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Filed pursuant to Rule 424(b)(4)
Registration No. 333-255912
Registration No. 333-256522

 

P R O S P E C T U S

10,200,000 Shares

 

LOGO

Common Stock

 

 

This is the initial public offering of shares of common stock of Singular Genomics Systems, Inc.

We are offering 10,200,000 shares of our common stock. Prior to this offering, there has been no public market for our common stock. The initial public offering price is $22.00 per share. Our common stock has been approved for listing on the Nasdaq Global Select Market under the symbol “OMIC.”

We are an emerging growth company under the federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements.

 

 

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 20.

 

     Per
Share
     Total  

Initial public offering price

   $  22.00      $  224,400,000  

Underwriting discounts and commissions(1)

   $ 1.54      $ 15,708,000  

Proceeds, before expenses, to us

   $ 20.46      $ 208,692,000  

 

(1)

See “Underwriting” for additional disclosure regarding the underwriting discounts and commissions and estimated offering expenses.

We have granted the underwriters an option for a period of 30 days to purchase up to 1,530,000 additional shares of our common stock.

The underwriters expect to deliver the shares against payment in New York, New York on June 1, 2021.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

 

 

 

J.P. Morgan

  Goldman Sachs & Co. LLC   BofA Securities     Cowen     UBS Investment Bank
 

May 26, 2021


Table of Contents

TABLE OF CONTENTS

 

     Page  

Prospectus Summary

     1  

The Offering

     15  

Summary Financial Data

     18  

Risk Factors

     20  

Special Note Regarding Forward-Looking Statements

     66  

Market, Industry and Other Data

     68  

Use of Proceeds

     69  

Dividend Policy

     70  

Capitalization

     71  

Dilution

     73  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     75  

Business

     92  

Management

     124  
     Page  

Executive Compensation

     134  

Certain Relationships and Related Party Transactions

     143  

Principal Stockholders

     146  

Description of Capital Stock

     149  

Shares Eligible for Future Sale

     154  

Material U.S. Federal Income Tax Consequences for Non-U.S. Holders of our Common Stock

     157  

Underwriting

     161  

Legal Matters

     174  

Experts

     174  

Where You Can Find Additional Information

     174  

Index to Financial Statements

     F-1  
 

 

 

Through and including June 20, 2021 (25 days after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus, any amendment or supplement to this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.

Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any free writing prospectus we may provide to you in connection with this offering in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus and any such free writing prospectus outside of the United States.

 

 

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PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this prospectus and is qualified in its entirety by the more detailed information and financial statements included elsewhere in this prospectus. It does not contain all of the information that may be important to you and your investment decision. You should carefully read this entire prospectus, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes included elsewhere in this prospectus. In this prospectus, unless context requires otherwise, references to “we,” “us,” “our,” “Singular,” or the “Company” refer to Singular Genomics Systems, Inc.

Company Overview

Our Mission

Our mission is to accelerate genomics for the advancement of science and medicine. The genomic tools and technologies developed over the last two decades since the first sequencing of the human genome have greatly improved our understanding of biology, empowered the development of novel therapies and advanced clinical diagnostics. And yet the transformative potential of genomics is just starting to be realized. For example, in oncology, we are just at the beginning of an era in which cancer can be detected early, analyzed at the molecular level, treated with targeted therapies, and monitored through blood tests able to detect and profile minimal residual disease. Today’s sequencing technologies and products have made a significant impact, but real limitations remain to incorporate these tools into routine clinical practice: long analysis times, labor intensive protocols, sample batching requirements and high cost. We are developing fast, powerful, efficient, flexible sequencing platforms, along with novel applications and sample-to-result workflows to solve these challenges.

We believe the next generation of biological discovery and translational medicine will be powered by even more advanced molecular technologies. These technologies can enable a high resolution view of DNA, RNA and proteins in individual cells, along with their spatial arrangement. This multiomics view will enable greater insight into the function of both cells and tissues. We are building these new technologies by leveraging our core DNA sequencing engine as a universal detection method of biological information. We take advantage of the vast combinatorial range of DNA bases as a nature inspired barcode and combine it with powerful molecular biology techniques and the latest advances in high speed, high resolution imaging. Our goal is to unleash the full power of sequencing as a universal reader of biology, which we believe will ultimately open new frontiers in research and medicine.

Overview

We are a life science technology company that is leveraging novel next generation sequencing (NGS) and multiomics technologies to build products that empower researchers and clinicians. We developed a unique and proprietary NGS technology, which we refer to as our Sequencing Engine. This Sequencing Engine is the foundational platform technology that forms the basis of our products in development and our core product tenets: accuracy, speed, flexibility and scale. We are currently developing two integrated solutions that are purpose built to target specific applications in which these core product tenets matter most. Our first integrated solution is targeted at the NGS market and comprises an instrument (the G4 Instrument) and an associated menu of consumable kits, which we refer to collectively as our G4 Integrated Solution. The G4 Instrument is a benchtop next generation sequencer designed to produce fast and accurate genetic sequencing results. The integrated purpose built kits that run on the G4 Instrument address specific applications in fast growing markets including oncology and immune profiling. We have completed our beta pilot program (which is our first external third-party evaluation) and anticipate initiating an early access program followed by a commercial launch of the G4 Integrated Solution by the end of 2021, with intentions for units to ship in the first half of 2022. Our second



 

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integrated solution in development comprises an instrument (the PX Instrument) and an associated menu of consumable kits, which we refer to collectively as our PX Integrated Solution. Leveraging sequencing as a universal readout, the PX Integrated Solution combines single cell analysis, spatial analysis, genomics and proteomics in one integrated instrument providing a versatile multiomics solution. We anticipate commercial launch of the PX Integrated Solution in 2023.

The core of our Sequencing Engine is comprised of unique and proprietary chemistry, including novel chemical compounds, polymers and enzymes. This chemistry is designed to produce high sequencing accuracy and rapid cycle times that we believe can drive improvements in NGS. To take full advantage of the proprietary chemistry, we are developing purpose built instrumentation consisting of high speed, high resolution imaging and innovative fluidic design. We believe that our Sequencing Engine, together with our proprietary innovations in molecular biology techniques, will enable differentiated applications in fast growing markets. These innovations are supported by our intellectual property portfolio.

Each of our two integrated solutions in development consists of an instrument that incorporates our Sequencing Engine and associated consumables that are used exclusively on each instrument. The G4 Integrated Solution is designed to target the NGS market, in particular, applications that require accuracy, speed, flexibility and scale. We are focused on oncology where there is an increasing need for higher sensitivity technology such as rare variant detection in liquid biopsy. Another area of focus is immunology where there is a need to better understand and harness the immune system in infectious disease, autoimmune disorders and cancer immunotherapy. We aim to execute a three step commercialization plan for our G4 Integrated Solution consisting of: (1) collaborating with select partners to conduct beta pilot tests, which we have completed, (2) expanding collaborations with additional potential customers in an early access program and (3) offering our G4 Integrated Solution broadly to the market, with commercial launch by the end of 2021 and shipping units in the first half of 2022.

The PX Integrated Solution is our second product in development and is a multiomics platform designed to target the markets for single cell, spatial analysis and proteomics. The PX Integrated Solution will leverage our Sequencing Engine as a readout mechanism to provide a high-resolution view of biology at the single cell and tissue level. We believe the PX Integrated Solution, when launched, will be a high-throughput, versatile platform capable of measuring levels of RNA transcription, protein expression and sequence specific information directly in cells and tissues. We believe the PX Integrated Solution will have broad application across many areas of biology. We are initially focused on applications in oncology and immunology, with future expansion into other applications such as neurology. We are currently in an advanced prototype development stage for the PX Integrated Solution and expect to begin an early access program in 2022 and full commercial launch in 2023. We believe that our G4 and PX Integrated Solutions can unleash the full power of sequencing as a universal reader of biology, and open new frontiers in research and medicine.

Our Foundational Technology

We have developed a novel and proprietary Sequencing Engine that is a foundational technology for our products in development. The core of our Sequencing Engine is a unique and proprietary chemistry that enables high sequencing accuracy and rapid cycle times that we believe can drive improvements in NGS technology and enable performance of highly accurate and massively parallel sequencing at speed. We aim to deploy our foundational technology as a universal reader of biology, which can ultimately open new frontiers in research and medicine.

We built our Sequencing Engine from the ground up, and it incorporates the following innovations:

 

   

Cluster amplification: We have developed an optimized cluster amplification method that is designed to ensure generation of high quality and high density clusters with minimal sequence bias and high signal-to-background ratios. This enables high accuracy sequencing regardless of the type of genetic input material.



 

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Paired end equivalent sequencing: We are developing a novel method to achieve an accurate paired end equivalent sequencing. We believe our method will be fast and efficient with reagent usage, while still providing the critical value of efficient mapping and detection of gene rearrangements, higher quality data and single cell genomics.

 

   

Sequencing chemistry: We have recognized that chemistry has historically been a particularly challenging area to improve in the sequencing process. Therefore, we developed a new and proprietary sequencing chemistry. This chemistry includes novel enzymes and nucleotides. We have also designed and synthesized our own dyes to optimize performance. This new and proprietary chemistry enables fast sequencing cycle times.

 

   

Detection technology: We have developed a proprietary high speed and high resolution imaging system. The imaging system has been designed to optimize throughput, cycle time, accuracy and efficiency.

While the above comprises the technology used in our Sequencing Engine, we also incorporate additional technologies into our G4 Instrument and PX Instrument. For example, our G4 Instrument includes a unique flow cell design to improve workflow flexibility for the user and our PX Instrument includes a well-plate format intended to push the boundaries of throughput for both single cell and spatial analysis applications.

Our Integrated Solutions

Our product development pipeline comprises two initial integrated solutions, each designed to leverage our Sequencing Engine and purpose built to address different applications. Our G4 Integrated Solution is designed to target the NGS market. Our PX Integrated Solution is designed to target the single cell, spatial analysis and proteomics markets. Each integrated solution consists of an instrument that incorporates our Sequencing Engine and associated consumables that are used exclusively on each instrument.

 

LOGO

G4 Integrated Solution

We surveyed numerous labs and key opinion leaders (KOLs) while developing our G4 Integrated Solution to listen to their needs and to identify the limitations of current solutions. In parallel, we engineered an instrument around our Sequencing Engine to address those real-world needs. Our G4 Integrated Solution is



 

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designed to seamlessly fit into existing workflows, including library preparation and bioinformatics. It is also designed to provide flexibility in terms of sample batching and number of flow cells in a sequencing run. We believe this design will enable customers to better manage a wide range of daily sample volume demands without sacrificing turnaround times or incurring extra expenses from inefficient reagent kit use. We are targeting applications for which we believe accuracy, speed, flexibility and scale matter, and where our novel molecular biology methods offer unique advantages.

Capabilities of the G4 Integrated Solution

We believe there are several key criteria that have determined the commercial success of sequencers, including accuracy, speed, flexibility and scale. In addition, read length and the ability to sequence DNA from both ends of the fragment, commonly referred to as paired end sequencing, are important factors. We designed the G4 Integrated Solution to have the following characteristics to address these key criteria:

 

   

High accuracy: Sequencing accuracy is critical to correctly determining the order of bases present in DNA. Errors can be introduced in the sequencing process itself, or in the upstream steps involved in sample processing and library preparation. Base calling accuracy, measured by the Phred quality score (Q score), is the most common metric used to assess the accuracy of a sequencing platform. It indicates the probability that a given base is called correctly by the sequencer. We believe that a sequencer must have at least Q30 accuracy (i.e., 1 in 1000 probability of calling a base incorrectly) to be commercially successful. We have internally demonstrated Q30 accuracy on greater than 70% of base calls. This gives a demonstrated accuracy of 99.7% on 150 base reads. In our two beta pilot tests, our third-party external partners demonstrated Q30 or higher accuracy on greater than 70% of base calls. One third-party external partner conducted standard RNA sequencing, and the other conducted testing with single-cell RNA sequencing using paired-end reads consistent with the methods it currently uses. In both cases, the gene expression levels measured by these third-parties in their tests utilizing our G4 Integrated Solution correlated strongly to the independent reference data these third-parties generated with their current commercially available sequencing methods. For our commercial G4 Instrument, we are targeting Q30 for greater than 80% of base calls for 150 base reads, which we believe we can achieve through continually optimizing multiple parameters in clustering, sequencing, imaging and signal processing. Additionally, we have demonstrated uniform guanine-cytosine (G/C) coverage over the range of 20-70% G/C content. We believe this high accuracy is competitive with what customers are accustomed to with current sequencing solutions.

 

   

Speed of sequencing: Dramatically decreasing the chemistry time needed for each base to be detected means that the overall sequencing time can be significantly faster, resulting in more samples being run in a day on a given platform. Cycle time is the measurement of time needed to add one nucleotide, image and prepare the elongating strand for the next nucleotide and the start of the next sequencing cycle. We are targeting a 2.5 minute cycle time for each base sequenced. We expect that this will give us a sequencing time of approximately 16 hours to complete a 2x150 base run. For other run modes such as RNA-Seq, we are targeting run times of approximately five hours. Currently, we are running a 4.0 minute cycle time, with previous demonstration of high quality sequencing with a 2.7 minute cycle time on our previous prototype. In our two beta pilot tests, our third-party external partners demonstrated a 4.0 minute cycle time. We anticipate that future versions of our chemistry will allow us to reduce the cycle time even further. Speed also gives our G4 Instrument the capacity for higher throughput as our fast runtime will facilitate the possibility of processing multiple runs in a day.

 

   

High, independent, flexible throughput: Every sequencing run requires reagents and disposable parts, including flow cells. Our G4 Integrated Solution has flow cells with independent lanes, enabling libraries to be kept separate in each lane while still retaining high throughput capacity. We believe this allows for easier and more convenient processing of samples, thus enabling the G4 Integrated Solution



 

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to cover a wide range of throughput requirements. Alternative sequencing technologies that do not have this flexibility in throughput may require customers with different volume requirements across different experiments to have multiple instruments in their lab or encounter a slow turnaround time with a backlog of projects. We have internally demonstrated the capability to produce 150 million reads per flow cell. In our two beta pilot tests, our third-party external partners demonstrated average throughput of greater than 150 million reads per flow cell for single-end reads, and an average throughput of greater than 100 million reads for paired-end reads. If all four flow cells are utilized in a sequencing run and with a full read length of 150 bases, our G4 Integrated Solution can generate 600 million reads per sequencing run. We are targeting 330 million reads per flow cell at commercial launch for a total of 1,320 million reads if all four flow cells were utilized in a sequencing run, which we believe we can achieve through ongoing upgrades to the G4 Instrument’s optical system, which will allow for higher resolution imaging and cluster density.

 

   

Paired end equivalent sequencing: In some applications, users value the ability to perform paired end reads and tune the system to different read lengths. Paired end sequencing is a technique involving reading from both ends of DNA fragments. This technology can (1) enable longer reads, which allows for more efficient mapping and detection of gene rearrangements for better genome assembly; (2) overlap reads for higher quality data; (3) support single cell genomics and other barcode enabled applications; and (4) enable the ability to detect insertions and deletions (indels) and inversions. We are developing and plan to offer a novel way to achieve paired end equivalent sequencing such as 2x150. We believe that this is just the starting point of our capabilities for paired end equivalent sequencing and that we will be able to improve this metric further as our technology develops.

 

   

Read lengths: We are developing kits with read lengths of 50 bases to 150 bases. We also plan to extend read length beyond 150 bases in our G4 Integrated Solution with synthetic long read (SLR) kits.

 

   

Workflow: We have designed our G4 Integrated Solution for customers to efficiently switch to our products and platform as the upstream workflow and downstream analysis will be compatible with current NGS processes.

Applications for the G4 Integrated Solution

We believe that our G4 Integrated Solution has broad potential application across research and clinical markets. While we believe that the G4 Integrated Solution will be able to run a wide variety of available sequencing applications that are currently available on the market today, we specifically designed our G4 Integrated Solution to excel with applications that benefit from accuracy, speed, flexibility and scale. Our initial targeted applications for our G4 Integrated Solution include rare variant detection with High Definition Sequencing (HD-Seq) and SLR. These applications target large markets across oncology, including liquid biopsy detection of cell-free DNA (cfDNA) and immunology.

 

   

Rare variant detection with HD-Seq: We designed our G4 Integrated Solution to support HD-Seq, a unique library prep kit and sequencing method for double-stranded DNA, which we are designing to provide higher accuracy than standard single-strand NGS sequencing methods (including ours), and is expected to enable rare variant detection with higher efficiency and lower costs. HD-Seq is intended to achieve accuracy levels of Q50, which can help differentiate a real mutation from random errors. In our internal testing, we have demonstrated 99.99% accuracy for 100 base reads with our current methodology, and we anticipate that we will be able to reach 99.999% accuracy for greater than 100 base reads. This internal testing involved using commercial reference materials for cfDNA and preparing sequencing libraries using our HD-Seq methodology. We then clustered and sequenced the library, with bi-directional readout of 100 bases in one direction and 150 bases in the other direction.



 

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To assess accuracy, we analyzed overlapped regions of 100 bases. For HD-Seq, the base call was only made if there was agreement in the base calls on the complementary strands. The accuracy of the HD-Seq base calls was 99.99%. Accuracy is especially important in oncology for the detection of somatic mutations, including rare single-nucleotide polymorphisms. It is also critical in liquid biopsy where the frequency of mutations in a sample is extremely low. With the accuracy that our HD-Seq could provide, we anticipate that customers will be able to achieve high accuracy in a cost-effective manner relative to other commercially available technologies.

 

   

Synthetic long reads (SLR): We also plan to offer proprietary specialized library prep kits for targeted SLR, which we expect to facilitate reads of up to 2,000 to 3,000 base pairs using our G4 Integrated Solution. We have currently demonstrated approximately 450 base reads with B cells for VDJ sequencing. We expect this to be a key capability for applications requiring long sequencing reads. We believe that our G4 Integrated Solution will be able to deliver the throughput, accuracy and read lengths required to support comprehensive analysis of the immune system, especially the adaptive immune response which consists of B and T cells. We believe that a high throughput, high accuracy, cost effective solution for reading these longer gene sequences can advance the understanding of the immune system and ultimately improve the diagnosis and monitoring of blood cancers, provide new insights into immunotherapy for cancer, facilitate therapeutic antibody and T cell discovery and accelerate the development of vaccines for infectious disease.

