Split.

On November 10, 2022, the Board declared a dividend of one ~~vote~~one-thousandth of a share of Series X Preferred Stock, par value $0.001 per share (“Series X Preferred Stock”), for each outstanding share of common stock ~~held.~~

~~On June 18, 2020,~~to stockholders of record as of November 21, 2022. This Series X Preferred Stock entitled its holders to 3,000 votes per share exclusively on the vote for the proposal to approve the Reverse Stock Split. All shares of Series X Preferred Stock that were not present to vote on the Reverse Stock Split were redeemed by the Company ~~completed~~(the “Initial Redemption”). Any outstanding shares of Series X Preferred Stock that were not redeemed pursuant to an Initial Redemption would be redeemed in whole, but not in part, (i) if such redemption is ordered by the Board in its ~~IPO. In~~sole discretion, automatically and effective on such time and date specified by the ~~IPO,~~Board in its sole discretion or (ii) automatically upon the effectiveness of the Certificate of Amendment implementing the Reverse Stock Split. At the December 19, 2022 special meeting of the Company's stockholders, the holders of 136,961 shares of Series X Preferred Stock were represented in person or by proxy. Immediately prior to the special meeting, all 86,210 shares of Series X Preferred Stock that were not voted were redeemed. The remaining 136,961 outstanding shares of Series X Preferred Stock were redeemed automatically upon the effectiveness of the Certificate of Amendment on January 3, 2023.

On January 9, 2023, the Company ~~issued and sold 6,666,667 shares~~filed a Certificate of ~~its common stock, at a price to~~Elimination of Series X Preferred Stock with the ~~public~~Secretary of ~~$15.00 per share. The Company received approximately $88.7 million in net proceeds, after deducting $7.0 million~~ in ~~underwriting discounts and commissions and $4.3 million~~ in other offering expenses payable by the Company. Other offering costs consisted primarily of legal and accounting fees, which were direct and incremental fees related to the IPO. As of December 31, 2019, $1.1 million of deferred offering costs were included in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet.

~~Treasury Stock~~

In June 2014, the Company authorized an Equity Repurchase Program for Key Employees (the “Repurchase Program”). The Repurchase Program allowed the Company to repurchase for cash a portion of the common stock equity interests of certain employees, provided that (i) no more than 25% of the equity interest of any employee was repurchased under the Repurchase Program, (ii) the purchase price paid for each share of common stock equaled the most recent appraisal valuation of the Company’s common stock, and (iii) the aggregate repurchases did not exceed the lesser of (a) equity interest representing, in the aggregate, 0.8 million shares of common stock, (b) a purchase price, in the aggregate, of more than $6.0 million, and (c) the maximum repurchases permitted under the General Corporation LawState of the State of ~~Delaware. In addition, it was the Company’s practice to require individuals exercising stock options to hold the shares received~~Delaware, which, effective immediately upon ~~exercising for a reasonable period of time in order for the holder to be exposed to the economic risks and rewards of share ownership prior to participating~~filing, eliminated all matters set forth in the ~~Repurchase Program. A reasonable period~~Certificate of ~~time was defined as a period~~Designation of ~~at least six months and that covered at least two common stock appraisal valuations. The Repurchase Program has been discontinued.~~

~~Convertible Preferred Stock~~

~~As of December 31, 2019, the Company had outstanding~~ Series AX Preferred Stock ~~and Series B Preferred Stock. The Company recorded the preferred stock at fair value on the dates of issuance net of issuance costs.~~

On August 27, 2019, the Company issued 9,090,910 shares of Series B Preferred Stock at an issuance price of $2.75 per share for an aggregate consideration of $25.0 million (the “August 2019 Financing”) pursuant to a Series B Preferred Stock Purchase Agreement with a private equity firm. In addition, the Company amended the Series B Preferred Stock Purchase Warrant dated October 27, 2017 to increase the Series B Preferred Stock underlying the Series B Preferred Stock Purchase Warrant from 1,416,431 shares to 1,818,182 shares and adjust the exercise price to $2.75 per share. The $25.0 million of proceeds from the August 2019 Financing were allocated among the newly issued Series B Preferred Stock shares and additional shares of Series B Preferred Stock Purchase Warrant based on their relative fair values.

~~In connection~~filed with the ~~August 2019 Financing, the Board~~Secretary of Directors and stockholders approved a 1.28-for-1 stock split for the Company’s Series B Preferred Stock and Series B Preferred Stock Purchase Warrant issued and outstanding prior to the August 2019 Financing, which was effected on August 27, 2019 pursuant to an amendment to the amended and restated certificate of incorporation. The conversion priceState of the ~~Series B Preferred Stock and exercise price~~State of the outstanding Series B Preferred Stock Purchase Warrant was lowered from $3.53 to $2.75 per share. As a result, the Company issued 4,017,512 additional shares of Series B Preferred Stock as a stock dividend to the preferred stockholders, which was recorded as a $13.1 million increase to accumulated deficit in the consolidated statements of stockholders’ deficit during the year ended December 31, 2019.

On August 27, 2019, the Company entered into an Exchange Agreement with holders of Series A-1 Preferred Stock (the “Exchange Agreement”) pursuant to which the outstanding 1,500,000 shares of Series A-1 Preferred Stock were exchanged for 35,664,240 shares of Series B Preferred Stock. The exchange ratio was 1.2 to 1Delaware on as-if converted to 4,810,651 shares of common stock that the Series A-1 Preferred Stock can be converted to, based on the conversion rate of 3.2 to 1. The Company determined that such exchange constituted a modification to the Series A-1 Preferred Stock. Accordingly, the increase comparing the fair value of the Series B Preferred Stock with the fair value of the Series A-1 Preferred Stock represented a dividend to the preferred stockholders of approximately $27.6 million, which was recorded as an increase to accumulated deficit in the consolidated statements of stockholders’ deficit during the year ended December 31, 2019.

On November 12, 2019, the Company entered into a Series B Preferred Stock Purchase Agreement (the “November Series B Preferred Stock Purchase Agreement”) with a private equity firm and received $25.0 million (the “November 2019 Financing”) in exchange for the issuance of 11,111,111 shares of Series B Preferred Stock at $2.25 per share. In connection with the November 2019 Financing, the Board of Directors and stockholders approved a 1.22-for-1 stock split for the Company’s Series B Preferred Stock and Series B Preferred Stock Purchase Warrant issued and outstanding prior to the November 2019 Financing. The conversion price of the Series B Preferred Stock and exercise price of the outstanding Series B Preferred Stock Purchase Warrant was lowered from $2.75 to $2.25 per share. As a result, the Company issued 13,985,993 additional shares of Series B Preferred Stock and adjusted the Series B Preferred Stock Purchase Warrant to purchase up to 2,222,222 shares of Series B Preferred Stock. The issuance of additional shares represented a stock dividend to the preferred stockholders, which was recorded as a $36.4 million increase to accumulated deficit in the consolidated statements of stockholders’ deficit during the year ended December 31, 2019. In connection with the November 2019 Financing, the Company amended the certificate of incorporation. Following the amendment, there are no authorized or outstanding shares of Series A-1 Preferred Stock.21, 2022.

On November 22, 2019, the Company completed an additional equity financing pursuant to the November Series B Preferred Stock Purchase Agreement with certain existing, accredited investors for an aggregate of $6.1 million in exchange for the issuance of an aggregate of 2,722,222 shares of Series B Preferred Stock at $2.25 per share.

On December 19, 2019, the Company completed an additional equity financing pursuant to the November Series B Preferred Stock Purchase Agreement with the same private equity firm as the November 2019 Financing for $25.0 million in exchange for the issuance of 11,111,111 million shares of Series B Preferred Stock at $2.25 per share.

In February 2020, the Company issued and sold an aggregate of 5,066,666 shares of Series B Preferred Stock at a purchase price of $2.25 per share to existing investors in exchange for aggregate consideration of approximately $11.4 million.

On March 31, 2020, in connection with the Credit Agreement Amendment, which provides for the payment of interest due and payable as of March 31, 2020 and June 30, 2020 (only in the event the IPO has not been consummated by such date) in shares of Series B Preferred Stock, the Company issued an aggregate of 967,130 shares of Series B Preferred Stock at a subscription price of $2.25 per share to existing investors as payment for interest due and payable as of March 31, 2020 and all applicable fees.

On April 3, 2020, the Company issued and sold an aggregate of 4,444,444 shares of its Series B Preferred Stock at a purchase price of $2.25 per share to existing investors in exchange for aggregate consideration of approximately $10.0 million in cash.

The fair value of the preferred stock was estimated using a hybrid between a probability-weighted expected return method (“PWERM”) and option pricing model (“OPM”), estimating the probability weighted value across multiple scenarios, while using an OPM to estimate the allocation of value within one or more of these scenarios. Under a PWERM, the value of the Company’s various classes of stock was estimated based upon an analysis of future values for the Company assuming various future outcomes, including two IPO scenarios and one scenario contemplating the continued operation of the Company as a privately held enterprise. Guideline public company multiples were used to value the Company under its various scenarios. Share value for each class of stock was based upon the probability-weighted present value of expected future share values, considering each of these possible future outcomes, as well as the rights of each share class.

The significant unobservable inputs into the valuation model used to estimate the fair value of the preferred stock include the timing of potential events (primarily the IPO) and their probability of occurring, the selection of guideline public company multiples, a discount for the lack of marketability of the common stock, and the discount rate used to calculate the present value of the estimated equity value allocated to each share class.

~~Preferred stock outstanding as of December 31, 2019 consisted of the following (in thousands, except share and per share data):~~

December 31, 2019

Shares
Authorized

Shares Issued
and
Outstanding

Per Share
Price
at Issuance

Aggregate
Liquidation
Preference

Series A

4,120,000

4,120,000

$
0.48543

$
2,000

Series B

126,035,000

101,867,405

2.25000

229,202

Total preferred stock

130,155,000

105,987,405

$
231,202

In connection with the IPO, on June 18, 2020, all outstanding Series A Preferred Stock and Series B Preferred Stock converted into 33,443,562 shares of common stock, including the issuance of 2,045,522 shares of common stock pursuant to an adjustment in the conversion rate of all of our shares of Series B Preferred Stock outstanding immediately prior to the IPO. Upon conversion of the convertible preferred stock, the Company reclassified their carrying value to common stock and additional paid-in capital.

~~Common Stock Reserved for Future Issuance~~

~~The Company reserved shares of common stock, on an as-if-converted basis, for future issuance as follows:~~

June 30,
2020

December 31,
2019

Series A Preferred Stock

—

13,213,254

Series B Preferred Stock

—

16,488,731

Series B Preferred Stock Purchase Warrant

—

359,699

Common stock warrant

400,160

—

Restricted stock units outstanding

1,095,095

322,608

Outstanding options to purchase common stock

3,848,838

2,561,866

Available for future issuance under equity incentive plan

4,393,376

1,717,817

Total

9,737,469

34,663,975

11. Stock-Based Compensation

In February 2018, the Company adopted the 2018 Equity Incentive Plan ~~(the “2018 Plan”), with 0.7 million shares available for future grant. Upon adoption of the~~ (“2018 ~~Plan, no new stock options or awards are issuable under the Second Amended and Restated 2012 Stock Plan (the “2012 Plan”) or the 2015 Consultant Stock Plan (the “2015~~ Plan”). The 2018 Plan is the successor to and continuation of the Second Amended and Restated 2012 Stock Plan ~~as amended, and the 2015 Plan,~~(“2012 Plan”) and is administered with either stock options or restricted stock units. The Board of Directors administers the plans. Upon adoption of the 2018 Plan, no new stock options or awards are issuable under the 2012 Plan, as amended. The 2018 Plan also provides for other types of equity to issue awards, which at this time the Company does not plan to utilize. ~~The 2018 Plan was amended in March 2019 with 1.1 million shares available for future grant.~~

~~In December 2019,~~On June 14, 2023, the ~~Company adopted~~Company’s stockholders approved the ~~Second~~Fifth Amended and Restated 2018 Equity Incentive Plan ("2018 Fifth Amended Plan"), which ~~increased the number~~includes an increase of 5,500,000shares of common stock reserved for issuance. As of September 30, 2023, 3,307,228 shares were available for ~~future grant to 2.7 million shares.~~ issuance under the 2018 Fifth Amended Plan.

On March 4, 2020, the Board of Directors adopted the Third Amended and Restated 2018 Equity Incentive Plan (the “2018 Third Amended Plan”), which increased the number of shares available for future grant to a total of 7.6 million shares and was approved by stockholders on March 5, 2020. The Board of Directors administers the plans.

~~In January 2020,~~November 3, 2021, the Board of Directors approved and adopted the ~~modification~~Company’s 2021 Inducement Plan ("2021 Inducement Plan") to provide for the reservation of 260,000 shares of the ~~exercise price~~Company’s common stock to be used exclusively for the grant of ~~certain outstanding stock options~~awards to individuals not previously an employee or non-employee director of the Company. As of September 30, 2023, 63,964 shares were available for grant under the ~~existing incentive plans. As a result of this modification, an additional stock-based compensation expense of $0.9 million is being recognized over the remaining vesting period for the unvested~~2021 Inducement Plan.

Stock Options

The following table summarizes stock ~~options.~~

~~Activity~~option activity, which includes Performance Awards, under the 2012 Plan, the ~~2015~~2018 Fourth Amended Plan and the ~~2018 Third Amended~~2021 Inducement Plan ~~for~~during the ~~six~~nine months ended ~~June~~September 30, ~~2020, is set forth below (in thousands, except share and per share data):~~2023:

Stock Options
Outstanding

Weighted-
Average
Exercise Price

Weighted-
Average
Remaining
Contractual
Term
(in years)

Aggregate
Intrinsic
Value

Balance at December 31, 2019

2,561,866

$
9.01

Options granted

1,520,900

10.56

Options exercised

(77,609
)

1.90

Options forfeited/cancelled

(156,319
)

12.15

Balance at June 30, 2020

3,848,838

$
8.33

7.02

$
7,316

Vested and expected to vest at June 30, 2020

3,568,553

$
8.16

6.83

$
7,316

Vested and exercisable at June 30, 2020

2,067,251

$
6.36

4.87

$
7,316


	Stock Options Outstanding			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Balance at December 31, 2022		582,557		$	59.89
Options granted		229,800		$	3.88
Options exercised		—		$	—
Options forfeited/cancelled		(26,446	)	$	40.86
Options expired		(53,414	)	$	126.54
Balance at September 30, 2023		732,497		$	38.14		8.3	$	—
Vested and expected to vest at September 30, 2023		732,497		$	38.14		8.3	$	—
Vested and exercisable at September 30, 2023		245,870		$	69.44		7.4	$	—

~~As of June 30, 2020, the number of shares available for grant under the 2018 Third Amended Plan was 4,393,376.~~

The Company uses the Black-Scholes option pricing model to estimate the fair value of each option grant on the date of grant or any other measurement date. The following table sets forth the assumptions used to determine the fair value of stock options granted during the ~~six~~nine months ended September 30, 2023 and 2022:


	Nine Months Ended September 30,
	2023	2022
Risk-free interest rate	3.5% - 4.4%	2.0% - 3.6%
Expected volatility	98.5% - 102.7%	90.7% - 101.3%
Expected dividend yield	—%	—%
Expected life (years)	5.5 - 6.3 years	5.5 - 6.3 years

The weighted-average grant date fair value of options granted during the nine months ended September 30, 2023 and 2022 was $2.88 per optionand $19.18 per option, respectively.

Restricted Stock Units

The following table summarizes restricted stock unit ("RSU") activity for the nine months ended September 30, 2023:


	Number of Shares			Weighted- Average Grant Date Fair Value
Balance at December 31, 2022		278,112		$	38.95
Granted		3,703,321		$	3.09
Vested		(1,368,060	)	$	9.63
Forfeited/cancelled		(48,857	)	$	10.40
Balance at September 30, 2023		2,564,516		$	3.35

In August 2023, the Board of Directors approved the acceleration of vesting of all unvested, outstanding RSUs. As a result of this modification, an additional $7.9 million of stock-based compensation expense was recognized during the three months ended September 30, 2023.

2020 Employee Stock Purchase Plan

In June 2020, the Company’s board of directors adopted the ESPP with 20,400 shares of common stock reserved for future issuance under the ESPP. The ESPP also provides for automatic annual increases in the number of shares of common stock reserved for issuance. As of September 30, ~~2020:~~2023, there were 71,450 total shares of common stock reserved for future issuance. The ESPP was suspended on November 6, 2022. All employee payroll withholdings related to the ESPP were either reimbursed or shares were purchased subsequent to the suspension of the program.

Stock-Based Compensation Expense

	~~Six Months Ended~~ ~~June 30,~~
	~~2020~~
~~Risk-free interest rate~~	~~0.8% - 1.7%~~
~~Expected volatility~~	~~57.0% - 71.0%~~
~~Expected dividend yield~~		—
~~Expected life (years)~~	~~4.0 - 6.3 years~~

The following table presents total stock-based compensation expense included in each functional line item in the accompanying condensed consolidated statements of operations (in thousands):

Three Months Ended
June 30,

Six Months Ended
June 30,

2020

2019

2020

2019

Cost of sales

$
210

$
53

$
438

$
102

Research and development

850

206

1,512

382

Selling and marketing

512

129

885

251

General and administrative

1,452

209

2,246

417

Total stock-based compensation expense

$
3,024

$
597

$
5,081

$
1,152


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Research and development		4,680		826		6,308		1,882
Selling, general and administrative		5,851		1,313		8,621		3,756
Total stock-based compensation expense	$	10,531	$	2,139	$	14,929	$	5,638

~~The weighted-average grant date fair value of options granted during the six months ended June~~At September 30, ~~2020 and 2019 was $6.78 per option and $7.50 per option, respectively. At June 30, 2020 and December 31, 2019,~~2023 there was ~~$10.3~~$7.5 million ~~and $4.1 million, respectively, unrecognized~~of compensation cost related to unvested stock options ~~which are~~ expected to be recognized over a remaining weighted average vesting period of ~~3.24~~2.6 years and ~~2.69 years, respectively.~~$8.1 million of compensation cost related to unvested RSUs expected to be recognized over a remaining weighted average vesting period of 3.8 years.

12. Income Taxes

The Company calculates its interim income tax provision in accordance with ASC Topic 270, Interim Reporting, and ASC Topic 740, Accounting for Income Taxes. At the end of each interim period, management estimates the annual effective tax rate and applies such rate to the Company’s ordinary quarterly earnings to calculate income tax expense related to ordinary income. ~~Due to maintenance of a full valuation allowance, the Company had a zero~~The Company's effective tax rate ~~prior to discretely recognized items,~~was 0.0% for both the three and nine months ended September 30, 2023. The Company's effective tax rate was 1.0% and effective tax benefit was 1.9% for the three and ~~six~~nine months ended ~~June~~September 30, ~~2020.~~2022, respectively. The change in the effective tax rate from September 30, 2022 to September 30, 2023 relates to prior year federal and state income tax refunds. The Company’s effective tax rate differs from the federal statutory rate of 21% in each period primarily due to the Company’s net loss position and valuation allowance. The tax effects of items significant, unusual and infrequent in nature are discretely calculated and recognized in the period during which they occur.

~~On March 27, 2020, the CARES Act was enacted.~~ The ~~CARES Act includes several significant provisions for corporations, including those pertaining to~~Company’s net operating loss (“NOL”) carryforwards, interest deductions and payroll tax benefits. Corporate taxpayers may carryback NOLs originating during 2018 through 2020 for up to five years. During the first quarter of 2020, we recorded a discrete tax benefit of $37.7 million related to the NOL carryback provisions available under the CARES Act legislation corresponding to anticipated tax refunds applicable to taxable years 2013, 2014, 2015, and 2017. If any tax refund is received that is more than $5.0 million in a single year, along with other civil settlements, damages awards, and tax refunds, we have agreed to pay 65% of all such amounts received to accelerate payments to the government in connection with our government settlement (see Note 9). During the three months ended June 30, 2020, we received a tax refund of $22.7 million related to the NOL carryback provisions available under the CARES Act.

~~The Company’s NOL~~ carryforwards and research and development expenditure credit carryforwards may be subject to an annual limitation under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), and similar state provisions if the Company experiences an ownership change within the meaning of such Code sections. In general, an ownership change, as defined by Sections 382 and 383 of the Code, occurs when there is a 50 percentage points or more shift in ownership, consisting of shareholders owning more than 5%5% in the Company, occurring within a three-year testing period. ~~Upon preparation~~The Company performed a formal study through the date of ~~a formal~~the IPO and determined future utilization of tax attribute carryforwards were not limited per Section 382 of the Internal Revenue Code. The Company has not updated its Section 382 study ~~any reduction~~since the IPO offering in ~~NOLs~~2020. However, because the Company has raised and expects to continue to raise significant amounts of equity, the Company expects that Section 382 will limit future utilization of tax attribute ~~carryforwards will~~carryforwards. Due to the existence of the valuation allowance, limitations created by ownership changes do not impact the Company's effective tax ~~expense as per the Company’s maintenance of a full valuation allowance.~~rate.

13. Net Loss Per Share

Net loss per share is computed by dividing net loss attributable to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted loss per share reflects the additional dilution from potential issuances of common stock, such as stock issuable pursuant to the exercise of stock options, as well as from the possible conversion of the Company’s preferred stock and exercise of the outstanding warrant. The treasury stock and if-converted methods are used to calculate the potential dilutive effect of these common stock equivalents. However, potentially dilutive shares are excluded from the computation of diluted loss per share when their effect is antidilutive. Due to the Company reporting a net loss attributable to common stockholders for all periods presented, all potentially dilutive securities were antidilutive and have been excluded from the computation of diluted loss per share.

The table below provides potentially dilutive securities in equivalent shares of common ~~shares~~stock not included in the Company’s calculation of diluted loss per share because to do so would be antidilutive:


	September 30, 2023		September 30, 2022
Stock options to purchase common stock		732,497		587,052
Restricted stock units		2,564,516		298,190
Common stock warrants and pre-funded warrants		29,474,198		1,047,353
Common stock issuable upon conversion of Convertible Notes		1,011,926		1,623,546
Total		33,783,137		3,556,141

June 30,
2020

June 30,
2019

Options to purchase common stock

3,848,838

2,636,721

Restricted stock units

1,095,095

313,785

Common stock warrant

400,160

—

Series A Preferred Stock

—

13,213,254

Series A-1 Preferred Stock

—

4,810,649

Series B Preferred Stock

—

2,292,700

Series B Preferred Stock Purchase Warrant

—

229,270

Total

5,344,093

23,496,379

14. Subsequent Events

On October 10, 2023, the Company issued a warrant to purchase up to 1,000,000 shares of the Company's common stock, with an exercise price of $1.93 per share, to an accredited investor in a private placement transaction. The warrant is exercisable six months following the date of issuance. The investor may from time to time agree to acquire, and the Company may agree to sell, up to an aggregate of $1.9 million of common stock any time prior to January 31, 2024. The warrant will vest in proportion to issuances

described in the preceding sentence. Neither the investor nor the Company has any obligation to agree to or consummate any such issuances.

On October 12, 2023, the Company issued a warrant to purchase up to 4,278,074 shares of the Company's common stock, with an exercise price of $1.87 per share, to an accredited investor in a private placement transaction. The warrant is exercisable six months following the date of issuance. The investor may from time to time agree to acquire, and the Company may agree to sell, up to an aggregate of $8.0 million of common stock any time prior to January 31, 2024. The warrant will vest in proportion to issuances described in the preceding sentence. Neither the investor nor the Company has any obligation to agree to or consummate any such issuances.

From October 1, 2023 through November 7, 2023, the Company received net proceeds of $1.2 million, after deducting commissions and other offering expenses, from the sale of 750,350 shares under the ATM Sale Agreement. The Company sold such shares at a weighted average purchase price of $1.69 per share.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

General

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and notes thereto and other financial information included elsewhere in this ~~quarterly report~~Quarterly Report on Form 10-Q ~~or this~~ ("Quarterly ~~Report,~~Report") and the audited consolidated financial statements and notes thereto as of and for the ~~years~~year ended December 31, ~~2018 and 2019 and other financial information~~2022 included in our ~~final prospectus, or the Prospectus, filed with the Securities and Exchange Commission, or the SEC, pursuant to Rule 424(b) under the Securities Act of 1933, as amended, dated June 19, 2020.~~Annual Report on Form 10-K ("Annual Report"). Unless the context requires otherwise, references in this Quarterly Report to “we,” “us,” and “our” refer to ~~Progenity,~~Biora Therapeutics, Inc.

This Quarterly Report includes forward-looking statements that involve a number of risks, uncertainties and assumptions. These forward-looking statements can generally be identified as such because the context of the statement will include words such as “may,” “will,” “intend,” “plan,” “believe,” “anticipate,” “expect,” “estimate,” “predict,” “potential,” “continue,” “likely,” "target," "forecast," or “opportunity,” the negative of these words or other similar words. Similarly, statements that describe our plans, strategies, intentions, expectations, objectives, goals or prospects and other statements that are not historical facts are also forward-looking statements. For such statements, we claim the protection of the Private Securities Litigation Reform Act of 1995. Readers of this Quarterly Report are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the time this Quarterly Report was filed with the ~~SEC.~~Securities and Exchange Commission (the "SEC"). These forward-looking statements are based largely on our expectations and projections about future events and future trends affecting our business, and are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. These risks and uncertainties include, without limitation, the risk factors identified below and those discussed in the section titled “Risk Factors” included under Part II, Item 1A below. In addition, past financial or operating performance is not necessarily a reliable indicator of future performance, and you should not use our historical performance to anticipate results or future period trends. We can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on our results of operations and financial condition. Except as required by law, we undertake no obligation to update publicly or revise our forward-looking statements.

~~OVERVIEW AND RECENT DEVELOPMENTS~~Overview

We are a biotechnology company ~~with an established track record of success in~~ developing ~~and commercializing molecular testing products as well as innovating~~oral biotherapeutics that could enable new treatment approaches in the ~~field~~delivery of ~~precision medicine. We believe that we are a market-leading provider~~therapeutics. Our therapeutics pipeline includes two therapeutic delivery platforms:

•

NAVICAPTM Targeted Oral Delivery Platform: Targeted oral delivery of therapeutics to the site of disease in ~~vitro molecular tests~~the gastrointestinal tract designed to improve ~~lives by providing actionable information that helps guide~~outcomes for patients with Inflammatory Bowel Disease; and physicians in making critical and timely medical decisions during various life stages, such as family planning, pregnancy, or navigating a complex disease diagnosis. Our vision is to transform healthcare to become more precise and personal by improving diagnoses

•

BIOJETTM Systemic Oral Delivery Platform: Systemic oral delivery of disease and improving patient outcomes through localized treatment with targeted therapies. We apply a multi-omics approach, combining genomics, epigenomics, proteomics, and metabolomics, to our molecular testing products and to the development of a suite of investigational ingestible devices and drug/device combinationsbiotherapeutics designed to ~~provide precise diagnostic sampling and drug~~replace injections with needle-free, oral delivery ~~solutions.~~

of large molecules for better management of chronic diseases.

~~Since 2010, our molecular testing business has achieved consistent year-over-year test volume growth through our robust product portfolio and our strong commercial organization.~~ Our internal core competencies, deep research and development pipeline and strategic acquisitions of novel technologies have fueled our innovation in women’s health, supporting the development and launch of complementary molecular testing products that inform critical healthcare decision-making acrosshistorical operations included a ~~woman’s lifetime.~~

~~In 2015, we launched both our Innatal Prenatal Screen,~~ ~~Non-Invasive Prenatal Testing, or~~ NIPT, offering, and our Preparent Carrier Test, followed by the launch of our Riscover Hereditary Cancer Test in 2017. We offer molecular tests with market-leading performance and turnaround times, supported by end-to-end workflow solutions that increase administrative efficiencies. Along with our comprehensive menu of molecular tests, we offer patients pre-test education, clear and timely results, and on-demand genetic counseling. We are committed to providing patients and physicians with empathetic communication and support during critical moments to help empower and prepare patients and their families to make critical life decisions.

~~We generate revenue by providing tests. Our molecular tests are provided through our certified~~ licensed Clinical Laboratory Improvement Amendments or ~~CLIA,~~ and College of American Pathologists or ~~CAP, accredited~~certified laboratory ~~located~~specializing in ~~Ann Arbor, Michigan. We also provide anatomic~~the molecular testing markets serving women’s health providers in the obstetric, gynecological, fertility, and ~~molecular pathology tests through~~maternal fetal medicine specialty areas. Previously, our core business was focused on carrier screening and noninvasive prenatal test market, targeting preconception planning and routine pregnancy management for genetic disease risk assessment. Through our former affiliation with Mattison Pathology, LLP, a Texas limited liability partnership doing business as Avero Diagnostics ~~located in Lubbock and Irving, Texas. The focus of~~(“Avero”), our ~~commercial~~historical operations ~~is to distribute our molecular tests and our~~also included anatomic and molecular pathology ~~tests through~~testing products in the United States.

Common Stock Reverse Split

On December 29, 2022, we filed a certificate of amendment to our ~~dedicated direct sales force. Distribution~~eighth amended and restated certificate of incorporation (the “Certificate of Amendment”) to effect, as of January 3, 2023, a 1-for-25 reverse split of our ~~tests is supported by~~common stock. The Certificate of Amendment also decreased the number of authorized shares of our common stock from 350,000,000 to 164,000,000. All shares, options, restricted stock units, warrants and per share amounts included in this Quarterly Report have been retroactively adjusted to reflect the stock split.

Factors Affecting Our Performance

In June 2021, we announced a ~~field operations team who provide all logistical functions~~strategic transformation ("Strategic Transformation") pursuant to which we have refocused our efforts on our robust research and development pipeline to better position the business for future growth. The Strategic Transformation

included the closure of our genetics laboratory in ~~receiving clinical samples at~~Ann Arbor, Michigan, the sale of our Avero laboratory ~~for analysis.~~business, a reduction in force and other cost-cutting measures and operational improvements, together referred to as the Laboratory Operations.

~~During the three and six months ended June 30, 2020, we accessioned approximately 75,017 and~~ ~~153,841~~ ~~tests, respectively.~~

We generate revenue through providing our tests and receive payments for such tests from payors, laboratory distribution partners, and self-paying individuals. More than 95% of payments for our tests are received through reimbursement. We receive reimbursement from several distinct channels: commercial third-party payors, laboratory distribution partners, and government health benefits programs such as Medicare and Medicaid.

We are engaged in research and development activities with respect to ~~molecular tests and precision medicine~~therapeutics product candidates. ~~Our molecular test portfolio~~Following the Strategic Transformation, we are devoting substantially all of our resources to developing and ~~pipeline and~~perfecting our precision medicine product pipeline are each powered by a combination of symbiotic technology platforms exploiting advances in genetics, epigenetics, and proteomics, fortified by an innovative bioinformatics infrastructure. Our ecosystem is designed to enable rapid development and validation of products in an integrated fashion. We intend to continue to invest in ourintellectual property rights, conducting research and development activities ~~as a public company. As a result, we expect to incur operating losses for the foreseeable future~~(including undertaking preclinical and may need to raise additional capital in order to fund our operations. Our ability to return to profitability will depend upon achieving our revenue growth objectives and successfully managing our costs.

~~On June 23, 2020, we completed our initial public offering, or IPO, pursuant to which we issued and sold an aggregate of 6,666,667 shares~~clinical studies of our common stock at the IPO price of $15.00 per share. We received gross proceeds from our IPO of $100.0 million, and net proceeds of $88.7 million after deducting $7.0 million in underwriting discounts and commissions and $4.3 million of other offering expenses.

In the second quarter of 2020, we entered into an in-network participation agreement with Cigna, which became effective July 1, 2020, for approximately 16.0 million covered lives, bringing the total covered lives under our agreements with commercial third-party payors to approximately 144.0 million covered lives.

On July 21, 2020 and July 23, 2020, we entered into agreements with certain governmental agencies to resolve, with respect to such agencies, all of such agencies’ outstanding civil, and where applicable criminal, investigations regarding our discontinued legacy billing practices for our non-invasive prenatal tests and microdeletion tests and the provision of alleged kickbacks or inducements to physicians and patients. The financial terms of the agreements are substantially the same as the agreement on the monetary terms that we disclosed in the Prospectus.

~~Factors Affecting Our Performance.~~

~~We believe there are several important factors that impact our commercial performance and results of operations, including:~~

~~Report Volume~~

~~We compete in the molecular testing market based upon several factors, including (i) the strong performance and short turnaround time~~therapeutics product candidates), conducting clinical trials of our ~~integrated tests, (ii) the quality of~~most advanced therapeutics product candidates, organizing and staffing our ~~sales~~company, business planning and ~~marketing efforts with physicians, (iii) the quality of our end-to-end customer service and support solutions, and (iv) the availability of reimbursement~~raising capital. We do not have any therapeutics products approved for our tests. Our commercial team of more than 150 individuals actively engages with physicians and their staff to emphasize the clinical need for our products, provide education on the clinical value of our products, and facilitate the ability of physicians and their staff to order our tests. The volume of tests that we accession is one of the key performance indicators that we use to evaluate our business. A test is accessioned when we receive the test samples at our laboratory, the relevant information about the desired test is entered into our systems, and the samples are routed into the appropriate process flow. The historical ratio of the Innatal tests and the Preparent tests that we accession is approximately 1.2:1. As the types and categories of tests that are covered by reimbursement increase or decrease, the volume of testing may correspondingly increase or decrease, respectively. In 2019, we conducted a comprehensive review of our existing accounts and sought to eliminate accounts that did not contribute to our revenues and our gross margin. Our test volumes decreased as a result of this exercise.

Beginning in March 2020, we began to observe declines in the volumes of both our molecular tests and the pathology tests conducted by Avero Diagnostics due to the impact of the COVID-19 pandemic and resulting work-from-home policies and other operational limitations mandated by federal, state and local governments. However, we believe our business is resilientsale, and we have observed positive signs of recovery in the latter part of the second quarter. While we have implemented and continue to monitor our mitigation strategies to address these limitations, such as supporting patients and physicians virtually, there can be no assurance that the rate of decline in our testing volumes will not continue or accelerate in future periods. Our current assessment of the impact of the COVID-19 pandemic is that our NIPT test volumes have proved more resilient than our carrier screening test volumes; however, the comparative impact may continue to change over time.

~~Reimbursement~~generated any revenue from therapeutics product sales.

~~Reimbursement fluctuations may occur due to a variety of factors, many of which are outside of our control, including, but not limited to:~~

~~third-party payor coverage and, as we continually seek to transition to in-network coverage with commercial third-party payors, corresponding increases in our in-network covered lives;~~

regulatory and medical society recommendations such CMS, ACOG, ACMG, and SMFM, that potentially lead to positive coverage determinations by commercial third-party payors and government health benefits programs for our tests;

~~third-party payor medical coverage and administrative policies, including reimbursement rates published by CMS;~~

delays to third-party payors’ processing due to the impact of the COVID-19 pandemic and resulting work-from-home policies and other operational limitations mandated by federal, state, and local governments;

~~future CPT code and medical procedure code changes, such as obtaining appropriate codes for our new molecular tests, including our expanded carrier screening panels, NIPT, and Exon carrier screening;~~

~~regulatory and payor fee schedule changes for CPT codes with respect to our products;~~

~~requirements to refund any reimbursements already received;~~

~~the overall mix of payor class for our products sold;~~

~~changes in physician ordering trends;~~

~~the mix of our products sold;~~

~~the geographic regions in which our products are sold;~~

~~competition in our industries and any change in the competitive landscape of our industries, including potential consolidation; and~~

~~future accounting pronouncements or changes in our accounting policies.~~

~~Gross Margin~~

Our gross margin is an important indicator of the operating performance of our business. Higher gross margins reflect the average selling price of our tests, as well as the operating efficiency of our laboratory operations. Reducing the costs of goods sold for our tests represents another important opportunity for innovation and is a significant area of focus for our research and development organization. We regularly evaluate our operations in order to determine whether we can reduce costs by developing new technologies, improving the efficiency of our assay and laboratory processes, modifying our processes to use materials and technologies that provide equal or greater quality at lower cost, and improving how we manage our inventory and negotiating favorable terms for our materials purchases. In 2019, we conducted a comprehensive review of our existing accounts and sought to eliminate accounts that did not contribute to our revenues and gross margin. In future periods, we expect this to have a positive impact on our gross margin; however, such an impact cannot be assured. We are currently developing our next generation Innatal Prenatal Screen (Innatal 4th Generation), an improved platform with simplified and more cost-effective assay workflow, which we believe will allow us to substantially improve the gross margin of our NIPT. We also work with partner laboratories that complement our test portfolio offering, while developing in parallel new technologies that we expect could, over time, reduce our cost structure by internalizing the production of those tests when the commercial benefits dictate such conversion. We are now predominantly an in-network provider, with approximately 144.0 million covered lives nationwide under our agreements with commercial third-party payors following the recent additions of in-network contracts with Aetna and Cigna. While we continue our contract negotiation process with several additional large commercial third-party payors, the transition to establishing ourselves as an in-network provider is expected to lead to an increase in the proportion of tests paid and allow us to gain access to a larger in-network patient base.

~~New Product Development~~

Our business involves significant investment in research and development activities for the development of new ~~products which we believe are strategic complements to our product portfolio and drive long- term revenue growth.~~products. We intend to continue investing in our pipeline of new products and technologies. We expect our investment in research and development to increase as we pursue regulatory approval of our ~~product candidates~~targeted therapeutics and ~~as we seek to expand our pipeline of~~systemic therapeutics product candidates. Due to the impact of the COVID-19 pandemic and resulting work-from-home policies and other operational limitations mandated by federal, state, and local governments, certain of our research and development activities have been delayed and may be further delayed until such operational limitations are lifted. While we are implementing mitigation strategies, where possible, certain preclinical and clinical activities were

suspended during the implementation of these policies and will necessarily incur some delay following the resumption of normal operations. While some of our research and development laboratory work was impacted by the stay-at-home shutdown, especially in our Michigan facilities, our preeclampsia test verification work restarted in June and has now migrated to the operations laboratory, which is part of our essential services, and is, therefore, less exposed to further shutdowns caused by the COVID-19 pandemic. However, the development of our new products could continue to be delayed if any stay-at-home orders in the State of Michigan are reinstated.

The achievement of key development milestones ~~(e.g., clinical verification and validation and CLIA certification for our molecular tests and clinical studies and regulatory approval for our precision medicine product platform)~~ is a key factor in evaluating our performance.

We expect to continue to incur significant expenses and increasing operating losses in the near term. We expect our expenses may increase in connection with our ongoing activities as we:

•

continue to advance the preclinical and clinical development of our lead targeted therapeutics and systemic therapeutics product candidates;

•

initiate preclinical studies and clinical trials for additional targeted therapeutics and systemic therapeutics product candidates that we may identify in the future;

•

increase personnel and infrastructure to support our clinical development, research and manufacturing efforts;

•

build out and expand our in-house process development and engineering and manufacturing capabilities for R&D and clinical purposes;

•

continue to develop, perfect and defend our intellectual property portfolio; and

•

incur additional legal, accounting or other expenses in operating our business, including the additional costs associated with operating as a public company.

We do not expect to generate significant product revenue unless and until we successfully complete development and obtain regulatory and marketing approval of, and begin to sell, one or more of our targeted therapeutics and systemic therapeutics product candidates, which we expect will take several years. We expect to spend a significant amount in development costs prior to such time. We may never succeed in achieving regulatory and marketing approval for our therapeutics product candidates. We may obtain unexpected results from our preclinical and clinical trials. We may elect to discontinue, delay or modify preclinical and clinical trials of our therapeutics product candidates. A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. Accordingly, until such time as we can generate significant product revenue, if ever, we expect to continue to seek private or public equity and debt financing to meet our capital requirements. There can be no assurance that such funding may be available to us on acceptable terms, or at all, or that we will be able to commercialize our therapeutics product candidates. In addition, we may not be profitable even if we commercialize any of our therapeutics product candidates.

Key Components of Our Results of ~~Operations.~~Operations

~~Revenue~~We are providing the following summary of our revenues, research and development expenses and selling, general and administrative expenses to supplement the more detailed discussion below. This summary excludes our revenues, research and development expenses, selling and marketing, general and administrative and other expenses associated with our Laboratory Operations, which are reported within loss from discontinued operations.

~~Substantially~~Revenue

Historically, all of our revenue ishas been derived from molecular laboratory tests, principally from the sale of ~~Innatal, Preparent,~~non-invasive prenatal tests, genetic carrier screening, and pathology molecular testing. ~~Historically, the~~If our development efforts for our targeted therapeutics and systemic therapeutics product candidates are successful and result in regulatory approval, we may generate revenue from future product sales. If we ~~derive from~~enter into license or collaboration agreements for any of our Innatal tests and our Preparent tests has been roughly equal, although the ratio fluctuates from time to time. We bill and collect from third-party payors, laboratory distribution partners, and self-paying individuals. Third-party payors include commercial third-party payors and government payors, such as Medicare and Medicaidtherapeutic product candidates, other pipeline products or intellectual property, we may generate revenue in the ~~United States. We bill for these tests rendered upon completion of the testing process and delivery of test results to the customer.~~

~~Due to potential~~ future ~~changes in insurance coverage policies, contractual rates, and other trends in the reimbursement of our tests,~~from payments received for our tests may fluctuate significantly over time. Our revenue incorporates an estimate of variable consideration, which is adjusted for estimates of disallowed cases, discounts, and refunds. We have established an accrual for refunds of payments previously made by healthcare insurers based on historical experience and executed settlement agreements with healthcare insurers. The refunds are accounted for as reductions in revenues in the statement of operations as an element of variable consideration. Our estimate of variable consideration included in the transaction price is also impacted by our ongoing transition to in-network contracts with commercial payors.

Currently, we operate primarily as an in-network provider of molecular tests and we continually seek to transition to in-network coverage with additional third-party payors, which we believe is crucial to our growth and long-term success. This transition is ongoing, and we are actively negotiating with a few remaining commercial payors. We are currently contracted with payors representing an estimated 144.0 million covered lives, including approximately 16.0 million covered lives under our in-network participation agreement with Cigna that became effective July 1, 2020.

While the negotiated fees under our in-network contracts with third-party payors are typically lower than the out-of-network list price of our tests, the percentage of tests allowed by payors traditionally increases in accordance with payors’ medical policies. While we expect the reduction in average reimbursement per test from in-network pricing to reduce our per test revenue and gross margins in the near term, in-network pricing is more predictable than out-of-network pricing, and we intend to continue to mitigate the impact by implementing a strategic focus for our most profitable accounts.

Delays to third-party payors’ processing due to the impact of the COVID-19 pandemic and resulting work-from-home policies and other operational limitations mandated by federal, state, and local governments have and may continue to extend the typical timelines under which we are able to recognize revenue. The full impact of these delays may not be realized immediately, including within the first half of 2020, as we customarily receive payment several months after completion of a molecular test.

~~Cost of Sales~~

Cost of sales includes the cost of materials, direct labor of laboratory personnel, third-party laboratory testing services, equipment, and infrastructure expenses associated with processing blood and other samples, quality control analyses, shipping charges to transport samples and specimens from ordering physicians, clinics, or individuals, and allocated overhead, including information technology, or IT, costs. Infrastructure expenses include allocated facility and related occupancy costs. Costs associated with the performance of molecular tests are recorded as tests are processed. We have implemented and continue to monitor mitigation strategies to address the work-from-home policies and other operational limitations mandated by federal, state, and local governments as a result of such license or collaboration agreements. We cannot predict if, when, or to what extent we will generate revenue from the ~~COVID-19 pandemic. While largely yet to be determined, these mitigation strategies~~commercialization and sale of our

therapeutics product candidates or from license or collaboration agreements. We may ~~cause increases~~never succeed in obtaining regulatory approval for any ~~or all~~ of ~~the aforementioned costs. The amount of cost of sales is related to~~ our volume of accessioned tests, which is directly related to consumption of reagents and other laboratory support services. Therefore, growth in accessioned volume of tests results in increased cost of sales on an aggregate basis and potential modest reductions in cost of sales on a per-test basis.therapeutics product candidates.

Research and Development

Research and development expenses consist primarily of costs associated with ~~performing research and development activities to improve~~developing our ~~tests, to reduce product costs, and to develop new products including our preeclampsia test and our precision medicine~~therapeutics product candidates. Research and development expenses also consist of personnel expenses, including salaries, bonuses, stock-based compensation expense, benefits, consulting costs, and allocated overhead costs. Research and development costs are expensed as incurred.

We plan to continue investing in research and development activities for the foreseeable future as we focus on ~~developing innovative products, including~~ our ~~preeclampsia test~~targeted therapeutics and ~~our precision medicine product candidates,~~systemic therapeutics programs through preclinical studies and clinical trials. We ~~also~~ expect our investment in research and development to ~~increase~~remain relatively flat as we pursue regulatory approval of our product candidates.

Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. While we plan to partner with large pharmaceutical companies, especially for the later stage clinical work, we still expect our research and development expenses to increase over the next several years as we conduct additional preclinical studies and clinical trials, including later-stage clinical trials, for our current and future product candidates and ~~as we seek~~pursue regulatory approval of our product candidates. The process of conducting the necessary preclinical and clinical research to ~~expand~~obtain regulatory approval is costly and time consuming. The actual probability of success for our ~~pipeline~~product candidates may be affected by a variety of factors including:

•

the safety and efficacy of our product ~~candidates.~~

candidates;

•

early clinical data for our product candidates;

•

investment in our clinical programs;

•

the ability of collaborators to successfully develop our licensed product candidates;

•

competition;

•

manufacturing capability; and

•

commercial viability.

~~Due~~We may never succeed in achieving regulatory approval for any of our product candidates due to the ~~impact of~~uncertainties discussed above. We are unable to determine the ~~COVID-19 pandemic~~duration and ~~work-from-home policies and other operational limitations mandated by federal, state, and local governments as a result of the pandemic, certain~~completion costs of our research and development ~~activities have been delayed~~projects or when and ~~may be further delayed until such operational limitations are lifted or if they are reinstated. While~~to what extent we ~~have implemented~~will generate revenue from the commercialization and continue to monitor mitigation strategies, where possible, certain preclinical and clinical activities are suspended during the implementation of these policies and will necessarily incur some delay following the resumption of normal operations.

~~Selling and Marketing~~

Selling and marketing expenses consist primarily of personnel costs, including salaries, commissions, bonuses, stock-based compensation expense, and benefits for our sales and marketing team. Selling and marketing expenses also include costs for communication, advertising, conferences, other marketing events, and allocated overhead costs. We expect selling and marketing expense to continue to increase as we increase the sizesale of our selling and marketing function to support the growth of our business. We have implemented and continue to monitor mitigation strategies to address the work-from-home policies and other operational limitations mandated by federal, state, and local governments as a result of the COVID-19 pandemic. While largely yet to be determined, these mitigation strategies include virtual meetings and mobile phlebotomy services for patients preferring not to visit a physician’s office. These strategies and others may cause increases in our sales and marketing costs.product candidates, if ever.

Selling, General and Administrative

~~General~~Selling, general and administrative expenses consist primarily of personnel costs, including salaries, bonuses, stock-based compensation expense, and benefits, for our finance and accounting, legal, human resources, and other administrative teams. Additionally, these expenses include costs for communications, conferences, and professional fees of audit, legal, and recruiting services. Following the listing of our common stock on Nasdaq, we expect to continue to incur additional expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a U.S. securities exchange and costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC. In addition, as a public company, we expect to incur increased expenses in the areas of insurance, investor relations, and professional services. Furthermore, we expect to incurAdditionally, expenses related to maintaining compliance with the stipulations of the government settlement and the legal costs associated with the ~~Natera lawsuit~~legal matters described in ~~Part II, Item 1. “Legal Proceedings” in this Quarterly Report. As a result, we expect the dollar amount of our general~~Note 9, "Commitments and administrative expenses to increase for the foreseeable future. We expect, however, that our general and administrative expenses will decrease as a percentage of our revenue over time, although the percentage may fluctuate from period to period depending on fluctuations in our revenue and the timing and extent of our general and administrative expenses.Contingencies."

Interest Expense, Net

Interest expense, net is primarily attributable to borrowings under our ~~Credit Agreement (as defined below). Interest expense is also attributable to our outstanding mortgages~~credit and ~~capital~~security agreement, lease ~~agreements.~~

~~Interest and Other Income (Expense), Net~~

~~Interest and other income, net primarily consists of loss on extinguishment of convertible note debt in the second quarter of 2020~~agreements and interest income earned from our cash and cash ~~equivalents, and~~equivalents.

Gain on Warrant Liabilities

Gain on warrant liabilities consists of changes in the fair value of ~~short-term investments.~~our liability-classified warrants to purchase common stock.

Other (Expense) Income, Net

Other (expense) income, net primarily consists of inducement loss on our Convertible Notes, impairment of property and equipment, and loss on disposals of property and equipment.

Income Tax Provision

We account for income taxes under the asset-and-liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is more than 50% likely of being realized. Changes in recognition or measurement are recognized in the period in which the change in judgment occurs. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. Due to losses generated in the past and projected future taxable losses anticipated in the future, we established a 100% valuation allowance on net deferred tax assets.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was enacted. The CARES Act includes several significant provisions for corporations, including the usage of net operating losses, interest deductions and payroll benefits. Corporate taxpayers may carryback net operating losses, or NOLs, originating during 2018 through 2020 for up to five years. During the three months ended March 31, 2020, we recorded a discrete tax benefit of $37.7 million related to the NOL carryback provisions available under the CARES Act legislation for taxes paid in years 2013, 2014, 2015, and 2017. If any tax refund is received that is more than $5.0 million in a single year, along with other civil settlements, damages awards, and tax refunds, we have agreed to pay 65% of all such amounts received to accelerate payments to the government in connection with our proposed government settlement. During the three months ended June 30, 2020, we received a tax refund of $22.7 million related to the NOL carryback provisions available under the CARES Act. See Part II, Item 1. “Legal Proceedings—Federal Investigation” in this Quarterly Report.

Results of Operations.

Comparison of the Three and Nine Months Ended ~~June~~September 30, ~~2020~~2023 and ~~2019~~2022


	Three Months Ended June 30,						Three Months Ended September 30,									Nine Months Ended September 30,
	2020			2019			2023			2022			Change			2023			2022			Change
	(in thousands)						(in thousands)									(in thousands)
Statement of Operations Data:	(unaudited)						(unaudited)									(unaudited)
Revenues	$	17,266		$	57,230		$	—		$	80		$	(80	)	$	4		$	291		$	(287	)
Cost of sales		21,835			26,113
Gross profit		(4,569	)		31,117
Operating expenses:
Research and development		12,234			16,463			10,547			5,820			4,727			23,720			18,282			5,438
Selling and marketing		12,736			14,680
General and administrative		17,181			14,272
Selling, general and administrative								12,774			8,147			4,627			30,083			30,014			69
Total operating expenses		42,151			45,415			23,321			13,967			9,354			53,803			48,296			5,507
Loss from operations		(46,720	)		(14,298	)		(23,321	)		(13,887	)		(9,434	)		(53,799	)		(48,005	)		(5,794	)
Interest expense		(2,507	)		(2,282	)
Interest and other income (expense), net		(3,556	)		171
Interest expense, net								(2,592	)		(2,773	)		181			(7,975	)		(8,305	)		330
Gain on warrant liabilities								4,568			2,044			2,524			5,271			15,446			(10,175	)
Other (expense) income, net								(52,108	)		(100	)		(52,008	)		(52,194	)		4,824			(57,018	)
Loss before income taxes								(73,453	)		(14,716	)		(58,737	)		(108,697	)		(36,040	)		(72,657	)
Income tax expense (benefit)								1			158			(157	)		5			(679	)		684
Loss from continuing operations								(73,454	)		(14,874	)		(58,580	)		(108,702	)		(35,361	)		(73,341	)
Gain from discontinued operations								—			9,760			(9,760	)		—			10,926			(10,926	)
Net loss	$	(52,783	)	$	(16,409	)	$	(73,454	)	$	(5,114	)	$	(68,340	)	$	(108,702	)	$	(24,435	)	$	(84,267	)

Three Months Ended
June 30,

2020

2019

Percentage of Revenue Data:

(unaudited)

Revenues

100
%

100
%
Cost of sales

126

46

Gross profit

(26
)

54

Operating expenses:

Research and development

71

29

Selling and marketing

74

26

General and administrative

100

25

Total operating expenses

244

79

Loss from operations

(271
)

(25
)
Interest expense

(15
)

(4
)
Interest and other income (expense), net

(21
)

—

Net loss

(306
)%

(29
)%

Research and Development Expenses

~~Revenue~~

Three Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

Revenues

$
17,266

$
57,230

$
(39,964
)

(69.8
)%

~~Revenue was $17.3~~Research and development expenses increased by $4.7 million for the three months ended ~~June~~September 30, ~~2020,~~2023 compared to ~~$57.2~~the three months ended September 30, 2022, primarily due to an increase in salaries and benefits attributable to the accelerated vesting of unvested RSU awards and an increase in consulting and professional fees. For the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, research and development expenses increased by $5.4 million, primarily due to an increase in salaries and benefits attributable to the accelerated vesting of unvested restricted stock unit ("RSU") awards, an increase in consulting and professional fees and the cost of supplies, offset by a decrease in facilities costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $4.6 million for the three months ended ~~June~~September 30, ~~2019, a decrease of $40.0 million, or 69.8%.~~

~~The $40.0 million decrease in revenue was primarily due to a decrease in test volumes during the three months ended June 30, 2020~~2023 compared to the three months ended ~~June~~September 30, ~~2019, as a result of the COVID-19 shutdown,~~2022, primarily due to an increase in salaries and ~~an update~~benefits attributable to the ~~Company’s estimate~~accelerated vesting of ~~variable consideration for previously delivered performance obligations during the second quarter of 2019, which resulted in~~unvested RSU awards, an increase ~~to revenue of $10.4 million during that quarter. The remainder of~~in consulting and professional fees, offset by a decrease in business insurance, facilities and software costs. For the ~~decrease is related to an accrual of $10.3 million for refunds to government payors, which the Company expects to repay~~nine months ended September 30, 2023 compared to the ~~relevant government programs~~nine months ended September 30, 2022, selling, general and administrative expenses remained consistent.

Gain on Warrant Liabilities

Gain on warrant liabilities increased by ~~early October 2020, and rate degradation due to payor policy changes.~~

~~Cost of Sales~~

Three Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

Cost of Sales

$
21,835

$
26,113

$
(4,278
)

(16.4
)%

~~Cost of sales was $21.8~~$2.5 million for the three months ended ~~June~~September 30, ~~2020,~~2023 compared to ~~$26.1~~the three months ended September 30, 2022 due to the change in fair value of the warrant liabilities for outstanding warrants. For the nine

months ended September 30, 2023 compared to the nine months ended September 30, 2022, gain on warrant liabilities decreased by $10.2 million, due to the change in fair value of the warrant liabilities for outstanding warrants.

Other (Expense) Income, Net

Other (expense) income, net increased by $52.0 million for the three months ended ~~June~~September 30, ~~2019, a decrease of $4.3 million, or 16.4%.~~

~~The decrease in cost of sales was primarily due to a decrease in test volumes during the three months ended June 30, 2020~~2023 compared to the three months ended ~~June~~September 30, ~~2019 as a result of the COVID-19 shutdown, partially~~2022, primarily due to an inducement loss on our Convertible Notes (defined below), offset by ~~higher stock-based compensation expenses following~~an increase in income related to the sale of preeclampsia assets and intellectual property. The change in other (expense) income, net of $57.0 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 is primarily due to an inducement loss on our ~~IPO~~Convertible Notes and a gain on investment in ~~June 2020.~~

~~Research~~Enumera Molecular, Inc. ("Enumera") for the nine months ended September 30, 2022 that did not reoccur in 2023, offset by an increase in income related to the sale of preeclampsia assets and ~~Development Expenses~~intellectual property and a decrease in loss on asset disposal and impairment of property and equipment.

Three Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

Research and development

$
12,234

$
16,463

$
(4,229
)

(25.7
)%

Income Tax Expense (Benefit)

~~Research and development expenses were $12.2~~Income tax expense (benefit) decreased by $0.2 million for the three months ended ~~June~~September 30, ~~2020,~~2023 compared ~~to $16.5 million for the three months ended June 30, 2019, a decrease of $4.2 million, or 25.7%.~~

The decrease in research and development expenses was primarily attributable to a $3.8 million decrease in consulting costs, as well as a $1.6 million decrease in supplies costs and other expenses, partially offset by a $1.3 million increase in salaries and stock‑based compensation expenses.

~~The following table summarizes the changes in research and development expenses from the~~ ~~three~~ ~~months ended June 30, 2020,~~ to the three months ended ~~June~~September 30, ~~2019, with costs broken down~~2022 primarily due to prior year deferred tax expense that did not reoccur in 2023. For the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, income tax expense (benefit) increased by ~~program:~~$0.7 million, primarily due to federal and state income tax refunds that did not reoccur in 2023, offset by prior year deferred tax expense that did not reoccur in 2023.

Three Months Ended
June 30,

2020

2019

(in thousands)

(unaudited)

Molecular testing

$
6,115

$
8,829

Precision medicine

6,119

7,634

Total research and development expenses

$
12,234

$
16,463

Discontinued Operations

~~Sales and Marketing Expenses~~

Three Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

Selling and marketing

$
12,736

$
14,680

$
(1,944
)

(13.2
)%

~~Selling and marketing expenses were $12.7 million~~The decrease in gain from discontinued operations for the three and nine months ended ~~June~~September 30, ~~2020,~~2023 compared ~~to $14.7 million for the three months ended June 30, 2019, a decrease of $1.9 million, or 13.2%.~~

The decrease in selling and marketing expenses was primarily attributable to a $1.2 million decrease in travel and entertainment costs due to a reduction in travel during the three months ended June 30, 2020 as a result of the COVID-19 shutdown and associated work-from-home policies. The remainder of the decrease was associated with decreases of $0.5 million in salaries and personnel-related costs and $0.2 million in marketing consulting fees.

~~General and Administrative Expenses~~

Three Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

General and administrative

$
17,181

$
14,272

$
2,909

20.4
%

General and administrative expenses were $17.2 million for the three months ended June 30, 2020, compared to $14.3 million for the three months ended June 30, 2019, an increase of $2.9 million, or 20.4%.

The increase in general and administrative expenses was primarily attributable to a $2.2 million increase in salaries and personnel-related costs, a $1.1 million increase in consulting and professional costs, primarily related to legal costs associated with our IPO in June 2020 and government settlement negotiations, a $0.4 million increase in our business insurance costs, and a $0.4 million increase in other general and administrative costs. The increase was partially offset by a decrease of $0.4 million in supplies costs.

~~Interest Expense~~

Three Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

Interest expense

$
(2,507
)

$
(2,282
)

$
(225
)

9.9
%

~~Interest expense increased by $0.2 million, or 9.9%, from the three months ended June 30, 2019~~ to the three and nine months ended ~~June~~September 30, ~~2020.~~

~~Interest and Other Income (Expense), Net~~

Three Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

Interest and other income (expense), net

$
(3,556
)

$
171

$
(3,727
)

*
______________

* - The change is more than 100%

~~Interest and other expense, net,~~2022 was ~~$3.6 million for the~~ ~~three months ended June 30, 2020, compared to interest and other income, net of $0.2 million for the~~ ~~three months ended June 30, 2019. This change was primarily due to~~ ~~$3.6 million loss on extinguishment of debt associated with the conversion of an unsecured promissory note into shares of common stock upon completion of the IPO.~~

~~Comparison of Six Months Ended June 30, 2020 and 2019~~

Six Months Ended
June 30,

2020

2019

(in thousands)

Statement of Operations Data:

(unaudited)

Revenues

$
34,094

$
104,737

Cost of sales

48,405

50,534

Gross profit (loss)

(14,311
)

54,203

Operating expenses:

Research and development

23,474

31,711

Selling and marketing

27,172

30,247

General and administrative

34,289

28,550

Total operating expenses

84,935

90,508

Loss from operations

(99,246
)

(36,305
)
Interest expense

(4,809
)

(4,551
)
Interest and other income (expense), net

(3,576
)

428

Loss before income taxes

(107,631
)

(40,428
)
Income tax benefit

(37,696
)

—

Net loss

$
(69,935
)

$
(40,428
)

Six Months Ended
June 30,

2020

2019

Percentage of Revenue Data:

(unaudited)

Revenues

100
%

100
%
Cost of sales

142

48

Gross profit (loss)

(42
)

52

Operating expenses:

Research and development

69

30

Selling and marketing

80

29

General and administrative

101

27

Total operating expenses

249

86

Loss from operations

(291
)

(34
)
Interest expense

(14
)

(4
)
Interest and other income (expense), net

(10
)

—

Loss before income taxes

(316
)

(38
)
Income tax benefit

(111
)

—

Net loss

(205
)%

(38
)%

~~Revenue~~

Six Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

Revenues

$
34,094

$
104,737

$
(70,643
)

(67.4
)%

Revenue was $34.1 million for the six months ended June 30, 2020, compared to $104.7 million for the six months ended June 30, 2019, a decrease of $70.6 million, or 67.4%. The reduction in revenues during the six months ended June 30, 2020 compared to the six months ended June 30, 2019 was largely attributable to an accrual for $13.2 million related to the settlement with the DOJ and the participating State AGs in the first quarter of 2020 and a decrease in test volumes in the second quarter of 2020 as a result of the COVID-19 shutdown. The remainder of the decrease is related to an accrual of $10.3 million for refunds to government payors, which the Company expects to repay to the relevant government programs by early October 2020, and rate degradation due to payor policy changes.

~~Cost of Sales~~

Six Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

Cost of Sales

$
48,405

$
50,534

$
(2,129
)

(4.2
)%

~~Cost of sales was $48.4 million for the six months ended June 30, 2020, compared to $50.5 million for the six months ended June 30, 2019, a decrease of $2.1 million, or 4.2%.~~

The decrease in cost of sales was primarily due to a decrease in test volumes in the second quarter of 2020 as a result of the COVID-19 shutdown, partially offset by higher stock-based compensation expense following the IPO in June 2020.

~~Research and Development Expenses~~

Six Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

Research and development

$
23,474

$
31,711

$
(8,237
)

(26.0
)%

~~Research and development expenses were $23.5 million for the six months ended June 30, 2020, compared to $31.7 million for the six months ended June 30, 2019, a decrease of $8.2 million, or 26.0%.~~

The decrease in research and development expenses was primarily attributable to a $8.3 million decrease in consulting costs, as well as a $2.3 million decrease in supplies costs and other expenses, partially offset by a $2.7 million increase in salaries and stock-based compensation expenses.

~~The following table summarizes the changes in research and development expenses from the~~ ~~six~~ ~~months ended June 30, 2020, to the six months ended June 30, 2019, with costs broken down by program:~~

Six Months Ended
June 30,

2020

2019

(in thousands)

(unaudited)

Molecular testing

$
13,166

$
16,581

Precision medicine

10,308

15,130

Total research and development expenses

$
23,474

$
31,711

~~Sales and Marketing Expenses~~

Six Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

Selling and marketing

$
27,172

$
30,247

$
(3,075
)

(10.2
)%

~~Selling and marketing expenses were $27.2 million for the six months ended June 30, 2020, compared to $30.2 million for the six months ended June 30, 2019, a decrease of $3.1 million, or 10.2%.~~

The decrease in selling and marketing expenses was primarily attributable to a $2.3 million decrease in travel and entertainment costs due to a reduction in travel during the six months ended June 30, 2020 as a result of the COVID-19 shutdown and associated work-from-home policies and a decrease of $0.6 million in salaries and personnel-related costs.

~~General and Administrative Expenses~~

Six Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

General and administrative

$
34,289

$
28,550

$
5,739

20.1
%

~~General and administrative expenses were $34.3 million for the six months ended June 30, 2020, compared to $28.6 million for the six months ended June 30, 2019, an increase of $5.7 million, or 20.1%.~~

The increase in general and administrative expenses was primarily attributable to a $3.2 million increase in consulting and professional costs, primarily related to legal costs associated with our IPO in June 2020 and government settlement negotiations, a $3.2 million increase in salaries and stock-based compensation expenses, and a $0.8 million increase in other general and administrative costs. The increase was partially offset by a decrease of $1.7 million in supplies costs.

~~Interest Expense~~

Six Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

Interest expense

$
(4,809
)

$
(4,551
)

$
(258
)

5.7
%

~~Interest expense increased by $0.3 million, or 5.7%, from the six months ended June 30, 2019, to the six months ended June 30, 2020.~~

~~Interest and Other Income (Expense), Net~~

Six Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

Interest and other income (expense), net

$
(3,576
)

$
428

$
(4,004
)

*
______________

* - The change is more than 100%

~~Interest and other expense, net, was $3.6 million for the~~ ~~six months ended June 30, 2020, compared to interest and other income, net of $0.4 million for the~~ ~~six months ended June 30, 2019. This change was primarily due to~~ ~~$3.6 million loss on extinguishment of debt associated with the conversion of an unsecured promissory note into shares of common stock upon completion of the IPO.~~

~~Income Tax Benefit~~

Six Months Ended

June 30,

Increase/

2020

2019

(Decrease)

% Change

(in thousands)

(unaudited)

Income tax provision (benefit)

$
(37,696
)

$
—

$
(37,696
)

(100.0
)%

Income tax benefit was $37.7 million for the six months ended June 30, 2020, while income tax benefit was zero for the six months ended June 30, 2019. The tax benefit recorded during the six months ended June 30, 2020 was recorded due to the ~~net operating loss carryback provisions available under the CARES Act legislation enacted~~closure of our Laboratory Operations during 2021. See Note 3 to our condensed consolidated financial statements included elsewhere in March 2020. During the year ended December 31, 2018, we established a full valuation allowance on net deferred tax assets due to losses generated in 2018 and projected future taxable losses anticipated in the future. Due to the valuation allowance on deferred tax assets, no tax benefit was recordedthis Quarterly Report for ~~our net loss in the six months ended June 30, 2019.~~additional information regarding discontinued operations.

Liquidity and Capital Resources.

Since our inception, our primary sources of liquidity have been generated by our operations, sales of common stock, preferred stock, warrants to purchase common stock and preferred stock, and cash from debt ~~financings.~~financings, including our convertible senior notes ("Convertible Notes").

As of ~~June~~September 30, ~~2020,~~2023, we had ~~$113.6~~$7.8 million of cash and cash equivalents, ~~a $75.0~~restricted cash of $4.8 million ~~term loan outstanding with a private equity firm,~~ and ~~mortgages outstanding~~$80.4 million of ~~$3.2 million.~~Convertible Notes, net outstanding. Our accumulated deficit as of ~~June~~September 30, ~~2020,~~2023 was ~~$418.7~~$935.5 million. ~~During~~For the ~~six~~nine months ended ~~June~~September 30, ~~2020,~~2023, we had a net loss of ~~$69.9~~$108.7 million and cash used in operations of ~~$44.4~~$34.8 million. Our primary requirements for liquidity have been to fund our working capital needs, capital expenditures, ~~dividends,~~ research and development, and general corporate ~~needs, as well as to invest in or acquire companies or technologies that are synergistic with or complimentary to our business.~~needs.

Based on our planned operations, we do not expect that our current cash and cash equivalents will be sufficient to fund our operations for at least 12 months from the issuance date of the condensed consolidated financial statements for the three and ~~six~~nine months ended ~~June~~September 30, ~~2020.~~2023, and we will require additional capital to fund our operations. As a result, substantial doubt exists about our ability to continue as a going concern for 12 months following the issuance date of the condensed consolidated financial statements for the three and nine months ended September 30, 2023. We therefore intend to raise additional capital through equity offerings, including in "at the market" offerings pursuant to our At Market Issuance Sales Agreement ("ATM Sale Agreement") and/or debt financings or from other potential sources of liquidity, which may include new collaborations, licensing or other commercial agreements for one or more of our research programs or patent ~~portfolios~~.portfolios. Adequate funding, if needed, may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or other operations. If any of these events occur, our ability to achieve our operational goals would be adversely affected. Our future capital requirements and the adequacy of available funds will depend on many factors, including those described in “Risk Factors.” Depending on the severity and direct impact of these factors on us, we may be unable to secure additional financing to meet our operating requirements on terms favorable to us, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from ~~the ongoing COVID-19 pandemic.~~global political tensions and economic uncertainty.

~~Credit and Security Agreements, Series B Preferred Stock, and~~ Convertible ~~Note~~Notes

~~On October 27, 2017, we entered into a credit and security agreement, or the Credit Agreement, with a fund managed by Athyrium, as collateral agent and a lender. The Credit Agreement provided~~See Note 7 to our condensed consolidated financial statements included elsewhere in this Quarterly Report for ~~a term loan of $75.0 million. The Credit Agreement contains customary covenants, including a requirement~~information on our Convertible Notes.

Equity Financings

See Note 10 to ~~maintain a minimum unrestricted cash balance at all times of at least $5.0 million. The term loan is secured by all~~ our ~~tangible and intangible property assets, with the exception of~~condensed consolidated financial statements included elsewhere in this Quarterly Report for information on our intellectual property. The term loan accrues interest at a rate per annum equal to 9.5% and is due October 27, 2022. We also entered into a Series B Preferred Stock Purchase Agreement, or the 2017 Series B Stock Purchase Agreement, with the same fund managed by Athyrium, which provided for the sale of 14,164,306 shares of Series B Preferred Stock at a purchase price of $3.53 per share for an aggregate purchase price of $50.0 million. The purchase price was paid in the form of (i) cash in an amount equal to $37.5 million and (ii) the delivery of 3,489,885 shares of our Series A-2 Preferred Stock, which shares of Series A-2 Preferred Stock had been purchased from Dr. Stylli, our Chairman and Chief Executive Officer, for $12.5 million. Concurrent with such transactions, Dr. Stylli converted the remaining 624,605 shares of Series A-2 Preferred Stock that he held into 633,766 shares of our common stock and we retired all shares of Series A-2 Preferred Stock. In connection with the 2017 Series B Stock Purchase Agreement, the fund managed by Athyrium received a warrant to purchase an additional 1,416,431 shares of Series B Preferred Stock.equity financings.

The total proceeds of $124.2 million were allocated to the term loan, the Series B Preferred Stock, and Series B Preferred Stock Purchase Warrant based on the relative fair values of the term loan, equity, and warrant issued. As a result, we allocated proceeds of $65.7 million to the term loan. As the proceeds allocated to the term loan were lower than the stated loan amount of $75.0 million, the resulting $9.3 million discount is amortized to interest expense using the effective interest method over the term of the loan.

During the three months ended June 30, 2020 and 2019, we recognized interest expense on the term loan of $2.5 million and $2.2 million, respectively. During the six months ended June 30, 2020 and 2019, we recognized interest expense on the term loan of $4.7 million and $4.4 million, respectively.

~~In connection with the IPO, on June 18, 2020, the Series B Preferred Stock Purchase Warrant became exercisable for 400,160 shares of common stock~~.

On August 27, 2019, we entered into a Series B Preferred Stock Purchase Agreement with Athyrium Opportunities III Acquisition LP, a fund managed by Athyrium, pursuant to which we issued 9,090,910 shares of Series B Preferred Stock at $2.75 per share for an aggregate purchase price of $25.0 million. A 1.283636364-for-1 stock split for our Series B Preferred Stock shares and Series B Preferred Stock Purchase Warrant issued and outstanding previously was effected on August 27, 2019 pursuant to an amendment and restatement of our amended and restated certificate of incorporation. As a result of the stock split, we issued an additional 4,017,512 shares of Series B Preferred Stock and adjusted the Series B Preferred Stock Purchase Warrant to be a warrant to purchase 1,818,182 shares of Series B Preferred Stock. On August 27, 2019, we executed an exchange agreement with our Series A-1 Preferred Stock holders, pursuant to which 1,500,000 outstanding shares of Series A-1 Preferred Stock were exchanged for 35,664,240 shares of Series B Preferred Stock.

On November 12, 2019, we entered into a Series B Stock Preferred Stock Purchase Agreement, or the 2019 Series B Stock Purchase Agreement, with Athyrium Opportunities III Acquisition 2 LP, a fund managed by Athyrium, pursuant to which we issued an additional 11,111,111 shares of Series B Preferred Stock at $2.25 per share for an aggregate purchase price of $25.0 million. A 1.22222222-for-1 stock split for our Series B Preferred Stock shares and Series B Preferred Stock Purchase Warrant issued and outstanding previously was effected on November 12, 2019, pursuant to an amendment and restatement of our amended and restated certificate of incorporation. The conversion price of the Series B Preferred Stock and exercise price of the outstanding Series B Preferred Stock Purchase Warrant were lowered from $2.75 to $2.25 per share (or $13.90 per share as a result of the reverse stock split effected on June 10, 2020). As a result of the stock split effected on November 12, 2019, we issued an additional 13,985,993 shares of Series B Preferred Stock and adjusted the Series B Preferred Stock Purchase Warrant to be a warrant to purchase 2,222,222 shares of Series B Preferred Stock.

On November 22, 2019, we completed an additional equity financing pursuant to the 2019 Series B Stock Purchase Agreement executed on November 12, 2019 with Beaver Creek Intermediate Fund, Ltd., an existing investor and Dr. Stylli, our Chairman and Chief Executive Officer, for an aggregate purchase price of $6.1 million. We issued an aggregate of 2,722,222 shares of Series B Preferred Stock at a purchase price of $2.25 per share.

On December 19, 2019, we completed an additional equity financing pursuant to the 2019 Series B Stock Purchase Agreement executed on November 12, 2019 with Athyrium Opportunities III Acquisition 2 LP for an aggregate purchase price of $25.0 million. We issued on aggregate of 11,111,111 shares of Series B Preferred Stock at a purchase price of $2.25 per share.

On February 28, 2020, we completed an additional equity financing pursuant to the 2019 Series B Stock Purchase Agreement executed on November 12, 2019 with Athyrium Opportunities III Acquisition 2 LP and Dr. Stylli, our Chairman and Chief Executive Officer, for an aggregate purchase price of $11.4 million. We issued an aggregate of 5,066,666 shares of Series B Preferred Stock at a purchase price of $2.25 per share.