Expansion of the G4 Product Suite

We anticipate that there will be customers who have high volumes who will still need the flexibility to batch less while still maintaining high throughput. Examples of these types of customers would include:

 

   

Laboratories that do not want to batch together hundreds or thousands of samples onto one sequencing flow cell because of the risk that one failure might ruin data from all samples in the run; or

 

   

Laboratories with high sample volumes of diverse sample types and/or run modes which would make it difficult to combine those samples together on one sequencing flow cell.

For these specific types of customers, which include commercial laboratories and academic laboratories, we plan to offer an expansion of our G4 Instrument in a configuration that we have named the G4x4. This special four instrument configuration will be designed to address a different part of the NGS market for those needing high sequencing output while maintaining speed and flexibility of the G4 Integrated Solution.

PX Integrated Solution

Our PX Integrated Solution is focused on the single cell and spatial analysis markets, and consists of our PX Instrument and associated consumables. The PX Instrument leverages our Sequencing Engine to enable multiomics analysis of single cells and tissues as both a universal detection method and in situ sequencing. Importantly, the PX Instrument is designed to provide high throughput analysis of nucleic acids and proteins, while also generating high resolution images of cellular morphology to enable computer-vision based analysis of cellular phenotype. This design reflects an appreciation of the tremendous potential for machine learning based image analysis to serve as a rich source of biomarker information for cancer and autoimmune disease translational research. We believe our PX Integrated Solution will eliminate the need for customers to employ multiple systems over several day workflows, which is required by existing commercial methods. Ultimately, we believe this will enable researchers to perform large scale experiments that may fundamentally advance our understanding of biology, and, in turn, advance human health.



 

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Current challenges in single cell and spatial analysis

In recent years, systems have been developed for targeted gene sequencing in single cells, and for measuring levels of gene transcription in individual cells by sequencing readout. These tools have yielded new information that is not available from bulk sequencing measurements. However, current commercial methods have significant limitations. One limitation is that cells are broke open and tagged with DNA barcodes in droplets, then pooled together into a sequencing run, thus losing information about cell morphology. Another limitation is the number of cells and samples that can be processed in an experiment. Finally, current methods struggle to achieve multiomics readout, with only limited ability to measure proteins along with DNA or RNA, while maintaining cellular morphology.

For spatial analysis of tissue, the capabilities of current genomic technologies are even more limited. Most genomic analysis of tissue is done on a bulk basis, with no spatial resolution. Recently, several spatial analysis platforms have been developed and introduced commercially. However, we believe that these technologies currently have several limitations. First, we believe most of these platforms currently have limited resolution, unable to provide detailed information at the level of individual single cells, including subcellular localization, and information about how the cells are organized in space within the tissue. Second, we believe current commercial platforms are unable to provide high throughput. Experiments are limited to less than 20 samples per run, and in some cases just one sample per run, which limits the ability of users to conduct large scale experiments.

Although the single cell and spatial analysis fields are still in their infancy, we anticipate that the following elements will be critical for determining success in the future:

 

   

Cell capacity: Historically, instruments that have been able to analyze the highest number of single cells have shown the most success. We believe this will continue to be an important success factor.

 

   

Resolution: We believe that the ability to provide genomic and proteomics data at the single cell level, and even resolve subcellular features, will be informative to researchers.

 

   

Throughput: Similar to NGS, we believe that researchers will continue to push the boundaries of research to understand biology and instruments will need to handle more samples to stay relevant.

 

   

Multiomics capabilities: We believe that having the ability to measure multiple types of analytes (e.g. RNA transcripts and cellular proteins) from the same cell will be invaluable in piecing together how different genes and proteins interact within a spatial context. We believe that machine learning based image analysis will serve as an increasingly critical component of multiomics based discovery.

 

   

Tissue sample type: 80% of translational research studies that involve tissue analysis utilize formalin-fixed paraffin-embedded (FFPE) preserved tissue. Thus, it will be critical for an instrument to be compatible with this sample type.

 

   

Cost: We believe researchers want to continue to push towards larger scale single cell studies requiring millions of cells. Without integration of the cell preparation and the sequencing into one platform, we believe that the cost will become too high using current methods.

Capabilities of the PX Integrated Solution

We are designing the PX Integrated Solution to have the following characteristics, which we believe are important differentiating characteristics of single cell and spatial analysis approaches:

 

   

Multiomics detection: We are developing the PX Integrated Solution to identify specific RNA and proteins (through the use of oligo-conjugated antibodies) using our core Sequencing Engine either as a



 

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universal detection method or for in situ sequencing along with cellular morphology and tissue organization. We believe this provides significantly more information than is available today with current commercial single cell technologies. The addition of the cellular morphology along with spatial organization of biomolecules within the tissue microenvironment can provide a data rich solution across many research applications to better understand cell development, maturation and pathogenesis. We believe that the combination of these useful datasets from individual cells will provide a more complete cellular picture as it will combine both phenotypic data along with detailed molecular characterization.

 

   

High throughput and large scale: We are designing the PX Integrated Solution to be high throughput in order to enable researchers to perform large scale studies that are currently inaccessible but are needed for a more complete characterization and understanding of cells, and therefore biology. Current commercially available single cell technologies detect 10,000 to 100,000 cells in an experiment. Our PX Instrument will use a well-plate approach (either with a 96 or 384-well consumable plate) designed to process 10,000 to 100,000 cells per well at a throughput of 1 million to 10 million cells in a 96 well plate. We believe that this will meet the growing need in this market for millions of cells and the large scale that is currently unattainable today. Current commercially available spatial analysis instruments can run an experiment involving only 4 to 20 tissue samples. With our PX Integrated Solution, we expect to run up to 96 tissue samples per run.

 

   

High resolution: The PX Integrated Solution will be designed to resolve molecules at the single cell level including subcellular localization of targets. We anticipate that this will enable researchers to differentiate between single cells to truly understand cellular characterization.

 

   

Targeted panels: We believe that current discovery efforts with bulk sequencing will lead to translational panels that are targeted on the key genes of interest. Our PX Integrated Solution will be designed for larger scale studies that will process a higher number of samples with these focused panels.

Applications for the PX Integrated Solution

We are developing our PX Integrated Solution to have a broad set of applications in single cell and tissue analysis. Examples of applications for our PX Integrated Solution may include but are not limited to the following:

 

   

Single cell RNA counting for differential gene expression: Targeted gene panels (with customization available) for specific research areas and diagnostic applications to measure the gene expression within each cell. It is anticipated that the imaging readout will also provide cell morphology information.

 

   

Single cell proteomics: Targeted protein panels for specific research areas and diagnostic applications to measure intracellular and surface proteins.

 

   

Single cell RNA sequencing for variant detection: In situ sequencing of selected gene targets directly within each cell while also simultaneously providing phenotype data for each cell, such as binding of antigens to B cells.

 

   

Spatial RNA and proteomics applications for tissue in development: Targeted panels (with customization available) for specific basic and translational research applications to measure gene transcription and protein expression within tissue and then link this information to additional phenotypic data to help provide biological context.

Key disease areas for the PX Integrated Solution

We are designing our PX Integrated Solution to have broad applicability across multiple large disease areas. Although our initial applications will focus on indications across oncology and immunology, we are designing



 

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our PX Integrated Solution to possess the foundational technology and capabilities to address additional areas, including neurology and developmental biology. We believe that key existing biological challenges can be addressed through improved multiomics information, higher resolution and enhanced spatial context, which we are designing our PX Integrated Solution to provide. The following large disease areas are examples of where we are designing our PX Integrated Solution to address significant challenges.

 

   

Oncology: We believe the PX Instrument will be ideally suited to study blood cancers initially. We are designing the PX Instrument to enable the mapping of the progression of blood cancers as they develop, pre and post treatment, to fully characterize them across multiple molecular markers. The cellular phenotype, including morphology, could be valuable in helping to further characterize these cancer cells along with the molecular data of gene expression. We anticipate that the coupling of molecular data with the cellular phenotype and morphology can help to drive further understanding and identification of different types of cancer as well as provide the ability to interpret biological function.

 

   

Immunology: We anticipate that our single cell sequencing will be valuable for identifying the paired receptor data (light and heavy chains in B-cell or alpha and beta chains in T cell) that is currently lacking at scale today. By having a high throughput method that will sequence and retain the linkage of the two chains of the immune receptors, we believe researchers will be able to study in more depth the immune repertoire while also correlating each cell with its cellular phenotype. Additionally, we believe that we will be able to use a DNA conjugated antibody that recognizes the antigen to confirm the immune cell is binding to a specific antigen. We anticipate this combination of data can provide powerful information to interpret biological function as well as to further characterize immune cell types.

We believe that using our three-step commercialization plan will allow us to build our sales and marketing organization and customer support services to support the commercial launch of our G4 Integrated Solution. We are also investing in our manufacturing operations to be prepared for the commercial launch of our G4 Integrated Solution and our planned PX Integrated Solution. As we have not yet commercially launched our G4 Integrated Solution and as our PX Integrated Solution is still in the development stage, we have limited sales and marketing and customer support experience and although we have some limited manufacturing experience, we have no experience manufacturing our products at commercial scale.

Markets

We believe our product pipeline targets multiple market opportunities across life sciences. Due to the comprehensive capability to analyze biology that we are designing into our products, we anticipate that much of this opportunity will ultimately be available to us. We estimate that the products we have currently under development in the G4 and the PX Integrated Solutions target substantial market opportunities such as: NGS, single cell, spatial analysis, proteomics and potential new markets based on our estimates that these markets are underserved by existing genomics products and technologies and our target customers will recognize the value proposition offered by our products.

NGS market: According to Allied Market Research, the global NGS market is expected to grow to approximately $18.6 billion in 2026 at a compound annual growth rate (CAGR) of approximately 19.2% between 2020 and 2026. According to DeciBio, the NGS market in 2020 consisted of 58% basic research and translational medicine and 42% clinical applications, and in 2021, the basic research and translational medicine market was estimated to be approximately $4 billion and the clinical applications market was estimated to be approximately $3 billion, which we believe we can access based on the capabilities of our G4 Integrated Solution and assuming that target customers will view our G4 Integrated Solution as a competitive alternative to existing tools and technologies. The current landscape of NGS instruments available in the market today are comprised of lower and medium throughput benchtop platforms, and production scale high throughput platforms. We purposely



 

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designed our G4 Integrated Solution to target specific applications and to be capable of competing with other instruments across a range of throughput levels, particularly in the medium throughput segment. We also believe the G4 Integrated Solution can capture market share from both the lower throughput applications but also some of the higher throughput applications given its speed and cost capabilities.

Single cell, spatial analysis and proteomics markets: We are building our PX Integrated Solution to address the single cell and spatial analysis markets, which we estimate to be approximately $17 billion in 2021 based on available market data. We believe that the single cell capabilities of our G4 and PX Integrated Solutions will address an estimated global market opportunity of approximately $15 billion. According to DeciBio, the spatial analysis market, which will be addressed by our PX Integrated Solution, has a total addressable market of more than $2 billion of which less than 10% has been penetrated as of 2020. According to Allied Market Research, the life sciences research portion of the global proteomics market, which will be addressed by our PX Integrated Solution, was estimated at approximately $20 billion in 2020. We believe we can access these markets based on the capabilities we have designed for our PX Integrated Solution and assuming that target customers will view our PX Integrated Solution as a competitive alternative to existing tools and technologies.

New markets: Both of our integrated solutions can be used in many different and diverse market segments, including basic biology, oncology, immunology, neurology, genetic diseases, infectious diseases, the human microbiome and many others. Therefore, we believe that the capabilities offered by our integrated solutions and future products may potentially lead to new end markets, applications and business models that complement our current addressable markets, and will expand our market opportunity.

These markets are characterized by rapid technological changes, frequent new product introductions, established and emerging competition, extensive intellectual property disputes and litigation, price competition, aggressive marketing practices, evolving industry standards and changing customer preferences. Accordingly, our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by new companies operating in rapidly changing and competitive markets.

We plan to sell and market our products for research use only (RUO) to academic institutions, life sciences and research laboratories that conduct research, and biopharmaceutical and biotechnology companies for non-diagnostic and non-clinical purposes. Additionally, CLIA-certified laboratories have the ability to develop laboratory developed tests (LDTs) using RUO products, and we believe that the capabilities of our products may enable our customers to use them in clinical applications as LDTs. In fact, today a significant majority of NGS-based diagnostic tests are performed as LDTs on DNA sequencers that are labeled for RUO. Over the near term, references in this prospectus to clinicians, clinical markets and clinical practice all refer to the potential use of our RUO labeled products for LDTs. While our initial products are intended for RUO, our longer-term plans include seeking FDA clearance for IVD products, and corresponding clearances in other countries.

Competitive Strengths

To address the challenges of sequencing, single cell, spatial and proteomics we aim to bring together the following unique capabilities:

 

   

We are developing innovative purpose built products to address underserved applications.

 

   

Our Sequencing Engine is a foundational platform technology that optimizes key performance characteristics for our products.

 

   

Our integrated solutions are built around customer needs and have or are designed to have strong performance relative to key performance metrics.



 

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Our innovative assays in development are designed to support novel applications in oncology and immunology.

 

   

Our complementary product portfolio can serve multiple customer needs.

Our Growth Strategy

Our goal is to establish our Sequencing Engine as the standard for genomics and proteomics detection and to drive adoption of our platforms. Our growth strategy includes the following key elements:

 

   

Drive commercial adoption and utilization of the G4 Integrated Solution.

 

   

Complete development and drive commercial adoption of our PX Integrated Solution.

 

   

Create an ecosystem of customers, partners and collaborators whose expertise and offerings complement and enhance the capabilities and utility of our integrated solutions.

 

   

Expand the G4 and PX Integrated Solutions beyond initial applications.

 

   

Expand our commercial geographic presence.

Columbia License Agreement

We entered into an exclusive license agreement (the License Agreement) with The Trustees of Columbia University in the City of New York (Columbia) covering two (2) pending U.S. Utility patent applications, one (1) pending European patent application and certain materials and technical information provided by Columbia. The License Agreement requires us to use commercially reasonable efforts to research, discover, develop and market products covered by the claims of the licensed patents or patent applications (the Patent Products) or that directly use or incorporate the materials and technical information licensed to us by Columbia (the Other Products). Under the License Agreement, we are required to pay an annual license fee that increases each year, until it reaches a low six digit fee for the fifth year, and for each subsequent year, for so long as the License Agreement remains in force. For any products within the scope of the License Agreement that we commercialize, we are required to pay royalties ranging from low to mid-single digits on net sales of Patent Products and low single digit royalty rates on net sales of Other Products. We are also required to make milestone payments to Columbia upon our achievement of certain development and commercialization milestones, which could total up to $3.9 million over the life of the License Agreement.

We do not believe that our G4 or PX Instruments or the associated consumables, as we presently intend to commercialize them, fit within the definitions of Patent Products or Other Products as defined in the License Agreement. As a result, we do not believe that we will be required to make milestone payments or pay royalties on sales of these products or any associated consumables or services based on our current commercialization plans. However, in the future, we may decide to incorporate features covered by one or more licensed patent(s) or directly use or incorporate materials and/or technical information provided by Columbia, such that we would incur milestone and royalty obligations under the License Agreement.

The License Agreement includes a number of diligence obligations that require us to use commercially reasonable efforts to research, discover, develop and market Patent Products and/or Other Products by certain dates. To the extent that we do not commercialize a Patent Product or Other Product, Columbia may contend that we have not complied with our diligence obligations under the License Agreement. In such case, Columbia could take the position that the License Agreement should convert to a non-exclusive license or pursue actions to terminate the License Agreement alleging that we have not satisfied our diligence obligations. Columbia could also file additional claims to the pending patent applications they licensed to us to attempt to cause our products to become Patent Products. Columbia could also disagree with our interpretation of our milestone and royalty obligations under the License Agreement and contend that a failure to make milestone payments or pay royalties



 

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constitutes a breach of the License Agreement. We are currently engaged in discussions with Columbia regarding the application of the License Agreement to our products and our efforts to satisfy the diligence obligations under the License Agreement. There is no assurance that Columbia will agree with our interpretation of the License Agreement or our payment obligations thereunder or agree that we have complied with our diligence obligations.

Risks Related to Our Business

Our ability to execute our business strategy is subject to numerous risks, as more fully described in the section titled “Risk Factors” immediately following this prospectus summary. These risks include, among others:

 

   

Our limited operating history makes it difficult to evaluate our future prospects and the risks and challenges we may encounter.

 

   

We have incurred significant losses since inception, we expect to incur significant losses in the future and we may not be able to generate sufficient revenue to achieve and maintain profitability.

 

   

We have no history commercializing our products or technology, which makes it difficult to evaluate our prospects and predict our future performance.

 

   

The life sciences technology market is highly competitive. If we fail to compete effectively, our business and operating results will suffer.

 

   

If we are sued for infringing, misappropriating or otherwise violating intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates.

 

   

If our products fail to achieve early customer and scientific acceptance, we may not be able to achieve broader market acceptance for our products, and our revenues and prospects may be harmed.

 

   

We expect to be highly dependent upon revenue generated from the sale of our G4 Integrated Solution, and any delay or failure by us to finalize the development and to begin to commercialize our G4 Integrated Solution will have a substantial adverse effect on our business and results of operations.

 

   

Our business will depend significantly on research and development spending by academic institutions and other research institutions, and any reduction in spending could limit demand for our products and adversely affect our business, results of operations, financial condition and prospects.

 

   

Our operating results may fluctuate significantly in the future, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide.

 

   

The COVID-19 pandemic and efforts to reduce its spread have adversely impacted, and are expected to continue to materially and adversely impact, our business and operations.

 

   

We have not commercially launched any products, and we may not be able to successfully commercially launch our G4 Integrated Solution or planned PX Integrated Solution as planned.

 

   

If we are unable to obtain and maintain sufficient intellectual property protection for our products and technology, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be impaired.

 

   

We may require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not available, may require us to delay, scale back, or cease our product development programs or operations.



 

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Corporate Information

We were incorporated in Delaware in 2016. Our principal executive offices are located at 10931 North Torrey Pines Road, Suite #100, La Jolla, California 92037. Our telephone number is (858) 333-7830. Our website address is www.singulargenomics.com. Information contained on the website is not incorporated by reference into this prospectus. We have included our website address in this prospectus solely as an inactive textual reference.