On March 31, 2020, we entered into the First Amendment to the Credit Agreement, or the Credit Agreement Amendment, with the collateral agent and lender party thereto, providing for the payment of interest due and payable as of March 31, 2020 in shares of our Series B Preferred Stock, and further providing for the payment of interest due and payable as of June 30, 2020 in shares of our Series B Preferred Stock in the event this offering has not been consummated by such date. Pursuant to the Credit Agreement Amendment, we concurrently entered into a Series B Preferred Stock Subscription Agreement, or the Subscription Agreement, with the lender, which provided for the issuance of 967,130 shares of Series B Preferred Stock at a subscription price of $2.25 per share, as payment for interest due and payable as of March 31, 2020 and all applicable fees as set forth in the Credit Agreement Amendment.

On April 3, 2020, we entered into a Series B Preferred Stock Purchase Agreement with Athyrium Opportunities III Acquisition 2 LP, pursuant to which we issued an additional 4,444,444 shares of Series B Preferred Stock at $2.25 per share for an aggregate purchase price of $10.0 million.

On May 8, 2020, we entered into a Note Purchase Agreement with Athyrium Opportunities 2020 LP, a fund managed by Athyrium, pursuant to which we issued and sold an unsecured convertible promissory note, or the Convertible Note, with an annual interest rate of 8.0% and in an aggregate principal amount of $15.0 million. The Convertible Note had a maturity date of May 8, 2022 and was convertible at the option of the holder into shares of our common stock at a per share conversion price of the lesser of $13.90 and eighty percent of the public price. In connection with the issuance and sale of the Convertible Note, we entered into (i) the Second Amendment to the Credit Agreement, dated May 6, 2020, or the Second Credit Agreement Amendment, allowing for the creation or incurrence of certain indebtedness and the making of payments, in each case, in respect of the Convertible Note, among other matters, and (ii) the Second Amendment to Series B Preferred Stock Warrant, dated May 8, 2020, providing for the removal of certain restrictive exercise provisions in the Series B Preferred Stock Purchase Warrant. In June 2020, in connection with completion of the IPO, the Note was converted into 1,250,000 shares of common stock and all obligations under the Note were extinguished.

~~Mortgages~~

In January 2014, we executed a mortgage with Comerica Bank for $1.8 million for the purpose of acquiring a facility located in Ann Arbor, Michigan, which was previously leased by us and is used primarily for laboratory testing and research purposes. The outstanding balance was $1.4 million as of each of and June 30, 2020 and December 31, 2019. The mortgage matures in 2024 and requires monthly principal and interest payments at a fixed interest rate of 2.94% plus a floating rate at LIBOR. We also have a mortgage with American Bank of Commerce (originally executed in February 2008) outstanding on Avero Diagnostic’s property located in Lubbock, Texas, which is used primarily for laboratory testing. The outstanding balance was $1.8 million and $1.9 million as of June 30, 2020 and December 31, 2019, respectively. The mortgage matures in 2029 and requires monthly principal and interest payments at an interest rate of 4.25%.

Cash Flows

Our primary uses of cash are to fund our operations and research and development as we continue to grow our business. We expect to continue to incur operating losses in future periods as our operating expenses increase to support the growth of our business. We expect that our research and development, selling and marketing, and general and administrative expenses will continue to increase as we expand our marketing efforts and increase our internal sales force to drive increased adoption of and reimbursement for our tests, continue our research and development efforts with respect to our current tests and further develop our product pipeline, including our preeclampsia test and precision medicine products under development. We expect that we will use a substantial portion of the net proceeds of this offering, in combination with our existing cash and cash equivalents, for these purposes and for the increased expenses associated with being a public company. Cash used to fund operating expenses is impacted by the timing of when we pay expenses, as reflected in the change in our outstanding accounts
payable and accrued expenses.

The following table summarizes our cash flows for the periods ~~indicated:~~indicated (in thousands):

Six Months Ended
June 30,

2020

2019

Cash used in operating activities

$
(44,403
)

$
(37,526
)
Cash (used in) provided by investing activities

(1,627
)

18,497

Cash provided by (used in) financing activities

126,601

(4,771
)


	Nine Months Ended September 30,
	2023			2022
Cash used in operating activities	$	(34,754	)	$	(53,399	)
Cash used in investing activities		(26	)		(720	)
Cash provided by financing activities		16,863			2,782

Operating Activities

Net cash used in operating activities in the ~~six~~nine months ended ~~June~~September 30, ~~2020, of $44.4 million~~2023 was primarily attributable to a ~~$69.9~~$108.7 million net ~~loss.~~loss, adjusted for non-cash charges of $64.5 million, primarily driven by a $53.2 million inducement loss, $14.9 million of stock-based compensation expense, $1.1 million of debt discount amortization and non-cash interest, $0.4 million of depreciation and amortization and $0.1 million of property and equipment impairment, partially offset by a $5.3 million change in fair value related to the warrant liability. The net cash inflow from changes in operating assets and liabilities was attributable to a $10.0 million increase in accrued expenses, a $0.7 million decrease in prepaid and other current assets and a $0.3 million increase in accounts payable, offset by a $1.6 million decrease in other long-term liabilities.

Net cash used in operating activities in the nine months ended September 30, 2022 was primarily attributable to a $24.4 million net loss, adjusted for a $10.9 million gain from discontinued operations and non-cash charges, primarily driven by a $15.4 million change in fair value related to the warrant liability and $5.7 million gain on investment in Enumera, partially offset by $5.6 million of stock-based compensation expense, $1.0 million of debt discount amortization, $0.7 million of depreciation and amortization, $0.5 million of fixed asset impairment and $0.5 million of loss on disposal of fixed assets. The net cash outflow from changes in operating assets and liabilities was ~~also~~ attributable to a ~~$15.0~~$6.4 million ~~increase~~decrease in ~~income tax receivables due to an NOL carryback recorded under the CARES Act legislation,~~accounts payable, a $1.5 million decrease in other long-term liabilities, and a ~~$5.9 million~~$56,000 decrease in accrued expenses and other current liabilities, ~~related to settlement accruals for payments due to third-party payors. This decrease was partially~~ offset by a $7.8 million decrease in accounts receivable. The settlement negotiations during the six months ended June 30, 2020 resulted in an increase of $13.2 million to the total settlement accrual, and the reclassification of $29.2 million from accrued expenses and other current liabilities to other long-term liabilities. Net cash used in operating activities in the six months ended June 30, 2019, of $37.5 million was primarily attributable to a $40.4 million net loss and a $3.7$1.4 million increase in prepaid expenses and other current ~~assets, due to timing~~assets. Additionally, net cash provided by operating activities from discontinued operations contributed $11.6 million of ~~contract renewals and prepaid deposits. This was partially offset by a $5.8 million decrease in income tax receivable for tax refunds received in 2019.~~inflows.

Investing Activities

Net cash used in investing activities during the ~~six~~nine months ended ~~June~~September 30, ~~2020, of $1.6 million~~2023 was less than $0.1 million. Net cash used in investing activities for the nine months ended September 30, 2022 was attributable to ~~the purchase of property and equipment. Net cash provided by investing activities during the six months ended June 30, 2019 of $18.5~~$0.7 million ~~was primarily driven by $20.2 million of proceeds from the sale of short-term investments, net of short-term investments purchases and partially offset by $1.8 million for~~in purchases of property and equipment.

Financing Activities

Net cash provided by financing activities during the ~~six~~nine months ended ~~June~~September 30, ~~2020, of $126.6 million~~2023 was primarily attributable to ~~$90.9~~$13.1 million in proceeds from the issuance of common stock and $8.0 million in proceeds from the issuance of warrants, partially offset by $2.0 million in tax payments to settle RSUs, $1.8 million in payments for insurance financing and $0.5 million in payments of offering costs. Net cash provided by financing activities during the nine months ended September 30, 2022 was primarily attributable to $6.5 million in net proceeds from the issuance of common stock, ~~$21.3 million in net proceeds from the issuance of Series B Preferred Stock and $14.9 million in net proceeds from the issuance of a convertible note,~~ partially offset by ~~$0.4~~$3.7 million in ~~principal~~ payments ~~on capital lease~~for insurance financing.

Other Contractual Obligations and Commitments

See Note 9 to our condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information. There have been no other material changes from the contractual obligations and ~~$0.1 million~~commitments disclosed in principal payments on mortgages payable. Net cash used in financing activities during the six months ended June 30, 2019, of $4.8 million was primarily attributable to $4.5 million in dividends paid, $0.6 million in principal payments on capital lease obligations, and $0.1 million in principal payments on mortgages payable. The cash outflows were partially offset by $0.4 million in proceeds from issuances of common stock.our Annual Report.

~~Off-Balance Sheet Arrangements.~~27

As of June 30, 2020, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Critical Accounting Policies and Significant Judgments and Estimates.

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in conformity with GAAP. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions about future events that affect the amounts of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenue and expenses. These estimates and assumptions are based on management’s best estimates and judgment. Management regularly evaluates its estimates and assumptions using historical experience and other factors; however, actual results could differ materially from these estimates and could have an adverse effect on our financial statements.

During the ~~six~~nine months ended ~~June~~September 30, ~~2020,~~2023, there were no significant changes to the information discussed under “Critical Accounting Policies and Significant Judgments and Estimates” included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of ~~the Prospectus, except for the determination of the fair value of~~ our common stock, which is used in estimating the fair value of stock options at the grant date. Prior to the IPO, our common stock was not publicly traded, therefore we estimated the fair value of our common stock as discussed in the Prospectus. Following the IPO, the fair value of our common stock is determined by reference to the closing selling price per share of our common stock as reported on the Nasdaq Global Market on the date of grant or other relevant determination date.Annual Report.

Recent Accounting Pronouncements.

Refer to Note 2, “Summary of Significant Accounting Policies” to the condensed consolidated financial statements included in this Quarterly Report ~~on Form 10-Q~~ for information on recently issued accounting pronouncements.

JOBS Act Accounting Election.

We are an emerging growth company, as defined in the ~~JOBS Act.~~Jumpstart Our Business Startups Act (the "JOBS Act"). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have elected to use this extended transition period and, as a result, our financial statements may not be comparable to companies that comply with public company effective dates. We also intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

We are ~~exposed~~a smaller reporting company, as defined by Rule 12b-2 under the Exchange Act and in Item 10(f)(1) of Regulation S-K, and are not required to ~~market risks in~~provide the ~~ordinary course of our business.~~

~~Interest Rate Risk~~

~~Our exposure to risks related to interest rates is minimal. The interest rates for most of our indebtedness, including~~information under our Credit Agreement and our equipment financing facility, are fixed rates. Our Ann Arbor mortgage, with an initial principal amount of $1.8 million, has a floating interest rate of 2.94% plus a floating rate at LIBOR. Such interest-bearing instruments carry a degree of risk; however, we have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our financial statements. Our cash and cash equivalents consist primarily of highly liquid investments in money market funds and cash on hand, and have an original maturity date of 90 days or less. The fair value of our cash and cash equivalents would not be significantly affected by either an increase or decrease in interest rates, due mainly to the short-term nature of these instruments.this item.

~~Foreign Currency Risk~~

Our operations are currently conducted primarily in the United States. As we expand internationally, our results of operations and cash flows may become subject to fluctuations due to changes in foreign currency exchange rates. In periods when the U.S. dollar declines in value as compared to the foreign currencies in which we incur expenses, our foreign-currency based expenses will increase when translated into U.S. dollars. In addition, future fluctuations in the value of the U.S. dollar may affect the price at which we sell our tests outside the United States. To date, our foreign currency risk has been minimal, and we have not historically hedged our foreign currency risk; however, we may consider doing so in the future.

Item 4. Controls and Procedures.

Our management, with the participation and supervision of our ~~President and~~ Chief Executive Officer and our ~~Executive Vice President and~~ Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under ~~the Securities Exchange Act of 1934, or~~ the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our ~~President and~~ Chief Executive Officer and our ~~Executive Vice President and~~ Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our ~~President and~~ Chief Executive Officer and our ~~Executive Vice President and~~ Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) or 15d-15(f) of the Exchange Act) that occurred during the quarter ended September 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

~~Federal Investigations~~

~~In April 2018, we received a civil investigative demand from an Assistant U.S. Attorney for the Southern District of New York, or SDNY,~~The information in Note 9, "Commitments and a HIPAA subpoena issued by an Assistant U.S. Attorney for the Southern District of California, or SDCA. In May 2018, we received a subpoena from the State of New York Medicaid Fraud Control Unit. Since that time, we have cooperated with federal civil and criminal investigations, and state civil investigations, regarding discontinued legacy billing practices for our NIPT and microdeletion tests and the provision of alleged kickbacks or inducements to physicians and patients. The civil investigations also include inquiries about our laboratory licenses, our enrollment in state Medicaid programs, and the laboratories that performed testing for us.

On March 31, 2020, we reached an agreement on the monetary terms with the DOJ and the State of New York (with the State of New York Attorney General representing or facilitating the interests of all States participating in the settlement, which we refer to collectively as the State AGs) with respect to relevant government health benefit programs to resolve all of the government’s outstanding civil and criminal investigations, including the investigations by SDCA and SDNY, as well as the investigation by the State AGs. The terms of this agreement in principle contemplated that we would enter into a civil settlement agreement providing for payments of $49.0 million in the aggregate over a five-year period, structured as follows: $8.0 million upon entering into the settlement; $4.0 million in December 2020; $5.0 million in December 2021; $7.0 million in December 2022; $8.0 million in December 2023; $9.0 million in December 2024; and $8.0 million in December 2025 for a release of the civil claims and that we would enter into a non-prosecution agreement to resolve all criminal allegations.

a civil settlement agreement, effective July 23, 2020, with the DOJ through SDNY, and on behalf of the Office of Inspector General of the Department of Health and Human Services, or the OIG, and with the relator named therein, or the SDNY Civil Settlement Agreement;

a civil settlement agreement, effective July 23, 2020, with the DOJ through SDCA, and on behalf of the Defense Health Agency, the Tricare Program and the Office of Personnel Management, which administers the Federal Employees Health Benefits Program, or the SDCA Civil Settlement Agreement;

~~a non-prosecution agreement, effective July 21, 2020, with SDCA, or the Non-Prosecution Agreement; and~~

~~a corporate integrity agreement, effective July 21, 2020, with the OIG, or the Corporate Integrity Agreement.~~

We refer to the SDNY Civil Settlement Agreement, the SDCA Civil Settlement Agreement, the Non-Prosecution Agreement, and the Corporate Integrity Agreement collectively as the Agreements. The financial terms of the Agreements are substantially the same as the agreement on the monetary terms.

~~SDNY Civil Settlement Agreement~~

Pursuant to the SDNY Civil Settlement Agreement, we are required to pay a settlement amount of approximately $19.4 million, which includes approximately $9.7 million designated as restitution to the U.S. federal government. The settlement amount is payable in six installments as follows:

~~approximately $9.1 million within 14 business days of July 23, 2020;~~

~~approximately $1.6 million on or before December 31, 2020;~~

~~approximately $2.0 million on or before December 31, 2021;~~

~~approximately $2.8 million on or before December 31, 2022;~~

~~approximately $3.2 million on or before December 31, 2023; and~~

~~approximately $0.8 million on or before December 31, 2024.~~

~~The amounts payable to the government, other than the initial $9.1 million payment, will be subject to interest at a rate of 1.25% per annum, and any or all amounts may be paid earlier at our option.~~

Furthermore, we have agreed that, if during calendar years 2020 through 2023, and so long as amounts payable to the government remain unpaid, we receive any civil settlement, damages awards, or tax refunds, to the extent that the amounts exceed $5.0 million in a calendar year, we will pay 26% of the amount received in such civil settlement, damages award, or tax refunds as an accelerated payment on the scheduled amounts set forth above, first as a dollar-for-dollar acceleration of the scheduled payment due in December 2025 and then as an accelerated payment of the scheduled payments due in each prior year, up to a maximum total acceleration of $4.2 million. During the three months ended March 31, 2020, we recorded a discrete tax benefit of $37.7 million related to the net operating loss carryback provisions available under the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, for taxes we paid in years 2013, 2014, 2015 and 2017, or the CARES Act Tax Benefit. In June 2020, we received a tax benefit payment of approximately $22.7 million for a portion of the CARES Act Tax Benefit, and because this tax refund was received prior to the effective date of the SDNY Civil Settlement Agreement, pursuant to the agreement with the government on monetary terms, the payment to be made within 14 business days of July 23, 2020, includes an added payment of approximately $5.9 million and the SDNY Civil Settlement Agreement reflects a corresponding reduction in the previously agreed upon payment term and subsequent payment amounts. In addition, if we receive the remaining payment in full for the CARES Act Tax Benefit, we will pay an accelerated payment to the government under the SDNY Civil Settlement Agreement of approximately $3.9 million.

Additionally, under the SDNY Civil Settlement Agreement, the U.S. federal government and the relator agreed to dismiss all civil claims asserted by the relator under the qui tam provisions of the federal False Claims Act.

~~SDCA Civil Settlement Agreement~~

Pursuant to the SDCA Civil Settlement Agreement, we are required to pay a settlement amount of approximately $16.4 million, which includes approximately $10.0 million designated as restitution to the U.S. federal government. The settlement amount is payable in six installments as follows:

~~approximately $7.7 million within ten days of July 21, 2020;~~

~~approximately $1.3 million on or before December 31, 2020;~~

~~approximately $1.7 million on or before December 31, 2021;~~

~~approximately $2.3 million on or before December 31, 2022;~~

~~approximately $2.7 million on or before December 31, 2023; and~~

~~approximately $0.7 million on or before December 31, 2024.~~

~~The amounts payable to the government, other than the initial $7.7 million payment, will be subject to interest at a rate of 1.25% per annum, and any or all amounts may be paid earlier at our option.~~

On July 21, 2020, we issued a promissory note to the U.S. federal government for the full settlement amount in connection with the SDCA Civil Settlement Agreement, or the Promissory Note. The Promissory Note contains customary events of default and related acceleration of payment provisions. In addition, the Promissory Note provides, among other terms, that, if during calendar years 2020 through 2023, and so long as amounts payable to the government remain unpaid, we receive any civil settlement, damages awards, or tax refunds, to the extent that the amounts exceed $5.0 million in a calendar year, we will pay 22% of the amount received in such civil settlement, damages award, or tax refunds as an accelerated payment on the scheduled amounts set forth above, first as a dollar-for-dollar acceleration of the scheduled payment due in December 2024 and then as an accelerated payment of the scheduled payments due in each prior year, up to a maximum total acceleration of approximately $3.4 million. Because we received a tax benefit payment of approximately $22.7 million for a portion of the CARES Act Tax Benefit in June 2020 and because this tax refund was received prior to the effective date of the Promissory Note, the payment to be made within ten days of July 21, 2020 includes an added payment of $4.9 million, and the Promissory Note reflects a corresponding reduction in the previously agreed upon payment term and subsequent payment amounts. In addition, if we receive the remaining payment in full for the CARES Act Tax Benefit, we will pay an accelerated payment to the government under the SDCA Civil Settlement Agreement of approximately $3.3 million.

~~Non-Prosecution Agreement~~

Effective July 21, 2020, we entered into the Non-Prosecution Agreement, pursuant to which we agreed with the DOJ to (i) pay the restitution provided for under the SDCA Civil Settlement Agreement, (ii) not commit any felonies, (iii) continue to implement a compliance and ethics program designed to prevent and detect violations of applicable fraud and kickback laws throughout our operations and (iv) fulfill certain other disclosure, reporting and cooperation obligations. The DOJ agreed that it will not prosecute us for any conduct described in the Non-Prosecution Agreement provided that we perform our obligations under the Non-Prosecution Agreement during the period from July 21, 2020 through July 21, 2021. The Non-Prosecution Agreement provides that the DOJ may unilaterally, upon notice to us, extend the term of the agreement in 6-month increments, for a maximum total term of 24 months (that is, two 6-month extensions).

~~Corporate Integrity Agreement~~

In connection with the resolution of the investigated matters, and in exchange for the OIG’s agreement not to exercise its authority to permissively exclude us from participating in federal healthcare programs, effective July 21, 2020, we entered into a five-year Corporate Integrity Agreement with the OIG. The Corporate Integrity Agreement requires, among other matters, that we maintain a Compliance Officer, a Compliance Committee, board review and oversight of certain federal healthcare compliance matters, compliance programs, and disclosure programs; provide management certifications and compliance training and education; engage an independent review organization to conduct claims and arrangements reviews; and implement a risk assessment and internal review process. If we fail to comply with our obligations under the Corporate Integrity Agreement, we could face monetary penalties and/or be excluded from participating in federal healthcare programs.

~~States Settlement Agreements~~

We have also negotiated a resolution of claims with the States with respect to the investigated matters. We expect the States to complete their respective settlement approval processes two to six weeks following the date that this Quarterly Report is filed, after which we expect to separately enter into settlement agreements to resolve the outstanding state claims with the State of New York and each of the other participating states, which we refer to collectively as the State Settlement Agreements. The agreement on the monetary terms with the States includes an aggregate payment of approximately $13.2 million to the States over a five year period pursuant to the collective settlements. The State Settlement Agreements are expected to include acceleration provisions similar to the SDNY Civil Settlement Agreement and the SDCA Civil Settlement Agreements described above upon our receipt of civil settlements, damages awards, and tax refunds, with the amount of acceleration and timing subject to such receipts.

~~Settlement Accruals~~

As of December 31, 2019, we had accrued an aggregate of $35.8 million associated with a potential settlement with the DOJ and the participating State AGs within accrued expenses and other current liabilities and as a reduction of revenue as reflected on the consolidated balance sheet of the Company as of December 31, 2019 and consolidated statement of operations for the year ended December 31, 2019. In addition, in the quarter ended March 31, 2020, we accrued an additional $13.2 million with respect to the total amount to be paid under the agreement in principle to the DOJ and the participating State AGs, and additional amounts for related costs as of and for the quarterly period ended March 31, 2020. As of June 30, 2020, the Company’s accrual consists of $19.7 million in accrued expenses and other current liabilities and $29.3 million in other long-term liabilities. Furthermore, in connection with recording the CARES Act Tax Benefit, we have agreed with the government that, if during calendar years 2020 through 2023, and as long as amounts payable to the government remain unpaid, we receive any civil settlement, damages awards, or tax refunds, to the extent that the amounts exceed $5.0 million in a calendar year, we will pay 65% of the amount received in such civil settlement, damages award, or tax refunds as an accelerated payment on the scheduled amounts set forth above, first as a dollar-for-dollar acceleration of the scheduled payment due in December 2025 and then as an accelerated payment of the scheduled payments due in each prior year, up to a maximum total acceleration of $24.96 million. During the three months ended March 31, 2020, we recorded a discrete tax benefit of $37.7 million for the CARES Act Tax Benefit, and if fully paid, we expect that the total accelerated payments to the government will be $24.5 million. During the three months ended June 30, 2020, we received a tax refund of $22.7 million related to the NOL carryback provisions available under the CARES Act.

Until the final State Settlement Agreements are approved and signed by the States, there can be no assurance that the amount we have accrued will be sufficient to cover our obligations relating to this matter. Our obligations could also increase, potentially materially, depending on a number of factors including whether or not the agreement on the monetary terms with the States is finalized, whether an individual State or States opt out of the settlement prior to approval in order to pursue a separate action or resolution, the terms of the final approved agreements and the parties to the settlement. For additional information, please see Note 9. Commitments and ContingenciesContingencies" to the condensed consolidated financial statements included in this Quarterly Report ~~as well as “Risk Factors—Regulatory Risks Related~~on Form 10-Q is incorporated herein by reference. There are no matters which constitute material pending legal proceedings to ~~Our Business—If~~which we ~~or our commercial partners act in~~are a ~~manner that violates healthcare laws or otherwise engage in misconduct, we could face substantial penalties and our business operations and financial condition could be adversely affected.”~~

~~OIG Inquiry~~

On October 16, 2019, we received an inquiry from the Texas Health & Human Services Commission Office of Inspector General, or the TX OIG, alleging that we did not hold the required CLIA Laboratory Certificate of Accreditationparty other than those incorporated into this item by reference to perform, bill for, or be reimbursed by the Texas Medicaid Program for certain tests performed by us from January 1, 2015 through December 31, 2018. Although we believe that we hold and have held all required CLIA certificates and/or subcontract with third-party laboratories that hold and have held such certificates to perform all of the tests subjectNote 9 to the ~~TX OIG inquiry, there can be no assurance that~~condensed consolidated financial statements for the ~~TX OIG will agree with~~quarter ended September 30, 2023 contained in this ~~position. We submitted a written response to the inquiry~~Quarterly Report on ~~October 23, 2019 and are awaiting a response from the TX OIG on the matter. It is not possible to predict the outcome of these matters and the timing for resolution.~~Form 10-Q.

~~Natera Lawsuit~~

On June 17, 2020, Natera, Inc. filed a complaint (W.D. Texas Civil Action No. 6:20-cv-532 6) alleging that we are infringing six of their patents, through our NIPT product offering. We believe that the claims in the complaint are without merit and we intend to vigorously defend against them. We will contend that the patents referenced in the complaint are not infringed and/or are invalid. As an example, the face of several of Natera’s patents require utilization of certain methods–referred to as SNP-based or polymorphic loci-based methods–that are not utilized by our NIPT product offering.

Item 1A. ~~Ris~~kRisk Factors.

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q, including “Management’s Discussion & Analysis” and ~~our~~ thefinancial statements and related notes, before deciding ~~whether~~ to make an investment decision with respect to shares of our common stock. If any of the following risks actually occurs, our business, financial condition, operating results, reputation, and prospects could be materially and adversely affected. In that event, the price of our common stock could decline and you could lose part or all of your investment. We caution you that the risks, uncertainties and other factors referred to below and elsewhere in this Quarterly Report on Form 10-Q may not contain all of the risks, uncertainties and other factors that may affect our future results and operations. Moreover, new risks will emerge from time to time. It is not possible for our management to predict all risks.

~~Risks Related~~ In this “Risk Factors” section, unless the context requires otherwise, references to ~~Our Business and Industry~~

~~The recent and ongoing COVID-19 pandemic could further materially affect our operations, as well as~~“we,” “us,” “our,” “Biora,” “Biora Therapeutics” or the business or operations of third parties with whom we conduct business. Our business could be adversely affected by the effects of other future health epidemics or pandemics in regions where we or third parties on which we rely have significant business operations.

~~Our business~~“company” refer to Biora Therapeutics, Inc. and its operations, including but not limited to our laboratory operations, sales and marketing efforts, supply chain operations, research and development activities, and fundraising activities, could be adversely affected by health epidemics in regions where we have business operations, and such health epidemics could cause significant disruption in the operations of third parties upon whom we rely. For example, in December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to other countries and throughout the United States. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the U.S. government imposed restrictions on travel between the United States, Europe, and certain other countries. Further, the President of the United States declared the COVID-19 pandemic a national emergency. Since March 2020, numerous state and local jurisdictions, including the jurisdictions where our headquarters and laboratories are located, have imposed, and others in the future may impose, quarantines, shelter-in-place orders, executive, and similar government orders for their residents to control the spread of COVID-19.subsidiaries.

In response to these public health directives and orders, we have implemented work-from-home policies for most of our employees. The effects of the executive orders, the shelter-in-place orders, and our work-from-home policies have negatively impacted, and may further negatively impact, productivity, disrupt our business, and delay our preclinical and clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, operating results and financial condition. We continue to monitor state and local quarantine, shelter-in-place, executive, and similar government orders and will reopen our offices to allow employees to return to the office, as needed, in accordance with our reopening plan, which is based on a phased approach that is appropriately tailored for each of our offices, with a focus on ~~state and local orders,~~ ~~employee safety and optimal work environment.~~

Quarantines, shelter-in-place, executive, and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur, related to COVID-19 or other infectious diseases, could impact personnel at third-party manufacturing facilities in the United States and other countries, or the availability or cost of materials we use or require to conduct our business, including product development, which would disrupt our supply chain. In particular, some of our suppliers of certain materials used in our laboratory operations and research and development activities are located in areas that are subject to executive orders and shelter-in-place orders. While many of these materials may be obtained from more than one supplier, port closures and other restrictions resulting from the COVID-19 pandemic or future pandemics may disrupt our supply chain or limit our ability to obtain sufficient materials to operate our business. To date, we are aware of certain suppliers for our research and development activities who have experienced operational delays directly related to the COVID-19 pandemic.Risk Factor Summary

In addition, we expect our preclinical and clinical trials may be affected by the COVID-19 pandemic. For example, while we originally intended to commence our pilot clinical study for PIL Dx in 2020, we now expect that timeline will be delayed due to circumstances and uncertainties created by the COVID-19 pandemic and expect to instead commence this study in 2021. If COVID-19 continues to spread in the United States and elsewhere, we may experience additional disruptions that could severely impact our business, preclinical studies and clinical trials, including:

•

~~delays in receiving authorization from local regulatory authorities to initiate our planned clinicaltrials;~~

~~delays~~or~~difficulties~~in~~enrollingpatients~~in~~ourclinicaltrials;~~

~~delays or difficulties in clinical site initiation, including difficulties in recruiting clinical~~ ~~site~~ ~~investigators and clinical sitestaff;~~

~~delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials, including interruption in global shipping that may affect the transport of clinical~~ ~~trial~~ ~~materials;~~

~~changes in local regulations as part of a response to the COVID-19 pandemic which may require us to change the ways in which our clinical trials are conducted, which may result in unexpectedcosts,~~orto~~discontinuetheclinicaltrialsaltogether;~~

diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical~~trials;~~

interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others, or interruption of clinical trial subject visits and study procedures, the occurrenceof~~whichcouldaffecttheintegrity~~of~~clinicaltrialdata;~~

risk that participants enrolled in our clinical trials will acquire COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse~~events;~~

~~interruptions or delays in preclinical studies due to restricted or limited operations at our research and development laboratory facilities;~~

~~delays in necessary interactions with local regulators, ethics committees, and other important agencies and contractors due to limitations in employee resources or forced furlough of governmentemployees;~~

~~limitations in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or the desire of employees~~to~~avoidcontactwithlargegroups~~of~~people;~~

~~refusal~~of~~theU.S. Food and Drug Administration, or FDA, toacceptdatafromclinicaltrials~~in~~affectedgeographies;and~~

~~interruption~~or~~delays~~to~~oursourceddiscoveryandclinicalactivities.~~

The spread of COVID-19, which has caused a broad impact globally, may further materially affect us economically, including a significant reduction in laboratory testing volumes. In addition, reimbursements for our tests have been delayed and may continue to be delayed if third-party payors’ processing continues to be impacted by the COVID-19 pandemic and work-from-home policies and other operational limitations mandated by federal, state, and local governments as a result of the pandemic. While the potential economic impact brought by COVID-19, and the duration of such impact, may be difficult to assess or predict, the widespread pandemic has resulted in significant disruption of global financial markets, which could reduce our ability to access capital and negatively affect our future liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 and related government orders and restrictions could materially affect our business and the value of our common stock.

The COVID-19 pandemic continues to evolve rapidly. The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems, or the global economy as a whole.

We currently receive and expect to continue to receive a significant portion of our revenues from our women’s health-related NIPT and carrier screening products, and if our efforts to further increase the use and adoption of these products fail, our business will be harmed.

We currently receive and expect to continue to receive a significant portion of our revenues from the sales of our women’s health-related NIPT product, Innatal, and our carrier screening products, including Preparent. We undertake efforts to increase the awareness and adoption of Innatal and Preparent among laboratories, clinics, clinicians, physicians, payors, and patients. Continued and additional market acceptance of Innatal and Preparent and our ability to attract new customers are key elements to our future success. The market demand for NIPT and carrier screening tests has grown in recent years and is evolving, but this market trend may not continue. Demand for Innatal and Preparent is affected by a number of factors, many of which are beyond our control, including the recommendation of our products by physicians, the timing and development of new products by our competitors, and reimbursement from payors.

~~Our ability to increase sales of our products and establish greater levels of adoption and reimbursement for our products is uncertain for many reasons, including, among others:~~

we may be unable to demonstrate to laboratories, clinics, clinicians, physicians, payors, and patients that our products are superior to alternatives with respect to value, convenience, accuracy, scope of coverage, and other factors;

third-party coverage and reimbursement are currently primarily limited to high-risk pregnancies and may not gain acceptance for use in the average-risk pregnancy population or for the screening of microdeletions, limiting the overall addressable market;

~~third-party payors may set the amounts of reimbursement at prices that reduce our profit margins or do not allow us to cover our expenses;~~

~~we may not be able to maintain and grow effective sales and marketing capabilities;~~

~~our sales and marketing efforts may fail to effectively reach customers or communicate the benefits of our products;~~

~~superior alternatives to our products may be developed and commercialized;~~

~~we may experience supply constraints, including due to the failure of our key suppliers to provide required sequencing instruments and reagents;~~

the FDA may decline to exercise enforcement discretion over laboratory developed tests, or LDTs, and begin asserting regulatory oversight over LDTs and/or may apply a unified, risk-based regulatory framework applicable to all in vitro clinical tests, including LDTs; and

~~the FDA or other U.S. or foreign regulatory or legislative bodies may adopt new regulations or policies or take other actions that impose significant restrictions on our ability to market ourproducts.~~

If the market and our market share for our women’s health-related NIPT and carrier screening products fail to grow or grow more slowly than expected, our business, operating results, and financial condition would be adversely affected.

We have incurred losses in the past, expect to incur losses in the future, have limited capital resources as disclosed in this Quarterly Report, and we may not be able to continue operations or achieve or sustain profitability in the future.

We expect to incur significant costs in connection with the development, approval, and commercialization of ~~enhanced, improved, or new products.~~our products under development. Even if we succeed in creating such ~~products~~product candidates from these investments, those innovations still may fail to result in commercially successful products.

Other than potential revenues from ~~our molecular testing business,~~partnerships similar to those we have entered into in the past, we do not expect to generate significant revenues ~~from other sources~~ in the immediate future. ~~It is possible that we will~~We do not expect to generate sufficient revenue ~~from the sale of our products~~ to cover our costs for the foreseeable future, including research and development and clinical study expenses related to furthering our product pipeline, and expect to incur losses in the future. We may not generate significant revenue in the future until we are able to achieve commercialization of our product candidates or ~~sustain profitability.~~ enter into licensing or collaboration agreements with respect to such product candidates.

Since we or any collaborators or licensees may not successfully develop ~~additional products,~~product candidates, obtain required regulatory authorizations, manufacture products at an acceptable cost or with appropriate quality, or successfully market and sell such ~~products~~product candidates with desired margins, our expenses may continue to exceed any revenues we may receive. Our operating expenses also will increase as and if, among other things:

Given our limited capital resources as disclosed elsewhere in the Quarterly Report, if we are not able to raise additional capital or generate revenue to fund our operations, we may not be able to continue operations or achieve or sustain profitability in the future.

Operating our business will require a significant amount of cash, and our ability to generate sufficient cash depends on many factors, some of which are beyond our control. An adverse judgment and/or significant damage award against us resulting from our pending litigation matters that are currently defending would negatively impact our financial position and our ability to raise additional capital. We expect to need to raise additional capital, and if we cannot raise additional capital when needed, we may have to curtail or cease operations.

We expect to incur significant costs in connection with our operations, including, but not limited to, the research and development, marketing authorization, and/or commercialization of new medical devices, therapeutics, and other products. These development activities generally require a substantial investment before we can determine commercial viability, and the proceeds from our offerings to date will not be sufficient to fully fund these activities. In addition, as a result of the Strategic Transformation, our revenue has been substantially eliminated. We will need to raise additional funds through public or private equity or debt financings, collaborations, licensing arrangements or sales of assets to continue to fund or expand our operations. Following the Strategic Transformation, we no longer generate revenue from our historical testing business, and we would be dependent on such additional sources of capital, including public or private equity or debt financings, collaborations, licensing arrangements or sales of assets for all of our future capital requirements if we do not achieve commercialization of our product candidates.

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

The availability of additional capital, whether from private capital sources (including banks) or the public capital markets, fluctuates as our financial condition and market conditions in general change. There may be times when the private capital sources and the public capital markets lack sufficient liquidity or when our securities cannot be sold at attractive prices, or at all, in which case we would not be able to access capital from these sources. In addition, a weakening of our financial condition, a further decline in our share price or a deterioration in our credit ratings could adversely affect our ability to obtain necessary funds. Even if available, additional financing could be costly or have adverse consequences.

Additional capital, if needed, may not be available on satisfactory terms or at all. Our ability to raise capital in the public capital markets, including through our ATM Facility, may be limited by, among other things, SEC rules and regulations impacting the eligibility of smaller companies to use Form S-3 for primary offerings of securities. Although alternative public and private transaction structures may be available, these may require additional time and cost, may impose operational restrictions on us, and may not be available on attractive terms.

Furthermore, any additional capital raised through the sale of equity or equity-linked securities, including through our ATM Facility will dilute our stockholders’ ownership interests and may have an adverse effect on the price of our common stock. In addition, the terms of any financing may adversely affect stockholders’ holdings or rights. Debt financing, if available, may include restrictive covenants. To the extent that we raise additional funds through collaborations and licensing arrangements, it may be necessary to relinquish some rights to our technologies or grant licenses on terms that may not be favorable to us.

To minimize dilution to our equity holders, we are also exploring non-dilutive financing options, which could include licenses or collaborations and/or sales of certain assets or business lines. To the extent that we raise additional funds through collaborations and licensing arrangements, it may be necessary to relinquish some rights to our technologies or grant licenses on terms that may not be favorable to us. To the extent that we raise additional funds through strategic transactions, including a sale of one of our lines of business, we may not ultimately realize the value of or synergies from such transactions and our long-term prospects could be diminished as a result of the divestiture of these assets. We may also be required to use some or all of these sale proceeds to pay down indebtedness, which would then not serve to increase our working capital.

If we are not able to obtain adequate funding when needed, we may be required to delay development programs or other initiatives. If we are unable to raise additional capital in sufficient amounts or on satisfactory terms, we may have to make reductions in our workforce and may be prevented from continuing our discovery, development, and commercialization efforts and exploiting other corporate opportunities. In addition, it may be necessary to work with a partner on one or more of our product candidates, which could reduce the economic value of those products to us. If we engage in strategic transactions with respect to revenue-producing assets or business lines, our revenue may be adversely affected and such transactions could negatively affect the viability of our business. Each of the foregoing may harm our business, operating results, and financial condition, and may impact our ability to continue as a going concern.

We maintain our cash at financial institutions, often in balances that exceed federally-insured limits. The failure of financial institutions could adversely affect our ability to pay our operational expenses or make other payments.

Our cash held in non-interest-bearing and interest-bearing accounts exceeds the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. If such banking institutions were to fail, we could lose all or a portion of those amounts held in excess of such insurance limitations. For example, the FDIC took control of Silicon Valley Bank on March 10, 2023. The Federal Reserve subsequently announced that account holders would be made whole. However, the FDIC may not make all account holders whole in the event of future bank failures. In addition, even if account holders are ultimately made whole with respect to a future bank failure, account holders’ access to their accounts and assets held in their accounts may be substantially delayed. Any material loss that we may experience in the future or inability for a material time period to access our cash and cash equivalents could have an adverse effect on our ability to pay our operational expenses or make other payments, which could adversely affect our business.

We rely on a limited number of suppliers or, in some cases, single suppliers, and may not be able to find replacements or immediately transition to alternative suppliers on a cost-effective basis, or at all.

We source components of our technology from third parties and certain components are sole sourced. Obtaining substitute components may be difficult or require us to re-design our products under development, including those for which we are required to obtain marketing authorization from the U.S. Federal Drug Administration ("FDA") and would need to obtain a new marketing authorization from the FDA to use a new supplier. Any natural or other disasters, acts of war or terrorism, shipping embargoes, labor unrest or political instability or similar events at our third-party manufacturers’ facilities that cause a loss of manufacturing capacity or a reduction in the quality or yield of the items manufactured would heighten the risks that we face. For example, our targeted therapeutics device under development includes complex components including circuit boards that have to be built to exacting standards, and the failure of a manufacturer to meet our requirements on time, as we have experienced in the past and continue to experience, could lead to delays in our plans for testing, pre-clinical and clinical studies and other development activities. Changes to, failure to renew or termination of our existing agreements or our inability to enter into new agreements with other suppliers could result in the loss of access to important components of our products under development and could impair, delay or suspend our commercialization efforts. Our failure to maintain a continued and cost-effective supply of high-quality components could materially and adversely harm our business, operating results, and financial condition.

The manufacturing of our therapeutics product candidates, and other products under development, is highly exacting and complex, and we depend on third parties to supply materials and manufacture certain products and components.

Manufacturing is highly exacting and complex due, in part, to strict regulatory requirements governing the manufacture of our future products and product candidates, including medical devices with complex components including, but not limited to, circuit boards and pharmaceutical products. We have limited personnel with experience in, and we do not own facilities for, manufacturing any products. We depend upon our collaborators and other third parties, including sole source suppliers, to provide raw materials meeting FDA quality standards and related regulatory requirements, manufacture devices, and drug substances, produce drug products and provide certain analytical services with respect to our products and product candidates. The FDA and other regulatory authorities require that many of our products be manufactured according to current good manufacturing practice ("cGMP") regulations and that proper procedures be implemented to assure the quality of our sourcing of raw materials and the manufacture of our products. Any failure by us, our collaborators, or our third-party manufacturers to comply with cGMP and/or scale-up manufacturing processes could lead to a delay in, or failure to obtain, marketing authorizations. In addition, such failure could be the basis for action by the FDA, including issuing a warning letter, initiating a product recall or seizure, fines, imposing operating restrictions, total or partial suspension of production or injunctions and/or withdrawing marketing authorizations for products previously granted to us. To the extent we rely on a third-party manufacturer, the risk of noncompliance with cGMP regulations may be greater and the ability to effect corrective actions for any such noncompliance may be compromised or delayed.

Moreover, we expect that certain of our therapeutics product candidates, including BT-600, BT-001, BT-200, and BT-002, are drug-device combination products that will be regulated under the drug and biological product regulations of the Federal Food, Drug, and Cosmetic Act (the "FD&C Act") and Public Health Service Act (the "PHSA") based on their primary modes of action as drugs and biologics. Third-party manufacturers may not be able to comply with cGMP regulations, applicable to drug/device combination products, including applicable provisions of the FDA’s drug and biologics cGMP regulations, device cGMP requirements embodied in the Quality System Regulation ("QSR"), or similar regulatory requirements outside the United States.

In addition, we or third parties may experience other problems with the manufacturing, quality control, yields, storage or distribution of our products, including equipment breakdown or malfunction, failure to follow specific protocols and procedures, problems with suppliers and the sourcing or delivery of raw materials and other necessary components, problems with software, labor difficulties, and natural disaster-related events or other environmental factors. These problems can lead to increased costs, delays to development and preclinical study timelines, lost collaboration opportunities, damage to collaborator relations, time and expense spent investigating the cause and, depending on the cause, similar losses with respect to other batches of products. For example, our therapeutics devices under development includes complex components including circuit boards that have to be built to exacting standards, and the failure of a manufacturer to meet our requirements on time, as we have experienced in the past and continue to experience, could lead to delays in our plans for testing, pre-clinical and clinical studies and other development activities. If problems are not discovered before the product is released to the market, recalls, corrective actions, or product liability-related costs also may be incurred. Problems with respect to the manufacture, storage, or distribution of products could materially disrupt our business and have a material and adverse effect on our operating results and financial condition.

We may be unable to successfully divest certain assets or recover any of the costs of our investment in certain R&D programs.

In connection with our Strategic Transformation, we have divested certain assets that do not align with our current operational plans and strategies, including the sale of certain laboratory assets and the divesture of Avero. We have explored the potential divestiture and/or out-license of other assets and intellectual property as well. It is possible that we will be unable to successfully divest and/or license these assets, and we may never recover any of the costs of our historical R&D investments.

On May 4, 2022, we completed the divesture of our single-molecule detection platform and contributed all assets related to the single-molecule detection platform to newly-formed Enumera, which intends to develop and commercialize the platform. We received a minority ownership stake in Enumera in exchange for the assets. It is possible that the value of our equity stake in Enumera will decrease over time, and it is possible that we may never recover any of the costs of the historical R&D investments related to this platform.

Additionally, on November 29, 2022, we announced that we had signed an agreement to license our Preecludia™ rule-out test for preeclampsia to Avero Diagnostics (formerly known as Northwest Pathology) for commercial development in exchange for commercial milestone payments and royalties on net sales. There is no assurance that Avero will be able to successfully commercialize the test. As a result, there is no assurance that we will receive any payments from the transaction and we may never recover any of the costs of the historical R&D investments related to this program.

The industries in which we operate are highly competitive and require an ongoing, extensive search for technological innovation. They also require, among other things, the ability to effectively develop, test, commercialize, market, and promote products, including communicating the effectiveness, safety, and value of products to actual and prospective healthcare providers. Other competitive factors in our industries include quality and price, product technology, reputation, customer service, and access to technical information.

~~Our women’s health-related NIPT and carrier screening tests are molecular tests, which are used by obstetricians and gynecologists, maternal fetal medicine specialists, and~~ ~~in vitro~~ fertilization specialists. The principal competition for our NIPT and carrier screening tests comes from existing testing methods, technologies, and products, including other molecular NIPT and carrier screening tests offered by our competitors. The molecular testing field is characterized by rapid technological changes, frequent new product introductions, changing customer preferences, emerging competition, evolving industry standards, reimbursement uncertainty, and price competition. Many companies in this market are offering, or may soon offer, products and services that compete with our tests, in some cases at a lower cost than ours, and healthcare providers may choose to recommend the tests of our competitors.

Moreover, established, traditional first-line testing prenatal methods, such as serum protein measurement, where doctors measure certain hormones in the blood, and invasive prenatal diagnostics tests like amniocentesis, have been used for many years and are therefore practices that are difficult to change or supplement. Our conception and pre-implantation genetic screening products face competition from various laboratories that offer or seek to offer similar solutions. We also compete against companies providing hereditary cancer screening tests.

We expect ~~any of~~ our future ~~precision medicine~~ products, if approved, to face substantial competition from major pharmaceutical companies, biotechnology companies, academic institutions, government agencies, and public and private research institutions. The larger competitors have substantially greater financial and human resources, as well as a much larger infrastructure than we do. For more information on our therapeutics competitors, see Part I, Item 1. “Business—Competition” in our Annual Report.

Additionally, we compete to acquire the intellectual property assets that we require to continue to develop and broaden our product ~~portfolio.~~pipeline. In addition to our in-house research and development efforts, we may seek to acquire rights to new intellectual property through corporate acquisitions, asset acquisitions, licensing, and joint venture arrangements. Competitors with greater resources may acquire intellectual property that we seek, and even where we are successful, competition may increase the acquisition price of such intellectual property or prevent us from capitalizing on such acquisitions, licensing opportunities, or joint venture arrangements. If we fail to compete successfully, our growth may be limited.

It is possible that developments by our competitors could make our products or technologies under development less competitive or obsolete. Our future growth depends, in part, on our ability to provide products ~~which~~that are more effective than those of our competitors and to keep pace with rapid medical and scientific change. Sales of ~~our existing products and~~ any future products may decline rapidly if a new product is introduced by a competitor, particularly if a new product represents a substantial improvement over ~~any of~~ our ~~existing~~ products. In addition, the high level of competition in our industry could force us to reduce the price at which we sell our products or require us to spend more to market our products.

Many of our competitors have greater resources than we have. This enables them, among other things, to spread their marketing and promotion costs over a broader revenue base. In addition, we may not be able to compete effectively against our competitors because their products and services are superior. Our current and future competitors could have greater experience, technological and financial resources, stronger business relationships, broader product lines and greater name recognition than us, and we may not be able to compete effectively against them. Increased competition is likely to result in pricing pressures, which could harm our revenues, operating income, or market share. If we are unable to compete successfully, we may be unable to increase or sustain our revenues or achieve or sustain profitability.

Our success depends on our ability to ~~improve and enhance our current products and~~develop new product candidates, which is complex and costly and the results are uncertain.

Effective execution of research and development activities and the timely introduction of ~~enhanced, improved, or~~ new products and product candidates to the market are important elements of our business strategy. However, the development of ~~enhanced, improved, or~~ new products and product candidates is complex, costly, and uncertain and requires us to, among other factors, accurately anticipate patients’, clinicians’, and payors’ needs, and emerging technology trends. For more information on our current research and development efforts, see Part I, Item 1. “Business” in our Annual Report.

In the development of ~~enhanced, improved, or~~ new products and product candidates, we can provide no assurance that:

These and other factors beyond our control could delay our launch of ~~enhanced, improved, or~~ new products and product candidates.

The research and development process in our industries generally requires a significant amount of time from the research and design stage through commercialization. The launch of such new products requires the completion of certain clinical development and/or assay validations in ~~the~~a commercial laboratory.

This process is conducted in various stages, and each stage presents the risk that we will not achieve our ~~goals. We may~~goals and will not be able to complete clinical development for any planned product in a timely manner. Such development and/or validation failures could prevent or significantly delay our ability to obtain FDA clearance or approval as may be necessary or desired ~~obtain approval by entities that provide oversight over LDTs, such as the State of New York,~~ or launch any of our planned products and product candidates. At times, it may be necessary for us to abandon a product in which we have invested substantial resources. Without the timely introduction of new product candidates, ~~and improvements or enhancements of~~ our ~~current products, our~~future products may become obsolete over time and our competitors may develop products that are more competitive, in which case our business, operating results, and financial condition will be harmed.

We are still developing our ~~precision medicine platform~~therapeutics pipeline and are in the early stages of its development, have conducted some early preclinical studies, and limited early clinical studies, and to date have generated no ~~precision medicine~~therapeutics products or product revenue. There can be no assurance that we will develop any ~~precision medicine~~therapeutics products that deliver ~~diagnostic or~~ therapeutic solutions, or, if developed, that such product candidates will be authorized for marketing by regulatory authorities, or will be commercially successful. This uncertainty makes it difficult to assess our future prospects and financial results.

Our operations with respect to our ~~precision medicine platform~~therapeutics pipeline to date have been limited to developing our platform technology, undertaking ~~pre-clinical~~preclinical studies and ~~clinical trials,~~feasibility studies with human subjects, and conducting research to identify potential product candidates. To date, we have only conducted ~~clinical trials~~limited feasibility studies in humans to evaluate whether our platform localization technology enables identification of the location of our ingestible medical ~~device, which we refer to as an ingestible capsule,~~devices within the gastrointestinal ~~tract.~~tract as well as the function of our devices.

We seek to develop a suite of ingestible capsules for both ~~diagnostic~~therapeutic and ~~therapeutic~~diagnostic solutions. However, medical device and related ~~diagnostic~~therapeutic and ~~therapeutic~~diagnostic product development is a highly speculative undertaking and involves a substantial degree of ~~uncertainty.~~uncertainty and we are in the early stages of our development programs. Our ~~precision medicine platform~~therapeutics pipeline has not yet demonstrated an ability to generate revenue or successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields such as ours. Consequently, the ability to accurately assess the future operating results or business prospects of our ~~precision medicine platform~~therapeutics pipeline is significantly more limited than if we had an operating history or approved commercial ~~precision medicine~~therapeutics products. Our success in developing commercial products that are based on our ~~precision medicine platform~~therapeutics pipeline will depend on a variety of factors, many of which are beyond our control, including, but not limited to:

Even if we are able to develop one or more commercial ~~precision medicine~~therapeutics products, we expect that the operating results of these products will fluctuate significantly from period to period due to the factors above and a variety of other factors, many of which are beyond our control, including, but not limited to:

Accordingly, the likelihood of the success of our ~~precision medicine platform~~therapeutics pipeline must be evaluated in light of these many potential challenges and variables.

The development of new product candidates will require us to undertake clinical trials, which are costly, time-consuming, and subject to a number of risks.

The development of new product candidates, including development of the data necessary for IND submissions and to obtain clearance or approval for such product candidates, is costly, time-consuming, and carries with it the risk of not yielding the desired results. ~~The~~Once filed, our IND submissions may not become effective if the FDA raises concerns with respect to those submissions. Further, the outcome of preclinical studies and early clinical trials may not be predictive of the success of later clinical trials, and interim results of clinical trials do not necessarily predict success in future clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and even if we achieve positive results in earlier trials, we could face similar setbacks. The design of a clinical trial can determine whether its results will support a product candidate’s marketing authorization, to the extent required, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing authorization for the product candidates. Furthermore, limited results from earlier-stage studies may not predict results from studies in larger numbers of subjects drawn from more diverse populations over a longer period of time.

Unfavorable results from ongoing preclinical studies and clinical trials could result in delays, modifications, or abandonment of ongoing or future analytical or clinical trials, or abandonment of a product development program, or may delay, limit, or prevent marketing authorizations, where required, or commercialization of our product candidates. Even if we, or our collaborators, believe that the results of clinical trials for our product candidates warrant marketing authorization, the FDA and other regulatory authorities may disagree and may not grant marketing authorizations for our product candidates.

Moreover, the FDA requires us to comply with regulatory standards, commonly referred to as the Good Clinical Practice ~~or GCP,~~("GCP"), requirements, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, safety, and welfare of trial participants are protected. Other countries’ regulatory agencies also have requirements for clinical trials with which we must comply. We also are required to register certain ongoing clinical trials and post the results of certain completed clinical trials on a government-sponsored database, ClinicalTrials.gov, within specified timeframes. Failure to do so can result in fines, enforcement action, adverse publicity, and civil and criminal sanctions.

The initiation and completion of any clinical studies may be prevented, delayed, or halted for numerous reasons. We may experience delays in initiation or completion of our ~~ongoing~~ clinical trials for a number of reasons, which could adversely affect the costs, timing, or ~~successful completion~~success of our clinical trials, including related to the following:

In addition, disruptions caused by the COVID-19 pandemic may increase the likelihood that we encounter such difficulties or delays in initiating, enrolling, conducting, or completing our planned and ongoing clinical trials.

Any of these occurrences may significantly harm our business, financial condition, and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.

Patient enrollment in clinical trials and completion of patient follow-up depend on many factors, including the size of the patient population, the nature of the trial protocol, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial, patient compliance, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the product being studied in relation to other available therapies, including any new treatments that may be approved for the indications we are investigating. For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the safety and efficacy of a product candidate, or they may be persuaded to participate in contemporaneous clinical trials of a competitor’s product candidate. In addition, patients participating in our clinical trials may drop out before completion of the trial or experience adverse medical events unrelated to our ~~products.~~product candidates. Delays in patient enrollment or failure of patients to continue to participate in a clinical trial may delay commencement or completion of the clinical trial, cause an increase in the costs of the clinical trial and delays, or result in the failure of the clinical trial.

Clinical trials must be also conducted in accordance with the laws and regulations of the FDA and other applicable regulatory authorities’ legal requirements, regulations or guidelines, and are subject to oversight by these governmental agencies and IRBs at the medical institutions where the clinical trials are conducted. We rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and while we have agreements governing their committed activities, we have limited influence over their actual performance. We depend on our collaborators and on medical institutions and CROs to conduct our clinical trials in compliance with the FDA’s GCP requirements. To the extent our collaborators or the CROs fail to enroll participants for our clinical trials, fail to conduct the study to GCP requirements, or are delayed for a significant time in the execution of trials, including achieving full enrollment, we may be affected by increased costs, program delays, or both. In addition, clinical trials that are conducted in countries outside the United States may subject us to further delays and expenses as a result of increased shipment costs, additional regulatory requirements and the engagement of non-U.S. CROs, as well as expose us to risks associated with clinical investigators who are unknown to the FDA, and different standards of diagnosis, screening and medical care.

The clinical trial process is lengthy and expensive with uncertain outcomes. We have limited data and experience regarding the safety and efficacy of our ~~products.~~product candidates. Results of earlier studies may not be predictive of future clinical trial results, or the safety or efficacy profile for such ~~products.~~products or product candidates.

Clinical testing is difficult to design and implement, can take many years, can be expensive, and carries uncertain outcomes. The results of preclinical studies and clinical trials of our products conducted to date and ongoing or future studies and trials of our current, planned, or future products and product candidates may not be predictive of the results of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. Our interpretation of data and results from our clinical trials do not ensure that we will achieve similar results in future clinical trials. In addition, preclinical and clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their products performed satisfactorily in preclinical studies and earlier clinical trials have nonetheless failed to replicate results in later clinical trials. Products in later stages of clinical trials may fail to show the desired safety and efficacy despite having progressed through nonclinical studies and earlier clinical trials. Failure can occur at any stage of clinical testing. Our clinical studies may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical and non-clinical testing in addition to those we have planned.

Interim “top-line” and preliminary data from studies or trials that we announce or publish from time to time may change as more data become available and are subject to audit and verification procedures that could result in material changes in the final data.

From time to time, we may publish interim “top-line” or preliminary data from preclinical studies or clinical trials. Interim data are subject to the risk that one or more of the outcomes may materially change as more data become available. We also make assumptions, estimations, calculations, and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Preliminary or “top-line” data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, interim and preliminary data should be viewed with caution until the final data are available. Additionally, interim data from clinical trials that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and more patient data become available. Adverse differences between preliminary or interim data and final data could seriously harm our business.

Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particularproductcandidateorproduct,andour~~company~~in~~general.~~ results of operations, liquidity and financial condition. Inaddition,theinformationwe choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and ~~you or~~ others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure. Any information we determine not to disclose may ultimately be deemed significant by ~~you or~~ others with respect to future decisions, conclusions, views, activities or otherwise regarding a particular product candidate or our business. If the top-line data that we report differ from final results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain marketing authorization for, and commercialize,productcandidatesmaybeharmed,whichcouldseriouslyharmourbusiness.

The results of our clinical trials may not support the use of our ~~tests and other~~ product candidates, or may not be replicated in later studies required for marketing authorizations.

As the healthcare reimbursement system in the United States evolves to place greater emphasis on comparative effectiveness and outcomes data, we cannot predict whether we will have sufficient data, or whether the data we have will be presented to the satisfaction of any payors seeking such data for determining coverage for our ~~tests,~~products under development, particularly in ~~the average-risk pregnancy population for which such data is expected to be of particular interest, in~~ new ~~test~~ areas such as ~~preeclampsia, or~~ in ~~precision medicine diagnostic~~drug-device combination or therapeutic applications.

The administration of clinical and economic utility studies is expensive and demands significant attention from certain members of our management team. Data collected from these studies may not be positive or consistent with our existing data, or may not be statistically significant or compelling to the medical community or payors. If the results obtained from our ongoing or future studies are inconsistent with certain results obtained from our previous studies, adoption of our products would suffer and our business would be harmed.

Peer-reviewed publications regarding our ~~products and~~ product candidates 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 product candidates~~under development or the ~~technology~~ underlying ~~our current or future products or product candidates~~technology do not receive sufficient favorable exposure in peer-reviewed publications, or are not published, the rate of healthcare provider adoption of our ~~tests~~products under development and positive reimbursement coverage decisions for our ~~tests~~ ~~and~~ ~~other~~ products under development could be negatively affected. The publication of clinical data in peer-reviewed journals can be a crucial step in commercializing and obtaining reimbursement for ~~tests, diagnostic and therapeutic~~ products ~~and other products,~~under development, and our inability to control when, if ever, results are published may delay or limit our ability to derive sufficient revenues from any test ~~diagnostic~~ or ~~therapeutic~~other product that is the subject of a study. The performance achieved in published studies ~~may~~might not be

repeated in later studies that may be required to obtain FDA clearance or marketing authorizations should we decide for business reasons, or be required to submit applications to the FDA or other health authorities seeking such authorizations.

Operating our business will require a significant amount of cash, and our ability to generate sufficient cash depends on many factors, some of which are beyond our control. We expect to need to raise additional capital, and if we cannot raise additional capital when needed, we may have to curtail or cease operations.

In the future, we expect to incur significant costs in connection with our operations, including but not limited to the development, marketing authorization, and commercialization of new tests, medical devices, therapeutics, and other products. These development activities generally require a substantial investment before we can determine commercial viability, and the proceeds from our initial public offering will not be sufficient to fully fund these activities. We expect to need to raise additional funds through public or private equity or debt financings, collaborations or licensing arrangements to continue to fund or expand our operations.

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

The availability of additional capital, whether from private capital sources (including banks) or the public capital markets, fluctuates as our financial condition and market conditions in general change. There may be times when the private capital sources and the public capital markets lack sufficient liquidity or when our securities cannot be sold at attractive prices, or at all, in which case we would not be able to access capital from these sources. In addition, a weakening of our financial condition or deterioration in our credit ratings could adversely affect our ability to obtain necessary funds. Even if available, additional financing could be costly or have adverse consequences.

Additional capital, if needed, may not be available on satisfactory terms or at all. Furthermore, any additional capital raised through the sale of equity or equity-linked securities will dilute our stockholders’ ownership interests and may have an adverse effect on the price of our common stock. In addition, the terms of any financing may adversely affect stockholders’ holdings or rights. Debt financing, if available, may include restrictive covenants. To the extent that we raise additional funds through collaborations and licensing arrangements, it may be necessary to relinquish some rights to our technologies or grant licenses on terms that may not be favorable to us.

If we are not able to obtain adequate funding when needed, we may be required to delay development programs or sales and marketing initiatives. If we are unable to raise additional capital in sufficient amounts or on satisfactory terms, we may have to make reductions in our workforce and may be prevented from continuing our discovery, development, and commercialization efforts and exploiting other corporate opportunities. In addition, it may be necessary to work with a partner on one or more of our tests or products under development, which could lower the economic value of those products to us. Each of the foregoing may harm our business, operating results, and financial condition, and may impact our ability to continue as a going concern.

Our outstanding debt, and any new debt, may impair our financial and operating flexibility.

As of ~~each of December 31, 2019 and June~~September 30, ~~2020,~~2023, we had approximately ~~$72.3~~$80.4 million of ~~outstanding indebtedness, respectively, composed~~Convertible Notes outstanding. Certain of ~~mortgages payable and a note payable. Certain~~ of our debt agreements contain various restrictive ~~covenants~~covenants.

The Indenture for our Convertible Notes does not prohibit us or our subsidiaries from incurring additional indebtedness in the future, with certain exceptions. Under the Convertible Notes, we will not, and we will not permit any subsidiary of ours to, create, incur, assume or permit to exist any lien on any property or asset now owned or later acquired by us or any subsidiary that secures any indebtedness for borrowed money, other than (i) secured indebtedness for borrowed money in existence on the date of the Indenture; (ii) permitted refinancing indebtedness incurred in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge any secured indebtedness for borrowed money permitted by ~~substantially all~~clause (i) of this sentence; and (iii) additional secured indebtedness for borrowed money that, in an aggregate principal amount (or accredited value, as applicable), does not exceed $15.0 million at any time outstanding.

Accordingly, we may incur a significant amount of additional indebtedness in the future. Our current indebtedness and the incurrence of additional indebtedness could have significant negative consequences for our ~~assets, excluding~~stockholders and our ~~intellectual property.~~

~~Our existing debt permits us to incur significant additional debt. Our existing debt~~business, results of operations and ~~any additional debt we incur could:~~financial condition by, among other things:

Our ability to make principal and interest payments will depend on our ability to generate cash in the future. Our business may not generate sufficient funds, and we may otherwise be unable to maintain sufficient cash reserves, to pay amounts due under our indebtedness, and our cash needs may increase in the future. If we do not generate sufficient cash to meet our debt service requirements and other operating requirements, we may need to seek additional financing. In that case, it may be more difficult, or we may be unable, to obtain financing on terms that are acceptable to us or at all.

~~Although~~In addition, any future indebtedness that we ~~have implemented compliance policies and have an internal audit function, we cannot ensure that our employees have adhered or will fully adhere to such policies.~~

~~We have implemented compliance policies and procedures intended to train and monitor our sales, billing, marketing~~may incur may contain financial and other personnel. Our efforts to implement appropriate monitoring of such personnel are ongoing and we have identified and are analyzing situations in which employees may have failed to fully adhere to our policies and applicable laws in the past. For example, as part of our work to improve our compliance program, including our internal auditing and monitoring function, we commissioned a third-party analysis of our coding and billing processes. In connection withrestrictive covenants that audit, we identified that we had not timely and appropriately transitioned to the implementation of a new CPT code in 2019, and as a result we received an overpayment of approximately $10.3 million from government payors during 2019 and early 2020 and may have repayment obligations to commercial payors. For additional information on our transition for this CPT code, see Notes 4 and 9 to our unaudited condensed consolidated financial statements. There can be no assurance that we will not identify further compliance, billing, or other failures or experience similar issues in the future. Failure by our sales, billing, marketing, or other personnel to follow our policies and comply with applicable laws may subject us to administrative, civil, and criminal actions, penalties, damages, fines, individual imprisonment, exclusion from participation in federal healthcare programs, refunding of payments received by us, and curtailment or cessation of our operations. For additional information regarding recent government investigations regarding our compliance with certain policies and laws, see Part II, Item 1. “Legal Proceedings.” In addition, in the event of failure by our sales, billing, marketing, or other personnel to follow our policies and comply with applicable laws, commercial third-party payors may refuse to provide all or any reimbursement for tests administered and seek repayment from us of amounts previously reimbursed, which failures may harmlimit our ability to secure network contracts with third-party payors. Any of the foregoing could adversely affect our revenue, cash flow, and financial condition, and reduce our growth prospects. For additional information regarding these risks, see the risk factor titled “If we or our commercial partners act in a manner that violates healthcare laws or otherwise engage in misconduct, we could face substantial penalties and damage to our reputation, andoperate our business, ~~operations and financial condition could be adversely affected.”~~

~~Compliance with the terms and conditions of~~raise capital or make payments under our ~~Corporate Integrity Agreement requires significant resources and, if~~other indebtedness. If we fail to comply with these covenants or to make payments under our indebtedness when due, then we ~~could~~would be ~~subject to penalties or excluded from participation~~ in ~~government healthcare programs,~~default under that indebtedness, which could, ~~harm our results of operations, liquidity and financial condition.~~

~~In connection with settlement of the government investigations described~~ in Part II, Item 1. “Legal Proceedings,” effective July 21, 2020, we entered into a five-year Corporate Integrity Agreement with the OIG. The Corporate Integrity Agreement requires, among other matters, that we maintain a Compliance Officer, a Compliance Committee, board review and oversight of healthcare compliance matters, compliance programs, and disclosure programs; provide management certifications and compliance training and education; engage an independent review organization to conduct claims and arrangements reviews; implement a risk assessment and internal review process; and submit periodic reports to the OIG regarding our compliance program and CIA implementation. The Corporate Integrity Agreement requires us to report substantial overpayments that we discover we have received from federal health care programs, as well as probable violations of federal health care laws. We are still reviewing and implementing the processes, policies and procedures required under the Corporate Integrity Agreement. Implementing and administering such processes, policies and procedures will require significant management attention and cash and other resources. Furthermore, while we have developed and instituted a corporate compliance program, we cannot guarantee that we, our employees, our consultants or our contractors are or will be in compliance with all potentially applicable federal healthcare laws or all requirements of the Corporate Integrity Agreement. Our failure to comply with our obligations under the Corporate Integrity Agreement couldturn, result in ~~monetary penalties~~that and our ~~exclusion from participating~~other indebtedness becoming immediately payable in federal healthcare programs. The costs associated with compliance with the Corporate Integrity Agreement, or any liability or consequences associated with its breach, could have an adverse effect on our operations, liquidity and financial condition.full.

Actual or perceived failures to comply with applicable data protection, privacy, consumer protection and security laws, regulations, standards and other requirements could adversely affect our business, results of operations, and financial condition.

The global data protection landscape is rapidly evolving, and we are or may become subject to numerous state, federal, and foreign laws, requirements, and regulations governing the collection, use, disclosure, retention, and security of personal information. Implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine the impact future laws, regulations, standards, or perception of their requirements may have on our business. This evolution may create uncertainty in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer, use and share personal information, necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose additional costs on us. The cost of compliance with these laws, regulations, and standards is high and is likely to increase in the future. Any failure or perceived failure by us to comply with federal, state or foreign laws or regulations, our internal policies and procedures or our contracts governing our processing of personal information could result in negative publicity, government investigations and

enforcement actions, claims by third parties and damage to our reputation, any of which could have a material adverse effect on our operations, financial performance and business.

As our operations and business grow, we may become subject to or affected by new or additional data protection laws and regulations and face increased scrutiny or attention from regulatory authorities. In the United States, the manner in which we collect, use, access, disclose, transmit and store protected health information ~~or PHI,~~("PHI"), is subject to the Health Insurance Portability and Accountability Act of 1996 ~~or HIPAA,~~("HIPAA"), as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 ~~or HITECH,~~("HITECH"), and the health data privacy, security and breach notification regulations issued pursuant to these statutes.

HIPAA establishes a set of national privacy and security standards for the protection of 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 that involve the use or disclosure of PHI. HIPAA requires healthcare providers like us 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.

HIPAA further requires covered entities to notify affected individuals “without unreasonable delay and in no case later than 60 calendar days after discovery of the breach” if their unsecured PHI is subject to an unauthorized access, use or disclosure. If a breach affects 500 patients or more, covered entities must report it to the U.S. Department of Health and Human Services ~~or HHS,~~("HHS"), and local media without unreasonable delay (and in no case later than 60 days after discovery of the breach), and HHS will post the name of the entity on its public website. If a breach affects fewer than 500 individuals, the covered entity must log it and notify HHS at least annually. 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.

Penalties for failure to comply with a requirement of HIPAA and HITECH vary significantly depending on the failure and could include requiring corrective actions, and/or imposing civil monetary or criminal penalties. HIPAA also authorizes state attorneys general to file suit under HIPAA on behalf of state residents. Courts can 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 HIPAA violations, its standards have been used as the basis for a duty of care claim in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI.

Certain states have also adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. In addition, on June 28, 2018, California enacted the California Consumer Privacy Act, ~~or CCPA, on June 28, 2018,~~ which went into effect on January 1, ~~2020.~~2020 and was amended by the California Privacy Rights Act of 2020 ("CPRA"), which went into effect on January 1, 2023. The ~~CCPA~~CPRA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal data. The ~~CCPA~~CPRA provides for civil penalties for violations, as well as a private right of action for data breaches that ~~is expected to~~could increase data breach litigation. The ~~CCPA~~CPRA may increase our compliance costs and potential liability, and many similar laws have been proposed at the federal level and proposed or enacted in other states. Any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.

~~In Europe, the European Union General Data Protection Regulation (2016/679), or the GDPR, went~~ ~~into~~ effect in May 2018 and introduces strict requirements for processing the personal data of European Union data subjects. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater. Moreover, the United Kingdom leaving the European Union could also lead to further legislative and regulatory changes. It remains unclear how the United Kingdom data protection laws or regulations will develop in the medium to longer term and how data transfer to the United Kingdom from the European Union will be regulated, especially following the United Kingdom’s departure from the European Union on January 31, 2020 without a deal. However, the United Kingdom has transposed the GDPR into domestic law with the Data Protection Act 2018, which remains in force following the United Kingdom’s departure from the European Union. In addition to the GDPR, individual countries in Europe, and elsewhere in the world, including but not limited to Brazil, have enacted similar data privacy legislation that applies to data subjects in those countries. This legislation imposes increased compliance obligations and regulatory risk, including the potential for significant fines for~~noncompliance.~~

Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations, these requirements are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or other legal obligations with which we must comply. Any failure or perceived failure by us or our employees, representatives, contractors, consultants, CROs, collaborators, or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded, could result in additional cost and liability to us, damage our reputation, and adversely affect our business and results of operations.

Security breaches, loss of data, and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and reputation.

In the ordinary course of our business, including our now discontinued historical testing business, we collect and store sensitive data, including PHI (such as patient medical records, including test results), and personally identifiable information. We also store business and financial information, intellectual property, research and development information, trade secrets and other proprietary and business critical information, including that of our customers, payors, and collaboration partners. We manage and maintain our data utilizing a combination of on-site systems, managed data center systems and cloud-based data center systems. We are highly dependent on information technology networks and systems, including the internet, to securely process, transmit, and store critical information. Although we take measures to protect sensitive information from unauthorized access or disclosure, our information technology and infrastructure, and that of our third-party billing and collections provider and other service providers, may be vulnerable to attacks by hackers, viruses, disruptions and breaches due to employee error or malfeasance.

A security breach or privacy violation that leads to unauthorized access, disclosure or modification of, or prevents access to, patient information, including PHI, could compel us to comply with state and federal breach notification laws, subject us to mandatory corrective action and require us to verify the correctness of database contents. Such a breach or violation also could result in legal claims or proceedings brought by a private party or a governmental authority, liability under laws and regulations that protect the privacy of personal information, such as HIPAA, HITECH, and laws and regulations of various U.S. states and foreign countries, as well as penalties imposed by the Payment Card Industry Security Standards Council for violations of the Payment Card Industry Data Security ~~Standards.~~Standard. If we are unable to prevent such security breaches or privacy violations or implement satisfactory remedial measures, we may suffer loss of reputation, financial loss and civil or criminal fines or other penalties because of lost or misappropriated information. In addition, these breaches and other forms of inappropriate access can be difficult to detect, and any delay in identifying them may lead to increased harm of the type described above.

Unauthorized access, loss or dissemination of information could disrupt our operations, including our ability to ~~perform tests, provide test results, bill payors or patients,~~ process claims and appeals, provide customer assistance services, conduct research and development activities, develop and commercialize ~~tests,~~products, collect, process and prepare company financial information, provide information about ~~our tests, educate patients and healthcare providers about our service,~~products, and manage the administrative aspects of our business, any of which could damage our reputation and adversely affect our business. Any breach could also result in the compromise of our trade secrets and other proprietary information, which could adversely affect our competitive position.

In addition, health-related, privacy, and data protection laws and regulations in the United States and elsewhere are subject to interpretation and enforcement by various governmental authorities and courts, resulting in complex compliance issues and the potential for varying or even conflicting interpretations, particularly as laws and regulations in this area are in flux. It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our practices. If so, this could result in government-imposed fines or orders requiring that we change our practices, which could adversely affect our business and our reputation. Complying with these 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, operating results, and financial condition.