Singular Genomics, the Singular Genomics logo and our other registered or common law trademarks appearing in this prospectus are the property of Singular Genomics Systems, Inc. This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus, including logos, artwork and other visual displays, may appear without the ®, TM or SM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity.

Recent Developments

2021 Notes Financing

In February 2021, we sold and issued approximately $130.5 million aggregate principal amount of convertible promissory notes (the 2021 Notes) in a private placement transaction. The 2021 Notes accrue 6% interest per annum and will automatically convert into shares of our common stock in connection with the completion of this offering at a conversion price equal to the lower of (i) 80% of the initial public offering price per share and (ii) the price per share obtained by dividing $1.5 billion by the fully-diluted capitalization of our Company prior to the completion of this offering. In connection with this offering, based on the initial public offering price of $22.00 per share, the 2021 Notes will convert into an aggregate of 7,531,777 shares of our common stock. For further information regarding the Note Conversion, see the section titled “Capitalization—2021 Notes”.

Implications of Being an Emerging Growth Company

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual gross revenue; (ii) the date we qualify as a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, with at least $700 million of equity securities held by non-affiliates; (iii) the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; or (iv) the last day of the fiscal year ending after the fifth anniversary of our initial public offering. As a result of this status, we have taken advantage of certain exemptions from various reporting requirements in this prospectus that are applicable to other publicly-traded entities that are not emerging growth companies and may elect to take advantage of other exemptions from reporting requirements in our future filings with the SEC. In particular, in this prospectus, these exemptions include:

 

   

the option to present only two years of audited financial statements and only two years of Management’s Discussion and Analysis of Financial Condition and Results of Operations;

 

   

not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes Oxley Act;

 

   

not being required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden parachutes;” and



 

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not being required to disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

As a result, we do not know if some investors will find our common stock less attractive. The result may be a less active trading market for our common stock, and the price of our common stock may become more volatile.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to avail ourselves of this exemption and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for private companies. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.



 

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THE OFFERING

 

Common stock offered by us

   10,200,000 shares.

Option to purchase additional shares

   We have granted the underwriters an option for a period of 30 days to purchase up to 1,530,000 additional shares of our common stock.

Common stock to be outstanding immediately after this offering

   69,382,349 shares (or 70,912,349 shares if the underwriters exercise their option to purchase additional shares in full).

Use of proceeds

  

We estimate that the net proceeds from this offering will be approximately $205.6 million (or $236.9 million if the underwriters exercise their option to purchase additional shares in full), based on the initial public offering price of $22.00 per share, and after deducting the underwriting discounts and commissions and estimated offerings expenses payable by us.

 

We currently intend to use the net proceeds from this offering, together with our existing cash and cash equivalents and short-term investments, to finalize the development and commercialization of our G4 Integrated Solution; to fund the product development and commercialization of our PX Integrated Solution; and the remainder, if any, for other development work associated with advancing the integration of our core sequencing engine into other platforms and kits, working capital and other general corporate purposes.

 

In addition, we may use a portion of the net proceeds to acquire complementary businesses, products, services, or technologies. However, we have no current understandings, agreements or commitments for any specific material acquisitions at this time.

 

See the section titled “Use of Proceeds” for additional information.

Directed share program

   At our request, the underwriters have reserved up to 5% of the common stock being offered by this prospectus for sale at the initial public offering price to our directors, officers, employees and other individuals associated with us and members of their families. The sales will be made by UBS Financial Services Inc., a selected dealer affiliated with UBS Securities LLC, an underwriter of this offering, through a directed share program. We do not know if these persons will choose to purchase all or any
   portion of these reserved shares, but any purchases they do make will reduce the number of shares available to the general public. Any reserved shares


 

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   not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of common stock. Participants in the directed share program who purchase more than $1 million of shares shall be subject to a 25-day lock-up with respect to any shares sold to them pursuant to that program. This lock-up will have similar restrictions and an identical extension provision to the lock-up agreements described below. Any shares sold in the directed share program to our directors or executive officers shall be subject to the lock-up agreements described below.

Risk Factors

   See the section titled “Risk Factors” and the other information included in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our common stock.

Nasdaq trading symbol

   “OMIC”

The number of shares of our common stock to be outstanding after this offering is based on 59,182,349 shares of our common stock outstanding as of March 31, 2021, assuming the conversion of all of our 38,826,388 outstanding shares of convertible preferred stock, and reflects 7,531,777 shares of our common stock issuable upon conversion of the 2021 Notes based on the initial public offering price of $22.00 per share. For further information regarding the Note Conversion, see the section titled “Capitalization—2021 Convertible Notes.” The number of shares of our common stock to be outstanding after this offering excludes the following:

 

   

4,475,799 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2021, with a weighted-average exercise price of $3.05 per share;

 

   

118,300 shares of common stock issuable upon the exercise of stock options granted after March 31, 2021, with an exercise price of $22.43 per share;

 

   

3,212,190 shares of common stock issued as of March 31, 2021 upon the early exercise of certain stock options, but not deemed outstanding as they are subject to a right of repurchase;

 

   

129,156 shares of our common stock issuable upon the exercise of an outstanding warrant held by Silicon Valley Bank to purchase shares of our Series B convertible preferred stock (the SVB warrant) (which will convert into a warrant to purchase 129,156 shares of our common stock immediately prior to the completion of this offering) with an exercise price of $2.32 per share;

 

   

934,124 shares of common stock reserved for future issuance under our 2016 Stock Plan (the 2016 Plan), as of March 31, 2021, which shares will be added to the shares to be reserved under our 2021 Equity Incentive Plan (the 2021 Plan) upon its effectiveness;

 

   

7,500,000 shares of common stock reserved for future issuance under our 2021 Plan, which became effective on its adoption (although no awards were to be granted under the 2021 Plan until the effective date of the registration statement of which this prospectus forms a part), as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan; and

 

   

730,000 shares of common stock reserved for issuance under our 2021 Employee Stock Purchase Plan (the 2021 ESPP), which became effective on the effective date of the registration statement of which this prospectus forms a part, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan.



 

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Unless otherwise indicated, all information in this prospectus assumes or gives effect to:

 

   

no exercise of the outstanding stock options and warrant described above;

 

   

the automatic conversion of the SVB warrant to purchase 129,156 shares of our convertible preferred stock described above into a warrant to purchase an aggregate of 129,156 shares of our common stock immediately prior to the completion of this offering;

 

   

the automatic conversion of all outstanding shares of our convertible preferred stock into 38,826,388 shares of our common stock immediately prior to the completion of this offering;

 

   

the conversion of the 2021 Notes into 7,531,777 shares of our common stock immediately prior to the completion of this offering;

 

   

the 3,212,190 shares of common stock issued as of March 31, 2021 upon the early exercise of options are not outstanding because they are subject to a right of repurchase;

 

   

the filing of our amended and restated certificate of incorporation (certificate of incorporation), and the adoption of our amended and restated bylaws (bylaws), immediately prior to the completion of this offering; and

 

   

no exercise by the underwriters of their option to purchase up to an additional 1,530,000 shares of our common stock.



 

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SUMMARY FINANCIAL DATA

The following tables set forth a summary of our historical financial data as of, and for the periods ended on, the dates indicated. The statements of operations data for the years ended December 31, 2019 and 2020 are derived from our audited financial statements and related notes included elsewhere in this prospectus. The statements of operations data for the three months ended March 31, 2020 and 2021 are derived from our unaudited financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of results that may be expected in the future and the results for the three months ended March 31, 2021, are not necessarily indicative of results that may be expected for the full year or any other period. You should read these data together with our financial statements and related notes appearing elsewhere in this prospectus and the information in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our historical results are not necessarily indicative of the results to be expected in the future.

 

 

     Year Ended December 31,     Three Months Ended March 31,  
     2019      2020     2020      2021  
                 

(unaudited)

 
     (in thousands, except share and per share data)  

Statements of Operations and Comprehensive Loss

          

Operating expenses:

          

Research and development

   $ 10,484      $ 21,247     $ 4,026      $ 6,608  

General and administrative

     2,286        6,287       1,377        3,654  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total operating expenses

   $ 12,770      $ 27,534     $ 5,403      $ 10,262  
  

 

 

    

 

 

   

 

 

    

 

 

 

Loss from operations

     (12,770)        (27,534)       (5,403)        (10,262)  

Other income (expense):

          

Interest and other income

     463        505       216        131  

Interest expense

     (17)        (718)       (66)        (188)  

Change in fair value of convertible promissory notes

                         (11,400)  

Change in fair value of warrant liability

            (198)              (2,202)  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total other income (expense)

     446        (411)       150        (13,659)  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net loss

   $ (12,324)      $ (27,945)     $ (5,253)      $ (23,921)  
  

 

 

    

 

 

   

 

 

    

 

 

 

Other comprehensive loss:

          

Unrealized gain on available-for-sale securities

     48        3       (542)        (49)  
  

 

 

    

 

 

   

 

 

    

 

 

 

Comprehensive loss

   $ (12,276)      $ (27,942)     $ (5,795)      $ (23,970)  
  

 

 

    

 

 

   

 

 

    

 

 

 

Net loss per share attributable to common stockholders:

          

Basic and diluted(1)

   $ (1.43)      $ (2.64)     $ (0.52)      $ (2.05)  
  

 

 

    

 

 

   

 

 

    

 

 

 

Weighted-average shares of common stock outstanding:

          

Basic and diluted(1)

     8,620,121        10,575,941       10,191,923        11,652,998  
  

 

 

    

 

 

   

 

 

    

 

 

 

Pro forma net loss per share, basic and diluted (unaudited)(2)

      $ (0.56      $ (0.19)  
     

 

 

      

 

 

 

Pro forma weighted-average shares of common stock outstanding, basic and diluted (unaudited)(2)

        49,402,329          53,356,694  
     

 

 

      

 

 

 


 

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(1)

For the calculation of our basic and diluted net loss per share, and weighted-average number of shares used in the computation of the per share amounts, see Note 2 to our financial statements included elsewhere in this prospectus.

(2)

Unaudited pro forma net loss per share, basic and diluted, attributable to common stockholders, is calculated giving effect to the conversion of the convertible preferred stock into shares of common stock and 2021 Notes into shares of common stock and giving the effect of exchange of the warrant to purchase preferred stock into a warrant to purchase common stock. Unaudited pro forma net loss per share attributable to common stockholders for the year ended December 31, 2020 and the three months ended March 31, 2021 was calculated using the weighted-average number of shares of common stock outstanding, including the pro forma effect of the conversion of all outstanding shares of convertible preferred stock and 2021 Notes, into shares of common stock, as if such conversion had occurred at the beginning of the period, or their issuance dates if later. Unaudited pro forma net loss per share attributable to common stockholders does not include the shares expected to be sold and related proceeds to be received in this offering.

 

     As of March 31, 2021  
     Actual     Pro Forma(1)      Pro Forma
As Adjusted(2)
 
           (unaudited)         
           (in thousands)         

Balance Sheet Data

       

Cash and cash equivalents

     $45,526     $ 45,526      $ 251,167  

Short-term investments

     104,595       104,595        104,595  

Working capital(3)

     143,600       146,253        352,698  

Total assets

     155,623       155,623        360,460  

Warrant liability

     2,653               

Convertible Promissory Notes

     141,900               

Long-term debt, net of debt discount

     9,473       9,473        9,473  

Convertible preferred stock

     69,184               

Total stockholders’ (deficit) equity

     (73,342     140,395        346,036  

 

(1)

The pro forma balance sheet data gives effect to (i) the conversion of all outstanding shares of our convertible preferred stock as of March 31, 2021 into an aggregate of 38,826,388 shares of common stock, which will occur immediately prior to the completion of this offering and the filing and effectiveness of our amended and restated certificate of incorporation, (ii) the automatic conversion of our outstanding warrant to purchase convertible preferred stock into a warrant to purchase shares of our common stock, (iii) the conversion of the 2021 Notes into 7,531,777 shares of our common stock, based on the initial public offering price of $22.00 per share, immediately prior to the closing of this offering, and assuming the conversion occurs on June 1, 2021 (which is reflected in pro forma cash and cash equivalents, and additional paid in capital) and (iv) the filing and effectiveness of our amended and restated certificate of incorporation, which will be in effect immediately prior to the completion of this offering.

(2)

The pro forma as adjusted balance sheet data gives effect to: (i) the pro forma adjustments described in footnote (1) above and (ii) to the issuance and sale of shares of common stock in this offering at the initial public offering price of $22.00 per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

(3)

Working capital is defined as current assets less current liabilities. See our financial statements and the related notes included elsewhere in this prospectus for further details regarding our current assets and current liabilities.



 

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RISK FACTORS

Investing in our common stock is speculative and involves a high degree of risk. Before investing in our common stock, you should consider carefully the risks described below, together with the other information contained in this prospectus, including our consolidated financial statements and the related notes appearing at the end of this prospectus and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. If any of the following risks occur, our business, financial condition, results of operations and future growth prospects could be materially and adversely affected. In these circumstances, the market price of our common stock could decline, and you may lose all or part of your investment. This prospectus also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a number of factors, including the risks described below.

Risks Related to Our Business and Industry

Our limited operating history makes it difficult to evaluate our future prospects and the risks and challenges we may encounter.

We operate in a highly competitive market characterized by rapid technological advances, frequent new product introductions, evolving industry standards and changing customer preferences. Our limited operating history makes it difficult to evaluate our future prospects and our ability to respond to our competitors, changes in our market and the risks and challenges we may encounter as we expand our business operations. If we fail to address the risks, uncertainties and difficulties that we face, including those described elsewhere in this “Risk Factors” section, our business, financial condition and results of operations could be adversely affected. We have encountered in the past, and will encounter in the future, risks and uncertainties frequently experienced by companies developing and introducing new products in competitive and rapidly changing markets. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, are incorrect or change, or if we do not address these risks and uncertainties successfully, our results of operations could differ materially from our expectations and our business, financial condition and results of operations could be adversely affected.

We have incurred significant losses since inception, we expect to incur significant losses in the future and we may not be able to generate sufficient revenue to achieve and maintain profitability.

We are a pre-revenue life science technology company and have incurred significant losses since we were formed in 2016. We expect to continue to incur significant losses for the foreseeable future as we expand our business operations, continue to develop our products and implement our business plans and strategies. Our net loss for the years ended December 31, 2019 and 2020 was $12.3 million and $27.9 million, respectively. During the three months ended March 31, 2021, we incurred a net loss of $23.9 million. As of March 31, 2021, we had an accumulated deficit of $77.0 million. We expect that our losses will continue for the foreseeable future as we continue to invest significant additional funds toward ongoing research and development and toward the timely commercialization of our products. We have experienced these losses and accumulated deficit primarily due to the investments we have made in developing our proprietary technologies and products, building our team and manufacturing capabilities and preparing for the commercial launch of our first product, the G4 Integrated Solution. Over the next several years, we expect to continue to incur significant expenses as we continue our research and development activities, finalize the development of our G4 and PX Integrated Solutions, continue to build our sales and marketing organization and increase our manufacturing and commercialization capabilities. These efforts may prove to be more costly, or take longer, than we currently anticipate. Additionally, we may encounter unforeseen expenses, product development or manufacturing delays, declines in revenue or other unknown factors that may result in losses in future periods. We have not generated any product revenue, and we may never generate revenue sufficient to offset our expenses, or at all. In addition, as a public company, we will incur significant legal, accounting, administrative, insurance and other expenses that we did not incur as a private

 

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company. To date, we have financed our operations principally from the sale of convertible preferred stock, convertible notes and the incurrence of other indebtedness. There can be no assurance that our revenue and gross profit will increase sufficiently such that our net losses decrease, or that we attain profitability, in the future. Further, our limited operating history makes it difficult to effectively plan for and model our operating expenses and our ability to generate revenue. Our ability to achieve and then sustain profitability is based on numerous factors, many of which are beyond our control, including the impact of market acceptance of our products, product development results and timing, offerings or actions taken by our competitors, our market penetration and margins and current and future litigation. We may never be able to generate sufficient revenue to achieve or sustain profitability, which could negatively impact the value of our common stock.

We are a pre-revenue life science technology company in the development stage and have no history commercializing our products or technology, which makes it difficult to evaluate our prospects and predict our future performance.

We have not finalized the development or commercialized any of our products or technology and have not generated any revenue to date. There can be no assurance that we will be able to generate sufficient revenue in the future to support our operations and plans. Our operations to date have been focused on developing our technologies and products, including our G4 Integrated Solution. We have completed our beta pilot program for our G4 Integrated Solution and anticipate initiating an early access program followed by a commercial launch of our G4 Integrated Solution by the end of 2021, with intentions for units to ship in the first half of 2022. The performance of our integrated solutions in our beta pilot program and early access program may not be indicative of the performance our customers experience following commercial launch and may prove to be inaccurate. There can be no assurance that we will be able to timely finalize the development of or achieve market acceptance for our G4 Integrated Solution in the future. In particular, it is possible that customers in the early access program may form negative impressions of our G4 Integrated Solution, encounter errors in results or otherwise believe that our G4 Integrated Solution does not compare favorably to competing systems. Further, we have not finalized the development of our G4 Integrated Solution or manufactured our G4 Integrated Solution in commercial quantities, conducted sales and marketing activities at scale or managed customer support at the commercial level. Consequently, predictions about our future success or viability are highly uncertain and hard to predict as a result of our limited operating history, the development stage of our products and our lack of any history commercializing our technologies or products. Our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by companies in their early stages of operations.

Further, we will eventually need to transition from a company with a focus on research and development to a company capable of supporting both research and development and robust manufacturing and commercial activities, and we may not be successful in such a transition. We have encountered in the past, and will encounter in the future, risks and uncertainties, delays and scientific setbacks frequently experienced by development stage companies with limited operating histories in competitive and rapidly changing industries, such as the genomics industry. If our assumptions regarding these risks and uncertainties, which we use to plan and operate our business, manufacturing and commercialization activities, are incorrect or change, or if we do not address these risks, delays or uncertainties successfully, our results of operations could differ materially from our expectations, and our business, financial condition and results of operations could be adversely affected.

The life sciences technology market is highly competitive. If we fail to compete effectively, our business and operating results will suffer.

We face significant competition in the life sciences technology market. More specifically, the NGS market is characterized by rapid technological changes, frequent new product introductions, established and emerging competition, extensive intellectual property disputes and litigation, price competition, aggressive marketing practices, evolving industry standards and changing customer preferences. Our primary competitors are large publicly-traded companies, or are divisions of large publicly-traded companies, including 10x Genomics Inc.,

 

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Becton, Dickinson and Company, Bio-Rad Laboratories, Inc., Illumina Inc., MissionBio Inc., and Nanostring Technologies, Inc., Oxford Nanopore Technologies Inc., Pacific Biosciences Inc., and Thermo Fisher Scientific Inc. There are other companies, both established and early-stage, that have indicated that they are designing and plan to manufacture and offer NGS technologies and products to our target customers. We also face competition from companies and research institutes developing their own products or applications for omics research. This is particularly true for the largest research centers and laboratories who are continually testing and trying new technologies, whether from a third-party vendor or developed internally.

Our current competitors, including those who are large publicly-traded companies, or are divisions of large publicly-traded companies, enjoy a number of competitive advantages over us, including:

 

   

greater name and brand recognition;

 

   

greater financial and human resources;

 

   

established and trusted commercial relationships with our target customers;

 

   

broader product lines;

 

   

greater pricing flexibility, including the ability to offer significant discounts and to bundle products and services;

 

   

larger sales and customer service forces and more established distributor networks;

 

   

substantial intellectual property portfolios;

 

   

exclusive and/or long-term supply agreements with our target customers;

 

   

approvals with the U.S. Food and Drug Administration (the FDA) that allow our competitors to market their products for additional uses;

 

   

numerous scientific papers and publications supporting their technologies and product claims; and

 

   

better established, larger scale and lower cost manufacturing capabilities.

We cannot assure investors that we can successfully compete with these competitors or that our G4 Integrated Solution, our planned PX Integrated Solution or any other technologies and products we develop can compete favorably with the offerings from such competitors. We also cannot assure investors that we can successfully defend our technologies and products from lawsuits filed by our competitors without significant expenses, the requirement to complete additional product and technology development, potential commercialization delays, or at all. Further, we cannot assure investors that we will be successful in the face of increasing competition from products and technologies introduced by our existing or future competitors, or developed by our customers internally. In addition, we cannot assure investors that our competitors do not have or will not develop products or technologies that currently or in the future will enable them to offer products with greater capabilities or at lower costs than ours or that are able to run comparable experiments at a lower total experiment costs. Many of our competitors have also been able to enter into long-term, exclusive agreements with major potential customers, often by offering favorable pricing and other terms. Until these agreements expire, our ability to place our integrated solutions with these customers will be limited. Even after exclusive agreements expire, we may not be able to compete with the terms offered by our competitors in their efforts to extend exclusive relationships with these major potential customers. Any failure to compete effectively could materially and adversely affect our business, financial condition and operating results.

If our products fail to achieve early customer and scientific acceptance, we may not be able to achieve broader market acceptance for our products, and our revenue and prospects may be harmed.

We cannot guarantee that customer experiences or reviews of our G4 Integrated Solution from our early access program will be favorable. The customers in these programs may not use our G4 Integrated Solution as we

 

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intend, interpret results incorrectly or may experience breakdowns, manufacturing defects, errors or bugs common with beta and early access product introductions, which could negatively impact their perception of our G4 Integrated Solution regardless of its actual capabilities. Initial negative perception of our G4 Integrated Solution by customers in our early access program could irreparably damage our reputation and ability to later successfully commercialize our G4 Integrated Solution, our planned PX Integrated Solution or any of our other future products. Further, the life sciences scientific community is comprised of a small number of early adopters and key opinion leaders (KOLs) who significantly influence the rest of the community and the marketplace in general. The success of life sciences products is due, in large part, to acceptance by the scientific community and their adoption of certain products as best practice in the applicable field of research. The current system of academic and scientific research views publishing in a peer-reviewed journal as a measure of success. In such journal publications, the researchers will describe not only their discoveries, but also the methods and typically the products used to fuel such discoveries. Mentions in peer-reviewed journal publications are a good barometer for the general acceptance of our products as best practices. Ensuring that early adopters and KOLs publish research involving the use of our products is critical to ensuring our products gain widespread acceptance and market growth. Continuing to maintain good relationships with such KOLs is vital to growing the acceptance of our products in the marketplace. If early adopters and KOLs do not favorably describe the use of our products, do not compare our products favorably to existing products and technologies, or negatively describe the use and operation of our products in publications, it may drive potential customers away from our products and prevent broader market acceptance of our products, which could harm our business, financial condition and results of operations.

We expect to be highly dependent upon revenue generated from the sale of our G4 Integrated Solution, and any delay or failure by us to finalize the development and to begin to commercialize our G4 Integrated Solution will have a substantial adverse effect on our business and results of operations.

We have completed our beta pilot program for our G4 Integrated Solution and anticipate initiating an early access program followed by a commercial launch of our G4 Integrated Solution and its first associated products by the end of 2021, with intentions for units to ship in the first half of 2022. Our second planned product, the PX Integrated Solution, is still under development, and we do not anticipate the commercial launch of our PX Integrated Solution and its first associated products until 2023. As a result, we expect to generate substantially all of our revenue in the near term from the sale of our G4 Integrated Solution. There can be no assurance that we will finalize the development of our G4 Integrated Solution on a timely basis, that our G4 Integrated Solution will meet our targeted performance metrics, that the G4 Integrated Solution will meet the expectations of our customers or otherwise gain market acceptance, that we can manufacture our G4 Integrated Solution in commercial quantities, that we will be able to successfully commercialize our G4 Integrated Solution or that we will be able to service and maintain our G4 Integrated Solutions that we have sold. Further, there is no assurance that we will be able to successfully complete the development of, or commercialize, our planned PX Integrated Solution, or any other future products or product enhancements we elect to pursue. To date, we have no experience simultaneously designing, testing, manufacturing and selling products and there can be no assurances we will be successful in doing so. In addition, as technologies change in the life sciences research tools marketplace in general, and in the omics technologies marketplace specifically, we will be expected to upgrade or adapt our products in order to keep up with the latest technology. Further, our competitors may offer or develop products or technologies that cause our G4 Integrated Solution or our planned PX Integrated Solution to not be commercially attractive to our customers

Our future financial performance will be dependent upon our ability to increase penetration and utilization in our existing markets.

Our financial performance will be driven by, and a key factor to our future success will be, the rate of commercial adoption of our G4 Integrated Solution and planned PX Integrated Solution. In addition, our financial performance will be dependent on our ability to increase customer utilization of our integrated solutions, and thereby, increase sales of our consumables and any other associated products and services we

 

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offer. There is no assurance that we will be successful in demonstrating our product performance claims and value proposition to potential customers. There also is no assurance that our direct sales and marketing organization in the United States or our direct or distributor sales and marketing efforts in markets outside the United States will drive broad customer adoption of our integrated solutions. Further, we may not be successful in increasing our customers’ usage of our integrated solutions, or their associated purchase of our consumables and other products and services. Any failure to establish a broad installed base of our G4 Integrated Solution and our planned PX Integrated Solution solutions among our target customers, or failure to increase the usage of our integrated solutions and the associated sales of our consumables and other products and services, will limit our revenue growth and harm our results of operations and financial performance.

Our business will depend significantly on research and development spending by academic institutions and other research institutions, and any reduction in spending could limit demand for our products and adversely affect our business, results of operations, financial condition and prospects.

We plan to initially target customers who are already familiar with genomic analysis, including academic institutions, genomic research centers/core labs and government laboratories, as well as pharmaceutical, clinical research organizations (CROs), biotechnology, consumer genomics, commercial molecular diagnostic laboratories, and agrigenomics companies. However, we believe that a substantial amount of our sales revenue in the near term will be generated from sales to academic and other research institutions. Therefore, we expect much of these customers’ funding will be, in turn, provided by various state, federal and international governmental agencies. As a result, the demand for our G4 Integrated Solution, our planned PX Integrated Solution and any other product or product enhancements we elect to develop in the future may depend in part upon the research and development budgets of these customers, which are impacted by factors beyond our control, such as:

 

   

decreases in government funding of research and development;

 

   

changes to programs that provide funding to research laboratories and institutions, including changes in the amount of funds allocated to different areas of research or changes that have the effect of increasing the length of the funding process;

 

   

macroeconomic conditions and the political climate;

 

   

scientists’ and customers’ opinions of the utility of new products or services;

 

   

researchers’ opinions of the utility of our G4 Integrated Solution, our planned PX Integrated Solution or any other product or product enhancements we elect to develop in the future;

 

   

citation of our G4 Integrated Solution and planned PX Integrated Solution in published research;

 

   

potential changes in the regulatory environment;

 

   

differences in budgetary cycles, especially government- or grant-funded customers, whose cycles often coincide with government fiscal year ends;

 

   

competitor product offerings or pricing;

 

   

market acceptance of new technologies; and

 

   

market driven pressures to consolidate operations and reduce costs.

In addition, various state, federal and international agencies that provide grants and other funding may be subject to stringent budgetary constraints that could result in spending reductions, reduced grant making, reduced allocations or budget cutbacks, which could jeopardize the ability of these customers, or the customers to whom they provide funding, to purchase our products. For example, congressional appropriations to the National Institutes of Health (the NIH) have generally increased year-over-year for the last 20 years, but the NIH also experiences occasional year-over-year decreases in appropriations, including as recently as 2013. There is no

 

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guarantee that NIH appropriations will not decrease in the future. A decrease in the amount of, or delay in the approval of, appropriations to NIH or other similar United States or international organizations, such as the Medical Research Council in the United Kingdom, could result in fewer grants benefiting life sciences research. These reductions or delays could also result in a decrease in the aggregate amount of grants awarded for life sciences research or the redirection of existing funding to other projects or priorities, any of which in turn could cause our customers and potential customers to reduce or delay purchases of our products. Our operating results may fluctuate substantially due to any such reductions and delays. Any decrease in our customers’ budgets or expenditures, or in the size, scope or frequency of their capital or operating expenditures, could materially and adversely affect our business, results of operations, financial condition and prospects.

Our operating results may fluctuate significantly in the future, which makes our future operating results difficult to predict and could cause our operating results to fall below expectations or any guidance we may provide.

We have very limited operating history in manufacturing, commercializing and providing customer support for our first product, the G4 Integrated Solution. As a result, our quarterly and annual operating results may fluctuate significantly as we finalize the development of G4 Integrated Solution and begin these new manufacturing, commercialization and customer support activities, which makes it difficult for us to predict our future operating results. These fluctuations may occur due to a variety of factors, many of which are outside of our control, including but not limited to:

 

   

our ability to finalize the development and successfully manufacture and commercialize our products and technologies, including our G4 Integrated Solution and our planned PX Integrated Solution, on our anticipated timelines and costs;

 

   

the timing and cost of, and level of investment in, research and development, manufacturing and commercialization activities relating to our products and technologies, which may change from time to time;

 

   

the level of demand for any products or product enhancements we are able to commercialize, particularly our G4 Integrated Solution and our planned PX Integrated Solution, which may vary significantly from period to period;

 

   

market acceptance of our products, especially by early adopters and KOLs;

 

   

our ability to drive adoption of our products and technologies, including our G4 Integrated Solution and our planned PX Integrated Solution, in our target markets and our ability to expand into any future target markets;

 

   

the prices at which we will be able to sell our products and technologies;

 

   

our ability to lower the cost of manufacturing our products and product enhancements;

 

   

the availability and cost of components and raw materials;

 

   

actions taken by our competitors, including new product introductions, pricing changes, product bundling and aggressive marketing practices;

 

   

intellectual property disputes and litigation;

 

   

the outcomes of and related rulings in litigation and administrative proceedings in which we may in the future become involved in;

 

   

the operating performance and financial results of our competitors;

 

   

the volume and mix of our sales between our G4 Integrated Solution and our planned PX Integrated Solution and other products and technologies, or changes in the manufacturing or sales costs related to our products;

 

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the utilization of our instruments and the volume and mix of the sales of our consumables;

 

   

the length of time of the sales cycle for purchases of our products and technologies, including our G4 Integrated Solution and our planned PX Integrated Solution;

 

   

the timing and amount of expenditures that we may incur to develop, commercialize or acquire additional products and technologies or for other purposes, such as the expansion of our facilities;

 

   

changes in governmental funding of life sciences research and development or changes that impact budgets or budget cycles;

 

   

the timing of when we recognize any revenue;

 

   

future accounting pronouncements or changes in our accounting policies;

 

   

the outcome of any future governmental investigations involving us, our industry or both;

 

   

higher than anticipated service, replacement and warranty costs;

 

   

the impact of the COVID-19 pandemic on the economy, our business and operations, investment in life sciences and research industries, and resources and operations of our customers, suppliers, and distributors;

 

   

general industry, economic and market conditions and other factors, including factors unrelated to our operating performance or the operating performance of our competitors; and

 

   

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

The cumulative effects of the factors discussed above could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result, comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or investors for any period. If we are unable to commercialize products or generate revenue, or if our operating results fall below the expectations of analysts or investors or below any guidance we may provide, or if the guidance we provide is below the expectations of analysts or investors, it could cause the market price of our common stock to decline.

We expect to continue to incur substantial operating expenses in the future, which will negatively impact our ability to achieve or maintain profitability.

We have experienced net losses and negative cash flows from operations since our formation in 2016. As of March 31, 2021, we had an accumulated deficit of $77.0 million. Over the next several years, we expect to continue to incur significant expenses as we continue our research and development activities, finalize the development of our integrated solutions, continue to build our sales and marketing organization and increase our manufacturing and commercialization capabilities. These efforts may prove to be more costly, or take longer, than we currently anticipate. In addition, as a public company, we will incur significant legal, accounting, administrative, insurance and other expenses that we did not incur as a private company. We have not generated any product revenue, and we may never generate revenue sufficient to offset our expenses, or at all. If our revenue does not eventually grow to a level that exceeds our expenses, we will not be able to achieve or maintain profitability. Additionally, we may encounter unexpected development delays, unforeseen expenses, operating delays, declines in revenue or other unknown factors that may result in losses in future periods. If we are unable to achieve and maintain sustained profitability, our business, results of operations, financial condition and prospects will be materially harmed.

The COVID-19 pandemic and efforts to reduce its spread have adversely impacted, and are expected to continue to materially and adversely impact, our business and operations.

The COVID-19 pandemic has spread worldwide, has caused many governments to implement measures to slow the spread of the outbreak through quarantines, travel restrictions, heightened border scrutiny and other

 

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measures. In addition, in response to the COVID-19 pandemic, many state, local and foreign governments have put in place quarantines, executive orders, shelter-in-place orders and similar government orders and restrictions in order to control the spread of the disease. Such orders or restrictions, and the perception that such orders or restrictions could continue or, after being lifted, be reinstated for a period of time, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions and cancellation of events, among other effects that have impacted, and we expect them to continue to impact, our business, personnel and personnel at third-party manufacturing facilities in the United States and other countries, and the availability or cost of materials, which would disrupt or delay our receipt of instruments, components and supplies from the third parties we rely on to, among other things, produce our products.

For instance, there have been standing “stay-at-home” orders in California, and specifically in San Diego County, where our headquarters is located. We have continued to operate within the rules applicable to our business; however, an extended implementation of these governmental mandates or reinstitution of additional more stringer mandates could further impact our ability to operate effectively and conduct ongoing research and development or other activities. Additionally, we have experienced longer lead times from our suppliers of components used in our product development and manufacturing operations. Pandemic precautions and preventative measures may also impact our commercialization plans due to restrictions on our customers’ ability to access laboratories, causing delays in the delivery and installation of our products, training such customers on our products, and their ability to conduct research. The ongoing build-out of our new headquarters and manufacturing facilities may also be delayed by COVID-19 related restrictions. The COVID-19 pandemic has also had an adverse effect on our ability to attract, recruit, interview and hire at the pace we would typically expect to support our rapidly expanding operations. To the extent that any governmental authority imposes additional regulatory requirements or changes existing laws, regulations, and policies that apply to our business and operations, such as additional workplace safety measures, our product development plans may be delayed, and we may incur further costs in bringing our business and operations into compliance with changing or new laws, regulations, and policies.

In the near term, we expect that a substantial amount of our revenue will be derived from sales of our G4 Integrated Solution to academic and research institutions. Our ability to drive the adoption of our products will depend upon our ability to visit customer sites, the ability of our customers to access laboratories, install and train on our G4 Integrated Solution and conduct research in light of the COVID-19 pandemic. Additionally, the research and development budgets of these customers, the ability of such customers to receive funding for research, and the ability of such customers to receive instrument installations and visitors to their facilities and to travel to our facilities, other laboratories and industry events, will become increasingly important to the adoption of our G4 Integrated Solution. All of these activities are impacted by the COVID-19 pandemic in multiple ways, such as:

 

   

reductions in capacity or shutdowns of laboratories and other institutions as well as other impacts stemming from the COVID-19 pandemic, such as reduced or delayed spending on instruments or consumables as a result of such shutdowns and delays before re-opened laboratories and institutions resume previous levels of research activities that require new purchases of our instruments or consumables;

 

   

re-allocation of resources by potential customers towards COVID-19 research, testing or treatment;

 

   

delays in obtaining supplies and materials used to produce our products;

 

   

decreases in government funding of research and development; and

 

   

changes to programs that provide funding to research laboratories and institutions, including changes in the amount of funds allocated to different areas of research, changes that have the effect of increasing the length of the funding process or the impact of the COVID-19 pandemic on our customers and potential customers and their funding sources.

 

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The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to sudden change. This impact could have a material, adverse impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely, and could worsen over time. The extent to which the COVID-19 pandemic impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. While we do not yet know the full extent of the potential future impacts on our business, any of these occurrences could significantly harm our business, results of operations and financial condition.

Further, the COVID-19 pandemic has resulted in, and may continue to result in, extreme volatility and disruptions in the capital and credit markets, reducing our ability to raise additional capital through equity, equity-linked or debt financings, which could negatively impact our short-term and long-term liquidity and our ability to operate in accordance with our operating plan, or at all. Additionally, our results of operations could be adversely affected by general conditions in the global economy and financial markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including weakened demand for our products and technologies and our ability to raise additional capital when needed on favorable terms, if at all. A weak or declining economy could strain our customers’ budgets or cause delays in their payments to us. Any of the foregoing could harm our business, and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our ability to raise capital, business, results of operations and financial condition.