Any failure or perceived failure by us or any third-party collaborators, service providers, contractors or consultants to comply with our privacy, confidentiality, data security or similar obligations, or any data security incidents or other security breaches that result in the accidental, unlawful or unauthorized access to, use of, release of, processing of, or transfer of sensitive information, including personally identifiable information, may result in negative publicity, harm to our reputation, governmental investigations, enforcement actions, regulatory fines, litigation or public statements against us, could cause third parties to lose trust in us or could result in claims by third parties, including those that assert that we have breached our privacy, confidentiality, data security or similar obligations, any of which could have a material adverse effect on our reputation, business, financial condition or results of operations. We could be subject to fines and penalties (including civil and criminal) under HIPAA for any failure by us or our business associates to comply with HIPAA’s requirements. Moreover, data security incidents and other security breaches can be difficult to detect, and any delay in identifying them may lead to increased harm. While we have implemented data security measures intended to protect our information, data, information technology systems, applications and infrastructure, ~~and recently hired a Chief Information Officer to supervise such measures,~~ there can be no assurance that such measures will successfully prevent service interruptions or data securityincidents.

We have increased the size of our organization and expect to further increase it in the future, and we may experience difficulties in managing this growth. If we are unable to manage the anticipated growth of our business, our future revenue and operating results may be adversely affected.

As of June 30, 2020, we had 666 full-time employees worldwide. We have significantly expanded the size of our organization over the past several years, particularly personnel within our sales and marketing and research and development groups, and we expect to continue to do so in the future. As we transition into operating as a public company, we expect to need additional managerial, operational, sales, marketing, financial, and other personnel. Future growth would impose significant added responsibilities on members of management, including:

Our future financial performance and our ability to successfully develop, market, and sell our products and product candidates will depend, in part, on our ability to effectively manage any future growth, and our management may also have to divert a disproportionate amount of attention away from day-to-day activities in order to devote a substantial amount of time to managing these growth activities.

We are engaged in extensive research and development activities, including innovation within our molecular testing business as well as furthering our novel pipeline of precision medicine product candidates. Conducting these activities will entail significant organizational complexity and require extensive effort on the part of our personnel. If we are unable to execute on our operational goals it would have a material and adverse effect on our business, financial condition, results of operations, and prospects.

If we lose the services of members of our senior management team or other key employees, we may not be able to execute our business strategy.

Our success depends in large part upon the continued service of our senior management team and certain other key employees who are important to our vision, strategic direction, and culture. Our current ~~long- term~~long-term business strategy was developed in large part by our senior management team and depends in part on their skills and knowledge to implement. We may not be able to offset the impact on our business of the loss of the services of any member of our senior management or other key officers or employees or attract additional talent. The loss of any members of our senior management team or other key employees could have a material and adverse effect on our business, operating results, and financial condition.

An inability to attract and retain highly skilled employees could adversely affect our business.

To execute our business plan, we must attract and retain highly qualified personnel. Competition for qualified personnel is intense, especially for ~~sales, scientific, medical, laboratory, and technical~~ personnel in our industry and especially in the areas where our ~~headquarters and laboratory~~ facilities are located. We have from time to time experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees have breached their legal obligations to their former employees, resulting in a diversion of our time and resources. In addition, job candidates and existing employees often consider the value of the stock awards they receive in connection with their employment. If the perceived value of our stock awards declines, it may adversely affect our ability to attract and retain highly skilled employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business, operating results, and financial condition could be adversely affected.

We may not be able to obtain and maintain the third-party relationships that are necessary to develop, fund, commercialize, and manufacture some or all of our product candidates.

We expect to depend on collaborators, partners, licensees, manufacturers, and other third parties to support our product candidate development efforts, including, to manufacture our product candidates and to market, sell, and distribute any products we successfully develop. Any problems we experience with any of these third parties could delay the development, commercialization, and manufacturing of our product candidates, which could harm our results of operations.

We cannot guarantee that we will be able to successfully negotiate agreements for, or maintain relationships with, collaborators, partners, licensees, manufacturers, and other third parties on favorable terms, if at all. If we are unable to obtain or maintain these agreements, we may not be able to clinically develop, manufacture, obtain regulatory authorizations for, or commercialize any future product candidates, which will in turn adversely affect our business.

We expect to expend substantial management time and effort to enter into relationships with third parties and, if we successfully enter into such relationships, to manage these relationships. In addition, substantial amounts will be paid to third parties in these relationships. However, we cannot control the amount or timing of resources our future contract partners will devote to our research and development programs ~~product candidates, or potential product candidates,~~and products under development, and we cannot guarantee that these parties will fulfill their obligations to us under these arrangements in a timely fashion, if at all. In addition, while we manage the relationships with third parties, we cannot control all of the operations of and protection of intellectual property bywith respect to such third parties.

We ~~rely on third-party laboratories to perform some of our testing and further~~ rely on third parties for ~~sample collection, including phlebotomy services, and commercial courier delivery services, and if these services are disrupted, our business will be harmed.~~

A portion of our tests are performed by third-party CLIA certified laboratories. These third-party laboratories are subject to contractual obligations but are not otherwise under our control. We, therefore, do not control the capacity and quality control efforts of these third-party laboratories other than through our ability to enforce contractual obligations on volume and quality systems. In the event of any adverse developments with these third-party laboratories or their ability to perform this testing in accordance with the legal, regulatory, or commercial standards, our ability to provide test results to customers may be delayed, interrupted, or suspended. Any natural or other disasters, pandemics, acts of war or terrorism, shipping embargoes, labor unrest, or political instability or similar events at our third- party laboratories’ facilities that cause a loss of testing capacity would heighten the risks that we face.

Changes to or termination of our agreements or inability to renew our agreements with these parties or enter into new agreements with other laboratories that are able to perform such testing could impair, delay, or suspend our efforts to market and commercialize our tests. Such interruption could harm our reputation and leadmatters related to the ~~loss~~design of customers, and we may be unable to regain those customers in the future. In addition, certain third-party payors may take the position that sending out this testing to third- party laboratories is contrary to the terms of their coverage policies and/or our contract in cases where we are in-network with the payor, and may refuse to pay us for testing that we have outsourced. If any of these events occur, our business, operating results, and financial condition could suffer.

Federal and certain state laws impose anti-markup restrictions that prevent an entity from realizing a profit margin on outsourced testing. Whether we will be able to realize a profit margin on outsourced testing will be determined by the application of those laws. If we or our subsidiaries are unable to markup outsourced testing, our operating results would suffer.

Our molecular testing business depends on our ability to quickly and reliably deliver test results to our customers. We rely on third parties to perform sample collection, including phlebotomy services, and to transport samples to our laboratory facility or the

third-party laboratories that we contract with in a timely and cost-efficient manner. Disruptions in these services, whether due to any natural or other disasters, pandemics, acts of war or terrorism, shipping embargoes, labor unrest, political instability, or similar events, could adversely affect specimen integrity and our ability to process samples in a timely manner and to service our customers, and ultimately our reputation and our business. In addition, if we are unable to continue to obtain expedited delivery services on commercially reasonable terms, our operating results may be adversely affected.

In addition, our relationships with these third-party providers could be scrutinized under federal and state healthcare laws such as the federal Anti-Kickback Statute and the Stark Law to the extent these services provide a financial benefit to or relieve a financial burden for a potential referral source, or are subsequently found not to be for fair market value. If our operations are found to be in violation of any of these laws and regulations, we may be subject to administrative, civil and criminal penalties, damages, fines, individual imprisonment, exclusion from participation in federal healthcare programs, refunding of payments received by us, and curtailment or cessation of our operations, any of which could harm our reputation and adversely affect our business, operating results, and financial condition. For additional information regarding these risks, see the risk factor titled “If we or our commercial partners act in a manner that violates healthcare laws or otherwise engage in misconduct, we could face substantial penalties and damage to our reputation, and our business operations and financial condition could be adversely affected.”

We rely on a limited number of suppliers or, in some cases, single suppliers, for some of our laboratory instruments and materials and may not be able to find replacements or immediately transition to alternative suppliers on a cost-effective basis, or at all.

We source components of our technology from third parties and certain components are sole sourced. Obtaining substitute components may be difficult or require us to re-design our products or, for any product candidates for which we may obtain marketing authorization from the FDA, obtain new marketing authorization from the FDA to use a new supplier. Any natural or other disasters, acts of war or terrorism, shipping embargoes, labor unrest or political instability or similar events at our third-party manufacturers’ facilities that cause a loss of manufacturing capacity or a reduction in the quality of the items manufactured would heighten the risks that we face. Changes to, failure to renew or termination of our existing agreements or our inability to enter into new agreements with other suppliers could result in the loss of access to important components of our tests and could impair, delay or suspend our commercialization efforts. Our failure to maintain a continued and cost-effective supply of high-quality components could materially and adversely harm our business, operating results, and financial condition.

~~For example, Illumina, Inc., or Illumina, in San Diego, California, is currently the sole supplier of~~ ~~our~~ ~~sequencing instruments and certain reagents for Innatal and Preparent, pursuant to a supply agreement that, unless extended by mutual agreement, expires in June 2022. Without such inputs, we would be~~ ~~unable~~ to run our tests and commercialize our products. In early 2013, prior to our entering into our agreement with Illumina, Illumina completed its acquisition of Verinata Health Inc., or Verinata, a direct competitor in the NIPT market. We understand Illumina supplies the same or similar instruments and related reagents to Verinata. As a result, we face heightened risk and uncertainty regarding our supply relationship with Illumina. If required, alternative sequencing platforms may not perform as well or may be more expensive and we may be unsuccessful employing such platforms in a commercially sustainable way. Any disruptions to our laboratory performance and ability to deliver our products could adversely affect our business, operating results, financial condition, and reputation. In addition, if we were required by the FDA to ~~obtain~~ approval for Innatal or Preparent through a pre-market approval application, or PMA, we may also be required to obtain approval of a PMA supplement prior to making any changes to Innatal or Preparent as a result of implementing an alternative sequencing ~~platform.~~

The manufacturing of our products, including our precision medicine product candidates, is highly exacting and complex, and we depend on third parties to supply materials and manufacture all our products and product candidates.

Manufacturing is highly exacting and complex due, in part, to strict regulatory requirements governing the manufacture of our current and future products and product candidates, including medical devices, diagnostic products, and pharmaceutical products. We have limited personnel with experience in, and we do not own facilities for, manufacturing any products. We depend upon our collaborators and other third parties, including sole source suppliers, to provide raw materials meeting FDA quality standards and related regulatory requirements, manufacture devices, diagnostic products, and drug substances, produce drug products and provide certain analytical services with respect to our products and product candidates. The FDA and other regulatory authorities require that many of our products be manufactured according to cGMP regulations and that proper procedures be implemented to assure the quality of our sourcing of raw materials and the manufacture of our products. Any failure by us, our collaborators, or our third-party manufacturers to comply with cGMP and/or scale-up manufacturing processes could lead to a delay in, or failure to obtain, marketing authorizations. In addition, such failure could be the basis for action by the FDA, including issuing a warning letter, initiating a product recall or seizure, fines, imposing operating restrictions, total or partial suspension of production or injunctions and/or withdrawing marketing authorizations for products previously granted to us. To the extent we rely on a third-party manufacturer, the risk of noncompliance with cGMPs may be greater and the ability to effect corrective actions for any such noncompliance may be compromised or delayed.

Moreover, we expect that certain of our precision medicine product candidates, including PGN-600, PGN-001, PGN-300, and PGN-OB2, are drug/device combination products that will be regulated under the drug and biological product regulations of the Federal Food, Drug, and Cosmetic Act, or the FD&C Act, and Public Health Service Act, or PHSA, based on their primary modes of action as drugs and biologics. Third-party manufacturers may not be able to comply with cGMP regulations, applicable to drug/device combination products, including applicable provisions of the FDA’s drug and biologics cGMP regulations, device cGMP requirements embodied in the Quality System Regulation, or QSR, or similar~~regulatory requirements outside the United States.~~

In addition, we or third parties may experience other problems with the manufacturing, quality control, storage or distribution of our products, including equipment breakdown or malfunction, failure to follow specific protocols and procedures, problems with suppliers and the sourcing or delivery of raw materials and other necessary components, problems with software, labor difficulties, and natural disaster-related events or other environmental factors. These problems can lead to increased costs, lost sales, damage to customer relations, failure to supply penalties, time and expense spent investigating the cause and, depending on the cause, similar losses with respect to other batches of products. If problems are not discovered before the product is released to the market, recalls, corrective actions, or product liability- related costs also may be incurred. Problems with respect to the manufacture, storage, or distribution of products could materially disrupt our business and have a material and adverse effect on our operating results and financial condition.

~~We rely on third parties to design~~ our product candidates and ~~conduct~~for our preclinical research and clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such preclinical research and trials.

We rely and expect to continue to rely on third parties, such as engineering firms, CROs, clinical data management organizations, medical institutions, and clinical investigators, to conduct and manage ~~our molecular testing and therapeutic product candidate~~certain aspects of the design, preclinical testing, and clinical ~~trials.~~trials for our products under development. Our reliance on these third parties for research and development activities reduces our control over these activities but does not relieve us of our responsibilities. For example, we remain responsible for ensuring that each of our clinical trials is conducted in accordance with GCP requirements, the general investigational plan, and the protocols established for such trials.

These third parties may be slow to recruit patients and complete the studies. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties, do not meet expected deadlines, experience work stoppages, terminate their agreements with us or need to be replaced, or do not conduct our clinical trials in accordance with regulatory requirements or our stated protocols, we may need to enter into new arrangements with alternative third parties, which could be difficult, costly or impossible, and our clinical trials may be extended, delayed, or terminated or may need to be repeated. If any of the foregoing occur, we may not be able to obtain, or may be delayed in obtaining, marketing authorizations for our product candidates and may not be able to, or may be delayed in our efforts to, successfully commercialize our product candidates.

~~If our laboratory facilities become inoperable, we will be unable to perform our tests and our business will be harmed.~~

Our laboratory or other facilities may be harmed or rendered inoperable (or samples could be damaged or destroyed) by natural or manmade disasters, including earthquakes, flooding, power outages, disease outbreaks and contamination, which may render it difficult or impossible for us to perform our tests for some period of time. The inability to perform our tests or the backlog of tests that could develop if any of our laboratory or other facilities is 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 in the future.

~~Our tests may not perform as expected and may result in reduced confidence in our products or legal claims.~~

Our success depends on the market’s confidence that we can provide timely, reliable, high-quality test results. There is no guarantee that the accuracy and reproducibility we have demonstrated to date will continue as our business grows. We believe that our customers (healthcare providers and their patients) are likely to be particularly sensitive to test limitations and errors, including inaccurate test results and the need on occasion to perform redraws on patients. As a result, if our tests do not perform as expected, our business, operating results, financial condition, and reputation will suffer. In addition, we may be subject to legal claims arising from such limitations, errors, or inaccuracies.

Our tests use a number of complex and sophisticated biochemical and bioinformatics processes, many of which are highly sensitive to external factors. An operational or technology failure in one of these complex processes or fluctuations in external variables may result in sensitivity and specificity rates that are lower than we anticipate or that vary between test runs or in a higher than anticipated number of tests which fail to produce results. In addition, we regularly evaluate and refine our testing process. These refinements may initially result in unanticipated issues that may reduce our sensitivity and specificity rates.

Even if our newly developed product candidates receive marketing authorizations, to the extent required, they may fail to achieve market acceptance.

If we can develop enhanced, improved, or new product candidates that receive marketing authorizations, they may nonetheless fail to gain sufficient market acceptance by healthcare providers, patients, ~~third- party~~third-party payors, and others in the medical community to be commercially successful. The degree of market acceptance of any of our new product candidates following receipt of marketing authorizations, if any, will depend on a number of factors, including:

If our newly developed product candidates are unable to achieve market acceptance, our business, operating results, and financial condition will be harmed.

Additional time may be required to obtain marketing authorizations for certain of our ~~precision medicine~~therapeutics product candidates because they are combination products.

Some of our ~~precision medicine~~therapeutics product candidates are ~~drug/device~~drug-device combination products that require coordination within the FDA and similar foreign regulatory agencies for review of their device and drug components. Although the FDA and similar foreign regulatory agencies have systems in place for the review and approval of combination products such as ours, we may experience delays in the development and commercialization of our product candidates due to regulatory timing constraints and uncertainties in the product development and approval process.

Our ~~precision medicine~~therapeutics product candidates under development include complex medical devices that, if authorized for marketing, will require training for qualified personnel and care for data analysis.

Our ~~precision medicine~~therapeutics product candidates under the early stages of development include complex medical devices that, if authorized for marketing, will require training for qualified personnel, including physicians, and care for data analysis. Although we will be required to ensure that our ~~precision medicine~~therapeutics product candidates are prescribed only by trained professionals, the potential for misuse of our ~~precision medicine~~therapeutics product candidates, if authorized for marketing, still exists due to their complexity. Such misuse could result in adverse medical consequences for patients that could damage our reputation, subject us to costly product liability litigation, and otherwise have a material and adverse effect on our business, operating results, and financial condition.

The successful discovery, development, manufacturing, and sale of biologics is a long, expensive, and uncertain process and carries unique risks and uncertainties. Moreover, even if successful, our biologic products may be subject to competition from biosimilars.

We may develop product candidates regulated as biologics in the future in connection with our ~~precision medicine platform.~~therapeutics pipeline. The successful development, manufacturing, and sale of biologics is a long, expensive, and uncertain process. There are unique risks and uncertainties with biologics. For example, access to and supply of necessary biological materials, such as cell lines, may be limited and governmental regulations restrict access to and regulate the transport and use of such materials. In addition, the testing, development, approval, manufacturing, distribution, and sale of biologics is subject to applicable provisions of the FD&C Act, PHSA, and regulations issued thereunder that are often more complex and extensive than the regulations applicable to other pharmaceutical products or to medical ~~devices, or to the LDTs we currently commercialize.~~devices. Manufacturing biologics, especially in large quantities, is often complicated and may require the use of innovative technologies. Such manufacturing also requires facilities specifically designed and validated for this purpose and sophisticated quality assurance and quality control procedures. Biologics are also frequently costly to manufacture because production inputs are derived from living animal or plant material, and some biologics cannot be made synthetically.

Failure to successfully discover, develop, manufacture, and sell biologics could adversely impact our business, operating results, and financial condition.

Even if we are able to successfully develop biologics in the future, the Biologics Price Competition and Innovation Act ~~or BPCIA,~~("BPCIA"), created a framework for the approval of biosimilars in the United States that could allow competitors to reference data from any future biologic products for which we receive marketing approvals and otherwise increase the risk that any product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated. Under the BPCIA, an application for a biosimilar product may not be submitted to the FDA until four years following the date that the original biologic was first licensed by the FDA. In addition, the approval of a biosimilar product may not be made effective by the FDA until 12 years from the date on which the reference product was first licensed. During this 12-year period of exclusivity, another company may still market a competing version of the reference product if the FDA approves a full Biologics License Application ~~or BLA,~~("BLA"), for the competing product containing the sponsor’s own ~~pre-clinical~~preclinical data and data from adequate and ~~well- controlled~~well-controlled clinical trials to demonstrate the safety, purity, and potency of their product. The BPCIA is complex and is still being interpreted and implemented by the FDA. As a result, the law’s ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when

such processes intended to implement the BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biological product candidates.

In addition, there is a risk that any of our product candidates regulated as a biologic and licensed under a BLA would not qualify for the 12-year period of exclusivity or that this exclusivity could be shortened due to congressional action or otherwise, potentially creating the opportunity for generic competition sooner than anticipated. Other aspects of the BPCIA, some of which may impact the BPCIA exclusivity provisions, have been the subject of litigation. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

In Europe, the European Commission has granted marketing authorizations for several biosimilars pursuant to a set of general and product class-specific guidelines for biosimilar approvals issued over the past few years. In addition, companies are developing biosimilars in other countries that could compete with any biologic products that we develop. If competitors are able to obtain marketing approval for biosimilars referencing any biologic products that we develop, our ~~products~~product candidates may become subject to competition from such biosimilars, with the attendant competitive pressure and consequences. Expiration or successful challenge of our applicable patent rights could also trigger competition from other products, assuming any relevant exclusivity period has expired. As a result, we could face more litigation and administrative proceedings with respect to the validity and/or scope of patents relating to our biologic products.

If our future pharmaceutical product candidates are not approved by regulatory authorities, including the FDA, we will be unable to commercialize them.

In the future, we may develop pharmaceutical product candidates using our ~~precision medicine platform~~therapeutics pipeline that require FDA approval of a New Drug Application ~~or NDA,~~("NDA"), or a BLA before marketing or sale in the United States. In the NDA or BLA process, we, or our collaborative partners, must provide the FDA and similar foreign regulatory authorities with data from preclinical and clinical studies that demonstrate that our product candidates are safe and effective, or in the case of biologics, safe, pure, and potent, for a defined indication before they can be approved for commercial distribution. The FDA or foreign regulatory authorities may disagree with our clinical trial designs and our interpretation of data from preclinical studies and clinical trials. The processes by which regulatory approvals are obtained from the FDA and foreign regulatory authorities to market and sell a new product are complex, require a number of years, depend upon the type, complexity, and novelty of the product candidate, and involve the expenditure of substantial resources for research, development, and testing. The FDA and foreign regulatory authorities have substantial discretion in the drug approval process and may require us to conduct additional nonclinical and clinical testing or to perform post-marketing studies. Further, the implementation of new laws and regulations, and revisions to FDA clinical trial design guidance, may lead to increased uncertainty regarding the approvability of new drugs.

Applications for our drug or biologic product candidates could fail to receive regulatory approval for many reasons, including, but not limited to, the following:

This lengthy approval process, as well as the unpredictability of the results of clinical trials, may result in our failing to obtain regulatory approval to market any of our product candidates, which would seriously harm our business. In addition, the FDA may recommend advisory committee meetings for certain new molecular entities, and if warranted, require a Risk Evaluation and Mitigation Strategy ~~or REMS,~~("REMS"), to assure that a drug’s benefits outweigh its risks. Even if we receive regulatory approval of a product, the approval may limit the indicated uses for which the drug may be marketed or impose significant restrictions or limitations on the use and/or distribution of such product.

In addition, in order to market any pharmaceutical or biological product candidates that we develop in foreign jurisdictions, we, or our collaborative partners, must obtain separate regulatory approvals in each country. The approval procedure varies among countries and can involve additional testing, and the time required to obtain approval may differ from that required to obtain FDA approval. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. Conversely, failure to obtain approval in one or more jurisdictions may make approval in other jurisdictions more difficult. These laws, regulations, additional requirements and changes in interpretation could cause non-approval or further delays in the FDA’s or other regulatory authorities’ review and approval of our and our collaborative partner’s product candidates, which would materially harm our business and financial condition and could cause the price of our securities to fall.

The marketing authorization process is expensive, time-consuming, and uncertain, and we may not be able to obtain or maintain authorizations for the commercialization of some or all of our product candidates.

The product candidates associated with our ~~precision medicine platform~~therapeutics pipeline and the activities associated with their development and commercialization, including their design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, and distribution, export, and import, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by the European Medicines Agency and comparable regulatory authorities in other countries. We have not received authorization to market any of our product candidates from regulatory authorities in any jurisdiction. Failure to obtain marketing authorization for a product candidate will prevent us from commercializing the product candidate.

Securing marketing authorizations may require the submission of extensive preclinical and clinical data and other supporting information to the various regulatory authorities for each therapeutic indication to establish the product candidate’s safety and efficacy, or in the case of product candidates regulated as biologics, such product candidate’s safety, purity, and potency. Securing regulatory authorization generally requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Our product candidates may not be effective, may be only moderately effective, or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may preclude our obtaining marketing authorization or prevent or limit commercial use.

The process of obtaining marketing authorizations, both in the United States and abroad, is expensive, may take many years if additional clinical trials are required, if authorization is obtained at all, and can vary substantially based upon a variety of factors, including the type, complexity, and novelty of the product candidates involved. Changes in marketing authorization policies during the development period, changes in or the enactment of additional statutes or regulations, or changes in regulatory review for each submitted product application, may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application we submit, or may decide that our data is insufficient for approval and require additional preclinical, clinical, or other studies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit, or prevent marketing authorization of a product candidate. Any marketing authorization we or our collaborators ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved ~~medicine~~product not commercially viable.

Accordingly, if we or our collaborators experience delays in obtaining authorization or if we or they fail to obtain authorization of our product candidates, the commercial prospects for our product candidates may be harmed and our ability to generate revenue will be materially impaired.

~~Our~~Disruptions at the FDA, the SEC and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire and retain key leadership and other personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.

The ability of the FDA to review regulatory filings and our ability to commence human clinical trials can be affected by a variety of factors, including government budget and funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC, and other government agencies on which our operations may rely, including those that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for the review and approval of INDs, which would adversely affect our business. For example, in recent years, including in 2018 and 2019, the U.S. government shut down several times and certain regulatory agencies, such as the FDA and the SEC, had to furlough critical employees and stop critical activities. If a prolonged government shutdown 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, future government shutdowns could impact our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

If a prolonged government shutdown occurs, or if global health concerns prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory authorization, limit the commercial profile of an approved label or result in significant negative consequences following marketing approval, if granted.

The use of our ~~current products and precision medicine~~ product candidates could be associated with side effects or adverse events, which can vary in severity (from minor reactions to death) and frequency (infrequent or prevalent). Side effects or adverse events associated with the use of our product candidates may be observed at any time, including in clinical trials or when a product is commercialized. Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory authorization by the FDA or other comparable foreign authorities. Results of our trials could reveal a high and unacceptable severity and prevalence of side effects such as toxicity or other safety issues and could require us or our collaboration partners to perform additional studies or halt development or sale of these product candidates or expose us to product liability lawsuits, which would harm our business and financial results. In such an event, we may be required by regulatory agencies to conduct additional animal or human studies regarding the safety and efficacy of our product candidates, which we have not planned or anticipated or our studies could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us to cease further development of or deny or withdraw approval of our product candidates for any or all targeted indications. There can be no assurance that we will resolve any issues related to any product-related adverse events to the satisfaction of the FDA or any other regulatory agency in a timely manner, if ever, which could harm our business, operating results, financial condition and prospects.

Additionally, product quality characteristics have been shown to be sensitive to changes in process conditions, manufacturing techniques, equipment or sites and other such related considerations, hence any manufacturing process changes we implement prior to or after regulatory authorization could impact product safety and efficacy.

Product-related side effects could affect patient recruitment for clinical trials, the ability of enrolled patients to complete our studies or result in potential product liability claims. We currently carry product liability insurance and we are required to maintain product liability insurance pursuant to certain of our ~~license~~ agreements. We believe our product liability insurance coverage is

sufficient in light of our current clinical programs;however,wemaynotbeabletomaintaininsurancecoverageatareasonablecostorinsufficient amounts to protect us against losses due to liability, or such insurance coverage may not be sufficient to cover all losses. A successful product liability claim or series of claims brought against us could adversely affect our business, operating results, and financial condition. In addition, regardless of merit or eventual outcome, product liability claims may result in impairment of our business reputation, withdrawal of clinical study participants, costs due to related litigation, distraction of management’s attention from our primary business, initiation of investigations by regulators, substantial monetary awards to patients or other claimants, the inability to commercialize our product candidates and decreased demand for our product candidates, if authorized for commercialsale. Additionally, if one or more of our product candidates receives marketing authorization, and we or others later identify undesirable side effects caused by such products, a number of potentially significant negativeconsequencescouldresult,including,butnotlimitedto:

Any of these events could prevent us from achieving or maintaining market acceptance of a particular product candidate, if approved, and could significantly harm our business, operating results, financial condition, and prospects.

If we receive marketing authorization, regulatory agencies including the FDA and foreign authorities enforce requirements that we report certain information about adverse medical events. For example, under FDA medical device reporting regulations, medical device manufacturers are required to report to the FDA information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of our device (or any similar future product) were to recur. We may fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to investigate and report these events to the FDA within the required timeframes, or at all, the FDA could take enforcement action against us. Any such adverse event involving our products also could result in future corrective actions, such as recalls or customer notifications, or agency action, such as inspection or enforcement action. Any corrective action, whether voluntary or involuntary, including any legal action taken against us, will require us to devote significant time and capital to the matter, distract management from operating our business, and may harm our reputation and financial results.

~~Our products, including our precision medicine product candidates under development, if authorized for marketing, may be subject to product recalls.~~

The FDA and similar foreign governmental authorities have the authority to require the recall of certain commercialized products over which they exercise oversight in the event of material deficiencies or defects in design or manufacture or a public health/safety issue. In addition, foreign governmental bodies have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacture or a public health/safety issue. Manufacturers may, under their own initiative, recall a product if any material deficiency is found. The FDA requires that certain recalls of medical devices be reported to the FDA within 10 working days after the recall is initiated. We may initiate voluntary recalls involving our products in the future that we determine do not require us to notify the FDA. Companies are required to maintain certain records of recalls, even if they are not reportable to ~~the~~ FDA. If the FDA disagrees with our determinations, they could require us to report those actions as recalls. In addition, the FDA could bring an enforcement action against us based on our failure to report the recalls when they were conducted. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of component failures, manufacturing errors, design or labeling defects or other deficiencies and issues. Once marketed, recalls of any of our products, including our precision medicine products, would divert managerial and financial resources and could have a material and adverse effect on our business, operating results, and financial condition. A future recall announcement could harm our reputation with customers and negatively affect our sales.

~~Our relationship with Avero Diagnostics may be challenged, and a successful challenge could adversely affect our operating structure.~~

We provide anatomic and molecular pathology testing through our affiliation with Mattison Pathology, LLP, a Texas limited liability partnership doing business as Avero Diagnostics, located in Lubbock and Irving, Texas. The laws of certain states in which we operate or may operate in the future prohibit non-physician entities from practicing medicine, exercising control over physicians or engaging in certain practices such as fee-splitting with physicians. Although we believe that we have structured our affiliation with Avero Diagnostics to ensure that the physicians maintain exclusive authority regarding the delivery of medical care, there can be no assurance that these laws will be interpreted in a manner consistent with our practices or that other laws or regulations will not be enacted in the future that could have a material and adverse effect on our business, operating results, and financial condition. Regulatory authorities and other parties, including our associated physicians, may assert that, despite the management service agreement and other arrangements through which we operate, we are engaged in the prohibited corporate practice of medicine, and/or that our arrangement with Avero Diagnostics constitutes unlawful fee-splitting. If a corporate practice of medicine or fee-splitting law is interpreted in a manner that is inconsistent with our practices, we would be required to restructure or terminate our relationship with Avero Diagnostics to bring its activities into compliance with such law. A determination of noncompliance, the termination of or failure to successfully restructure this relationship could result in disciplinary action, penalties, damages, fines, and/or a loss of revenue, any of which could have a material and adverse effect on our business, operating results, and financial condition.

~~Defects or failures associated with our products could lead to recalls or safety alerts and negative publicity.~~

Manufacturing flaws, component failures, design defects, off-label uses, or inadequate disclosure of product-related information could result in an unsafe condition or the injury or death of a patient. These problems could lead to a recall of, or issuance of a safety alert relating to, our commercialized products, and result in significant costs and negative publicity. A material adverse event involving one of our products could result in reduced market acceptance and demand for all products within that brand, and could harm our reputation and our ability to market our products in the future. In some circumstances, material adverse events arising from or associated with the design, manufacture or marketing of our products could result in among other things, labeling changes reflecting the updated safety information, regulatory requirements to issue communications to prescribers and/or conduct additional studies, or the suspension or delay of regulatory reviews of our applications for new marketing authorizations. We also may undertake a voluntary recall of products, or temporarily shut down production lines based on performance relative to our own internal safety and quality monitoring and testing data. Any of these problems could disrupt our business and have a material and adverse effect on our business, operating results, and financial condition.

We may not comply with laws regulating the protection of the environment and health and human safety.

Our research and development involves, or may in the future involve, the use of hazardous materials and chemicals and certain radioactive materials and related equipment. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials. Insurance may not provide adequate coverage against potential liabilities, and we do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us. Additional federal, state, and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.

Unfavorable global economic conditions, whether brought about by global crises, health epidemics, military conflicts and war, geopolitical and trade disputes or other factors, may have a material adverse effect on our business and financial results.

Our ~~failure~~business is sensitive to ~~comply with radio frequency regulations could impair our ability~~global economic conditions, which can be adversely affected by public health crises (including the COVID-19 pandemic) and epidemics, political and military conflicts, trade and other international disputes, significant natural disasters (including as a result of climate change) or other events that disrupt macroeconomic conditions. Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs and other barriers to ~~commercially distribute~~trade, changes to fiscal and ~~market our precision medicine product candidates~~monetary policy or government budget dynamics (particularly in the ~~applicable country or region.~~

~~Our PIL Dx precision medicine product candidate under development includes a wireless radio frequency transmitter~~pharmaceutical and ~~receiver,~~biotech areas), tighter credit, higher interest rates, volatility in financial markets, high unemployment, labor availability constraints, currency fluctuations and ~~is therefore subject to equipment authorization requirements~~other challenges in the ~~United States~~global economy have in the past adversely affected, and ~~elsewhere. In~~may in the ~~United States~~future adversely affect, us and ~~certain other countries, authorities often require advance clearance~~our business partners and suppliers.

For example, military conflicts or wars (such as the ongoing conflicts between Russia and Ukraine and Israel and surrounding areas) can cause exacerbated volatility and disruptions to various aspects of ~~radio frequency devices before they can be sold~~the global economy. The uncertain nature, magnitude, and duration of hostilities stemming from such conflicts, including the potential effects of sanctions and counter-sanctions, or ~~marketed in these jurisdictions, subject~~retaliatory cyber-attacks on the world economy and markets, have contributed to ~~limited exceptions. Modifications to our precision medicine product candidate’s design~~increased market volatility and specifications may require new or further marketing authorizations before we are permitted to market and sell modified precision medicine products. If we are unable to obtain any required marketing authorizations from the authorities responsible for the radio frequency regulations, the sale or use of our precision medicine product candidateuncertainty, which could ~~be prevented in such countries. Any such action could negatively~~have an adverse impact on macroeconomic factors that affect our business ~~operating results,~~and operations, such as worldwide supply chain issues. It is not possible to predict the short and long-term implications of military conflicts or wars or geopolitical tensions which could include further sanctions, uncertainty about economic and political stability, increases in inflation rate and energy prices, cyber-attacks, supply chain challenges and adverse effects on currency exchange rates and financial ~~condition.~~markets.

~~The marketing, sale,~~Additionally, our operations and ~~use~~facilities, as well as operations of our ~~products could result~~service providers and manufacturers, may be located in ~~substantial damages arising~~areas that are prone to earthquakes and other natural disasters. Such operations and facilities are also subject to the risk of interruption by fire, drought, power shortages, nuclear power plant accidents and other industrial accidents, terrorist attacks and other hostile acts, ransomware and other cybersecurity attacks, telecommunication failure, labor disputes, public health crises (including the COVID-19 pandemic) and other events beyond our control. Global climate change is resulting in certain types of natural disasters occurring more frequently or with more intense effects. If a natural disaster or other event occurred that prevented us from ~~product liability~~using all or ~~professional liability claims that exceed our insurance coverage and resources.~~

~~The marketing, sale and use~~a significant portion of our ~~products could lead to product liability claims against us if someone were to allege~~headquarters, that damaged critical infrastructure, such as the manufacturing facilities of our ~~test~~third-party contract manufacturers, or ~~other product failed to perform as~~that otherwise disrupted operations, it ~~was designed, or caused harm to an individual, or if someone were to misinterpret test results. We~~ may be ~~subject to liability for errors~~difficult or, in a misunderstanding of, or inappropriate reliance upon, the information we provide as part of the results generated by our tests. For example, Innatal could provide a low-risk result for a chromosomal abnormality upon which a patient or physician may rely to make a conclusion about the health of the fetus, which may, in fact, have the condition because the Innatal result was a false negative. As another example, Preparent could provide a low-risk result regarding the carrier status of a disorder of an expectant parent upon which a patient or physician may rely to make a conclusion about the health of the fetus, which may, in fact, have the condition because the Preparent result was a false negative. If the resulting baby is born with the condition, the family may file a lawsuit against us claiming product liability or professional liability.

In addition, we may be subject to product liability claims and lawsuits, including potential class actions, alleging that our products have resulted in or could result in an unsafe condition or injury. The product candidates we are developing using our precision medicine platform are designed to be ingested, and there are a number of factors that could result in an unsafe condition or injury to, or death of, a patient with respect to these or other products that we sell. A product liability or professional liability claim could result in substantial damages and be costly and time-consumingcertain cases, impossible for us to ~~defend. Although~~continue our business for a substantial period of time. Because we ~~maintain product~~rely on a single or limited sources for the supply and ~~professional liability insurance,~~manufacture of many

critical components, a business interruption affecting such sources would exacerbate any negative consequences on our ~~insurance~~business. We may not ~~fully protect~~carry sufficient business interruption insurance to compensate us ~~from~~for all losses that may occur.

Any public health crises, including the ~~financial impact~~COVID-19 pandemic, may affect our operations and those of ~~defending against product liability~~third parties on which we rely, including our business partners and suppliers. To date, we are aware of certain suppliers for our R&D activities who have experienced operational delays directly related to the COVID-19 pandemic. In the past three years, the COVID-19 pandemic has caused, and likely will continue to cause, significant volatility and uncertainty in U.S. and international markets, disruptions to our business and delays in our preclinical studies, clinical trials and timelines, including as a result of impacts associated with protective health measures that we, other businesses and governments are taking or professional liability claims or any judgments, fines or settlement costs arising out of any such 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 coveragemight have to take again in the ~~future. Additionally, any product liability or professional liability lawsuit could harm our reputation, result~~future to manage the pandemic. The extent to which the COVID-19 pandemic and measures taken in ~~a cessation of our testing, or cause our partners to terminate existing agreements and potential partners to seek other partners, any of which could adversely~~response thereto impact our business, ~~operating~~ results of operations and financial ~~condition.~~condition will depend on future developments which are highly uncertain and difficult to predict.