Risks Related to the Development and Commercialization of Our Products

We have not commercially launched any products, and our efforts to finalize the development and commercially launch our G4 Integrated Solution or our planned PX Integrated Solution may not be successful.

We have not commercially launched any product. With respect to our G4 Integrated Solution, we have completed our beta pilot program and anticipate initiating an early access program followed by a commercial launch of the G4 Integrated Solution and its first associated products by the end of 2021, with intentions for units to ship in the first half of 2022. With respect to our planned PX Integrated Solution, we are currently in an advanced prototype development stage for the initial products and expect to begin an early access program in 2022 and full commercial launch in 2023. Our product development and commercial launch plans may not progress as planned or may not be successful due to:

 

   

potential delays in finalizing development and internal validation of our products, including the failure to meet targeted performance metrics;

 

   

our inability to commercialize our G4 Integrated Solution and/or planned PX Integrated Solution without first being required to change the specifications, design and performance of such products, including the associated reagents and consumables;

 

   

our inability to establish the capabilities and value proposition of our G4 Integrated Solution or our planned PX Integrated Solution with KOLs and early adopters in a timely fashion, including through information included in scientific publications and presentations;

 

   

our inability to establish broad scientific acceptance of our G4 Integrated Solution or planned PX Integrated Solution;

 

   

potential litigation brought by our competitors against our products, technology or intellectual property;

 

   

our inability to overcome the long-term relationships, including exclusive agreements, that our competitors have established with our target customers;

 

   

actions taken by our competitors, including new product introductions and the ability to offer significant discounts and to bundle products and services to our target customers;

 

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our customers’ willingness and ability to adopt new products and workflows, including in light of commercial pressures applied by our competitors and pre-existing long-term contracts with our competitors;

 

   

our ability to demonstrate that our G4 Integrated Solution and our planned PX Integrated Solution provide meaningful advantages over competing products and technologies;

 

   

the prices we charge for our G4 Integrated Solution and planned PX Integrated Solution and other products and technologies;

 

   

our ability to develop new products and workflows and solutions for customers, and the impact of our investments in product innovation and commercial growth;

 

   

our ability to provide service and maintain the products we have sold; and

 

   

changing industry or market conditions, customer expectations or requirements;

 

   

delays in building out our sales, customer support and marketing organization as needed for our commercial launch plan;

 

   

delays in ramping up manufacturing, including obtaining required materials and components from third-party suppliers, to meet expected or actual demand for our products; and

 

   

the continued effect and lasting impact of the COVID-19 pandemic.

We cannot assure you that we will be successful in addressing each of the risks and uncertainties that might affect the development and market acceptance of any products we commercialize, particularly our G4 Integrated Solution. For example, we cannot guarantee that we will finalize the development of our G4 Integrated Solution on a timely basis, meet our targeted performance metrics for the G4 Integrated Solution or that customer experiences or reviews of our G4 Integrated Solution from our early access program will be favorable. The customers in the program may not use our G4 Integrated Solution as we intend or interpret results incorrectly, or may experience breakdowns, manufacturing defects, errors or bugs common with beta and early access product introductions, which could negatively impact their perception of our G4 Integrated Solution regardless of its actual capabilities. Initial negative perception of our G4 Integrated Solution by customers in our early access program could irreparably damage our reputation and ability to later successfully commercialize our G4 Integrated Solution or our planned PX Integrated Solution or future systems or products. In addition, as we begin to commercialize our G4 Integrated Solution we will also need to make corresponding improvements to other operational functions, such as our customer support, service and billing systems, compliance programs and our internal quality assurance programs. We cannot assure you that any increases in scale, required manufacturing improvements and quality assurance will be successfully implemented or that appropriate personnel will be available. To the extent any of our commercial launch plans and related activities are delayed, unsuccessful or more expensive than we currently anticipate, our financial results will be adversely impacted and we may never generate sufficient revenue to achieve and maintain profitability.

If we are unable to establish sales and marketing capabilities, we may not be successful in commercializing our G4 Integrated Solution or our planned PX Integrated Solution.

We have no experience commercializing our products, and our ability to achieve profitability depends on being able to successfully commercialize our G4 Integrated Solution and our planned PX Integrated Solution. Although members of our management team have considerable industry experience, we are in the process of expanding our sales, marketing, distribution and customer service and support capabilities with the appropriate technical expertise prior to the broad commercial launch of our first product, the G4 Integrated Solution. To perform sales, marketing, distribution, and customer service and support successfully, we will face a number of risks, including:

 

   

our ability to attract, train, retain and manage the sales, marketing and customer service and support force necessary to commercialize and gain market acceptance for our products and train and support our customers in the use of our systems;

 

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our ability to develop marketing materials;

 

   

our ability to adopt successful marketing and pricing strategies;

 

   

the time and cost of establishing a specialized sales, marketing and customer service and support force; and

 

   

our sales, marketing and customer service and support force may be unable to initiate and execute successful commercialization activities.

We may seek to enlist one or more third parties to assist with sales, distribution and customer service and support globally or in certain regions of the world. There is no guarantee, if we do seek to enter into such arrangements, that we will be successful in attracting desirable sales and distribution partners or that we will be able to enter into such arrangements on favorable terms. If our sales and marketing efforts, or those of any third-party sales and distribution partners, are not successful, our G4 Integrated Solution or our planned PX Integrated Solution, may not gain market acceptance, which could materially impact our business and results of operations.

Our Sequencing Engine and Integrated Solutions could fail to achieve key performance metrics we are targeting and our prospects could be harmed.

We believe our Sequencing Engine can impart commercially marketable capabilities to our products, including high accuracy, speed, flexibility and scale. To successfully commercialize our Integrated Solutions, we are targeting certain performance metrics, including cycle times for each base, accuracy for base reads, quality scores and the number of independent flow cells that can run concurrently. While we have preliminarily achieved certain of our targeted metrics for our G4 Integrated Solution in early testing, we have not yet achieved certain targeted metrics and, as a result, we will need to continue our product development efforts and enhance the performance of our G4 Integrated Solution prior to our planned commercial launch. If our Sequencing Engine or Integrated Solutions are unable to meet and to consistently achieve these key performance metrics, including once commercially deployed, or, if the data supporting our preliminary achievement of certain key performance metrics are incorrect or not viewed favorably by KOLs or potential customers, demand for our G4 Integrated Solution and planned PX Integrated Solution may not develop as anticipated, which could adversely affect our revenue and our results of operations.

If we fail to finalize the development of our G4 Integrated Solution and complete the development of our PX Integrated Solution our revenue and our prospects could be harmed.

Our G4 Integrated Solution has completed the beta pilot program of our commercialization plan. While we believe the development of our G4 Integrated Solution is nearly final, our collaborators in our beta pilot or early access programs may request certain design or other modifications that could cause us to modify or attempt to further improve our G4 Integrated Solution, which could delay or prevent its commercial launch. Further, we are working to develop and enhance the performance of our G4 Integrated Solution to meet targeted performance metrics that we believe are necessary to support its broad commercial adoption. Any delay or failure by us to successfully develop, release, enhance, commercialize and support our G4 Integrated Solution will have a substantial adverse effect on our business and results of operations.

Our planned PX Integrated Solution is in the development phase, and is subject to all the risks and uncertainties associated with product development of highly complex and novel life sciences instruments. We have not met a number of technical and performance metrics that we believe will be necessary to achieve prior to commercialization. If we do not achieve the required technical specifications and performance metrics for our planned PX Integrated Solution or if development work is not performed according to our planned schedule, then we may not be successful in finalizing our planned PX Integrated Solution and its commercial launch may be adversely affected, delayed or not occur at all. Additionally, our planned PX Integrated Solution could be subject to redesign or further improvements, and result in delays in finalizing development and commencing

 

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commercialization, after feedback from beta collaborators and KOLs. Any delay or failure by us to successfully develop, release, commercialize and maintain our PX Integrated Solution will have a substantial adverse effect on our business and results of operations.

If we fail to continue to improve our planned products or, introduce compelling new products, product enhancements or product configurations, our revenue and our prospects could be harmed.

Even if we are able to commercially launch our G4 Integrated Solution, and successfully develop and commercialize our planned PX Integrated Solution, our ability to attract new customers and increase revenue from existing customers will depend in large part on our ability to continue to enhance and improve our products and to introduce compelling new products and product capabilities. The success of any enhancements to our G4 Integrated Solution or our planned PX Integrated Solution, or the introduction of any new products and product capabilities depends on several factors, including timely completion and delivery of such enhancements and products, competitive pricing, adequate quality testing, integration with existing products and technologies, appropriately timed and staged introduction, overall market acceptance and our ability to properly service and maintain these products. Any new products or enhancements that we develop may not be introduced in a timely or cost effective manner, may contain defects, errors, vulnerabilities or bugs, or may not achieve the market acceptance necessary to increase our revenue and improve our operating results. Further, if we are unable to successfully develop any new products, enhance the capabilities of our existing products to meet evolving customer requirements and demands, compete with alternative products and technologies, or otherwise gain and maintain market acceptance, our business, results of operations and financial condition could be harmed.

The sizes of the markets for our products and technologies may be smaller or grow slower than we estimate, and new markets may not develop as quickly as we expect, or at all, limiting our ability to successfully sell our products.

The market for NGS, single cell, spatial and proteomics products and technologies is evolving, making it difficult to predict with any accuracy the market opportunity for our current and future products and technologies. Our estimates of the total addressable market for our current and future products and technologies are based on a number of internal and third-party estimates and assumptions. In particular, while we believe that our target markets may be underserved by existing genomics products and technologies and that our target customers will recognize the value proposition offered by our products, we cannot be certain that our target customers will recognize enough value from our products to purchase our products in place of, or in addition to, tools and technologies they already use. Further, we cannot be certain that our target customers will view our products as competitive alternatives to existing tools and technologies in our target markets, especially given that our competitors have long relationships, including exclusive arrangements, with our target customers and may be able to offer significant discounts and/or buddle products or offerings to our target customers.

While we believe our assumptions and the data underlying our estimates of the total annual addressable market for our products and technologies are reasonable, these assumptions and estimates may not be correct and the conditions supporting our assumptions or estimates, or those underlying the third-party data we have used, may change at any time, thereby reducing the accuracy of our estimates. As a result, our estimates of the annual total addressable market for our products and technologies may be incorrect. Further, the future growth of the market for our current and future products depends on many factors beyond our control, and if the markets for our current and future products are smaller than estimated or do not develop as we expect, our growth may be limited and our business, financial condition and operational results of operations could be adversely affected.

 

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We expect to commercialize our G4 Integrated Solution and our planned PX Integrated Solution outside of the United States, which could expose us to business, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States.

Engaging in international business inherently involves a number of difficulties and risks, including:

 

   

required compliance with existing and changing foreign regulatory requirements and laws that are or may be applicable to our business in the future, such as the European Union’s General Data Protection Regulation (GDPR) and other data privacy requirements, labor and employment regulations, anti-competition regulations, the U.K. Bribery Act of 2010 and other anti-corruption laws, regulations relating to the use of certain hazardous substances or chemicals in commercial products, and require the collection, reuse, and recycling of waste from products we manufacture;

 

   

required compliance with U.S. laws such as the Foreign Corrupt Practices Act, and other U.S. federal laws and regulations established by the office of Foreign Asset Control;

 

   

export requirements and import or trade restrictions;

 

   

laws and business practices favoring local companies;

 

   

foreign currency exchange, longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems;

 

   

changes in social, economic, and political conditions or in laws, regulations and policies governing foreign trade, manufacturing, research and development, and investment both domestically as well as in the other countries and jurisdictions in which we operate and into which we may sell our products including as a result of the separation of the United Kingdom from the European Union (Brexit);

 

   

potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements, and other trade barriers;

 

   

difficulties and costs of staffing and managing foreign operations; and

 

   

difficulties protecting, maintaining, enforcing or procuring intellectual property rights.

If one or more of these risks occurs, it could require us to dedicate significant resources to remedy such occurrence, and if we are unsuccessful in finding a solution, our financial results will suffer.

Risks Related to Our Financial Position and Need for Additional Capital

We may require substantial additional funding, which may not be available to us on acceptable terms, or at all, and, if not available, may require us to delay, scale back, or cease our product development or commercialization activities.

Based on our current plans, we believe that our current cash and cash equivalents, short-term investments and anticipated cash flow from operations, if any, will be sufficient to (i) meet our anticipated cash requirements for at least 12 months from the date of this prospectus and, (ii) with the additional funds from the net proceeds of this offering, to finalize the development and to commence commercializing our G4 Integrated Solution and to complete the development of our planned PX Integrated Solution. If our available cash resources, net proceeds from this offering and anticipated cash flows from operations, if any, are insufficient to satisfy our liquidity requirements, we may be required to raise significant additional capital to support our continued operations and the implementation of our business plans. Our future funding requirements will depend on many factors, including but not limited to:

 

   

our rate of progress in finalizing development, launching, commercializing and scaling the manufacturing of our G4 Integrated Solution;

 

   

the costs of the sales and marketing activities associated with establishing adoption of our G4 Integrated Solution;

 

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the effect of competing technological and market developments, including our requirement to provide discounts for G4 Integrated Solution in light of competitive pressures;

 

   

litigation expenses we incur to defend against claims that we infringe the intellectual property of others or judgments we must pay to satisfy such claims;

 

   

our rate of progress in developing, launching and commercializing our planned PX Integrated Solution, and any new products or product enhancements we elect to pursue;

 

   

our ability to control our manufacturing and operating costs;

 

   

our ability to satisfy our outstanding debt obligations; and

 

   

the costs of responding to the other risks and uncertainties described in this prospectus.

We will also be required to raise additional capital in the future to expand our business and operations, to pursue strategic investments, or for other reasons, including but not limited to:

 

   

increasing our sales and marketing and other commercialization efforts to drive market adoption of our G4 Integrated Solution;

 

   

commercializing our planned PX Integrated Solution;

 

   

scaling up our manufacturing and customer support capabilities;

 

   

funding development and marketing efforts of our other future products and product enhancements;

 

   

expanding our technologies into additional markets;

 

   

acquiring, licensing or investing in technologies and other intellectual property rights;

 

   

acquiring or investing in complementary businesses or assets; and

 

   

financing capital expenditures and general and administrative expenses.

We may seek required funding through issuances of equity or convertible debt securities, entering into additional loan facilities or drawing down additional funds under our current loan agreement with Silicon Valley Bank (the Loan Agreement). Each of the various ways we could raise additional capital carry potential risks. If we raise funds by issuing equity securities, dilution to our stockholders would result. If we raise funds by issuing additional debt securities, those debt securities would have rights, preferences and privileges senior to those of holders of our common stock. Our Loan Agreement restricts our ability to pursue certain transactions that we may believe to be in our best interest, including incurring additional indebtedness without the prior written consent of the lender under the Loan Agreement. If we raise funds through collaborations or licensing arrangements, we might be required to relinquish significant rights to our technologies or products or grant licenses on terms that are not favorable to us.

If we are unable to obtain adequate financing or financing on terms satisfactory to us, if we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances could be significantly limited, and could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our results of operations could be materially harmed if we are unable to accurately forecast customer demand for our G4 Integrated Solution, our planned PX Integrated Solution, if and once developed and commercialized, and any other future products and product enhancements we elect to pursue.

To ensure adequate inventory supply of our G4 Integrated Solution, including our G4 Instrument and the associated consumables, we must forecast our inventory needs and appropriately scale-up our manufacturing operations and personnel to build a sufficient supply of our G4 Integrated Solution prior to commercial launch.

 

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We must also place orders with our third-party suppliers based on such forecasts. Our ability to accurately forecast demand for our G4 Integrated Solution could be negatively affected by many factors, including delays in finishing the development of our G4 Integrated Solution, the results of our beta pilot program and early access program, our ability to timely scale our manufacturing operations and capabilities, the success of our sales and marketing activities and customer acceptance of our G4 Integrated Solution as well as adverse impacts as a result of COVID-19. These same risks and uncertainties will also apply to our planned PX Integrated Solution and any other future products and product enhancements we elect to pursue.

Inventory levels in excess of customer demand may result in inventory write-downs or write-offs, which would cause our gross margin to be adversely affected and could impair the strength of our brand. Similarly, a portion of our inventory could become obsolete or expire, which could have a material and adverse effect on our earnings and cash flows due to the resulting costs associated with inventory impairment charges and costs required to replace obsolete inventory. Any of these occurrences could negatively impact our financial performance.

Conversely, if we underestimate customer demand for our G4 Integrated Solution, our planned PX Integrated Solution or any other future products and product enhancements we elect to pursue, we may not be able to deliver sufficient products to meet our customer requirements, which could result in damage to our reputation and customer relationships. In addition, if we experience a significant increase in demand, we may not be able to increase our manufacturing capacity on a timely basis. Further, we may not be able to obtain the components for our products when required on terms that are acceptable to us, or at all, which could have an adverse effect on our ability to meet customer demand and harm our business and results of operations.

Our existing indebtedness may limit our flexibility in financing and operating our business and adversely affect our business, financial condition and results of operations.

As of March 31, 2021, there was $10.0 million of principal owed under our Loan Agreement with Silicon Valley Bank. In addition to this outstanding amount, we may borrow substantial funds in the future to provide a portion of the capital needed in our business and may secure the repayment of such borrowings by placing additional liens or other encumbrances on our assets. Our Loan Agreement contains customary conditions to borrowing, events of default and affirmative and negative covenants, including covenants that restrict our ability (and the ability of certain of our subsidiaries) to incur additional indebtedness, grant liens, make certain fundamental changes and asset sales, pay dividends or make other distributions to holders of our stock, make investments or engage in transactions with our affiliates. Such restrictions could limit our ability to take certain actions could reduce our flexibility to run and manage our business which could have an adverse effect on our results of operations. The obligations under the Loan Agreement are also secured by liens on substantially all of our assets, excluding our intellectual property on which there is a negative pledge, subject to customary exceptions. If we were unable to repay amounts due under the Loan Agreement, Silicon Valley Bank could proceed against such assets. Any declaration by Silicon Valley Bank of an event of default could significantly harm our business and prospects and could cause the price of our common shares to decline.