Our operating results may fluctuate significantly, which could adversely impact the value of our common stock.

Our operating results, including our revenues, gross margin, profitability, and cash flows, have varied in the past and may vary significantly in the future, and period-to-period comparisons of our operating results may not be meaningful. Accordingly, our results should not be relied upon as an indication of future performance. Our operating results, including quarterly financial results, may fluctuate as a result of a variety of factors, many of which are outside of our control. Fluctuations in our results may adversely impact the value of our common stock. Factors that may cause fluctuations in our financial results include, without limitation, those listed elsewhere in this “Risk Factors” section. In addition, our results may fluctuate due to the fact that we recognize costs as they are incurred, but there is typically a delay in the related revenue recognition as we record most revenue only upon receipt of payment.

~~Accordingly, to the extent our revenues increase, we may experience increased costs unless and until the related revenues are recognized. In addition,~~ as we increase our ~~internal sales and marketing and~~ research and development efforts, we expect to incur costs in advance of achieving the anticipated benefits of such efforts. We also may face competitive pricing or reimbursement rate pressures, and we may not be able to maintain our sales volume and/or reimbursement rates in the future, which would adversely affect our business, operating results, and financial~~condition.~~

We may engage in acquisitions that could disrupt our business, cause dilution to our stockholders, or reduce our financial resources.

We have in the past entered into, and may in the future enter into, transactions to acquire other businesses, products, or technologies. Successful acquisitions require us to correctly identify appropriate acquisition candidates and to integrate acquired products or operations and personnel with our own.

Should we make an error in judgment when identifying an acquisition candidate, should the acquired operations not perform as anticipated, or should we fail to successfully integrate acquired technologies, operations, or personnel, we will likely fail to realize the benefits we intended to derive from the acquisition and may suffer other adverse consequences. Acquisitions involve a number of other risks, including:

We cannot predict the number, timing or size of future acquisitions or the effect that any such transactions might have on our business, operating results, and financial condition.

The development and expansion of our business through joint ventures, licensing and other strategic transactions may result in similar risks that reduce the benefits we anticipate from these strategic alliances and cause us to suffer other adverse consequences.

~~Ethical, legal, and social issues related to the use of genetic information could reduce demand for our tests.~~

DNA testing, such as testing that is conducted using Innatal, Preparent and our other products, has raised ethical, legal and social issues regarding privacy and the appropriate uses of the resulting information. Governmental authorities could, for social or other purposes, limit or regulate the use of genomic information or genomic testing or prohibit testing for genetic predisposition to certain conditions, particularly for those that have no known cure. Patients may also refuse to use genetic tests even if permissible, for similar reasons; they may also refuse genetic testing due to concerns regarding eligibility for life or other insurance. Ethical and social concerns may also influence U.S. and foreign patent offices and courts with regard to patent protection for technology relevant to our business.

Although the Genetic Information Non-discrimination Act has criminalized the disallowance of health insurance on the basis of genetic information, modification or retraction of this federal law could dramatically reduce public demand for genetic testing. These and other ethical, legal and social issues may limit market acceptance of our tests or reduce the potential markets for products enabled by our technology platform, either of which could harm our business, operating results, and financial condition.

We may be significantly impacted by changes in tax laws and regulations or their interpretation.

U.S. and foreign governments continue to review, reform and modify tax laws. Changes in tax laws and regulations could result in material changes to the domestic and foreign taxes that we are required to provide for and pay. In addition, we are subject to regular

audits with respect to our various tax returns and processes in the jurisdictions in which we operate. Errors or omissions in tax returns, process failures, or differences in interpretation of tax laws by tax authorities and us may lead to litigation, payments of additional taxes, penalties, and interest. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 ~~or TCJA,~~("TCJA"), was passed into law. The TCJA has given rise to significant one-time and ongoing changes, including, but not limited to, a federal corporate tax rate decrease to 21% for tax years beginning after December 31, 2017, limitations on interest expense deductions, the immediate expensing of certain capital expenditures, the adoption of elements of a partially territorial tax system, new anti-base erosion provisions, a reduction to the maximum deduction allowed for net operating losses generated in tax years after December 31, 2017 and providing for indefinite carryforwards for losses generated in tax years after December 31, 2017. The legislation is unclear in many respects and could be subject to potential amendments and technical corrections, and will be subject to interpretations and implementing regulations by the Treasury and Internal Revenue Service, any of which could mitigate or increase certain adverse effects of the legislation. In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation. Generally, future changes in applicable tax laws and regulations, or their interpretation and application, could have a material and adverse effect on our business, operating results, and financial condition.

Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.

As of December 31, ~~2019,~~2022, we had net operating loss ~~or NOL,~~("NOL") carryforwards of approximately ~~$173.6~~$504.8 million for federal income tax purposes, and ~~$94.7~~$246.3 million for state income tax purposes. The federal NOLs will be carried forward indefinitely and the state NOLs ~~began~~begin expiring in ~~2019.~~2028. Utilization of these NOLs depends on many factors, including our future income, which cannot be assured. Some of these NOLs could expire unused and be unavailable to offset our future income tax liabilities. In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, ~~or the Code,~~ and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percentage point change, by value, in its equity ownership by 5% stockholders over a rolling three-year period, the corporation’s ability to use its pre-change NOLs and other pre-change tax attributes to offset its post-change income may be limited. If we determine that an ownership change has occurred and our ability to use our historical NOLs is materially limited, it could harm our future operating results by effectively increasing our future tax obligations. In addition, under the TCJA, federal NOLs incurred in 2018 and in future years may be carried forward indefinitely but generally may not be carried back and the deductibility of such NOLs is limited to 80% of taxable income. On March 27, 2020, Congress enacted the Coronavirus Aid, Relief and Economic Security Act, known as the CARES Act, which provides some relief from the limitations on the utilization of NOLs and certain other tax attributes described above. During the three months ended March 31, 2020, we recorded a discrete tax benefit of $37.7 million related to the NOL carryback provisions available under the CARES Act for taxes paid in years 2013, 2014, 2015, and 2017, which we refer to as the CARES Act Tax Benefit. If any tax refund is received that is more than $5.0 million in a single year, along with other civil settlements, damages awards, and tax refunds, we have agreed to pay 65% of all such amounts received to accelerate payments to the government in connection with our government settlement. During the three months ended June 30, 2020, we received a tax refund of $22.7 million related to the NOL carryback provisions available under the CARES Act. See Part II, Item 1. “Legal Proceedings—Federal Investigation.”

~~If third-party payors do not adequately reimburse for any new products, they might not be purchased or used, which may adversely affect our revenue and profits.~~

Our future revenues and profitability will depend heavily upon the availability of coverage and adequate reimbursement from governmental and other third-party payors, both in the United States and in foreign markets, for the use of our products, including any potential products such as a test for preeclampsia, precision medicine devices, and pharmaceutical products. Coverage and reimbursement by governmental and commercial third-party payors may depend upon a number of factors, including the determination that the product and its use or administration for a particular patient is:

Obtaining coverage and reimbursement approval for a product from each third-party payor is a time- consuming and costly process that could require us to provide supporting scientific, clinical, and cost- effectiveness data for the use of our products to each payor. We may not be able to provide data sufficient to satisfy third-party payors that the product should be covered and reimbursed. There is substantial uncertainty whether any particular payor will cover and reimburse the use of any product incorporating new technology. Even when a payor determines that a product is eligible for reimbursement, the payor may impose coverage limitations that preclude payment for some uses that are approved by the FDA or a comparable authority. Moreover, eligibility for coverage does not imply that any product will be reimbursed in all cases or at a rate that allows us to make a profit or even cover our costs. Interim payments for new products, if applicable, may also not be sufficient to cover our costs and may not be made permanent. In some instances, payment may only be obtained by engaging in lengthy and costly appeals processes. Reimbursement rates may vary according to the use of the product and the clinical setting in which it is used, may be based on payments allowed for lower-cost products that are already reimbursed, may be incorporated into existing payments for other products, may reflect budgetary constraints and/or imperfections in Medicare, Medicaid or other data used to calculate these rates. Net prices for products may be reduced by mandatory discounts or rebates required by government healthcare programs or by any future relaxation of laws that restrict imports of certain medical products from countries where they may be sold at lower prices than in the United States.

There have been, and we expect that there will continue to be, federal and state proposals to constrain expenditures for medical products, which may affect payments for our products. Governmental and private entities that establish reimbursement policies, including the Centers for Medicare and Medicaid Services, or CMS, frequently change product descriptors, coverage policies, product and service codes, payment methodologies and reimbursement values. Third-party payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and both CMS and other third-party payors may have sufficient market power to demand significant price reductions. Due in part to actions by third-party payors, the healthcare industry is experiencing a trend toward containing or reducing costs through various means, including lowering reimbursement rates, limiting therapeutic class coverage, and negotiating reduced payment schedules with service providers for certain products.

Our inability to promptly obtain coverage and profitable reimbursement rates from third-party payors for our products could have a material and adverse effect on our business, operating results, and financial condition.

~~We may be unable to expand or maintain third-party payor coverage and reimbursement for our Innatal, Preparent, and other tests or other products.~~

Our business depends on our ability to obtain or maintain adequate reimbursement coverage from third- party payors. Third-party reimbursement for our testing represents a significant portion of our revenues, and we expect third-party payors such as third-party commercial payors and government healthcare programs to continue to be our most significant sources of payments in the foreseeable future. In particular, we believe that for us to achieve commercial success it will be necessary to gain acceptance from third-party payors for the screening of microdeletions and for use of NIPT in the average-risk pregnancy population, which population represents roughly 80% of the U.S. pregnancy market, and to obtain positive coverage determinations and favorable reimbursement rates from third-party payors for our tests. We did not receive reimbursement for a significant number of Innatal tests for average-risk patients that we performed in the year ended December 31, 2019. In addition, it is to be determined whether and to what extent certain of our other products, including those under development, will be covered or reimbursed. If we are unable to obtain or maintain coverage or adequate reimbursement from, or achieve in-network status with, third-party payors for our existing or future tests or other products, our ability to generate revenues will be limited. For example, healthcare providers may be reluctant to order our tests or other products due to the potential of a substantial cost to the patient if coverage or reimbursement is unavailable or insufficient.

Leading professional societies may recommend alternatives to our tests in average-risk patient populations, which may provide a basis for third-party payors not to cover or reimburse our tests in those populations.

In making coverage determinations, third-party payors often rely on practice guidelines issued by professional societies. The American College of Obstetricians and Gynecologists, or ACOG, has issued updated guidelines recommending informing pregnant women that Non-Invasive Prenatal Screening, or NIPS, is the most sensitive screening option for trisomy 13, trisomy 18, and Down syndrome, as well as of the availability of the expanded use of NIPT to screen for clinically relevant copy number variants, or CNVs, in the context of counseling that includes the risks/benefits and limitations of screening for CNVs. A CNV is a genetic mutation in which a segment of the genome has been deleted or duplicated, including microdeletions in which a small segment of a chromosome is deleted. The International Society for Prenatal Diagnosis has issued guidelines that are supportive of performing NIPT in average-risk pregnancies, as well as high-risk pregnancies. The American College of Medical Genetics, or ACMG, has also provided support for the use of NIPT in the general population. However, the Society for Maternal Fetal Medicine, or SMFM, has issued guidelines for NIPT stating that, while all pregnant women should be informed of the option to receive NIPT, conventional screening methods, such as traditional serum screening, rather than NIPT, remain the most appropriate choice for first-line screening

for average-risk pregnancies. Therefore, while we expect the ACOG and SMFM guidelines to result in an increase in the number of average-risk women who are informed of NIPT and that may request it as a result, not all third-party~~payorsreimburseforNIPTfortheseaverage-riskpatients.~~

Currently, Aetna, UnitedHealthcare, and a number of other third-party payors have negative coverage determinations for NIPT in average-risk patient populations, meaning that their policy is not to reimburse for NIPT for patients in the average-risk or general population. The SMFM guidelines also echoed a previous statement from SMFM that routine screening for microdeletions should not be performed. Many third-party payors do not cover microdeletions screening. We have experienced, and may continue to experience, a negative impact on third-party payors’ coverage for Innatal for microdeletions, at least until additional validation data on the sensitivity and specificity of our tests becomes available. We may not be able to obtain positive coverage determinations for our tests. If third- party payors do not reimburse for NIPT for average-risk pregnancies or microdeletions in the future, our operating results would be adversely affected, particularly to the extent that we continue to perform large volumes of tests for which third-party payors do not cover.

~~New reimbursement methodologies applicable to our tests, including new CPT codes, may decrease reimbursement rates from third-party payors.~~

In the United States, the American Medical Association, or AMA, generally assigns specific billing codes for laboratory tests under a coding system known as Current Procedure Terminology, or CPT, which we and our ordering healthcare providers must use to bill and receive reimbursement for our tests. Once the CPT code is established, CMS establishes payment levels and coverage rules under Medicare while private payors independently establish rates and coverage rules. A CPT code specific to NIPT for aneuploidies was implemented, effective January 1, 2015, and a CPT code for microdeletions was implemented, effective January 1, 2017. CMS has established a pricing benchmark of $802 for aneuploidy and microdeletions testing. However, our microdeletions reimbursement has decreased under this new code because third-party payors are declining to reimburse under this new code or reimbursing at a much lower rate than we had previously received. Furthermore, we cannot guarantee that we will be able to negotiate favorable rates for this code or receive reimbursement at all if we are unable to collect and publish additional data and obtain positive coverage determinations for Innatal for microdeletions. In addition, effective January 1, 2019, the AMA approved the use of a CPT code for expanded carrier screening tests, which may similarly cause reimbursement for our Preparent expanded carrier screening tests to decline. We do not currently have assay-specific CPT codes assigned for all of our tests, and there is a risk that we may not be able to obtain such codes or, if obtained, we may not be able to negotiate favorable rates for such codes.

We currently submit for reimbursement using CPT codes based on the guidance of outside coding experts and legal counsel. There is a risk that the codes we currently submit may be rejected or withdrawn or that third-party payors will seek refunds of amounts that they claim were inappropriately billed based on either the CPT code used, or the number of units billed. In addition, third-party payors may not establish positive coverage policies for our tests or adequately reimburse for any CPT code we may use, or seek recoupment for testing previously performed, which have occurred in the past.

Billing disputes with third-party payors may decrease realized revenue and may lead to requests for recoupment of past amounts paid.

Prior to the shutdown of our Laboratory Operations, which occurred in 2021, we operated clinical laboratories and billed for tests. Payors dispute our billing or coding from time to time and we deal with requests for recoupment from third-party payors from time to time in the ordinary course of our business (see Note 9 to our condensed consolidated financial statements included elsewhere in this Quarterly Report for additional information regarding current recoupment requests). We continue to receive recoupment requests and we expect these disputes and requests for recoupment ~~to continue.~~may continue for a period of time in the future. Third-party payors may decide to deny payment or recoup payment for testing that they contend to have been not medically necessary, against their coverage determinations, or for which they have otherwise overpaid, and we may be required to refund reimbursements already received. We have entered into settlement agreements with government and commercial payors in order to settle claims related to past billing practices that have since been discontinued. For more information on these disputes, see Part I, Item 1. “Business—Commercial Third-Party Payors” in our Annual Report. Additionally, the Patient Protection and Affordable Care Act, as amended by the Healthcare and Education Reconciliation Act of 2010 ~~or collectively,~~(collectively, the ~~ACA,~~"ACA"), enacted in March 2010, requires providers and suppliers to report and return any overpayments received from government payors under the Medicare and Medicaid programs within 60 days of identification. Failure to identify and return such overpayments exposes the provider or supplier to liability under federal false claims laws and the ~~OIG’s~~ healthcare enforcement authorities, ~~and as a potential violation~~of Office of Inspector General of the ~~Corporate Integrity Agreement’s obligations to report substantial overpayments to the OIG.~~Department of Health and Human Services ("OIG"). Claims for recoupment also require the time and attention of our management and other key personnel, which can be a distraction from operating our business.

~~If third-party payors deny payment for testing, reimbursement revenue for our testing could decline.~~ If a third-party payor successfully challenges that payment to us for prior testing was in breach of contract or otherwise contrary to policy or law, they may recoup payment, which amounts could be significant and would impact our operating results and financial ~~condition, and it may decrease reimbursement going forward.~~condition. We may also decide to negotiate and settle with a third-party payor in order to resolve an allegation of overpayment. In the past, we have negotiated and settled these types of claims with third-party payors. We may be required to resolve further disputes in the future. For example, after the closure of our Laboratory Operations, we received several managed Medicaid payor recoupment requests aggregating to $1.1 million, which we dispute. We can provide no assurance that we will not receive similar claims for recoupment from other third-party payors in the future. For more information on this claim, see Part I, Item 1. “Business—Reimbursement—Payor Dispute” in our Annual Report. Any of these outcomes, including recoupment or reimbursements, might also require us to restate our financials from a prior period, any of which could have a material and adverse effect on our business, operating results, and financial condition.

~~“Most favored nation” provisions in contracts with third-party payors may limit potential for revenue growth and may lead to claims for recoupment.~~48

Some of our contracts with third-party payors contain “most favored nation” provisions, pursuant to which we have agreed that we will not bill the third-party payor more than we bill any other third-party payor. These contract provisions limit the amount we are able to charge for our products. These most favored nation provisions may require us to forego revenues from some third-party payors or reduce the amount we bill to each third-party payor with a most favored nation clause in its contract, which could have a material and adverse effect on our business, operating results, and financial condition. We monitor our billing and claims submissions for compliance with these contractual requirements with third-party payors. If we do not successfully manage compliance with these provisions, this could also subject us to claims for recoupment, which could result in an obligation to repay amounts previously earned.

~~When third-party payors deny coverage, we are often unable to collect from the patient or any other source and risk disputes if we attempt to do so.~~

If a third-party payor denies coverage, or if the patient has a large deductible or co-insurance amount, it may be difficult for us to collect from the patient, and we may not be successful in doing so. If we are in-network, we are often contractually prohibited from seeking payment from the patient. If we are out-of-network, we are often unable to collect the full amount of a patient’s responsibility, despite our good faith efforts to collect. As a result, we cannot always collect the full amount due for our tests when third-party payors deny coverage, cover only a portion of the invoiced amount or the patient has a large deductible, which may cause payors to raise questions regarding our billing policies and patient collection practices. We have in the past received, and we may in the future receive, inquiries from third-party payors regarding our billing policies and collection practices in these circumstances. Guidance from third-party payors regarding billing and patient collection practices will continue to evolve and may also impact our compliance with applicable requirements. While we have addressed these inquiries as and when they have arisen, there is no guarantee that we will be successful in addressing such concerns, and if we are unsuccessful, this may result in a third-party payor deciding to reimburse for our tests at a lower rate or not at all, seeking recoupment of amounts previously paid to us, or bringing legal action to seek reimbursement of previous amounts paid. Any of such occurrences could cause reimbursement revenue for our testing, which constitutes the large majority of our revenue, to decline. Additionally, if we were required to make a repayment, such repayment could be significant, which could have a material and adverse effect on our business, operating results, and financial condition.

~~Our revenues may be adversely impacted if third-party payors withdraw coverage or provide lower levels of reimbursement due to changing policies, billing complexities or other factors.~~

We are in-network, or under contract, with some of the third-party payors from whom we receive reimbursement; this means that we have agreements with such third-party payors that govern approval or payment terms. However, these contracts do not guarantee reimbursement for all testing we perform. For example, many third-party payors with whom we have written agreements have policies that state they will not reimburse for use of NIPT for average-risk pregnancies or for the screening of microdeletions, or do not have a policy in place to reimburse for microdeletions screening. In addition, the terms of certain of our agreements require a physician or qualified practitioner’s signature on test requisitions or require other controls and procedures prior to conducting a test. In particular, third-party payors have been increasingly requiring prior authorization to be obtained prior to conducting a test as a condition to reimbursing for the test. This has placed a burden on our billing operations as we have to dedicate resources to monitor that these prior authorization requirements are met and to conduct follow-up and address issues as they arise, and has also impacted our operating results, including our gross margins, since these requirements began to take effect in 2017. To the extent we or the healthcare providers ordering our tests do not follow the prior authorization requirements, we may be subject to claims for recoupment of reimbursement amounts previously paid to us, or may not receive some or all of the reimbursement payments to which we would otherwise be entitled. This has occurred in some cases in the past and may occur in the future, which could have a material and adverse effect on our business, operating results, and financial condition.

Where we are considered to be an out-of-network provider, which is the case with some of the largest third-party payors from whom we currently receive reimbursement, such third-party payors could withdraw coverage and decline to reimburse for our tests in the future, for any reason. They can also impose prior authorization requirements through the terms of the patients’ health plans. 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 on accounts, which also increases our risk of non-payment. Negotiating reimbursement on a case-by-case basis also typically results in the receipt of reimbursement at a significant discount to the list price of our tests.

Even if we are being reimbursed for our tests, third-party payors may unilaterally review and adjust the rate of reimbursement, require co-payments from patients or stop paying for our tests. Government healthcare programs and other third-party payors continue to increase their efforts to control the cost, utilization, and delivery of healthcare services by demanding price discounts or rebates and limiting coverage of, and amounts they will pay for, molecular tests. These measures have resulted in reduced payment rates and decreased utilization in the clinical laboratory industry. Because of these cost- containment measures, governmental and commercial third-party payors—including those that currently reimburse our tests—may reduce, suspend, revoke or discontinue payments or coverage at any time.

Reduced reimbursement of our tests may harm our business, operating results, and financial condition. Billing for clinical laboratory testing services is complex. We perform tests in advance of payment and without certainty as to the outcome of the billing process. In cases where we expect to receive a fixed fee per test due to our reimbursement arrangements, we may nevertheless encounter variable reimbursement, leading to disputes over pricing and billing. Each third-party payor typically has different billing requirements, and the billing requirements of many payors have become increasingly difficult to meet. Among the factors complicating our billing of third-party payors are:

~~These risks related to billing complexities, and the associated uncertainty in obtaining payment for our tests, could harm our business, operating results, and financial condition.~~

~~Our status as an out-of-network provider with large commercial third-party payors may cause healthcare providers to avoid recommending our tests.~~

We are considered to be an out-of-network provider with respect to some of the largest commercial third-party payors from whom we currently receive reimbursement. Physician groups and other healthcare providers may view this negatively and may insist upon only using reference laboratories that are in-network with their patients’ insurance companies. These types of decisions could reduce our revenue, and harm our financial condition.

~~Changes in government healthcare policy could increase our costs and negatively impact coverage and reimbursement for our tests by governmental and other third-party payors.~~

The U.S. government has shown significant interest in pursuing healthcare reform and reducing healthcare costs. Government healthcare policy has been and will likely continue to be a topic of extensive legislative and executive activity in the U.S. federal government and many U.S. state governments. As a result, our business could be affected by significant and potentially unanticipated changes in government healthcare policy, such as changes in reimbursement levels by government third- party payors. Any such changes could substantially impact our revenues, increase costs, and divert management attention from our business strategy. We cannot predict the impact of governmental healthcare policy changes on our future business, operating results, and financial condition. In the United States, the ACA was signed into law in March 2010 and significantly impacted the U.S. pharmaceutical and medical device industries, including the diagnostics sector, in a number of ways. Among other things, the ACA expanded healthcare fraud and abuse laws such as the False Claims Act and the Anti-Kickback Statute, including but not limited to required disclosures of financial arrangements with physician customers, required reporting of discovered overpayments, lower thresholds for violations, new government investigative powers, and enhanced penalties for such violations. The ACA restricts insurers from charging higher premiums or denying coverage to individuals with pre-existing conditions, and requires insurers to cover certain preventative services without charging any copayment or coinsurance, including screening for lung, breast, colorectal and cervical cancers. The ~~ACA~~ also created a new system of health insurance “exchanges” designed to make health insurance available to individuals and certain groups through state- or federally-administered marketplaces in addition to existing channels for obtaining health insurance coverage. In connection with such exchanges, certain “essential health benefits” are intended to be made more consistent across plans, setting a baseline coverage level. The states (and the federal government) have some discretion in determining the definition of “essential

health benefits” and we do not know whether our tests or other products will fall into a benefit category deemed “essential” for coverage purposes across the plans offered in any or all of the exchanges. If any of our tests are not covered by plans offered in the health insurance exchanges, our business,~~operatingresults,andfinancialconditioncould~~be~~adversely~~affected. There have been multiple attempts to repeal ACA or significantly scale back its applicability, which could negatively impact reimbursement for our testing, adversely affect our test volumes, and adversely affect our business, operating results, and financial condition. 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 the Tax Cuts and Jobs Act, 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.” On December 18, 2019, the 5th Circuit Court of Appeals upheld the Texas District Court’s ruling that the individual mandate was unconstitutional, but remanded the case back to the Texas District Court to determine whether the remaining provisions of the ACA were nonetheless valid. On March 2, 2020, the U.S. Supreme Court granted the petitions for writs of certiorari to review the case, although it is unclear when a decision will be made or how the Supreme Court will rule. The repeal of this mandate means that fewer consumers will carry insurance coverage and therefore may be less likely to elect to receive our testing because they would be required to pay out of pocket for such tests. The attempts to repeal the ACA have resulted in considerable uncertainty and concern regarding, for example, a patient’s election to undergo genetic screening and whether doing so may impact health insurance eligibility. Because it is unclear whether or how the ACA may change, and whether and to what extent NIPT, cancer screening or other genetic screening~~may~~be~~affected,~~we~~areuncertainhowourbusinessmay~~be~~impacted.~~

In addition to the ACA, various healthcare reform proposals have also emerged from federal and state governments. The Protecting Access to Medicare Act of 2014, or PAMA, introduced a multi-year pricing program for services payable under the Clinical Laboratory Fee Schedule, or CLFS, that is designed to bring Medicare allowable amounts in line with the amounts paid by private payors. The rule issued by CMS to implement PAMA required certain laboratories to report third-party payor rates and test volumes. Since January 1, 2018, the Medicare payment rate for these tests is equal to the weighted median private payor rate reported to CMS, which for many tests is lower than the previous CLFS payment rates due to the often lower negotiated private payor rates applicable to large commercial laboratories that were required to report data to CMS. While we believe that the new rates will have minimal impact on our business, the rates have been the subject of controversy in the industry, including a lawsuit by the American Clinical Laboratory Association, and it is unclear whether and to what extent the new rates may change. The implementation of the PAMA rates has negatively impacted overall pricing and reimbursement for many clinical laboratory testing services. In addition, federal budgetary limitations and changes in healthcare policy, such as the creation of broad limits for our tests and requirements that beneficiaries of government health plans pay for, or pay for higher portions of, clinical laboratory tests or services received, could substantially diminish the utilization of our tests, increase costs and adversely affect our ability to generate revenues and achieve and sustain profitability.

We cannot predict whether future healthcare initiatives will be implemented at the federal or state level or how any such future legislation, regulation, or initiative may affect us. Current or potential future federal legislation and the expansion of government’s role in the U.S. healthcare industry, as well as changes to the reimbursement amounts paid by third-party payors for our current and future tests, may adversely affect our test volumes and adversely affect our business, operating results, and financial condition.

~~Our revenues may be adversely affected if we are unable to successfully obtain reimbursement from the Medicare program and state Medicaid programs.~~

Our revenues from Medicare are currently very small and were only 2.8% of our total revenues in 2019, given our current product mix and the fact that our testing generally is not received by Medicare beneficiaries. As a result, we do not expect those revenues to change materially with regard to our current commercial products. However, our other products in development may be used by Medicare beneficiaries in the future. Medicare reimbursement can affect both Medicaid reimbursement, which is relevant to NIPT and carrier screening, and reimbursement from commercial third-party payors. Specifically, fee-for-service Medicaid programs generally do not reimburse at rates that exceed Medicare’s fee-for-service rates, and many commercial third-party payors set their payment rates at a percentage of the amounts that Medicare pays for testing services. Medicare reimbursement rates are typically based on the CLFS, set by CMS pursuant to a statutory formula established by Congress. Our current Medicare Part B coverage was not set pursuant to a national coverage determination by CMS. Although we believe that coverage is available under Medicare Part B even without such a determination, we currently lack the certainty afforded by a formal national coverage determination by CMS. Thus, CMS or a regional Medicare Administrative Contractor, or MAC, could issue an adverse coverage determination as to Innatal or Preparent or our future products, if any, which could influence other third-party payors, including Medicaid, and could have a material and adverse effect on our business, operating results, and financial condition.

It is estimated that nearly half of all births in the United States are to state Medicaid program recipients. Each state’s Medicaid program has its own coverage determinations related to our testing, and many state Medicaid programs do not provide their recipients with coverage for our testing. Even if our testing is covered by a state Medicaid program, we must be recognized as a Medicaid provider by the state in which the Medicaid recipient receiving the services resides in order for us to be reimbursed by a state’s Medicaid program. In addition, many Medicaid programs have entered into agreements with managed care plans to have the managed care plans manage the provision of healthcare to that Medicaid program’s beneficiaries. In order for us to enter into contracts to offer our tests to beneficiaries who are enrolled with a Medicaid managed care plan, we must first be recognized as a Medicaid provider in that state, and then contract with the applicable Medicaid managed care program. We are currently recognized by 43 states as a Medicaid provider. It is likely that we will not be able to be recognized as a provider by additional Medicaid programs because some states require that a provider maintain a physical laboratory in that state in order to be recognized; furthermore, some states have closed provider panels, which means that the state does not intend to expand its current provider network and therefore does not intend to recognize additional Medicaid providers. Even if we are recognized as a provider in a state, if Medicare’s CLFS rate for our tests are low, the Medicaid reimbursement amounts are sometimes as low, or lower, than the Medicare reimbursement rate. In addition, as noted above, each state’s Medicaid program has its own coverage determinations related to our testing, and many state Medicaid programs do not provide their recipients with coverage for our testing. As a result of all of these factors, our testing is not reimbursed or only reimbursed at a very low amount by many state Medicaid programs. In some cases, a state Medicaid program’s reimbursement rate for our testing might be zero dollars. Low or zero-dollar Medicaid reimbursement rates for our tests could have a material and adverse effecton~~ourbusiness,operatingresults,andfinancialcondition.~~

~~Federal legislation will increase the pressure to reduce prices of pharmaceutical products paid for by Medicare or may otherwise seek to limit healthcare costs.~~

The Medicare Modernization Act, or MMA, changed the way Medicare covers and reimburses for pharmaceutical products. The legislation introduced a new reimbursement methodology based on average sales prices for pharmaceutical products that are used in hospital settings or under the direct supervision of a physician and, starting in 2006, expanded Medicare coverage for pharmaceutical product purchases by the elderly. In addition, the MMA requires the creation of formularies for self- administered pharmaceutical products and provides authority for limiting the number of pharmaceutical products that will be covered in any therapeutic class and provides for plan sponsors to negotiate prices with manufacturers and suppliers of covered pharmaceutical products. As a result of the MMA and the expansion of federal coverage of pharmaceutical products, we expect continuing pressure to contain and reduce costs of pharmaceutical products. Cost reduction initiatives and other provisions of this legislation could decrease the coverage and price that we may receive for any pharmaceutical product candidates that we may develop using our precision medicine platform in the future and could materially adversely affect our business, operating results and overall financial condition. While the MMA generally applies only to pharmaceutical product benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement policies and any reduction in coverage or payment that results from the MMA may result in a similar reduction in coverage or payments from private payors.

If the validity of an informed consent from a patient is challenged, we could be ~~precluded from billing for such patient’s testing or be~~ forced to ~~stop performing certain tests~~refund amounts previously paid by third-party payors, or to exclude ~~the~~a patient’s data from clinical trial results.

We are required to ensure that all clinical data ~~and blood samples~~and/or patient specimens that we receive have been collected from subjects who have provided appropriate informed consent for us to perform ~~our~~ testing ~~both commercially and~~ in clinical trials. We seek to ensure that the subjects from whom the data and samples are collected do not retain or have conferred on them any proprietary or commercial rights to the data or any discoveries derived from them. A subject’s informed consent could be challenged in the future, and the informed consent could prove invalid, unlawful, or otherwise inadequate for our purposes. Any such findings against us, or our partners, could deny us access to, or force us to stop, testing samples in a particular ~~territory~~area or could call into question the results of our clinical trials. ~~We could also be precluded from billing third-party payors for tests for which informed consents are challenged, or~~In addition, we could be requested to refund amounts previously paid by third-party payors for ~~such tests.~~tests where an informed consent is challenged. We could become involved in legal challenges, which could require significant management and financial resources and adversely affect our operating results.

We may be unable to obtain or maintain third-party payor coverage and reimbursement for our future tests or products.

Our future success will depend on our or our potential partners' ability to obtain or maintain adequate reimbursement coverage from third-party payors. Third-party reimbursement for our testing historically represented a significant portion of our revenues, and we expect third-party payors such as third-party commercial payors and government healthcare programs to be a source of revenue in the future. It is to be determined whether and to what extent certain of our products under development will be covered or reimbursed. If we or our potential partners are unable to obtain or maintain coverage or adequate reimbursement from, or achieve in-network status with, third-party payors for our future tests or other products, our ability to generate revenues will be limited. For example, healthcare providers may be reluctant to order our tests or other products due to the potential of a substantial cost to the patient if coverage or reimbursement is unavailable or insufficient.

If we or our commercial partners act in a manner that violates healthcare laws or otherwise engage in misconduct, we could face substantial penalties and damage to our reputation, and our business operations and financial condition could be adversely affected.

We are subject to healthcare fraud and abuse regulation and enforcement by both the U.S. federal government and the states in which we conduct our business, including:

Furthermore, a development affecting our industry is the increased enforcement of the federal False Claims Act and, in particular, actions brought pursuant to the False Claims Act’s “whistleblower” or “~~qui tam~~”“qui tam” provisions. The False Claims Act imposes liability for, among other things, knowingly presenting, or causing to be presented, a false or fraudulent claim for payment by a federal governmental payor program. The qui tam provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal government for violations of the False Claims Act and permit such individuals to share in any amounts paid by the defendant to the government in fines or settlement.

When an entity is determined to have violated the False Claims Act, it is subject to mandatory damages of three times the actual damages sustained by the government, plus significant mandatory civil penalties ~~of up to approximately $22,000~~ for each false claim. In addition, various states have enacted false claim laws analogous to the federal False Claims Act, and in some cases apply more broadly because many of these state laws apply to claims made to private payors and not merely governmental payors.

~~The rapid growth and expansion of our business may increase the potential for violating these laws or our internal policies and procedures designed to comply with these laws.~~ The evolving interpretations of these laws and regulations by courts and regulators increase the risk that we may be alleged to be, or in fact found to be, in violation of these or other laws and regulations, including pursuant to private qui tam actions brought by individual whistleblowers in the name of the government as described above.

For example, in April 2018, we received a civil investigative demand from SDNY and a HIPAA subpoena issued by SDCA. In May 2018, we received a subpoena from the State of New York Medicaid Fraud Control Unit. Since that time, we have cooperated with federal civil and criminal investigations, and state civil investigations, regarding discontinued legacy billing practices for our NIPT and microdeletion tests and the provision of alleged kickbacks or inducements to physicians and patients. The civil investigations also include inquiries about our laboratory licenses, our enrollment in state Medicaid programs, and the laboratories that performed testing for us.50

On March 31, 2020, we reached an agreement on the monetary terms with the DOJ and the State of New York (with the State of New York Attorney General representing or facilitating the interests of the State AGs) with respect to relevant government health benefit programs to resolve all of the government’s outstanding civil and criminal investigations, including the investigations by SDCA and SDNY, as well as the investigation by the State AGs. The terms of this agreement in principle contemplated that we would enter into a civil settlement agreement providing for payments of $49.0 million in the aggregate over a five-year period, structured as follows: $8.0 million upon entering into the settlement; $4.0 million in December 2020; $5.0 million in December 2021; $7.0 million in December 2022; $8.0 million in December 2023; $9.0 million in December 2024; and $8.0 million in December 2025 for a release of the civil claims and that we would enter into a non-prosecution agreement to resolve all criminal allegations.

The financial terms of these agreements are substantially the same as the agreement on the monetary terms. For additional information regarding these agreements, please see Part II, Item 1. “Legal Proceedings—Federal Investigations.”

Our inability to obtain, on a timely basis or at all, any necessary marketing authorizations for new device products or improvements ~~to our current offerings,~~ could adversely affect our future product commercialization and operating results.

Our ~~planned medical device~~ product candidates ~~and potentially some of our molecular testing products such as our planned preeclampsia test,~~ are expected to be subject to regulation by the FDA, and numerous other federal and state governmental authorities. The process of obtaining regulatory approvals or clearances to market a medical device, particularly from the FDA and regulatory authorities outside the United States, can be costly and time-consuming, and approvals or clearances might not be granted for future products on a timely basis, if at all. To ensure ongoing customer safety, regulatory agencies such as the FDA may re-evaluate their current approval or clearance processes and may impose additional requirements. In addition, the FDA and other regulatory authorities may impose increased or enhanced regulatory inspections for domestic or foreign facilities involved in the manufacture of medical devices.

We may develop new medical devices in connection with our ~~precision medicine platform~~therapeutics pipeline and new molecular test candidates that are regulated by the FDA as medical devices. Unless otherwise exempted, medical devices must receive one of the following marketing authorizations from the FDA before being marketed in the United States: “510(k) clearance,” de novo classification, or PMA. The FDA determines whether a medical device will require 510(k) clearance, de novo classification, or the PMA process based on statutory criteria that include the risk associated with the device and whether the device is similar to an existing, legally marketed product. In the 510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre-amendments device), a device that was originally on the U.S. market pursuant to an approved PMA and later down-classified, or a 510(k)-exempt device. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data are sometimes required to support substantial equivalence. In the process of obtaining PMA approval, the FDA must determine that a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not limited to, technical, ~~pre-clinical,~~preclinical, clinical trial, manufacturing, and labeling data. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices. The process to obtain either 510(k) clearance or PMA will likely be costly, ~~time- consuming,~~time-consuming, and uncertain. However, we believe the PMA process is generally more challenging. Even if we design a product that we expect to be eligible for the 510(k) clearance process, the FDA may require that the product undergo the PMA process. There can be no assurance that the FDA will approve or clear the marketing of any new medical device product that we develop. Even if regulatory approval or clearance is granted, such approval may include significant limitations on indicated uses, which could materially and adversely affect the prospects of the new medical device product.

If a medical device is novel and has not been previously classified by the FDA as Class I, II, or III, it is automatically classified into Class III regardless of the level of risk it poses. The Food and Drug Administration Modernization Act of 1997 established a route to market for low to moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo classification procedure. This procedure allows a manufacturer whose novel device would automatically be classified into Class III to request down-classification of its medical device into Class I or Class II on the basis that the device presents low or moderate risk, rather than requiring the submission and approval of a PMA application.

FDA marketing authorization could not only be required for new products we develop, but also could be required for certain enhancements we may seek to make to our ~~existing tests and other~~future products. Delays in receipt of, or failure to obtain, marketing authorizations could materially delay or prevent us from commercializing our products or result in substantial additional costs that could decrease our profitability. In addition, even if we receive FDA or other regulatory marketing authorizations for a new or enhanced product, the FDA or such other regulator may condition, withdraw, or materially modify its marketing authorization.

~~If we fail to comply with laboratory licensing requirements, we could lose the ability to perform our tests or experience disruptions to our business.~~

We are subject to CLIA, a federal law that regulates clinical laboratories that perform testing on specimens derived from humans for the purpose of providing information for the diagnosis, prevention or treatment of disease. CLIA regulations require clinical laboratories to obtain a certificate and mandate specific standards in the areas of personnel qualifications, administration, and participation in proficiency testing, patient test management and quality assurance. CLIA certification is also required in order for us to be eligible to bill state and federal healthcare programs, as well as many private third- party payors, for our tests. To renew these certifications, we are subject to survey and inspection every two years. Moreover, CLIA inspectors may make random inspections of our clinical laboratory.

We are also required to maintain state licenses to conduct testing in our laboratories. We cannot provide assurance that state authorities will at all times in the future find us to be in compliance with all applicable laws. If a clinical laboratory is out of compliance, the state authority may suspend, restrict or revoke the license to operate the clinical laboratory, assess substantial civil money penalties, or impose specific~~correctiveactionplans.Anysuchactionscouldmateriallyaffectourbusiness.~~

Moreover, several other states require that we hold licenses to test samples from patients in those states. We have obtained licenses from states where we believe we are required to be licensed. From time to time, we may become aware of other states that require out-of-state laboratories to obtain licensure in order to accept specimens from the state, and it is possible that other states do have such requirements or will have such requirements in the future. If we identify any other state with such requirements or if we are contacted by any other state advising us of such requirements, we expect to seek to comply with such requirements. However, there is no assurance that we will be able to obtain any such required license for the particular state.

Any sanction imposed under CLIA, its implementing regulations, or state or foreign laws or regulations governing licensure, or our failure to renew a CLIA certificate, a state license or accreditation, could have a material and adverse effect on our business, operating results and financial condition. For a discussion of an inquiry from the State of Texas regarding our CLIA certification, see Part II, Item 1. “Legal Proceedings—Texas OIG Inquiry.” CMS also has the authority to impose a wide range of sanctions, including revocation of the CLIA certification along with a bar on the ownership or operation of a CLIA- certified laboratory by any owners or operators of the deficient laboratory. If we were to lose our CLIA certification or required state licensure, we would not be able to operate our clinical laboratory and conduct our tests, in full or in particular states, which would adversely impact our business, operating results, and financial condition.

Our ~~precision medicine~~therapeutics product candidates are subject to a complex set of regulations and rigorous enforcement, including by the FDA, ~~DOJ,~~United States Department of Justice ("DOJ"), HHS, and numerous other federal, state, and non-U.S. governmental authorities. To varying degrees, each of these agencies requires us to comply with laws and regulations governing the development, testing, manufacturing, labeling, marketing, and distribution of our ~~products.~~product candidates, if approved. As a part of the regulatory process of obtaining marketing authorization for new products and modifications to ~~existing~~ products, we may conduct and participate in numerous clinical trials with a variety of study designs, patient populations, and trial endpoints. Unfavorable or inconsistent clinical data from existing or future clinical trials or the market’s or FDA’s perception of this clinical data, may adversely impact our ability to obtain product approvals, our position in, and share of, the markets in which we participate, and our business, operating results, and financial condition. We cannot guarantee that we will be able to obtain or maintain marketing authorization for our product candidates and/or enhancements or modifications to ~~existing~~ products, and the failure to maintain or obtain marketing authorization in the future could have a material and adverse effect on our business, operating results, financial condition.

Both before and after a product is commercially released, we and our products are subject to ongoing and pervasive oversight of government regulators. For instance, in the case of any product candidates subject to regulation by the FDA, including those products

candidates in connection with our ~~precision medicine platform,~~therapeutics pipeline, our facilities and procedures and those of our suppliers will be subject to periodic inspections by the FDA to determine compliance with applicable regulations. The results of these inspections can include inspectional observations on FDA’s Form-483, warning letters, or other forms of enforcement. If the FDA or a non-U.S. regulatory agency were to conclude that we are not in compliance with applicable laws or regulations, or that any of our product candidates, if authorized for marketing, are ineffective or pose an unreasonable health risk, the FDA or such other non-U.S. regulatory agency could ban products, withdraw marketing authorizations for such products, detain or seize adulterated or misbranded products, order a recall, repair, replacement, or refund of such products, refuse to grant pending marketing applications, require certificates of non-U.S. governments for exports, and/or require us to notify health professionals and others that the products present unreasonable risks of substantial harm to the public health. The FDA and other non-U.S. ~~government~~regulatory agencies may also assess civil or criminal penalties against us, our officers, or employees and impose operating restrictions on a company-wide basis. The FDA may also recommend prosecution to the DOJ. Any adverse regulatory action, depending on its magnitude, may restrict us from effectively marketing and selling our products and limit our ability to obtain future marketing authorizations, and could result in a substantial modification to our business practices and operations. Furthermore, we occasionally receive investigative demands, subpoenas, or other requests for information from state and federal governmental agencies, and we cannot predict the timing, outcome, or impact of any such investigations. See ~~Part II, Item 1. “Legal Proceedings.”~~Note 9 to our condensed consolidated financial statements included elsewhere in this Quarterly Report. Any adverse outcome in one or more of these investigations could include the commencement of civil and/or criminal proceedings, substantial fines, penalties, and/or administrative remedies, including exclusion from government reimbursement programs and/or amendments to our corporate integrity agreement with the OIG. In addition, resolution of any of these matters could involve the imposition of additional, costly compliance obligations. These potential consequences, as well as any adverse outcome from government investigations, could have a material and adverse effect on our business, operating results, and financial condition.

~~Even if~~Current and future legislation may increase the difficulty and cost for us, and any collaborators, to obtain marketing approval of and commercialize our drug candidates and affect the prices we, ~~obtain regulatory authorizations, our~~or they, may obtain.

To date, there have been several recent U.S. congressional inquiries and proposed and enacted state and federal legislation and regulation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient support programs, reduce the costs of drugs under Medicare and reform government program reimbursement methodologies for drug products. Heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products ~~will be subject to ongoing regulatory review. If we fail to comply with continuing U.S.~~has resulted in several recent Congressional inquiries and ~~foreign regulations, we could lose any marketing authorizations we have obtained~~proposed and ~~our business would be seriously harmed.~~

Even after authorization, any medical products we develop will be subject to ongoing regulatory review, including requirements for manufacturing, labeling, packaging, storage, advertising, promotion, sampling, record-keeping, conduct of post-marketing studies, and submission of safety, efficacy, and other post- market information, including bothenacted federal and state ~~requirements~~legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. We expect that additional state and federal healthcare reform measures will be adopted in the ~~United States~~future, particularly in light of the new presidential administration, any of which could limit the amounts that federal and ~~requirements of comparable foreign regulatory authorities. Any marketing authorizations that we obtain~~state governments will pay for healthcare therapies, which could result in reduced demand for our product candidates or additional pricing pressures. For example, on August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (“IRA”), which, contains provisions intended to lower beneficiary drug spending. Beginning in 2023, the IRA authorizes the CMS to negotiate Medicare reimbursement rates for certain prescription drug products, which may ~~also~~put limits on prices paid for drugs by government health programs. We cannot be ~~subject~~sure whether additional legislation or rulemaking related to ~~limitations~~the IRA will be issued or enacted, or what impact, if any, such changes will have on the ~~indicated uses for which the product may be marketed or to the conditions~~profitability of ~~approval, or contain requirements for potentially costly post- marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate.~~

If a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, or disagrees with the promotion, marketing or labeling of a product, such regulatory agency may impose restrictions on that product or us, including requiring withdrawal of the product from the market. If we fail to comply with applicable regulatory requirements, a regulatory agency or enforcement authority may, among other things:

Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to commercialize and generate revenue from our products. If regulatory sanctions are applied or if regulatory authorization is withdrawn, our business will be seriously harmed.

Moreover, the policies of the FDA and of other regulatory authorities may change and additional government regulations may be enacted that could prevent, limit or delay regulatory authorization of our product candidates. We cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation or administrative or executive action, eitherfor commercial use, in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing authorization that we may have obtained and we may not achieve or sustain profitability.future.

Similarly, our commercial activities are subject to comprehensive compliance obligations under state and federal reimbursement, Sunshine Act, anti-kickback and government pricing regulations. If we make false price reports, fail to implement adequate compliance controls or our employees violate the laws and regulations governing relationships with healthcare providers, we could also be subject to substantial fines and penalties, criminal prosecution and debarment from participation in the Medicare, Medicaid, or other government reimbursement programs. For additional information regarding these risks, see the risk factor titled “If we or our commercial partners act in a manner that violates healthcare laws or otherwise engage in misconduct, we could face substantial penalties and damage to our reputation, and our business operations and financial condition could be adversely affected.” Noncompliance with European Union requirements regarding safety monitoring or pharmacovigilance can also result in significant financial penalties. Similarly, failure to comply with the European Union requirements regarding the protection of personal information can also lead to significant penalties and sanctions.

We and our commercial partners and contract manufacturers are subject to significant regulation with respect to manufacturing medical devices and therapeutic products. The manufacturing facilities on which we rely may not continue to meet regulatory requirements or may not be able to meet supply demands.

Entities involved in the preparation of medical devices and/or therapeutic products for clinical studies or commercial sale, including our manufacturers for the therapeutic products that we may develop, are subject to extensive regulation. Components of a finished medical device or therapeutic product approved for commercial sale or used in late-stage clinical studies must be

manufactured in accordance with cGMP and/orQSRrequirements.Theseregulationsgovernmanufacturingprocessesandprocedures~~(including~~ (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We, our collaboration partners or our contract manufacturers must supply all necessary documentation in support of an NDA, a BLA, a PMA, a 510(k) application, a request for de novo classification, or a Marketing Authorization Application ~~or MAA,~~("MAA"), on a timely basis and must adhere to cGMP regulations enforced by the FDA and other regulatory agencies through their facilities inspection program. Some of our contract manufacturers may have never produced a commercially approved pharmaceutical product and therefore have not been subject to the review of the FDA and other regulators. The facilities and quality systems of some or all of our collaborationpartnersandthird-partycontractorsmustpassapre-approvalinspectionforcompliancewith the applicable regulations as a condition of regulatory approval of our drug and biologic product candidates and may be subject to inspection in connection with a MAA for any of our other potential product candidates. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. Although we oversee our contract manufacturers, we cannot control the manufacturing process of, and are completely dependent on, such contract manufacturing partners for compliance with these regulatory requirements. If these facilities do not pass a pre-approval plant inspection, marketing authorizationsforthe

productsmaynotbegrantedormaybesubstantiallydelayeduntilanyviolationsare corrected to the satisfaction of the regulatory authority, ifever.

The regulatory authorities also may, at any time following approval or clearance of a product for sale, audit the manufacturing facilities of our collaboration partners and third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or ~~time- consuming~~time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical study or commercial sales or the temporary or permanent closure of a facility.

Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.

If we, our collaboration partners or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA or other applicable regulatory authority can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new product candidate, withdrawal of a marketing authorization or suspension of production. As a result, our business, operating results, and financial condition may be materially harmed.

Additionally, if supply from one approved manufacturer is interrupted, an alternative manufacturer will need to be qualified and we may need to obtain marketing authorization for a change in the manufacturer through submission of a PMA supplement, 510(k) pre-market notification, NDA or BLA supplement, MAA variation or other regulatory filing to the FDA or other foreign regulatory agencies, which could result in further delay.

These factors could cause us to incur additional costs and could cause the delay or termination of clinical studies, regulatory submissions, required marketing authorizations or commercialization of our products ~~including product candidates.~~under development. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical studies may be delayed or we could lose potential revenue.

The FDA may modify its enforcement discretion policy with respect to LDTs in a risk-based manner, and we may become subject to extensive regulatory requirements and may be required to conduct additional clinical trials prior to continuing to sell our existing tests or launching any other tests we may develop, which may increase the cost of conducting, or otherwise harm, our business.

We currently market all of our commercial molecular tests as LDTs and may in the future market other tests as LDTs. The FDA has adopted a policy of enforcement discretion with respect to LDTs whereby the FDA does not actively enforce its regulatory requirements for such tests. However, the FDA has stated its intention to modify its enforcement discretion policy with respect to LDTs. If there are changes in FDA policy, or if the FDA disagrees that our marketed tests are LDTs or that we are marketing our tests outside the scope of the FDA’s current policy of enforcement discretion, we may become subject to extensive regulatory requirements and may be required to stop selling our existing tests or launching any other tests we may develop and to conduct additional clinical trials or take other actions prior to continuing to market our tests. If the FDA allows our tests to remain on the market but there is uncertainty about our tests, if they are labeled investigational by the FDA or if labeling claims the FDA allows us to make are very limited, orders from physicians or reimbursement may decline. If required, the regulatory authorization process may involve, among other things, successfully completing additional clinical trials and submitting a 510(k) notice, or filing a ~~de novo~~ classification request or a PMA application with the FDA. If the FDA requires premarket review, our tests may not be cleared or approved on a timely basis, if at all. This could significantly increase the costs and expenses of conducting, or otherwise harm, our business.

While we believe that we are currently in material compliance with applicable laws and regulations as historically enforced by the FDA with respect to LDTs, we cannot assure you that the FDA will agree with our determination. A determination that we have violated these laws and regulations, or a public announcement that we are being investigated for possible violations, could adversely affect our business, prospects,~~results~~of~~operations,andfinancialcondition.~~

~~On July 31, 2014, the FDA notified Congress of its intent to modify, in a risk-based manner, its~~ ~~policy~~ of enforcement discretion with respect to LDTs. On October 3, 2014, the FDA issued two draft guidances, entitled “Framework for Regulatory Oversight of Laboratory Developed Tests (LDTs),” or the Framework Guidance, and “FDA Notification and Medical Device Reporting for Laboratory Developed Tests (LDTs).” The Framework Guidance stated that the FDA intended to modify its ~~policy~~ of enforcement discretion with respect to LDTs in a risk-based manner consistent with the existing classification of medical devices. Thus, pursuant to the Framework Guidance, the FDA planned to begin to enforce its medical device requirements, including premarket submission requirements, on LDTs that have historically been marketed without FDA premarket review and oversight. Although ~~the~~ ~~FDA halted finalization of the guidance in November 2016 to allow for further public discussion on an appropriate oversight approach to LDTs and to give congressional authorizing committees~~ ~~the~~ opportunity to develop a legislative solution, the FDA could ultimately modify its current approach to LDTs in a way that would subject our products marketed as LDTs to the enforcement of regulatory requirements. For example, on January 13, 2017, the FDA issued a discussion paper on LDTs, which proposed a risk-based approach to oversight that would initially focus on premarket review of high-risk tests. If and when such changes to the regulatory framework occur, we could for the first time be subject to enforcement of regulatory requirements as a device manufacturer such as registration ~~and~~ listing requirements, medical device reporting requirements and the requirements of the FDA’s QSR. Additionally, if and when the FDA begins to actively enforce its premarket submission regulations with respect to LDTs, we may be required to obtain premarket clearance or approval for our currently marketed tests and other products we plan to commercialize as LDTs. Moreover, legislative measures have recently been proposed in Congress that, if ultimately enacted, could provide the FDA with additional authority to require premarket review of and regulate LDTs. For example, in late 2018, ~~the~~ ~~FDA proposed to Congress significant reforms to the agency’s regulation of LDTs that would bring~~ ~~all~~ ~~in vitro~~ clinical tests, including LDTs, under a unified framework and would dramatically increase FDA oversight of LDTs. The FDA’s proposal includes premarket review for certain tests, a precertification program to permit approval or clearance of a group of tests based on the review of a representative test, registration and notification requirements, quality system requirements, adverse event reporting, labeling requirements, and explicit authorities for the FDA to revoke the marketing authorization of tests and to take corrective action against test developers. Congress is considering draft legislation that largely incorporates the FDA’s proposal and would increase FDA oversight of clinical laboratories and LDTs. The outcome and ultimate impact of such proposals on our business is difficult to predict at this time. Potential future increased regulation of our LDTs could also result in increased costs and administrative and legal actions for noncompliance, including warning letters, fines, penalties, product suspensions, product recalls, injunctions and other civil and criminal sanctions, which could have a material and adverse effect upon our business, operating results, ~~and~~ ~~financial condition.~~

~~We may be adversely impacted by changes in laws and regulations, or in their application.~~

The industries in which we operate are highly regulated, and failure to comply with applicable regulatory, supervisory, accreditation, registration, or licensing requirements may adversely affect our business, operating results, and financial condition. The laws and regulations governing our research and marketing efforts are extremely complex and in many instances there are no clear regulatory or judicial interpretations of these laws and regulations, which increases the risk that we may be found to be in violation of these laws.

Furthermore, the industries in which we operate are growing, and regulatory agencies such as HHS or the FDA may apply heightened scrutiny to new developments. While we have taken steps to ensure compliance with current regulatory regimes in all material respects, given the nature of such regimes and our geographical diversity, there could be areas where we are noncompliant. Any change in the federal or state laws or regulations relating to our business may require us to implement changes to our business or practices, and we may not be able to do so in a timely or cost-effective manner. Should we be found to be noncompliant with current or future regulatory requirements, we may be subject to sanctions which could include changes to our operations, adverse publicity, substantial financial penalties and criminal proceedings, which may adversely affect our business, operating results, and financial condition by increasing our cost of compliance or limiting our ability to develop, market and commercialize our products. For additional information regarding these risks, see the risk factor titled “If we or our commercial partners act in a manner that violates healthcare laws or otherwise engage in misconduct, we could face substantial penalties and damage to our reputation, and our business operations and financial condition could be adversely affected.”

In addition, there has been a recent trend of increased U.S. federal and state regulation of payments made to physicians, which are governed by laws and regulations including the Stark Law, the federal Anti- Kickback Statute, the Physician Payments Sunshine Act and the federal False Claims Act as well as state equivalents of such laws. Among other requirements, the Stark Law requires laboratories to track, and places a cap on, non-monetary compensation provided to referring physicians.

While we have a compliance plan intended to address compliance with government laws and regulations, including applicable fraud and abuse laws and regulations such as those described in this risk factor, the evolving commercial compliance environment and the need to build and maintain robust and scalable systems to comply with regulations in multiple jurisdictions with different compliance and reporting requirements increases the possibility that we could inadvertently violate one or more of these requirements.

Changes in the way the FDA regulates the reagents, other consumables, and testing equipment we use when developing, validating, and performing our tests could result in delay or additional expense in bringing our tests to market or performing such tests for our customers.

Many of the sequencing instruments, reagents, kits and other consumable products used to perform our testing, as well as the instruments and other capital equipment that enable the testing, are offered for sale as analyte specific reagents, or ASRs, or for research use only, or RUO. ASRs are medical devices and must comply with FDA QSR provisions and other device requirements, but most are exempt from 510(k) and PMA review. Products that are intended for RUO and are labeled as RUO are exempt from compliance with FDA requirements, including the approval or clearance and other product quality requirements for medical devices. A product labeled RUO but which is actually intended for clinical diagnostic use may be viewed by the FDA as adulterated and misbranded under the FD&C Act and subject to FDA enforcement action. The FDA has said that when determining the intended use of a product labeled RUO, it will consider the totality of the circumstances surrounding distribution and use of the product, including how the product is marketed and to whom. The FDA could disagree with a supplier’s assessment that the supplier’s products are RUOs, or could conclude that products labeled as RUO are actually intended for clinical diagnostic use, and could take enforcement action against the supplier, including requiring the supplier to cease offering the product while it seeks clearance or approval. Suppliers of RUO products that we employ in our other tests may cease selling their respective products, and we may be unable to obtain an acceptable substitute on commercially reasonable terms or at all, which could significantly and adversely affect our ability to provide timely testing results to our customers or could significantly increase our costs of conducting business.

Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their ability to hire, retain, or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, cleared, or approved or commercialized in a timely manner or at all, which could negatively impact our business.

The ability of the FDA to review and clear or approve new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also slow the time necessary for new drugs, medical devices, and biologics or modifications to cleared or approved drugs, medical devices, and biologics to be reviewed and/or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.

Separately, in response to the COVID-19 pandemic, the FDA has temporarily postponed routine surveillance inspections of domestic and foreign manufacturing facilities and inspections of foreign products. Regulatory authorities outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory activities, it could significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which could have a material adverse effect on our business.

If the FDA does not conclude that certain of our product candidates satisfy the requirements for the Section 505(b)(2) regulatory approval pathway, or if the requirements for such product candidates under Section 505(b)(2) are not as we expect, the approval pathway for those product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.

We are developing proprietary product candidates, such as ~~PGN-600,~~BT-600, a GI-targeted tofacitinib, for which we may seek FDA approval through the Section 505(b)(2) regulatory pathway. We expect that ~~PGN-600~~BT-600 will be regulated as a ~~drug/device~~drug-device combination product under the drug provisions of the FD&C Act, enabling us to submit NDAs for approval of this product candidate. The ~~Drug Price Competition~~ ~~and~~ ~~Patent Term Restoration Act of 1984, also known as the~~ Hatch-Waxman Act added Section 505(b)(2) to the FD&C Act. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Section 505(b)(2), if applicable to us under the FD&C Act, would allow an NDA we submit to the FDA to rely in part on data in the public

domain or the FDA’s prior conclusions regarding the safety and effectiveness of approved compounds, which could expedite the developmentprogramforourproductcandidatebypotentiallydecreasingtheamountofnonclinicaland/or clinical data that we would need to generate in order to obtain FDA approval. If the FDA does not allow us to pursue the Section 505(b)(2) regulatory pathway as anticipated, we may need to conduct additional nonclinical studies and/or clinical trials, provide additional data and information, and meet additional standards for regulatory approval. If this were to occur, the time and financial resources required to obtain FDA approval for this product candidate, and complications and risks associated with this product candidate, would likely substantially increase. Moreover, inability to pursue the Section 505(b)(2) regulatory pathway could result in new competitive products reaching the market more quickly than our product candidate, which would likely materially adversely impact our competitive position and prospects. Even if we are allowed to pursue the Section 505(b)(2) regulatory pathway, we cannot assure you that our product candidate will receive the requisite approval forcommercialization.

In addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, certain pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’s interpretation of Section 505(b)(2) is successfully challenged, the FDA may change its 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that we submit under Section 505(b)(2). In addition, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to certain requirements designed to protect the patent rights of sponsors of previously approved drugs that are referenced in a Section 505(b)(2) NDA. These requirements may give rise to patent litigation and mandatory delays in approval of our NDAs for up to 30 months or longer depending on the outcome of any litigation. It is not uncommon for a manufacturer of an approved product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. Even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition. In addition, even if we are able to utilize the Section 505(b)(2) regulatory pathway, there is no guarantee this would ultimately lead to streamlined product development or earlier approval.

Moreover, even if our product candidate is approved under Section 505(b)(2), the approval may be subject to limitations on the indicated uses for which the product may be marketed or to other conditions of approval, or may contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product.

The misuse or off-label use of our ~~products or~~ product candidates may harm our reputation in the marketplace, result in injuries that lead to product liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, and any of these consequences could be costly to our business.

We are developing certain ~~precision medicine~~therapeutics product candidates, including pharmaceutical products and medical devices, which if authorized for marketing by the FDA or other regulatory authorities, will be authorized for use in specific indications and patient populations. We expect to train our marketing personnel and direct sales force not to promote our product candidates for uses outside of the FDA-approved or -cleared indications for use, which are sometimes referred to as “off-label uses.” We cannot, however, prevent a physician from using our products off-label, when in the physician’s independent professional medical judgment he or she deems it appropriate. There may be increased risk of injury to patients if physicians attempt to use our products off-label. Furthermore, the use of our products for indications other than those authorized for marketing by the FDA or any foreign regulatory body may not effectively treat such conditions, which could harm our reputation in the marketplace among physicians and patients.

If the FDA or any foreign regulatory body determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition of an untitled letter, a warning letter, injunction, seizure, civil fine, or criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil, and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations.

In addition, physicians may misuse our products or use improper techniques if they are not adequately trained, potentially leading to injury and an increased risk of product liability. If our products are misused or used with improper technique, we may become subject to costly litigation by our customers or their patients. As described above, product liability claims could divert management’s attention from our core business, be expensive to defend and result in sizeable damage awards against us that may not be covered by insurance.

~~Third-party~~New third-party claims of intellectual property infringement could result in litigation or other proceedings, which would be costly and time-consuming, and could limit our ability to commercialize our ~~products.~~products under development.

Our success depends in part on our freedom-to-operate with respect to the patents or intellectual property rights of third parties. We operate in industries in which there have been substantial litigation and other proceedings regarding patents and other intellectual property rights. For example, we have identified a number of third-party patents that may be asserted against us with respect to certain of our future products, and have identified pending patent applications for which the ultimate claim scope and validity are uncertain. We believe that we do not infringe the relevant claims of these third-party patents and/or that the relevant claims of these patents are likely invalid or unenforceable. We may choose to challenge the validity of these patents, though the outcome of any challenge that we may initiate in the future is uncertain. We may also decide in the future to seek a license to those third-party patents, but we might not be able to do so on reasonable terms. Certain third parties, including our competitors or collaborators, ~~have asserted and~~ may in the future assert that we are employing their proprietary technology without authorization or that we are otherwise infringing their intellectual property rights. The risk of intellectual property proceedings may increase as the number of products and the level of competition in our industry segments grows. Defending against infringement claims is costly and may divert the attention of our management and technical personnel. If we are unsuccessful in defending against patent infringement claims, we could be required to stop developing or commercializing products, pay potentially substantial monetary damages, and/or obtain licenses from third parties, which we may be unable to do on acceptable terms, if at all, and which may require us to make substantial royalty payments. In addition, we could encounter delays in product introductions while we attempt to develop alternative non-infringing products. Any of these or other adverse outcomes could ~~prevent us from offering our tests, which would~~ have a material and adverse effect on our business, operating results, and financial condition. See ~~Part II, Item 1. “Legal Proceedings—Natera Lawsuit”~~Note 9 to our condensed consolidated financial statements included elsewhere in this Quarterly Report for more information regarding a patent infringement suit filed by ~~Natera,~~Ravgen, Inc. related to our discontinued historical laboratory developed test business, which is no longer in operation. There can be no assurance that we will prevail in the Ravgen matter. For example, in a patent infringement suit filed by Ravgen against another laboratory asserting the same patents, a Texas jury found the laboratory liable for infringement and awarded significant damages.

As we move into new markets and develop enhancements to and new applications for our ~~products,~~product candidates, competitors have asserted and may in the future assert their patents and other proprietary rights against us as a means of blocking or slowing our entry into such markets or our sales of such new or enhanced products or as a means to extract substantial license and royalty payments from us. Our competitors and others may have significantly stronger, larger, and/or more mature patent portfolios than we have, and

additionally, our competitors may be better resourced and highly motivated to protect large, well-established markets that could be disrupted by our product candidates. In addition, future litigation may involve patent holding companies or other patent owners or licensees who have no relevant product revenues and against whom our own patents may provide little or no deterrence or protection.

In addition, our agreements with some of our ~~customers,~~collaborators, suppliers, and other entities with whom we do business require us to defend or indemnify these parties to the extent they become involved in infringement claims, including the types of claims described above. We could also voluntarily agree to defend or indemnify third parties if we determine it to be in the best interests of our business relationships. If we are required or agree to defend or indemnify third parties in connection with any infringement claims, we could incur significant costs and expenses that could adversely affect our business, operating results, and financial condition.

Because the industries in which we operate are particularly litigious, we are susceptible to intellectual property suits that could cause us to incur substantial costs or pay substantial damages or prohibit us from selling our products under development or conducting our ~~other~~ business.

There is a substantial amount of litigation over patent and other intellectual property rights in the industries in which we operate, including, but not limited to, the biotechnology, life sciences, pharmaceuticals, and medical device industries. Whether a product infringes a patent involves complex legal and factual issues that may be open to different interpretations. Searches typically performed to identify potentially infringed patents of third parties are often not conclusive and because patent applications can take many years to issue, there may be applications now pending, which may later result in issued patents which our ~~current or~~ future products may infringe. In addition, our competitors or other parties may assert that our product candidates and the methods they employ may be covered by patents held by them. If any of our products infringes a valid patent, we could be prevented from manufacturing or selling it unless we can obtain a license or redesign the product to avoid infringement. A license may not always be available or may require us to pay substantial royalties. Infringement and other intellectual property claims, with or without merit, can be expensive and time-consuming to litigate and could divert our management’s attention from operating our business.

Any inability to effectively protect our proprietary technologies could harm our competitive position.

Our success and ability to compete depend to a large extent on our ability to develop proprietary products and technologies and to maintain adequate protection of our intellectual property in the United States and elsewhere. The laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and many companies have encountered significant challenges in establishing and enforcing their proprietary rights outside of the United States. These challenges can be caused by the absence of rules and methods for the establishment and enforcement of intellectual property rights in certain jurisdictions outside of the United States. In addition, the proprietary positions of companies in the industries in which we operate generally are uncertain and involve complex legal and factual questions. This is particularly true in the ~~diagnostics~~life sciences area where the U.S. Supreme Court has issued a series of decisions setting forth limits on the patentability of natural phenomena, natural laws, abstract ideas and their applications (see, Mayo Collaborative v. Prometheus Laboratories (2012), Association for Molecular Pathology v. Myriad Genetics (2013), and Alice Corporation v. CLS Bank (2014), which has made it difficult to obtain certain patents and to assess the validity of previously issued patents). This uncertainty may materially affect our ability to defend or obtain patents or to address the patents and patent applications owned or controlled by our collaborators and licensors.

We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies are covered by valid and enforceable patents or are effectively maintained as trade secrets. Any finding that our patents or patent applications are invalid or unenforceable could harm our ability to prevent others from practicing the related technology. We cannot be certain that we were the first to invent the inventions covered by pending patent applications or that we were the first to file such applications, and a finding that others have claims of inventorship or ownership rights to our patents and applications could require us to obtain certain rights to practice related technologies, which may not be available on favorable terms, if at all. There may be times when we choose to retain advisors with academic employers who limit their employees’ rights to enter into agreements which provide the kind of confidentiality and assignment provisions congruent with our consulting agreements. We may decide that obtaining the services of these advisors is worth any potential risk, and this may harm our ability to obtain and enforce our intellectual property rights. In addition, our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing similar or alternative competing products, or design around our patented technologies, and may therefore fail to provide us with any competitive advantage. Furthermore, as our issued patents expire, we may lose some competitive advantage as others develop competing products that would have been covered by the expired patents, and, as a result, may adversely affectourbusiness,operatingresults,andfinancialcondition.

We may be required to file or defend infringement lawsuits and other contentious proceedings, such as inter partes reviews, reexaminations, oppositions, and declaratory ~~judgement~~judgment actions, to protect our interests, which can be expensive and time-consuming. We cannot assure you that we would prevail over an infringing third party, and we may become subject to counterclaims by such third parties. Our patents may be declared invalid or unenforceable, or narrowed in scope, as a result of such litigation or other proceedings. Some third-party infringers may have substantially greater resources than us and may be able to sustain the costs of complex infringement litigation more effectively than we can. Even if we have valid and enforceable patents, competitors may still choose to offer products that infringe our patents.

Further, preliminary injunctions that bar future infringement by the competitor are not often granted; therefore, remedies for infringement are not often immediately available. Even if we prevail in an infringement action, we cannot assure you that we would be fully or partially financially compensated for any harm to our business. We may be forced to enter into a license or other agreement with the third parties on terms less profitable or otherwise less commercially acceptable to us than those negotiated between a willing licensee and a willing licensor. Any inability to stop third-party infringement could result in the future in a loss in market share of ~~some of~~ our products under development, or lead to a delay, reduction, and/or inhibition of our development, manufacture, or sale of some of our products. A product produced and sold by a ~~third- party~~third-party infringer may not meet our or other regulatory standards or may not be safe for use, which could cause irreparable harm to the reputation of our products, which in turn could result in substantial loss in our market share and profits. ~~See Part II, Item 1. “Legal Proceedings—Natera Lawsuit” for more information regarding a patent infringement suit filed by Natera, Inc.~~

There is also the risk that others, including our competitors in the targeted and systemic therapeutics fields, may independently develop similar or alternative technologies, ingestible devices, or design around our patented or patent pending technologies, and our competitors or others may have filed, and may in the future file, conflicting patent claims covering technology similar or identical to ours. The costs associated with challenging conflicting patent claims could be substantial, and it is possible that our efforts would be unsuccessful and may result in a loss of our patent position and the issuance or validation of the competing claims. Should such competing claims cover our technology, we could be required to obtain rights to those claims at substantial cost.

Any of these factors could adversely affect our ability to obtain commercially relevant or competitively advantageous patent protection for our ~~products.~~products under development.

“Submarine” patents may be granted to our competitors, which may significantly alter our launch timing expectations, reduce our projected market size, cause us to modify our product or process or block us from the market altogether.

The term “submarine” patent is used to denote a patent issuing from an application that was not published, publicly known or available prior to its grant. Submarine patents add substantial risk and uncertainty to our business. Submarine patents may issue to our competitors covering our product candidates ~~or our pipeline candidates~~ and thereby cause significant market entry delay, defeat our ability to market our ~~products~~product candidates or cause us to abandon development and/or commercialization of a product ~~or molecule.~~candidate.

The issuance of one or more submarine patents may harm our business by causing substantial delays in our ability to introduce a product candidate or other product into the U.S. market.

If we are not able to adequately protect our trade secrets, know-how, and other proprietary information, the value of our technology and products under development could be significantly diminished.

We rely on trade secret protection and proprietary know-how protection for our confidential and proprietary information, and we have taken security measures to protect this information. These measures, however, may not provide adequate protection for our trade secrets, know-how, or other proprietary information. For example, although we have a policy of requiring our consultants, advisors and collaborators to enter into confidentiality agreements and our employees to enter into invention, non-disclosure and, where lawful, noncompete agreements, we cannot assure you that such agreements will provide for a meaningful protection of our trade secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure of information, including as a result of breaches of our physical or electronic security systems, or as a result of our employees failing to abide by their confidentiality obligations during or upon termination of their employment with us. Any action to enforce our rights is likely to be time-consuming and expensive, and may ultimately be unsuccessful, or may result in a remedy that is not commercially valuable. These risks are heightened in countries where laws or law enforcement practices may not protect proprietary rights as fully as in the United States. Any unauthorized use or disclosure of, or access to, our trade secrets, know-how or other proprietary information, whether accidentally or through willful misconduct, could have a material and adverse effect on our programs, our business strategy, and on our ability to compete effectively.

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.

Failure to maintain our trademark registrations, or to obtain new trademark registrations in the future, could limit our ability to protect our trademarks and impede our marketing efforts in the countries in which we operate. We may not be able to protect our rights to trademarks and trade names which we may need to build name recognition with potential partners or customers in our markets of interest. As a means to enforce our trademark rights and prevent infringement, we may be required to file trademark claims against third parties or initiate trademark opposition proceedings. This can be expensive, particularly for a company of our size, and time-consuming, and we may not be successful. Our registered or unregistered trademarks or trade names may be challenged, infringed, circumvented, declared generic or determined to be infringing on other marks.