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

We have incurred substantial losses during our history, which we expect to continue for the foreseeable future, and we may never achieve profitability. As of December 31, 2020, we had federal and California tax loss carryforwards of approximately $48.7 million and $47.1 million, respectively. As of December 31, 2020, we had federal and state tax credit carry forwards of approximately $1.6 million and $2.2 million, respectively. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards, or NOLs, and other pre-change tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited. We have not yet completed an ownership change analysis. If a

 

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requisite ownership change occurs, the amount of remaining tax attribute carryforwards available to offset taxable income and reduce income tax expense in future years may be restricted or eliminated. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed. As a result, even if we attain profitability, we may be unable to use a material portion of our NOLs and other tax attributes based on restrictions in the Code, which could adversely affect our future cash flows and results of operations.

U.S. federal income tax reform and the implementation of such reforms could adversely affect us.

On December 22, 2017, the United States enacted the Tax Cuts and Jobs Act (the TCJA) that significantly reformed the Code. The TCJA, among other things, contained significant changes to corporate taxation, including a reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, the limitation of the tax deduction for net interest expense to 30% of adjusted earnings (except for certain small businesses), the limitation of the deduction for NOLs arising in taxable years beginning after December 31, 2017 to 80% of current year taxable income and elimination of NOL carrybacks for losses arising in taxable years ending after December 31, 2017 (though any such NOLs may be carried forward indefinitely), the imposition of a one-time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, the elimination of U.S. tax on foreign earnings (subject to certain important exceptions), the allowance of immediate deductions for certain new investments instead of deductions for depreciation expense over time, and the modification or repeal of many business deductions and credits. The financial statements contained herein reflect the effects of the TCJA based on current guidance. However, there remain uncertainties and ambiguities in the application of certain provisions of the TCJA, and, as a result, we made certain judgments and assumptions in the interpretation thereof.

As part of Congress’s response to the COVID-19 pandemic, the Families First Coronavirus Response Act, or the FFCR Act, was enacted on March 18, 2020, and the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, was enacted on March 27, 2020. Both contain numerous tax provisions. In particular, the CARES Act retroactively and temporarily (for taxable years beginning before January 1, 2021) suspends application of the 80%-of-income limitation on the use of NOLs, which was enacted as part of the TCJA. It also provides that NOLs arising in any taxable year beginning after December 31, 2017 and before January 1, 2021 are generally eligible to be carried back up to five years. The CARES Act also temporarily (for taxable years beginning in 2019 or 2020) relaxes the limitation of the tax deductibility for net interest expense by increasing the limitation from 30% to 50% of adjusted taxable income.

Risks Related to Manufacturing Our Products

We may be unable to manufacture our G4 Integrated Solution to meet our commercialization plans on a timely or cost effective basis.

We must successfully increase our manufacturing output to meet our commercialization plans and to support our planned commercial launch of our G4 Integrated Solution by the end of 2021, with units planned to be shipped during the first half of 2022. We currently manufacture our G4 Instrument in our facilities in La Jolla, California. We have leased and are currently building out a new manufacturing facility at a new location in La Jolla, California to support our growth and commercialization plans. In order to manufacture sufficient G4 Instruments, and the associated consumables, to meet our commercialization plans, we will need to hire and train a sufficient number of manufacturing, engineering and quality personnel. Manufacturing our G4 Instruments, and the associated consumables, requires complex processes, and depends on the skill and experience of our manufacturing personnel. The manufacturing process for our G4 Instrument, and the associated consumables, also includes sourcing components from various third-party suppliers and then assembling and testing the final product offerings. We must manufacture our G4 Integrated Solution in compliance with our demanding specifications and at an acceptable cost in order to achieve and maintain profitability. We have only a limited

 

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history of manufacturing and assembling our G4 Instrument, and the associated consumables, and, as a result, we may have difficulty manufacturing and assembling sufficient quantities of such products in a timely manner, and in a cost effective manner. To manage our manufacturing operations and the supply of components from our third-party suppliers, we will need to forecast anticipated demand to predict our inventory needs from six months to a year in advance and enter into purchase orders on the basis of these requirements. Our limited manufacturing history may not provide us with enough data to allow us to accurately and effectively predict our manufacturing capacity requirements or our need for components from our third-party suppliers, including appropriately anticipating fluctuations in the availability and pricing of required components. We may in the future experience delays in obtaining components required for our G4 Instrument or the associated consumables, or not have sufficient manufacturing capabilities and personal for such products, which could impede our ability to manufacture and assemble these products on our expected timeline. As a result of this or any other delays, we may encounter difficulties in production of our G4 Instrument, and the associated consumables, including problems with quality control and assurance, component supply shortages or surpluses, increased costs, shortages of qualified personnel and difficulties associated with compliance with local, state, federal and foreign regulatory requirements.

We are dependent on single source suppliers for some components to our consumables and the loss of any of these suppliers could harm our business.

We do not have long-term contracts with third-party suppliers from whom we obtain some components to manufacture the consumables associated with our G4 Instrument. We are, therefore, subject to the risk that these third-party suppliers will not continue to provide us with components that meet our specifications, quality standards and delivery schedules. Factors that could impact our suppliers’ willingness and ability to continue to provide us with the required components include disruption at or affecting our suppliers’ facilities, such as work stoppages or natural disasters, demand for and availability of raw materials and subcomponents, adverse weather or other conditions that affect their supply, the financial condition of our suppliers and deterioration in our relationships with these suppliers. In addition, we cannot be sure that we will be able to obtain these components on satisfactory terms. Any increase in component costs could reduce any potential future sales and harm our gross margins.

While we have qualified second sources for several of our critical components, including flow cells, optics and oligonucleotides, we do not have qualified secondary sources for all components that we source through a single supplier and we cannot assure investors that the qualification of a secondary supplier will prevent future supply issues. Disruption in the supply of materials or components would impair our ability to sell our products and meet customer demand, and also could delay the launch of new products, any of which could harm our business and results of operations. If we were to have to change suppliers, the new supplier may not be able to provide us components in a timely manner and in adequate quantities that are consistent with our quality standards and on satisfactory pricing terms. In addition, alternative sources of supply may not be available for components for which there are a limited number of suppliers which could result in a requirement to redesign certain aspects of our products.

We have limited experience manufacturing G4 Integrated Solution, and we may be unable to consistently manufacture or supply our G4 Integrated Solution to the necessary specifications or in quantities necessary to meet demand on a timely basis and at acceptable performance and cost levels.

Our G4 Integrated Solution is a complex product with many different components that must work together to obtain the desired results. As such, a quality defect in a single component can compromise the performance of the entire product. In order to successfully generate revenue from our G4 Integrated Solution, we need to supply our customers with products that meet their expectations for quality and functionality in accordance with established specifications on a timely basis. Given the complexity of our G4 Integrated Solution, individual G4 Instruments may occasionally require additional installation and service time prior to becoming available for customer use and we may be required to replace lots of reagents or consumables.

 

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We intend to manufacture our G4 Integrated Solution at our existing facilities and our new headquarters located in La Jolla, California. We procure certain components of our G4 Instrument, and our associated consumables, from third-party suppliers, which include both commonly-available raw materials and custom components. Many of these manufacturing processes are complex. As we move to towards commercial scale manufacturing, if we are not able to repeatedly produce our G4 Integrated Solution at commercial scale and source required components from third-party suppliers, our business will be adversely impacted. In particular, we will need to obtain certain approvals and certifications to build our new facility that can be capable of manufacturing our integrated solutions. We do not have experience in constructing manufacturing facilities and if we are unable or delayed in obtaining required approvals and certifications our commercialization efforts could be adversely affected.

As we continue to scale commercially in anticipation of the launch of our G4 Integrated Solution and finalize the development of our planned PX Integrated Solution and any new products or product enhancements, and as our products incorporate increasingly sophisticated technology, it will be increasingly difficult to ensure our products are produced in the necessary quantities without sacrificing quality. We have limited manufacturing experience and no experience manufacturing our products at commercial scale and there is no assurance that we will be able to manufacture our products so that they repeatedly provide accurate results consistent with product specifications. Further, our consumables have a limited shelf life, after which their performance is not ensured. Shipment of consumables that effectively expire early or shipment of defective instruments or consumables to customers may result in recalls and warranty replacements, which would increase our costs, and depending upon our inventory levels and the availability and lead time for additional inventory, could lead to availability issues. As we develop additional products, we may need to bring new equipment on-line, implement new systems, technology, controls and procedures and hire personnel with different qualifications. Any future design issues, unforeseen manufacturing problems, equipment malfunctions, aging components, quality issues with components and materials sourced from third-party suppliers, or failures to strictly follow procedures or meet specifications, may have a material adverse effect on our brand, business, results of operations and financial condition.

Our G4 Integrated Solution could have defects or errors, which may give rise to claims against us, adversely affect market adoption and adversely affect our business, financial condition, and results of operations.

Our G4 Integrated Solution utilizes novel and complex technologies and may develop or contain undetected defects or errors. We cannot assure you that material performance problems, defects, or errors will not arise, and as we commercialize our products, these risks may increase. We expect to provide warranties that our products will meet performance expectations and will be free from defects. The costs incurred in correcting any defects or errors may be substantial and could adversely affect our operating margins.

In manufacturing our G4 Integrated Solution, we depend upon third parties for the supply of various components, many of which require a significant degree of technical expertise to produce. If our suppliers fail to produce our components to specification or provide defective products to us and our quality control tests and procedures fail to detect such errors or defects, or if we or our suppliers use defective materials or workmanship in the manufacturing process, the reliability and performance of our products will be compromised.

If our G4 Integrated Solution contains defects, we may experience:

 

   

a failure to achieve market acceptance for our products or increased sales;

 

   

loss of customer orders or delays in order fulfillment;

 

   

damage to our brand reputation;

 

   

increased warranty and customer service and support costs due to product repair or replacement;

 

   

product recalls or replacements;

 

   

inability to attract new customers or gain market acceptance;

 

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diversion of resources from our manufacturing and research and development departments into our service department; and

 

   

legal claims against us, including product liability claims, which could be costly and time consuming to defend and result in substantial damages.

In addition, we expect that our G4 Integrated Solution will be used with our potential customers’ own lab equipment and third-party products, and the performance of this equipment and products is outside of our control. If our customers’ equipment or the third-party products they utilize are not produced to specification, are produced in accordance with modified specifications, or are defective, they may not be compatible with or perform as intended with our G4 Integrated Solution. In such case, the reliability, results and performance of our G4 Integrated Solution may be compromised. The occurrence of any one or more of the foregoing could negatively affect our business, financial condition, and results of operations. Additionally, we expect that we will need to train our customers on properly using our G4 Integrated Solution. If we are unable to adequately train our customers to use our G4 Integrated Solution or they fail to follow our training and protocols we have established, the performance of our G4 Integrated Solution may be compromised.

Our ability to achieve profitability will depend, in part, on our ability to reduce the per unit manufacturing costs of our G4 Integrated Solution.

To achieve our operating and strategic goals, we will need to, among other things, reduce the per unit manufacturing cost of our G4 Instrument and the associated consumables. Manufacturing our G4 Instrument and our associated consumables involve complex processes, and depend on the skills and experience of our manufacturing personnel. We may experience low manufacturing yields for our G4 Instrument and our consumables. In addition, we will need to continually focus on reducing the per unit manufacturing cost of our G4 Instrument and associated consumables, which cannot be achieved without increasing the volume of components that we purchase in order to take advantage of volume-based pricing discounts, improving our manufacturing efficiency or increasing our volumes to leverage manufacturing overhead costs. If we are unable to improve our manufacturing efficiency and reduce our manufacturing overhead costs per unit, our ability to achieve profitability will be severely constrained. Any increase in manufacturing volumes is dependent upon a corresponding increase in sales. The occurrence of one or more factors that negatively impact the manufacturing or sales of our G4 Integrated Solution or reduce our manufacturing efficiency may prevent us from achieving our desired reduction in manufacturing costs, which would negatively affect our operating results and may prevent us from attaining profitability.

If our facilities or our third-party suppliers’ facilities become unavailable or inoperable, our research and development program and commercialization launch plan could be adversely impacted and manufacturing of our G4 Integrated Solution could be interrupted.

Our existing and planned facilities in La Jolla, California house our corporate, research and development, manufacturing, sales and marketing, customer support and quality assurance teams. Our facilities and those of our third-party suppliers are vulnerable to natural disasters, public health crises, including the impact of the COVID-19 pandemic, and catastrophic events. For example, our La Jolla facilities are located near earthquake fault zones and are vulnerable to damage from earthquakes as well as other types of disasters, including fires, floods, power loss, communications failures and similar events. If any disaster, any new or continuing public health crisis or catastrophic event were to occur, our ability to operate our business would be seriously, or potentially completely, impaired. If our facilities or our third-party suppliers’ facilities become unavailable for any reason, we cannot provide assurances that we will be able to secure alternative facilities with the necessary capabilities and equipment or alternative suppliers on acceptable terms, if at all. We may encounter particular difficulties in replacing our La Jolla facilities given the specialized equipment housed within it. The inability to manufacture our G4 Instrument and associated consumables, combined with our limited inventory of such manufactured products, may result in the loss of future customers or harm our reputation, and we may be unable to re-establish relationships with those customers in the future. Because our consumables are perishable and must

 

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be kept in temperature controlled storage, the loss of power to our facilities, mechanical or other issues with our storage facilities or other events that impact our temperature controlled storage could result in the loss of some or all of such products, and we may not be able to replace them without disruption to our customers or at all.

If our business operations are disrupted by a disaster or catastrophe, the launch of our G4 Integrated Solution and our planned PX Integrated Solution, and the timing of improvements to such products could be significantly delayed and could adversely impact our ability to compete with other available products and solutions. If our or our third-party suppliers’ capabilities are impaired, we may not be able to manufacture and ship our products in a timely manner, which would adversely impact our business. Although we possess insurance for damage to our property and the disruption of our business, this insurance may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all.

The costs to maintain and provide customer support for our G4 Integrated Solution, and any future products or product enhancements that we commercialize, may exceed our expectations.

We have not begun to commercialize our G4 Integrated Solution or to manufacture our G4 Integrated Solution in commercial quantities. As we start to commercialize our G4 Integrated Solution, we will need to build a commercial organization and infrastructure to support the following activities:

 

   

installing our G4 Integrated Solution in customer locations;

 

   

training customers on the use of our G4 Integrated Solution;

 

   

providing customer support services; and

 

   

providing maintenance, repair and warranty services.

We may not be successful in developing the organization or commercial infrastructure necessary to provide these customer support activities in a timely manner, and on a cost effective basis. Any failure to provide our customers with a superior customer experience, to timely respond to their requests and questions and to provide maintenance and warranty services, may adversely affect our brand and our results of operations.

Risks Related to Our Planned Growth

If we do not successfully manage our current and anticipated growth, our business and prospects will be harmed.

From March 31, 2020 to March 31, 2021, the number of our full-time employees increased from 88 to 138. Since that time, we have continued to increase our employee headcount and expand our operations and expect to continue to do so as we approach commercialization. Our recent growth has placed significant strains on our management, financial systems and internal controls. We expect that the anticipated growth associated with the commercial launch of our G4 Integrated Solution and the development and commercial launch of our planned PX Integrated Solution, will also strain our operational and manufacturing systems and processes, sales and marketing team, financial systems and internal controls and other aspects of our business. Developing and commercializing our G4 Integrated Solution, and continuing to develop our planned PX Integrated Solution, will require us to hire and retain scientific, sales and marketing, software, manufacturing, customer service, and quality assurance personnel. In addition, we expect that we will need to hire additional accounting, finance and other personnel in connection with our becoming, and our efforts to comply with the requirements of being, a public company. Once public, our management and other personnel will need to devote a substantial amount of time towards maintaining compliance with these requirements and effectively manage these growth activities. We have faced challenges integrating, developing and motivating our rapidly growing employee base, especially during the COVID-19 pandemic, and may continue to face related challenges as we continue to grow. To effectively manage our growth, we must continue to improve our operational and manufacturing systems and processes, our financial systems and internal controls and other aspects of our business and continue to effectively expand, train and manage our personnel in a virtual environment during the pendency of the COVID 19 pandemic and related governmental work from home mandates. Our ability to successfully manage our

 

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expected growth is uncertain given the fact that we have been in operation only since 2016. As our organization continues to grow, we will be required to implement more complex organizational management structures, and may find it increasingly difficult to maintain the benefits of our corporate culture, including our ability to quickly develop and launch new and innovative products and technologies. If we do not successfully manage our anticipated growth, our business, results of operations, financial condition and prospects will be harmed.

We depend on our senior management team and the loss of one or more key employees or an inability to attract and retain highly skilled employees will negatively affect our business, financial condition and results of operations.

Our future success depends upon our ability to recruit, train, retain and motivate our senior management team and our other highly qualified personnel. Our senior management team, including Andrew Spaventa, our founder, Chief Executive Officer and Chairperson of the Board, Eli Glezer, our founder and Chief Scientific Officer, and David Daly, our President and Chief Operating Officer, is critical to our vision, strategic direction, product development and commercialization efforts. The departure of one or more of these individuals or any of our other executive officers, senior management team members, or other key employees could be disruptive to our business until we are able to hire qualified successors. We do not have long-term employment contracts or maintain “key man” life insurance on our senior management team.

Our continued growth and ability to successfully transition from a company primarily focused on research and development to commercialization depends, in part, on attracting, retaining and motivating qualified personnel, including highly-trained sales and marketing personnel with the necessary scientific background and ability to understand our products at a technical level to effectively identify, market and sell to potential new customers. New hires will require significant training and, in most cases, take significant time before they achieve full productivity. Our failure to successfully integrate these key personnel into our business could adversely affect our business. In addition, competition for qualified personnel in the life sciences space is intense, particularly in the San Diego metropolitan area. We compete for qualified scientific and information technology personnel with other life science and information technology companies as well as academic institutions and research institutions. Some of our scientific personnel are qualified foreign nationals whose ability to live and work in the United States is contingent upon the continued availability of appropriate visas. Due to the competition for qualified personnel in the San Diego metropolitan area, we expect to continue to utilize foreign nationals to fill part of our recruiting needs. As a result, changes to United States immigration policies could restrain the flow of technical and professional talent into the United States and may inhibit our ability to hire qualified personnel.

We do not maintain fixed term employment contracts with any of our employees, including the members of our senior management team. As a result, our executives and other key employees could leave our company with little or no prior notice and would be free to work for a competitor. Due to the complex and technical nature of our products and technology and the dynamic market in which we compete, any failure to attract, train, retain and motivate qualified personnel could materially harm our business, results of operations, financial condition and prospects.