Our pending trademark applications in the United States and in other foreign jurisdictions where we may file may not be allowed or may subsequently be opposed. Even if these applications result in registration of trademarks, third parties may challenge our use or registration of these trademarks in the future. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected.

We may be subject to claims that our employees, consultants, or independent contractors have wrongfully used or disclosed confidential information of third parties.

We employ individuals who were previously employed at other companies in the industries in which we operate, including biotechnology, pharmaceutical or ~~diagnostic~~medical device companies. We may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or willfully used or disclosed confidential information of our employees’ former employers or other third parties. We may also be subject to claims that our employees’ former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims, and if we are unsuccessful, we could be required to pay substantial damages and could lose rights to important intellectual property.

Even if we are successful, litigation could result in substantial costs to us and could divert the time and attention of our management and other employees.

The market price of our common stock has fluctuated in the past, and is likely to continue to be volatile, which could subject us to litigation.

The market price of our common stock has fluctuated and is likely to be subject to further wide fluctuations in response to numerous factors, many of which are beyond our control, such as those in this “Risk Factors” section and others including:

In addition, if the stock market experiences uneven investor confidence, the market price of our common stock could decline for reasons unrelated to our business, operating results, or financial condition. The market price of our common stock might also decline in reaction to events that affect other companies within, or outside, our industry even if these events do not directly affect us. Some companies that have experienced volatility in the trading price of their stock have been the subject of securities class action litigation. If we are the subject of such litigation, it could result in substantial costs and a diversion of our management’s attention and resources.

We may fail to qualify for continued listing on the Nasdaq Global Market, which could make it more difficult for our stockholders to sell their shares.

We are required to satisfy the continued listing requirements of the Nasdaq Global Market ("Nasdaq") to maintain such listing, including, among other things, the maintenance of a market value of our common stock of at least $50 million.

For example, on April 4, 2023, we received formal notice from Nasdaq indicating that we no longer satisfy the $50 million in total assets and $50 million in total revenue requirement for continued listing on Nasdaq or the alternative criteria under Nasdaq Listing Rule 5450(b).

While we were successful in regaining compliance with the continued listing requirements of Nasdaq, there can be no assurance that we will be able to maintain compliance in the future with Nasdaq's continued listing requirements. If our stock price does not increase or if we are unable to raise additional funds, and if our market capitalization does not meet the minimum standards, we may

not be able to maintain the standards for continued listing on Nasdaq. In the event that we do not maintain compliance with the Nasdaq Listing Rules in the future, we expect to receive written notification that our common stock is subject to delisting. If our common stock is delisted by Nasdaq, we could face significant material adverse consequences, including:

In the recent past, the securities of several companies have increasingly experienced significant and extreme volatility in stock price due to short sellers of shares of their stock and buy-and-hold decisions of other investors, resulting in what is sometimes described as a “short squeeze.” Short squeezes have caused extreme volatility in the stock prices of those companies and in the market and have led to the price per share of some of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company. Sharp rises in a company’s stock price may force traders in a short position to buy the stock to avoid even greater losses. Investors who purchase shares in those companies at an inflated rate face the risk of losing a significant portion of their original investment as the price per share has declined steadily as interest in those stocks have abated. Market activity suggests that we have been the target of a short squeeze, and this could occur again at any time, and stockholders may lose a significant portion or all of their investment if they purchase our shares at a rate that is significantly disconnected from our underlying value.

The issuance of shares of our common stock upon conversion of the Convertible Notes and exercise of warrants will dilute the ownership interests of our stockholders and could depress the trading price of our common stock.

We must settle conversions of our outstanding Convertible Notes and exercise of our outstanding warrants in shares of our common stock, together with cash in lieu of issuing any fractional share in the case of the Convertible Notes. The issuance of shares of our common stock upon conversion of the Convertible Notes or exercise of the warrants will dilute the ownership interests of our stockholders, which could depress the trading price of our common stock. In addition, the market’s expectation that conversions or exercises may occur could depress the trading price of our common stock even in the absence of actual conversions or exercises. Moreover, the expectation of conversions or exercises could encourage the short selling of our common stock, which could place further downward pressure on the trading price of our common stock.

Hedging activity by investors in the Convertible Notes and warrants could depress the trading price of our common stock.

We expect that many investors in our outstanding Convertible Notes and warrants will seek to employ an arbitrage strategy. Under this strategy, investors typically short sell a certain number of shares of our common stock and adjust their short position over time while they continue to hold the Convertible Notes or warrants. Investors may also implement this type of strategy by entering into swaps on our common stock in lieu of, or in addition to, short selling shares of our common stock. This market activity, or the market’s perception that it will occur, could depress the trading price of our common stock.

Provisions in the Indenture governing our outstanding Convertible Notes could delay or prevent an otherwise beneficial takeover of us.

Certain provisions in our Convertible Notes and the Indenture governing the Convertible Notes could make a third-party attempt to acquire us more difficult or expensive. For example, if a takeover constitutes a “fundamental change” (which is defined in the Indenture to include certain change-of-control events and the delisting of our common stock), then noteholders will have the right to require us to repurchase their Convertible Notes for cash. In addition, if a takeover constitutes a “make-whole fundamental change” (which is defined in the Indenture to include, among other events, fundamental changes and certain additional business combination transactions), then we may be required to temporarily increase the conversion rate for the Convertible Notes. In either case, and in other cases, our obligations under the Convertible Notes and the Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us or removing incumbent management, including in a transaction that holders of our common stock may view as favorable.

We may be unable to raise the funds necessary to repurchase the Convertible Notes for cash following a fundamental change or to pay any cash amounts due upon conversion, and our other indebtedness may limit our ability to repurchase our outstanding Convertible Notes.

Noteholders may require us to repurchase their Convertible Notes following a “fundamental change” (which is defined in the Indenture governing the Convertible Notes to include certain change-of-control events and the delisting of our common stock) at a

cash repurchase price generally equal to the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any. Furthermore, additional cash amounts may be due upon conversion in certain circumstances if the number of shares that we deliver upon conversion of the Convertible Notes is limited by Nasdaq listing standards. We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Convertible Notes or pay these cash amounts upon their conversion. In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness may restrict our ability to repurchase the Convertible Notes or pay these cash amounts upon their conversion. Our failure to repurchase Convertible Notes when required or pay these cash amounts upon their conversion will constitute a default under the Indenture governing the Convertible Notes. A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full. We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the Convertible Notes.

The accounting method for the Convertible Notes could adversely affect our reported financial results.

The accounting method for reflecting the underlying shares of our common stock in our reported diluted earnings per share may adversely affect our reported earnings and financial condition. We expect that, under applicable accounting principles, the shares underlying our Convertible Notes will be reflected in our diluted earnings per share using the “if-converted” method. Under that method, diluted earnings per share would generally be calculated assuming that all the Convertible Notes were converted into shares of common stock at the beginning of the reporting period, unless the result would be anti-dilutive. The application of the if-converted method may further increase our reported diluted loss per share.

Furthermore, the conversion features in our Convertible Notes are accounted for as a free-standing embedded derivative bifurcated from the principal balance of the Convertible Notes. The embedded derivative liability is remeasured at fair value each reporting period with positive or negative changes in fair value recorded in our consolidated statement of operations, which may adversely affect our reported earnings and financial condition and result in significant fluctuations in our future financial performance.

Insiders have substantial control over us and will be able to influence corporate matters.

As of ~~June~~September 30, ~~2020,~~2023, our current directors and executive officers, together with their affiliates, ~~beneficially own, in the aggregate, a majority~~have significant ownership of our outstanding common stock. As a result, these stockholders, if they act, will be able to exercise significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or its assets. They may have interests that differ from yours and may vote in a way with which you disagree and that may be adverse to your interests. This concentration of ownership could limit stockholders’ ability to influence corporate matters and may have the effect of delaying, deterring or preventing a third party from acquiring control over us, depriving our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company, and could negatively impact the value and market price of our common stock.

~~We do not intend to pay dividends on our capital stock, so any returns will be limited to changes in the value of our common stock.~~

While we have paid dividends to our stockholders in the past, we currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. In addition, our ability to pay cash dividends on our capital stock may be prohibited or limited by the terms of any current or future debt financing arrangement, including our credit and security agreement with Athyrium Opportunities III Co-Invest 1 LP. Any return to stockholders may therefore be limited to the increase, if any, of the price of our common stock.

Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause the stock price of our common stock to decline.

In the future, we may sell common stock, convertible securities, or other equity securities in one or more transactions at prices and in a manner we determine from time to time. We also expect to issue common stock to employees, directors, and consultants pursuant to our equity incentive plans. If we sell common stock, convertible securities, or other equity securities in subsequent transactions, or common stock is issued pursuant to equity incentive plans, investors may be materially diluted. New investors in such subsequent transactions could gain rights, preferences, and privileges senior to those of holders of our common stock.

Sales of a substantial number of shares of our common stock in the public market, including through our ATM Facility or by our existing stockholders, ~~could cause the price of our common stock to decline.~~

~~Sales of a substantial number of shares of our common stock in the public market~~ 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. We are unable to predict the effect that sales may have on the prevailing market price of our common stock.

~~We have and will continue to incur significantly increased costs and devote substantial management time to reporting and other requirements as a result of operating as a public company.~~

As a public company, we have and will continue to incur significant legal, accounting, and other expenses that we did not incur as a private company. For example, we are subject to the reporting requirements of the Securities Exchange Act of 1934, or Exchange Act, and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act, as well as rules and regulations subsequently implemented by the SEC and The Nasdaq Global Market, or Nasdaq, including the establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. We expect that compliance with these requirements will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. Certain members of our management and other personnel have little experience managing a public company and preparing public filings. In addition, we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time to these public company requirements. In particular, we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act, which will increase when we are no longer an emerging growth company, as defined by the JOBS Act. We will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. We cannot predict or estimate the amount of additional costs we may incur as a result of becoming a public company or the timing of such costs. Additional compensation costs and any future equity awards will increase our compensation expense, which would increase our general and administrative expense and could adversely affect our profitability. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance on reasonable terms. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors or our board committees or as executive officers.

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. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have elected to avail ourselves of this exemption and, as a result, will not be subject to the same implementation timing for new or revised accounting standards as are

required of other public companies that are not emerging growth companies, which may make comparison of our consolidated financial information to those of other public companies more difficult.

For as long as we continue to be an emerging growth company, however, we intend to take advantage of certain other exemptions from various reporting requirements that are applicable to other public companies including, but not limited to, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we will 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 and experience decreases.

We will remain an emerging growth company until the earliest of (a) the end of the fiscal year (i) following the fifth anniversary of the closing of our ~~initial public offering,~~IPO, (ii) in which the market value of our common stock that is held by non-affiliates exceeds $700 million and (iii) in which we have total annual gross revenues of ~~$1.07~~$1.235 billion or more during such fiscal year, and (b) the date on which we issue more than $1 billion in non-convertible debt in a three-year period.

We have previously identified material weaknesses in our internal control over financial reporting. If additional material weaknesses ~~or significant deficiencies~~ in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results, which could adversely affect our stock price and result in an inability to maintain compliance with applicable stock exchange listing requirements.

We previously concluded that there were matters that constituted material weaknesses in our internal control over financial reporting that have since been remediated. 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 our annual or interim financial statements will not be prevented or detected and corrected on a timely basis. The material weaknesses related to a lack of (i) controls, as related to our historical testing business prior to our Strategic Transformation, designed to reconcile tests performed and recognized as revenue to billed tests and (ii) appropriately designed or effectively operating controls over the proper recording of accounts payable and accrued liabilities.

If additional material weaknesses ~~or significant deficiencies~~ in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results. If we are unable to successfully remediate any material weaknesses in our internal controls or if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected, and we may be unable to maintain compliance with applicable stock exchange listing requirements.

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

The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or our business. If few securities analysts ~~commence~~provide coverage of us, or if industry analysts cease coverage of us, the trading price and volume for our common stock could be adversely affected. If one or more of the analysts who cover us downgrade our common stock or publish inaccurate or unfavorable research about our business, our common stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our common stock price and trading volume to decline.

Provisions in our ~~eighth amended and restated~~ certificate of incorporation and ~~amended and restated~~ bylaws and Delaware law might discourage, delay or prevent a change in control of our company or changes in our management and, therefore, depress the market price of our common stock.

Our eighth amended and restated certificate of incorporation, as amended and our second amended and restated bylaws ~~will~~ contain provisions that could depress the market price of our common stock by acting to discourage, delay, or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions, among other things:

In addition, Section 203 of the Delaware General Corporation Law may discourage, delay, or prevent a change in control of our company. Section 203 imposes certain restrictions on mergers, business combinations and other transactions between us and holders of 15% or more of our common stock.

Our ~~eighth amended and restated~~ certificate of incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our eighth amended and restated certificate of incorporation, as amended to date, provides that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum, to the fullest extent permitted by law, for (1) any derivative action or proceeding brought on our behalf, (2) any action asserting a breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (3) any action asserting a claim against us or any director, officer or other employee arising pursuant to the Delaware General Corporation Law, (4) any action to interpret, apply, enforce or determine the validity of our eighth amended and restated certificate of incorporation, oras amended to date, and our second amended and restated bylaws, or (5) any other action asserting a claim that is governed by the internal affairs doctrine, shall be the Court of Chancery of the State of Delaware (or another state court or the federal court located within the State of Delaware if the Court of Chancery does not have or declines to accept jurisdiction), in all cases subject to the court’s having jurisdiction over indispensable parties named as defendants. In addition, our eighth amended and restated certificate of incorporation, as amended to date, provides that the federal district courts of the United States will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act but that the forum selection provision will not apply to claims brought to enforce a duty or liability created by the Exchange Act. Although we believe these provisions benefit us by providing increased consistency in the application of Delaware law for the specified types of actions and proceedings, the provisions may have the effect of discouraging lawsuits against us or our directors and officers. Alternatively, if a court were to find the choice of forum provision contained in our eighth amended and restated certificate of incorporation, as amended to date, and our second amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, financial condition, and operating results. For example, under the Securities Act, federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Any person or entity purchasing or otherwise acquiring any interest in our shares of capital stock shall be deemed to have notice of and consented to this exclusive forum provision, but will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

~~On June 23, 2020, we completed our IPO pursuant to which we issued and sold an aggregate of 6,666,667 shares of our common stock at the IPO price of $15.00 per share.~~Item 3. Default Upon Senior Securities.

The offer and sale of all of the shares of our common stock in the IPO were registered under the Securities Act pursuant to our Registration Statement on Form S-1, as amended (File No. 333-238738), which was declared effective on June 18, 2020. Piper Sandler & Co. and Wells Fargo Securities, LLC acted as joint book-running managers for the IPO. Robert W. Baird & Co. Incorporated and Raymond James & Associates, Inc. acted as book-running managers for the IPO. BTIG, LLC acted as the lead manager for the IPO.None.

We received gross proceeds from our IPO of $100.0 million, and net proceeds of $88.7 million after deducting $7.0 million in underwriting discounts and commissions and $4.3 million of other offering expenses. None of the underwriting discounts and commissions or other offering expenses were incurred or paid, directly or indirectly, to any of our directors or officers or their associates or to persons owning 10% or more of our common stock or to any of our affiliates.Item 4. Mine Safety Disclosures.

The net proceeds from our IPO have been used and will be used, to support our operations, to invest in our molecular testing research and development program, to invest in research and development with respect to our precision medicine platform, and for working capital and general corporate purposes. There has been no material change in our intended use of proceeds from our IPO as described in our final prospectus filed with the SEC pursuant to Rule 424(b)(4) on June 22, 2020.Not applicable.

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


Delaware		27-3950390
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4330 La Jolla Village Drive, Suite ~~200,~~ 300, San Diego, CA		92122
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	~~PROG~~BIOR	The Nasdaq Global Market


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	~~Small~~Smaller reporting company	☐☒
Emerging growth company	☒


~~PART I—FINANCIAL INFORMATION~~		Page
PART 1	FINANCIAL INFORMATION
~~Item 1.~~	~~Financial Statements (unaudited)~~	1
Item 1.	Financial Statements (unaudited)	1

	Condensed Consolidated Balance Sheets ~~- As of June 30, 2020, and December 31, 2019~~	1

	Condensed Consolidated Statements of Operations ~~- Three and Six Months Ended June 30, 2020, and 2019~~	2

	Condensed Consolidated Statements of Stockholders’ Deficit ~~- Three and Six Months Ended June 30, 2020, and 2019~~	3

	Condensed Consolidated Statements of Cash Flows ~~- Six Months Ended June 30, 2020, and 2019~~	54

	Notes to Condensed Consolidated Financial Statements	75

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2922

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4428

~~Item 4.~~	~~Controls and Procedures~~	44

~~PART II—OTHER INFORMATION~~Item 4.	Controls and Procedures	28

~~Item 1.~~PART II	~~Legal Proceedings~~OTHER INFORMATION	45

Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings	4929

Item 2.1A.	Risk Factors	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	9761

~~Item 6.~~	~~Exhibits~~	98

~~Signatures~~Item 3.	99Default Upon Senior Securities	61

Item 4.	Mine Safety Disclosures	61

Item 5.	Other Information	61

Item 6.	Exhibits	62

Signatures		63


	June 30, 2020			December 31, 2019			September 30, 2023			December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	113,613		$	33,042
Accounts receivable, net		14,382			22,189
Inventory		10,246			10,937
Cash, cash equivalents and restricted cash							$	12,569		$	30,486
Income tax receivable		15,596			634			818			828
Prepaid expenses and other current assets		6,130			7,846			3,351			4,199
Current assets of disposal group held for sale								2,509			2,603
Total current assets		159,967			74,648			19,247			38,116
Property and equipment, net		15,725			15,891			1,236			1,654
Right-of-use assets								1,834			1,482
Other assets		198			198			6,314			6,201
Goodwill		6,219			6,219			6,072			6,072
Other intangible assets, net		4,307			4,771
Total assets	$	186,416		$	101,727		$	34,703		$	53,525
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable	$	15,679		$	15,754		$	3,905		$	3,606
Accrued expenses and other current liabilities		78,410			83,615			24,314			16,161
Current portion of mortgages payable		247			241
Current portion of capital lease obligations		516			727
Warrant liabilities								41,325			3,538
Total current liabilities		94,852			100,337			69,544			23,305
Capital lease obligations, net of current portion		156			358
Mortgages payable, net of current portion		2,950			3,081
Note payable to related party, net of unamortized discount of $5,930 and $6,034 as of June 30, 2020 and December 31, 2019, respectively		69,071			68,966
Convertible notes, net of unamortized discount of $2,347 and $4,914 as of September 30, 2023 and December 31, 2022, respectively								80,378			127,811
Other long-term liabilities		36,547			12,859			3,567			4,696
Total liabilities	$	203,576		$	185,601		$	153,489		$	155,812
Commitments and contingencies
Commitments and contingencies (Note 9)
Stockholders' deficit:
Common stock – $0.001 par value. 350,000,000 and 300,000,000 shares authorized as of June 30, 2020 and December 31, 2019, respectively; 50,022,606 and 8,451,415 shares issued as of June 30, 2020 and December 31, 2019, respectively; 46,548,035 and 4,976,843 shares outstanding as of June 30, 2020 and December 31, 2019, respectively		50			9
Series A Preferred Stock – $0.001 par value. 4,120,000 shares authorized, issued and outstanding as of December 31, 2019; no shares authorized, issued and outstanding as of June 30, 2020		—			4
Series B Preferred Stock – $0.001 par value. 126,035,000 shares authorized as of December 31, 2019; 101,867,405 shares issued and outstanding as of December 31, 2019, respectively. No shares authorized, issued and outstanding as of June 30, 2020		—			102
Common stock – $0.001 par value; 164,000,000 shares authorized; 24,147,645 and 9,098,844 shares issued as of September 30, 2023 and December 31, 2022, respectively; 23,411,013 and 8,928,498 shares outstanding as of September 30, 2023 and December 31, 2022, respectively								21			8
Additional paid-in capital		420,242			283,260			835,817			743,626
Accumulated deficit		(418,681	)		(348,478	)		(935,545	)		(826,843	)
Treasury stock – at cost; 3,474,572 shares of common stock as of June 30, 2020 and December 31, 2019		(18,771	)		(18,771	)
Treasury stock – at cost; 736,632 and 170,346 shares as of September 30, 2023 and December 31, 2022, respectively								(19,079	)		(19,078	)
Total stockholders' deficit		(17,160	)		(83,874	)		(118,786	)		(102,287	)
Total liabilities and stockholders' deficit	$	186,416		$	101,727		$	34,703		$	53,525


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


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

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues	$	17,266		$	57,230		$	34,094		$	104,737
Cost of sales		21,835			26,113			48,405			50,534
Gross profit (loss)		(4,569	)		31,117			(14,311	)		54,203
Operating expenses:
Research and development		12,234			16,463			23,474			31,711
Selling and marketing		12,736			14,680			27,172			30,247
General and administrative		17,181			14,272			34,289			28,550
Total operating expenses		42,151			45,415			84,935			90,508
Loss from operations		(46,720	)		(14,298	)		(99,246	)		(36,305	)
Interest expense		(2,507	)		(2,282	)		(4,809	)		(4,551	)
Interest and other income (expense), net		(3,556	)		171			(3,576	)		428
Loss before income taxes		(52,783	)		(16,409	)		(107,631	)		(40,428	)
Income tax benefit		—			—			(37,696	)		—
Net loss		(52,783	)		(16,409	)		(69,935	)		(40,428	)
Dividend paid to preferred stockholders		(268	)		—			(268	)		(3,652	)
Net loss attributable to common stockholders	$	(53,051	)	$	(16,409	)	$	(70,203	)	$	(44,080	)
Net loss per share attributable to common stockholders, basic and diluted	$	(6.11	)	$	(3.34	)	$	(10.26	)	$	(9.16	)
Weighted average number of shares outstanding used in calculating net loss per share attributable to common stockholders, basic and diluted		8,687,250			4,915,485			6,840,321			4,811,143

	Common Stock				Series A and A-1 Preferred Stock						Series B Preferred Stock						Additional Paid-In		Accumulated			Treasury Stock						Total Stockholders'
	Shares		Amount		Shares			Amount			Shares			Amount			Capital		Deficit			Shares			Amount			Deficit
Balance at December��31, 2019		8,451,415	$	9		4,120,000		$	4			101,867,405		$	102		$	283,260	$	(348,478	)		(3,474,572	)	$	(18,771	)	$	(83,874	)
Issuance of common stock upon exercise of options		56,729		—		—			—			—			—			103		—			—			—			103
Issuance of Series B Preferred Stock, net of issuance cost		—		—		—			—			6,033,796			6			14,066		—			—			—			14,072
Stock-based compensation expense		—		—		—			—			—			—			2,057		—			—			—			2,057
Net loss		—		—		—			—			—			—			—		(17,152	)		—			—			(17,152	)
Balance at March 31, 2020		8,508,144	$	9		4,120,000		$	4			107,901,201		$	108		$	299,486	$	(365,630	)		(3,474,572	)	$	(18,771	)	$	(84,794	)
Issuance of common stock upon exercise of options		20,880		—		—			—			—			—			45		—			—			—			45
Issuance of common stock upon initial public offering, net		6,666,667		7		—			—			—			—			88,658		—			—			—			88,665
Issuance of Series B Preferred Stock, net		—		—		—			—			4,444,444			4			9,929		—			—			—			9,933
Automatic conversion of preferred stock		33,443,562		33		(4,120,000	)		(4	)		(112,345,645	)		(112	)		83		—			—			—			—
Issuance of common stock upon conversion of debt		1,250,000		1		—			—			—			—			18,749		—			—			—			18,750
Issuance of Stock Purchase Warrant		—		—		—			—			—			—			268		(268	)		—			—			—
Issuance of common stock upon vesting of restricted stock unit awards		133,353		—		—			—			—			—			—		—			—			—			—
Stock-based compensation expense		—		—		—			—			—			—			3,024		—			—			—			3,024
Net loss		—		—		—			—			—			—			—		(52,783	)		—			—			(52,783	)
Balance at June 30, 2020		50,022,606	$	50		—		$	—			—		$	—		$	420,242	$	(418,681	)		(3,474,572	)	$	(18,771	)	$	(17,160	)


Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,196	$	4,811
Cash paid for income taxes	$	14	$	18

Supplemental schedule of non-cash investing and financing activities:
Lease assets obtained in exchange for operating lease liabilities	$	1,344	$	2,922
Investment in Enumera Molecular Inc. in exchange for assets	$	—	$	6,000
Conversion of convertible note	$	50,000	$	—
Issuance of common stock in settlement of accrued expenses	$	—	$	89
Deferred offering costs in accrued expenses	$	59	$	—
Purchases of property and equipment in accounts payable	$	11	$	—

	Six Months Ended June 30,
	Six Months Ended		June 30, 2019
Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,901	$	3,749
Cash paid for income taxes		54		6

Supplemental schedule of non-cash investing and financing activities:
Conversion of convertible note	$	18,750	$	—
Issuance of preferred stock in settlement of interest payable		2,698		—
Equity offering costs incurred but not paid		2,133		—
Issuance of stock options in settlement of accrued bonuses		754		—
Purchases of property and equipment in accounts payable		262		395
Capital lease obligations		—		76

	Percentage of Accounts Receivable
	June 30, 2020			December 31, 2019
Blue Shield of Texas		12.7	%		0.1	%
Government Health Benefits Programs		24.4	%		16.7	%
Aetna		6.2	%		6.0	%
Anthem		6.5	%		0.5	%
United Healthcare		8.3	%		31.5	%

	Percentage of Revenue
	Three months ended						Six months ended
	June 30,						June 30,
	2020			2019			2020			2019
Blue Shield of Texas		41.9	%		12.7	%		42.2	%		14.5	%
Government Health Benefits Programs(1)		(14.4	)%		14.5	%		(26.6	)%		16.2	%
Aetna		13.8	%		7.6	%		12.9	%		7.6	%
Anthem		14.0	%		4.8	%		12.1	%		6.4	%
United Healthcare		4.8	%		40.1	%		4.4	%		31.3	%
____________
(1) The negative amounts presented in the percentage of revenues include accruals for reimbursement claims and settlements included in the estimates of variable consideration recorded during the three and six months ended June 30, 2020. Revenue recognized consider the effects of variable consideration, and include adjustments for estimates of disallowed cases, discounts, and refunds. The variable consideration includes reductions in revenues for the accrual for reimbursement claims and settlements, as described in Notes 4 and 9.

	June 30, 2020		December 31, 2019
Assets of Avero that can only be used to settle obligations of Avero
Cash and cash equivalents	$	636	$	1,837
Accounts receivable, net		3,580		4,269
Inventory		2,221		2,572
Prepaid expenses and other current assets		1,268		1,181
Property and equipment, net		5,527		5,586
Other assets		30		30
Goodwill		6,219		6,219
Other intangible assets, net		4,307		4,771
Total assets of Avero that can only be used to settle obligations of Avero	$	23,788	$	26,465
Liabilities of Avero
Accounts payable	$	2,123	$	2,450
Accrued expenses and other accrued liabilities		4,409		5,630
Current portion of capital lease obligations		45		59
Current portion of mortgage payable		177		173
Capital lease obligations, net of current portion		27		50
Mortgage payable, net of current portion		1,638		1,733
Other long-term liabilities		468		467
Total liabilities of Avero	$	8,887	$	10,562

	June 30, 2020			December 31, 2019
Capital leases	$	2,520		$	3,692
Less accumulated depreciation and amortization		(1,731	)		(2,239	)
Capital leases included in property and equipment, net	$	789		$	1,453

June 30, 2020	Cost		Accumulated amortization			Net
Payor relationships	$	7,230	$	(3,675	)	$	3,555
Trade names		1,410		(717	)		693
Noncompete agreements		384		(325	)		59
Intangible assets, net	$	9,024	$	(4,717	)	$	4,307

December 31, 2019	Cost		Accumulated amortization			Net
Payor relationships	$	7,230	$	(3,314	)	$	3,916
Trade names		1,410		(646	)		764
Noncompete agreements		384		(293	)		91
Intangible assets, net	$	9,024	$	(4,253	)	$	4,771

Year ending December 31,
Remainder of 2020	$	464
2021		891
2022		864
2023		864
2024		864
Thereafter		360
Total future minimum lease payments	$	4,307

	Quoted Prices for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
June 30, 2020
Money market funds(1)	$	105,173	$	—	$	—
December 31, 2019
Money market funds(1)	$	24,432	$	—	$	—
____________
(1) Included in cash and cash equivalents in the accompanying condensed consolidated balance sheets.

Year ending December 31,	Minimum Mortgages Payable Payments Obligations
Remainder of 2020	$	122
2021		253
2022		265
2023		277
2024		1,323
Thereafter		957
Total future minimum payments		3,197
Less current portion of mortgages payable		(247	)
Mortgages payable, net of current portion	$	2,950

Year ending December 31,	Minimum Capital Lease Payments
Remainder of 2020	$	331
2021		324
2022 and thereafter		47
Total minimum lease payments		702
Less amounts representing interest		(30	)
Present value of minim capital lease payments		672
Less current portion of capital lease obligations		(516	)
Capital lease obligations, net of current portion	$	156

December 31, 2019	Shares Authorized		Shares Issued and Outstanding		Per Share Price at Issuance		Aggregate Liquidation Preference
Series A		4,120,000		4,120,000	$	0.48543	$	2,000
Series B		126,035,000		101,867,405		2.25000		229,202
Total preferred stock		130,155,000		105,987,405			$	231,202

	June 30, 2020		December 31, 2019
Series A Preferred Stock		—		13,213,254
Series B Preferred Stock		—		16,488,731
Series B Preferred Stock Purchase Warrant		—		359,699
Common stock warrant		400,160		—
Restricted stock units outstanding		1,095,095		322,608
Outstanding options to purchase common stock		3,848,838		2,561,866
Available for future issuance under equity incentive plan		4,393,376		1,717,817
Total		9,737,469		34,663,975

	June 30, 2020		June 30, 2019
Options to purchase common stock		3,848,838		2,636,721
Restricted stock units		1,095,095		313,785
Common stock warrant		400,160		—
Series A Preferred Stock		—		13,213,254
Series A-1 Preferred Stock		—		4,810,649
Series B Preferred Stock		—		2,292,700
Series B Preferred Stock Purchase Warrant		—		229,270
Total		5,344,093		23,496,379

	Three Months Ended
	June 30,				Increase/
	2020		2019		(Decrease)			% Change
	(in thousands)
	(unaudited)
Revenues	$	17,266	$	57,230	$	(39,964	)		(69.8	)%


EXHIBIT NO.		DESCRIPTION

~~3.1~~ 4.1	~~Eighth Amended and Restated Certificate~~Form of ~~Incorporation of Progenity, Inc.~~ ~~(incorporated by reference from~~Pre-Funded Warrant (filed with the SEC as Exhibit ~~3.1~~4.1 to ~~Progenity’s Current Report on~~the registrant's Form 8-K filed on ~~June 26, 2020 (Commission File No. 001-39334)~~September 19, 2023).)

~~3.2~~ 4.2	~~Amended and Restated Bylaws~~Form of ~~Progenity, Inc.~~ ~~(incorporated by reference from~~September 2023 Warrant (filed with the SEC as Exhibit ~~3.2~~4.2 to ~~Progenity’s Current Report on~~the registrant's Form 8-K filed on ~~June 26, 2020 (Commission File No. 001-39334)~~)

~~4.1~~	Form of Common Stock Certificate of Progenity (incorporated by reference from Exhibit 4.1 of Progenity’s Amendment No. 1 to Registration Statement on Form S-1 filed on June 4, 2020 (Commission File No. 333-238738))

~~4.2~~	Second Amendment to Series B Preferred Stock Purchase Warrant (incorporated by reference from Exhibit 4.4 of Progenity’s Registration Statement on Form S-1 filed on May 27, 2020 (Commission File No. 333-238738))September 19, 2023).

~~10.1~~ 4.3	~~2020 Employee Stock Purchase Plan (incorporated by reference from Exhibit 10.6 of Progenity’s~~ Amendment No. 24 to ~~Registration Statement on~~Fourth Amended and Restated Investors' Rights Agreement, dated September 18, 2023, by and among Biora Therapeutics, Inc., and certain of its stockholders (filed with the SEC as Exhibit 4.3 to the registrant's Form ~~S-1~~8-K filed on ~~June 15, 2020 (Commission File No. 333-238738))~~September 19, 2023).

~~10.2~~ 10.1	~~Second Amendment to Credit~~Convertible Notes Exchange Agreement for Common Stock and ~~Security Agreement~~Warrants, dated September 18, 2023, by and among ~~Progenity, Inc., as borrower,~~the Company, Athyrium Opportunities III Acquisition LP and Athyrium Opportunities III Co-Invest 1 LP ~~as a lender and collateral agent, and the other lenders party thereto, dated as of May 6, 2020 (incorporated by reference from Exhibit 10.23 of Progenity’s Registration Statement on Form S-1 filed~~(filed with the SEC ~~on May 27, 2020 (Commission File No. 333-238738))~~

~~10.3~~	~~Amendment to Settlement Agreement by and between Progenity, Inc. and Aetna Health Management, Inc., dated~~ as ~~of April 29, 2020 (incorporated by reference from Exhibit 10.17 of Progenity’s Registration Statement on Form S-1 filed with the SEC on May 27, 2020 (Commission File No. 333-238738))~~

~~10.4~~	Stipulation and Order of Settlement and Dismissal, effective July 23, 2020, among the U.S. Department of Justice through the U.S. Attorney’s Office for the Southern District of New York, and on behalf of the Office of Inspector General of the Department of Health and Human Services, and with the relator named therein and Progenity, Inc. (incorporated by reference from Exhibit 10.1 to ~~Progenity’s Current Report on~~the registrant's Form 8-K filed on ~~July 24, 2020 (Commission File No. 001-39334))~~September 19, 2023).

~~10.5~~ 10.2*	~~Settlement~~Purchase and Sale Agreement, ~~effective July 23, 2020,~~dated October 6, 2023, by and among ~~the United States of America, acting through the U.S. Department of Justice through the U.S. Attorney’s Office for the Southern District of California,~~Biora Therapeutics, Inc. and ~~on behalf of the Defense Health Agency, the Tricare Program and the Office of Personnel Management, which administers the Federal Employees Health Benefits Program, and Progenity,~~Lynxdx, Inc. ~~(incorporated by reference from Exhibit 10.2 to Progenity’s Current Report on Form 8-K filed on July 24, 2020 (Commission File No. 001-39334))~~

~~10.6~~ 31.1*	Promissory Note issued pursuant to the Settlement Agreement, dated July 21, 2020, among the United States of America, acting through the U.S. Department of Justice through the U.S. Attorney’s Office for the Southern District of California, and on behalf of the Defense Health Agency, the Tricare Program and the Office of Personnel Management, which administers the Federal Employees Health Benefits Program, and Progenity, Inc. (incorporated by reference from Exhibit 10.3 to Progenity’s Current Report on Form 8‑K filed on July 24, 2020 (Commission File No. 001-39334))

~~10.7~~	Non-Prosecution Agreement, effective July 21, 2020, between the U.S. Attorney’s Office for the Southern District of California and Progenity, Inc. (incorporated by reference from Exhibit 10.4 to Progenity’s Current Report on Form 8-K filed on July 24, 2020 (Commission File No. 001-39334))

~~10.8~~	Corporate Integrity Agreement, effective July 21, 2020, between the Office of Inspector General of the Department of Health and Human Services and Progenity, Inc. (incorporated by reference from Exhibit 10.5 to Progenity’s Current Report on Form 8-K filed on July 24, 2020 (Commission File No. 001-39334))

~~31.1~~	Certification of principal executive officer pursuant to Rule 13a-14(A) promulgated under the Securities Exchange Act of 1934

~~31.2~~ 31.2*	Certification of principal financial officer pursuant to Rule 13a-14(A) promulgated under the Securities Exchange Act of 1934

32.1†	Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(B) promulgated under the Securities Exchange Act of 1934

~~101.INS~~		~~XBRL Instance Document~~
101.INS	Inline XBRL Instance Document
~~101.SCH~~
101.SCH	Inline XBRL Taxonomy Extension Schema Document

101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File (embedded within the Inline XBRL document)


*	Filed herewith.
†	Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Exchange Act, and shall not be deemed to be incorporated by reference into any filing under the Securities Act.


Date:	~~August 14, 2020~~ November 13, 2023	~~PROGENITY,~~BIORA THERAPEUTICS, INC.

		~~By:~~	~~/s/ Harry Stylli, Ph.D.~~
		By:	~~Harry Stylli, Ph.D.~~/s/ Aditya P. Mohanty
			~~President and Chief Executive Officer~~Aditya P. Mohanty
			Chief Executive Officer
			(principal executive officer)

		~~By:~~	~~/s/~~ ~~Eric d’Esparbes~~
		By:	/s/ Eric ~~d’Esparbes~~d'Esparbes
			~~Executive Vice President and Chief Financial Officer~~Eric d’Esparbes
			Chief Financial Officer
			(principal financial and accounting officer)