We may acquire or invest in other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.

We may in the future seek to acquire or invest in businesses, applications or technologies that we believe could complement or expand our G4 Integrated Solution, our planned PX Integrated Solution or any other future products and product enhancements we elect to pursue. We may also pursue acquisitions or investments to expand our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions or investments may divert the attention of management and cause us to incur various costs and expenses in identifying, investigating and pursuing suitable acquisitions or investments, whether or not they are

 

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consummated. We may not be able to identify desirable acquisition targets or be successful in entering into an agreement with any particular target or obtain the expected benefits of any acquisition or investment.

To date, the growth of our operations has been organic, and we have limited experience in acquiring or investing in other businesses or technologies. We may not be able to successfully integrate acquired personnel, operations and technologies, or effectively manage the combined business following an acquisition. Acquisitions could also result in dilutive issuances of equity securities, the use of our available cash, or the incurrence of debt, which could harm our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer. Also, our Loan Agreement may restrict our ability to pursue certain mergers, acquisitions, amalgamations or consolidations without obtaining the prior consent of Silicon Valley Bank or repaying our outstanding loan amounts. Additionally, future acquisitions or investments could result in potentially dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses or write-offs of goodwill, any of which could harm our financial condition.

If we experience a disruption in our information technology systems or breaches of data security, our business could be adversely affected.

We rely on information technology systems to keep financial records, facilitate our research and development initiatives, manage our manufacturing operations, maintain quality control, fulfill customer orders, maintain corporate records, communicate with staff and external parties and operate other critical functions. Our information technology systems and those of our vendors and partners are potentially vulnerable to disruption due to breakdown, malicious intrusion and computer viruses or other disruptive events, including, but not limited to, natural disasters and catastrophes. Cyberattacks and other malicious internet-based activity continue to increase and cloud-based platform providers of services have been and are expected to continue to be targeted. Methods of attacks on information technology systems and data security breaches change frequently, are increasingly complex and sophisticated, including social engineering and phishing scams, and can originate from a wide variety of sources. In addition to traditional computer “hackers,” malicious code, such as viruses and worms, stolen or fraudulently obtained log-in credentials, employee errors, actions, inaction, theft, or misuse, and denial-of-service attacks, there are sophisticated nation-state and nation-state supported actors that now engage in attacks, including advanced persistent threat intrusions. Our information technology and data security procedures continue to evolve and therefore, our information technology systems may be more susceptible to cybersecurity attacks. Despite any of our current or future efforts to protect against cybersecurity attacks and data security breaches, there is no guarantee that our efforts are adequate to safeguard against all such attacks and breaches. Moreover, it is possible that we may not be able to anticipate, detect, appropriately react and respond to, or implement effective preventative measures against, all cybersecurity incidents.

If our security measures, or those of our vendors and partners, are compromised due to any cybersecurity attacks or data security breaches, our business and reputation may be harmed, we could become subject to litigation and we could incur significant liability. If we were to experience a prolonged system disruption in our information technology systems or those of certain of our vendors and partners, it could negatively impact our ability to serve our customers, which could adversely impact our business, financial condition, results of operations and prospects. If operations at our facilities were disrupted, it may cause a material disruption in our business if we are not capable of restoring functionality in an acceptable timeframe. In addition, our information technology systems, and those of our vendors and partners, are potentially vulnerable to data security breaches and supply chain attacks, whether by internal bad actors, such as employees or other third parties with legitimate access to our or our third-party providers’ systems, or external bad actors, which could lead to the exposure of personal data, sensitive data and confidential information to unauthorized persons. Any such data security breaches could lead to the loss of trade secrets or other intellectual property, or could lead to the exposure of personal information, including sensitive personal information, of our employees, customers and others, any of which could have a material adverse effect on our business, reputation, financial condition and results of operations.

 

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In addition, any such access, disclosure or other loss or unauthorized use of information or data could result in legal claims or proceedings, regulatory investigations or actions, and other types of liability under laws that protect the privacy and security of personal information, including federal, state and foreign data protection and privacy regulations, violations of which could result in significant penalties and fines. Furthermore, defending a suit, regardless of its merit, could be costly, divert management’s attention and harm our reputation. In addition, although we seek to detect and investigate all data security incidents, security breaches and other incidents of unauthorized access to our information technology systems and data can be difficult to detect and any delay in identifying such breaches or incidents may lead to increased harm and legal exposure of the type described above. Moreover, there could be public announcements regarding any cybersecurity incidents and any steps we take to respond to or remediate such incidents, and if securities analysts or investors perceive these announcements to be negative, it could, among other things, have a material adverse effect on the price of our common stock.

The cost of protecting against, investigating, mitigating and responding to potential breaches of our information technology systems and data security breaches and complying with applicable breach notification obligations to individuals, regulators, partners and others can be significant. As cybersecurity incidents continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any information security vulnerabilities. The inability to implement, maintain and upgrade adequate safeguards could have a material adverse effect on our business, financial condition, results of operations and prospects. While we currently maintain cybersecurity insurance, our insurance policies may not be adequate to compensate us for the potential costs and other losses arising from such disruptions, failures or security breaches. In addition, such insurance may not be available to us in the future on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, financial condition, results of operations and prospects.

The implementation of a new enterprise resource planning system could cause disruption to our business and operations.

We are in the process of implementing a new enterprise resource planning system, or ERP system. This system will integrate our operations, including supply-chain, order entry, manufacturing, inventory and financial reporting, among others. ERP system implementations are complex projects that require significant investment of capital and human resources, the reengineering of many business processes and the attention of many employees who would otherwise be focused on other aspects of our business. Any disruptions, delays or deficiencies in the design and implementation of the improvements to our ERP system may result in potentially much higher costs than anticipated and may adversely affect our ability to develop and manufacture our products, commercialize our products, fulfill contractual obligations, file reports with the Securities and Exchange Commission, or the SEC, in a timely manner or otherwise operate our business and our controls environment. Moreover, despite our security measures, our information technology systems, including the ERP system, are vulnerable to damage or interruption from fires, floods and other natural disasters, terrorist attacks, computer viruses or hackers, power losses and computer system or data network failures, which could result in significant data losses or theft of sensitive or proprietary information. Any of these consequences may harm our business.

Risks Related to our Intellectual Property

If we are sued for infringing, misappropriating or otherwise violating intellectual property rights of third parties, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates.

Our commercial success depends on our ability to develop, manufacture, market and sell our products and use our products and technologies without infringing, misappropriating or otherwise violating the intellectual

 

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property rights of third parties. We operate in a crowded technology area in which there are numerous issued patents and patent applications and in which there has been substantial litigation regarding patent and other intellectual property rights. There also is a substantial number of administrative proceedings for challenging patents, including interference, derivation, inter partes review, post grant review, and reexamination proceedings before the USPTO, or oppositions and other comparable proceedings in foreign jurisdictions. We expect to be exposed to, or threatened with, future litigation by third parties, including our primary competitors, who have patent and other intellectual property rights and may allege that our research and development activities, products, manufacturing methods, software and/or technologies infringe, misappropriate or otherwise violate their intellectual property rights. Our competitors have numerous issued patents and pending patent applications in the fields covered by our products and in which we are developing our products and technologies. It is not always clear to industry participants, including us, the claim scope that may issue from pending patent applications owned by third parties or which patents cover various types of products, technologies or their methods of use or manufacture. In addition, many patent applications are unpublished for up to 18 months from their first filing date and are not accessible to us. We expect that our competitors will, in connection with our launch of our G4 Integrated Solution and our planned PX Integrated Solution and later stage product offerings, assert that we are infringing, or have in the past infringed as part of our research and development activities, their patent and other intellectual property rights and that we are employing their proprietary technology without authorization.

If third parties, including our competitors, believe that our products or technologies infringe, misappropriate or otherwise violate their intellectual property, such third parties may seek to enforce their intellectual property, including patents, against us by filing an intellectual property-related lawsuit, including a patent infringement lawsuit, against us. There is no assurance that a court would find in our favor on questions of infringement, validity, enforceability, or priority. If any of our competitors, or any other third parties, were to assert their patents against us and we are unable to successfully defend against any such assertion, we may be required, including by court order, to cease the development and commercialization of the infringing products or technology and we may be required to redesign such products and technologies so they do not infringe such patents, which may not be possible or may require substantial monetary expenditures and time. We could also be required to pay damages, which could be significant, including treble damages and attorneys’ fees if we are found to have willfully infringed such patents. We could also be required to obtain a license to such patents in order to continue the development and commercialization of the infringing product or technology, which may not be on commercially reasonable terms or may not be obtainable at all. Even if such license were available, it may require substantial payments or cross-licenses under our intellectual property rights, and it may only be available on a nonexclusive basis, in which case third parties, including our competitors, could use the same licensed intellectual property to compete with us. Any of the foregoing could have a material adverse effect on our business, financial condition, results of operation or prospects.

We may choose to challenge the patentability, validity or enforceability of any third-party patent that we believe may have applicability in our field, and any other third-party patent that may be asserted against us. Such challenges may be brought either in court or by requesting that the USPTO, or other foreign patent offices review the patent claims. However, there can be no assurance that any such challenge will be successful and if not successful, we may be estopped from asserting in a district court any grounds already raised or that could have been raised in certain proceedings, such as inter partes review (IPR) at the USPTO. Even if such proceedings are successful, these proceedings are expensive and may consume our time or other resources, distract our management and technical personnel.

Third parties, including our existing and future competitors, may be infringing, misappropriating or otherwise violating our owned and in-licensed intellectual property rights. Monitoring unauthorized use of our intellectual property will be difficult and costly. We may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. From time to time, we seek to analyze our competitors’ products and services, and may in the future seek to enforce our rights against potential infringement, misappropriation or violation of our intellectual property. However, the steps we have taken to

 

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protect our intellectual property rights may not be adequate to enforce our rights. Any inability to meaningfully enforce our intellectual property rights could harm our ability to compete and reduce demand for our products and technologies.

Litigation proceedings may be necessary for us to enforce our patent and other intellectual property rights. We may not be successful in such proceedings. Further, in such proceedings, the defendant could counterclaim that our intellectual property is invalid or unenforceable and the court may agree, in which case we could lose valuable intellectual property rights. The outcome in any such proceedings are unpredictable. Third parties may also bring challenges to our patents in the USPTO or foreign patent offices seeking to invalidate them.

Regardless of whether we are defending against or asserting any intellectual property-related proceeding, any such intellectual property-related proceeding that may be necessary in the future, regardless of outcome, could result in substantial costs and diversion of resources and could have a material adverse effect on our business, financial condition, results of operations and prospects. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of such ongoing litigation, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Some of our competitors and other third parties may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. We may not have sufficient financial or other resources to adequately conduct these types of litigation or proceedings. Any of the foregoing, or any uncertainties resulting from the initiation, continuation and results of any litigation, could have a material adverse effect on our ability to raise the funds necessary to continue our operations or could otherwise have a material adverse effect on our business, financial condition, results of operations and prospects. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar adverse effect on our business, financial condition, results of operations and prospects.

If we are unable to obtain and maintain sufficient intellectual property protection for our products and technology, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully commercialize our products may be impaired.

We rely on patent, trademark, copyright, trade secret and other intellectual property rights and contractual restrictions to protect our proprietary products and technologies, all of which provide limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. We currently have three issued patents covering our proprietary next generation sequencing technology. If we fail to obtain additional patent protection for our products and technology and maintain and protect our intellectual property rights, third parties may be able to compete more effectively against us. In addition, we may incur substantial litigation costs in our attempts to recover or restrict use of our intellectual property. Further, if we are unable to obtain and maintain sufficient intellectual property protection for our products and technology, or if the scope of the intellectual property protection obtained is not sufficiently broad, our ability to successfully commercialize our products may be impaired.

We have and intend to continue to apply for patents covering our products and technologies and uses thereof, as we deem appropriate. However, obtaining and enforcing patents is costly, time-consuming and complex, and we may fail to apply for patents on important products and technologies in a timely fashion or at all, or we may fail to apply for patents in potentially relevant jurisdictions. We may not be able to file and prosecute all necessary or desirable patent applications, or maintain, enforce and license any patents that may issue from such patent applications, at a reasonable cost or in a timely manner or in all jurisdictions. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. Moreover, we may not develop additional proprietary products, methods and

 

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technologies that are patentable. We may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the rights to patents licensed from or to third parties. Therefore, these patents and applications may not be prosecuted and enforced by such third parties in a manner consistent with the best interests of our business.

In addition, the patent position of life sciences technology companies such as ours is generally is highly uncertain, involves complex legal and factual questions, and our industry has been to widespread and intense litigation in recent years. Changes in either the patent laws or in interpretations of patent laws in the United States or other countries or regions may diminish the value of our intellectual property. As a result, the issuance, scope, validity, enforceability, and commercial value of our patent rights are highly uncertain. It is possible that none of our pending patent applications will result in issued patents in a timely fashion or at all, and even if patents are granted, they may not provide a basis for intellectual property protection of commercially viable products or technologies, may not provide us with any competitive advantages, or may be challenged, narrowed and invalidated by third parties. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party patents. It is possible that third parties will design around our current or future patents such that we cannot prevent such third parties from using similar technologies and commercializing similar products to compete with us. Some of our owned or licensed patents or patent applications may be challenged at a future point in time and we may not be successful in defending any such challenges made against our patents or patent applications. Any successful third-party challenge to our patents could result in the narrowing, unenforceability or invalidity of such patents and increased competition to our business. The outcome of patent litigation or other proceeding can be uncertain, and any attempt by us to enforce our patent rights against others or to challenge the patent rights of others may not be successful, or, regardless of success, may take substantial time and result in substantial cost, and may divert our efforts and attention from other aspects of our business. Any of the foregoing events could have a material adverse effect on our business, financial condition and results of operations.

We cannot ensure that patent rights relating to inventions described and claimed in our pending patent applications will issue and will provide sufficient protection for our products and technologies. We also cannot ensure that our patents or patents based on our patent applications will not be challenged and rendered invalid and/or unenforceable.

Our success depends in large part on our ability to obtain and maintain intellectual property protection, particularly patents, for our products and technologies in the both the United States and other foreign countries. Patents are of national or regional effect, and filing, prosecuting and defending patents on all of our products and technologies throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. As such, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Further, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property protection, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally. As such, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Furthermore, certain foreign and developing countries, including China and India, have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, we and our licensors may have limited remedies if patents are infringed or if we or our licensors are compelled to grant a license to a third-party, which could materially diminish the value of those patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

 

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We have pending U.S. and foreign patent applications in our portfolio, however, we cannot predict:

 

   

if and when patents may issue based on our patent applications;

 

   

the scope of protection of any patent issuing based on our patent applications;

 

   

whether the claims of any patent issuing based on our patent applications will provide protection against competitors;

 

   

whether or not third parties will find ways to invalidate or circumvent our patent rights;

 

   

whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications;

 

   

whether we will need to initiate litigation or administrative proceedings to enforce and/or defend our patent rights which will be costly whether we win or lose; and/or

 

   

whether the patent applications that we own or in-license will result in issued patents with claims that cover our product candidates or uses thereof in the United States or in other foreign countries.

We cannot be certain that the claims in our pending patent applications directed to our product candidates and/or technologies will be considered patentable by the United States Patent and Trademark Office (the USPTO) or by patent offices in foreign countries. One aspect of the determination of patentability of our inventions depends on the scope and content of the “prior art,” information that was or is deemed available to a person of skill in the relevant art prior to the priority date of the claimed invention. There may be prior art of which we are not aware that may affect the patentability of our patent claims or, if issued, affect the validity or enforceability of a patent claim. Even if the patents do issue based on our patent applications, third parties may challenge the validity, enforceability or scope thereof, which may result in such patents being narrowed, invalidated or held unenforceable. Furthermore, even if they are unchallenged, patents in our portfolio may not adequately exclude third parties from practicing relevant technology or prevent others from designing around our claims. If the breadth or strength of our intellectual property position with respect to our product candidates is threatened, it could dissuade companies from collaborating with us to develop and threaten our ability to commercialize our product candidates. In the event of litigation or administrative proceedings, we cannot be certain that the claims in any of our issued patents will be considered valid by courts in the United States or foreign countries.

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

We have employed and expect to employ individuals who were previously employed at universities, research institutions or other companies, including our competitors or potential competitors. Although we seek to protect our ownership of intellectual property rights by ensuring that our agreements with our employees, collaborators, and other third parties with whom we do business include provisions requiring such parties to not disclose the confidential information of their previous employers or other third parties, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees’ former employers or other third parties. We or our licensors may also be subject to claims that former employers or other third parties have an ownership interest in our patents. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and if we or our licensors fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Even if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees.

 

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If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business could be harmed.

We rely heavily on trade secrets and confidentiality agreements to protect our unpatented know-how, technology and other proprietary information, including the design and features of our G4 Integrated Solution and our planned PX Integrated Solution, and to maintain our competitive position. However, trade secrets and know-how can be difficult to protect. In particular, we anticipate that with respect to our technologies, these trade secrets and know how will over time be disseminated within the industry through independent development, the publication of journal articles describing the methodology, and the movement of personnel from academic to industry scientific positions.

In addition to pursuing patents on our technology, we take steps to protect our intellectual property and proprietary technology by entering into agreements, including confidentiality agreements, non-disclosure agreements and intellectual property assignment agreements, with our employees, consultants, academic institutions, corporate partners and, when needed, our advisers. However, we cannot be certain that such agreements have been entered into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors or other third parties will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques. For example, any of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements, and we may not be able to prevent such unauthorized disclosure, which could adversely impact our ability to establish or maintain a competitive advantage in the market, business, financial condition, results of operations and prospects.

Monitoring unauthorized disclosure is difficult, and we do not know whether the steps we have taken to prevent such disclosure are, or will be, adequate. If we were to enforce a claim that a third-party had wrongfully obtained and was using our trade secrets, it would be expensive and time-consuming, it could distract our personnel, and the outcome would be unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets.

We also seek to preserve the integrity and confidentiality of our confidential proprietary information by maintaining physical security of our premises and physical and electronic security of our information technology systems, but it is possible that these security measures could be breached. If any of our confidential proprietary information were to be lawfully obtained or independently developed by a competitor or other third-party, absent patent protection, we would have no right to prevent such competitor from using that technology or information to compete with us, which could harm our competitive position. Competitors or third parties could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts, design around our protected technology, develop their own competitive technologies that fall outside the scope of our intellectual property rights or independently develop our technologies without reference to our trade secrets. If any of our trade secrets were to be disclosed to or independently discovered by a competitor or other third-party, it could materially and adversely affect our business, financial condition, results of operations and prospects.

We in-licensed certain patents and other intellectual property rights from The Trustees of Columbia University in the City of New York (Columbia). If we fail to comply with the terms of our agreement with Columbia or have a disagreement with Columbia regarding our obligations thereunder, we may be subject to breach of contract claims or other actions by Columbia, which could harm our business, results of operations and financial condition.

In August 2016, we entered into an Exclusive License Agreement with Columbia, which was subsequently amended in September 2016, November 2016 and June 2017 (the License Agreement). Under the License

 

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Agreement, we received (i) an exclusive, sublicensable, worldwide license under certain patents owned by Columbia to discover, develop, make and sell products or services covered by the claims of such licensed patents (the Patent Products), and (ii) an exclusive, sublicensable, worldwide license under certain materials and technical information provided by Columbia to discover, develop, make and sell products or services that directly use or incorporate such materials or information (the Other Products). Under the License Agreement, we are required to use commercially reasonable efforts to research, discover, develop and market Patent Products and/or Other Products and to achieve certain fundraising and development milestone events. For any products within the scope of the License Agreement that we commercialize, we are required to pay royalties ranging from low to mid-single digits on net sales of Patent Products and low single digit royalty rates on net sales of Other Products. We are also required to make milestone payments to Columbia upon our achievement of certain development and commercialization milestones, which could total up to $3.9 million over the life of the License Agreement.

We do not believe that our G4 or PX Instruments or the associated consumables, as we presently intend to commercialize them, fit within the definitions of Patent Products or Other Products as defined in the License Agreement. As a result, we do not believe that we will be required to make milestone payments or pay royalties on sales of these products or any associated consumables or services based on our current commercialization plans. However, in the future, we may decide to incorporate features covered by one or more licensed patent(s) or directly use or incorporate materials and/or technical information provided by Columbia, such that we would incur milestone and royalty obligations under the License Agreement.

The License Agreement includes a number of diligence obligations that require us to use commercially reasonable efforts to research, discover, develop and market Patent Products and/or Other Products by certain dates. To the extent that we do not commercialize a Patent Product or Other Product, Columbia may contend that we have not complied with our diligence obligations under the License Agreement. In such case, Columbia could take the position that the License Agreement should convert to a non-exclusive license or pursue actions to terminate the License Agreement alleging that we have not satisfied our diligence obligations. Columbia could also file additional claims to the pending patent applications they licensed to us to attempt to cause our products to become Patent Products. Columbia could also disagree with our interpretation of our milestone and royalty obligations under the License Agreement and contend that a failure to make milestone payments or pay royalties constitutes a breach of the License Agreement. We are currently engaged in discussions with Columbia regarding the application of the License Agreement to our products and our efforts to satisfy the diligence obligations under the License Agreement. There is no assurance that Columbia will agree with our interpretation of the License Agreement or our payment obligations thereunder or agree that we have complied with our diligence obligations.

Columbia has a right to pursue a termination of the License Agreement in the event we become insolvent or otherwise cease operations, in the event we materially breach our obligations under the License Agreement, or in the event we assert any claim challenging the validity or enforceability of any patent licensed to us by Columbia under the License Agreement. For example, Columbia may assert that we have breached the License Agreement if it disagrees with our determination that our G4 and PX Instruments and the associated consumables do not fit within the definitions of Patent Products or Other Products. In addition, to the extent that we do not commercialize a Patent or Other Product, Columbia may take the position that we have not complied with our diligence obligations under the License Agreement. There is no assurance that we can satisfy our obligations under the License Agreement, or that we and Columbia will agree on whether or not we have satisfied our obligations under the License Agreement, including whether any royalty or milestones, or the amount thereof, are payable under the terms of the License Agreement or whether we have satisfied our diligence obligations. If we fail to comply with our obligations, or if we and Columbia do not agree on whether we have satisfied our obligations under the License Agreement, Columbia could exercise its right to assert a breach of contract, convert the License Agreement to a non-exclusive license and/or pursue actions to terminate the License Agreement. Further, Columbia could seek to file additional claims to the pending patent applications they licensed to us to attempt to cause our products to become Patent Products. If we are required to defend against breach of contract or other claims and actions asserted by Columbia or if Columbia is successful in terminating the License

 

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Agreement or converting the License Agreement to a non-exclusive license, our business may be adversely affected. Further, if we are required to make additional milestone payments or pay Columbia royalties on our G4 and PX Instruments, and the consumables we have developed to date, our resulting operations and financial condition may be adversely affected.

Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of time.

Patents have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S. non-provisional filing date. While extensions may be available, the life of a patent, and the protection it affords, is limited. In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the USPTO in examining and granting a patent, or may be shortened if a patent is terminally disclaimed over a commonly owned patent or a patent naming a common inventor and having an earlier expiration date. Even if patents covering our products are obtained, once the patent life has expired, we may be open to competition from competitive products. If one of our products requires extended development, testing and/or regulatory review, patents protecting such products might expire before or shortly after such products are commercialized. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours, which could have a material adverse effect on our business, financial condition and results of operations.

We may not be able to protect and enforce our trademarks and trade names, or build name recognition in our markets of interest thereby harming our competitive position.

The registered or unregistered trademarks or trade names that we own may be challenged, infringed, circumvented, declared generic, lapsed or determined to be infringing on or dilutive of other marks. We may not be able to protect our rights in these trademarks and trade names, which we need in order to build name recognition. In addition, third parties have filed, and may in the future file, for registration of trademarks similar or identical to our trademarks, thereby impeding our ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trademarks that incorporate variations of our registered or unregistered trademarks or trade names. Further, we may in the future enter into agreements with owners of such third-party trade names or trademarks to avoid potential trademark litigation which may limit our ability to use our trade names or trademarks in certain fields of business. 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, financial condition, results of operations and prospects may be adversely affected. Our efforts to enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources. Any of the foregoing events could have a material adverse effect on our business, financial condition and results of operations.

The U.S. law relating to the patentability of certain inventions in the life sciences technology industry is uncertain and rapidly changing, which may adversely impact our existing patents or our ability to obtain patents in the future.

Changes in either the patent laws or interpretation of the patent laws in the United States or in other jurisdictions could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. For instance, under the Leahy-Smith America Invents Act, or the America Invents Act, enacted in September 2011, the United States transitioned to a first inventor to file system in which, assuming that other requirements for patentability are met, the first inventor to file a patent application is entitled to the patent on an invention regardless of whether a third-party was the first to invent the claimed invention. These changes include allowing third-party submission of prior art to the USPTO during patent

 

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prosecution and additional procedures to challenge the validity of a patent by USPTO administered post-grant proceedings, including post-grant review, inter partes review and derivation proceedings. The America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Various courts, including the U.S. Supreme Court, have rendered decisions that impact the scope of patentability of certain inventions or discoveries relating to the life sciences technology. Specifically, these decisions stand for the proposition that patent claims that recite laws of nature are not themselves patentable unless those patent claims have sufficient additional features that provide practical assurance that the processes are genuine inventive applications of those laws rather than patent drafting efforts designed to monopolize the law of nature itself. What constitutes a “sufficient” additional feature is uncertain. Furthermore, in view of these decisions, since December 2014, the USPTO has published and continues to publish revised guidelines for patent examiners to apply when examining process claims for patent eligibility.

In addition, U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events may create uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that may have a material adverse effect on our ability to obtain new patents and to defend and enforce our existing patents and patents that we might obtain in the future.

We cannot be certain that our patent portfolio will not be negatively impacted by the current uncertain state of the law, new court rulings or changes in guidance or procedures issued by the USPTO or other similar patent offices around the world. From time to time, the U.S. Supreme Court, other federal courts, the U.S. Congress or the USPTO may change the standards of patentability, scope and validity of patents within the life sciences technology and any such changes, or any similar adverse changes in the patent laws of other jurisdictions, could have a negative impact on our business, financial condition, prospects and results of operations.

If we cannot license rights to use technologies on reasonable terms, we may not be able to commercialize new products in the future.

We may identify third-party technology that we may need to license or acquire in order to develop or commercialize our products or technologies. However, we may be unable to secure such licenses or acquisitions. The licensing or acquisition of third-party intellectual property rights is a competitive area, and several more established companies may pursue strategies to license or acquire third-party intellectual property rights that we may consider attractive or necessary. These established companies may have a competitive advantage over us due to their size, capital resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us.

We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment or at all. In return for the use of a third-party’s technology, we may agree to pay the licensor royalties based on sales of our products or services. Royalties are a component of cost of products or technologies and affect the margins on our products. We may also need to negotiate licenses to patents or patent applications before or after introducing a commercial product. We may not be able to obtain necessary licenses to patents or patent applications, the commercial release of our products could delayed and our business may suffer if we are unable to enter into the necessary licenses on acceptable terms or at all, if any necessary licenses are subsequently terminated, if the licensor fails to abide by the terms of the license or fails to prevent infringement by third parties, or if the licensed intellectual property rights are found to be invalid or unenforceable.

 

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Certain of our future owned and in-licensed patents may be, subject to a reservation of rights by one or more third parties, including government march-in rights, which may limit our ability to exclude third parties from commercializing products similar or identical to ours.

Our future in-licensed patents may be subject to a reservation of rights by one or more third parties. For example, when new technologies are developed with government funding, in order to secure ownership of such patent rights, the recipient of such funding is required to comply with certain government regulations, including timely disclosing the inventions claimed in such patent rights to the U.S. government and timely electing title to such inventions. Any failure to timely elect title to such inventions may provide the U.S. government to, at any time, take title such inventions. Additionally, the U.S. government generally obtains certain rights in any resulting patents, including a non-exclusive license authorizing the government to use the invention or to have others use the invention on its behalf. If the government decides to exercise these rights, it is not required to engage us as its contractor in connection with doing so. These rights may permit the U.S. government to disclose our confidential information to third parties and to exercise march-in rights to use or allow third parties to use our licensed technology. The U.S. government can exercise its march-in rights if it determines that action is necessary because we fail to achieve practical application of the government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations, or to give preference to U.S. industry. In addition, our rights in such inventions may be subject to certain requirements to manufacture products embodying such inventions in the United States. Any exercise by the government of any of the foregoing rights could have a material adverse effect on our business, financial condition, results of operations and prospects.

Our use of open source software may pose particular risks to our proprietary software and systems.

We use open source software in our products and anticipate that we will continue to use open source software in the future. The licenses applicable to our use of open source software may require that source code that is developed using open source software be made available to the public and that any modifications or derivative works to certain open source software continue to be licensed under open source licenses. From time to time, we may face claims from third parties claiming infringement of their intellectual property rights, or demanding the release or license of the open source software or derivative works that we developed using such software (which could include our proprietary source code) or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to purchase a costly license, publicly release the affected portions of our source code, be limited in or cease using the implicated software unless and until we can re-engineer such software to avoid infringement or change the use of, or remove, the implicated open source software. Our use of open source software may also present additional security risks because the source code for open source software is publicly available. Any of these risks could be difficult to eliminate or manage, and, if not addressed, could have a material adverse effect on our business, results of operations, financial condition, and prospects.

Risks Related to Regulatory and Legal Compliance Matters

If we elect to label and promote any of our products as clinical diagnostics tests or medical devices, we would be required to obtain prior approval or clearance by the FDA, which would take significant time and expense and could fail to result in FDA clearance or approval for the intended uses we believe are commercially attractive.

We intend to market and sell our G4 Integrated Solution and our planned PX Integrated Solution primarily to academic and research institutions and research companies, government laboratories, hospitals, and biotechnology, consumer genomics and proteomics, commercial molecular diagnostic laboratories, and agrigenomics companies as research use only (RUO) products. Our products are not currently designed, or intended to be used, for clinical diagnostic tests or as medical devices. If we elect to label and market our products for use as, or in the performance of, clinical diagnostics in the United States, thereby subjecting them to U.S. Food and Drug Administration (FDA) regulation as medical devices, we would be required to obtain premarket 510(k) clearance or premarket approval from the FDA, unless an exception applies.

 

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We may in the future register with the FDA as a medical device manufacturer and list some of our products with the FDA pursuant to an FDA Class I listing for general purpose laboratory equipment. While this regulatory classification is exempt from certain FDA requirements, such as the need to submit a premarket notification commonly known as a 510(k), and some of the requirements of the FDA’s Quality System Regulations (QSRs), we would be subject to ongoing FDA “general controls,” which include compliance with FDA regulations for labeling, inspections by the FDA, complaint evaluation, corrections and removals reporting, promotional restrictions, reporting adverse events or malfunctions for our products, and general prohibitions against misbranding and adulteration.

In addition, we may in the future submit 510(k) premarket notifications to the FDA to obtain FDA clearance of certain of our products on a selective basis. It is possible, in the event we elect to submit 510(k) applications for certain of our products, that the FDA would take the position that a more burdensome premarket application, such as a premarket approval application (PMA) or a de novo application is required for some of our products. If such applications were required, greater time and investment would be required to obtain FDA approval. Even if the FDA agreed that a 510(k) was appropriate, FDA clearance can be expensive and time consuming. It generally takes a significant amount of time to prepare a 510(k), including conducting appropriate testing on our products, and several months to years for the FDA to review a submission. Notwithstanding the effort and expense, FDA clearance or approval could be denied for some or all of our products for which we choose to market as a medical device or a clinical diagnostic device. Even if we were to seek and obtain regulatory approval or clearance, it may not be for the intended uses we request or that we believe are important or commercially attractive. There can be no assurance that future products for which we may seek premarket clearance or approval will be approved or cleared by FDA or a comparable foreign regulatory authority on a timely basis, if at all, nor can there be assurance that labeling claims will be consistent with our anticipated claims or adequate to support continued adoption of such products. Compliance with FDA or comparable foreign regulatory authority regulations will require substantial costs, and subject us to heightened scrutiny by regulators and substantial penalties for failure to comply with such requirements or the inability to market our products. The lengthy and unpredictable premarket clearance or approval process, as well as the unpredictability of the results of any required clinical studies, may result in our failing to obtain regulatory clearance or approval to market such products, which would significantly harm our business, results of operations, reputation, and prospects.

If we sought and received regulatory clearance or approval for certain of our products, we would be subject to ongoing FDA obligations and continued regulatory oversight and review, including the general controls listed above and the FDA’s QSRs for our development and manufacturing operations. In addition, we would be required to obtain a new 510(k) clearance before we could introduce subsequent modifications or improvements to such products. We could also be subject to additional FDA post-marketing obligations for such products, any or all of which would increase our costs and divert resources away from other projects. If we sought and received regulatory clearance or approval and are not able to maintain regulatory compliance with applicable laws, we could be prohibited from marketing our products for use as, or in the performance of, clinical diagnostics and/or could be subject to enforcement actions, including warning letters and adverse publicity, fines, injunctions and civil penalties, recall or seizure of products, operating restrictions and criminal prosecution.

In addition, we could decide to seek regulatory clearance or approval for certain of our products in countries outside of the United States. Sales of such products outside the United States will likely be subject to foreign regulatory requirements, which can vary greatly from country to country. As a result, the time required to obtain clearances or approvals outside the United States may differ from that required to obtain FDA clearance or approval and we may not be able to obtain foreign regulatory approvals on a timely basis or at all. For example, in Europe we would need to comply with the new Medical Device Regulation 2017/745 and In Vitro Diagnostic Regulation 2017/746, which became effective May 26, 2017, with application dates of May 26, 2021 (postponed from 2020) and May 26, 2022 respectively. This will increase the difficulty of regulatory approvals in Europe in the future. In addition, the FDA regulates exports of medical devices. Failure to comply with these regulatory requirements or obtain and maintain required approvals, clearances and certifications could impair our ability to commercialize our products for diagnostic use outside of the United States.

 

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Our products could become subject to government regulation as medical devices by the FDA and other regulatory agencies even if we do not elect to seek regulatory clearance or approval to market our products for diagnostic purposes, which would adversely impact our ability to market and sell our products and harm our business. If our products become subject to FDA regulation, the regulatory clearance or approval and the maintenance of continued and post-market regulatory compliance for such products will be expensive, time-consuming, and uncertain both in timing and in outcome.

We do not currently expect either our G4 Integrated Solution or our planned PX Integrated Solution to be subject to the clearance or approval of the FDA, as they are not intended to be used for the diagnosis, treatment or prevention of disease. However, as we expand our product line and the applications and uses of our products into new fields, certain of our future products could become subject to regulation by the FDA, or comparable international agencies, including requirements for regulatory clearance or approval of such products before they can be marketed. Also, even if our products are labeled, promoted, and intended as RUO, the FDA or comparable agencies of other countries could disagree with our conclusion that our products are intended for RUO or deem our sales, marketing and promotional efforts as being inconsistent with RUO products. For example, our customers may independently elect to use our RUO labeled products in their own laboratory developed tests (LDTs) for clinical diagnostic use, which could subject our products to government regulation, and the regulatory clearance or approval and maintenance process for such products may be uncertain, expensive and time-consuming. Regulatory requirements related to marketing, selling and distribution of RUO products could change or be uncertain, even if clinical uses of our RUO products by our customers were done without our consent. If the FDA or other regulatory authorities assert that any of our RUO products are subject to regulatory clearance or approval, our business, financial condition, or results of operations could be adversely affected.

The FDA has historically exercised enforcement discretion in not enforcing the medical device regulations against laboratories offering LDTs. However, on October 3, 2014, the FDA issued two draft guidance documents that set forth the FDA’s proposed risk-based framework for regulating LDTs, which are designed, manufactured, and used within a single laboratory. The draft guidance documents provide the anticipated details through which the FDA would propose to establish an LDT oversight framework, including premarket review for higher-risk LDTs, such as those that have the same intended use as FDA-approved or cleared companion diagnostic tests currently on the market. In January 2017, the FDA announced that it would not issue final guidance on the oversight of LDTs and manufacturers of products used for LDTs, but would seek further public discussion on an appropriate oversight approach, and give Congress an opportunity to develop a legislative solution. More recently, the FDA has issued warning letters to certain genomics labs for illegally marketing genetic tests that claim to predict patients’ responses to specific medications, noting that the FDA has not created a legal “carve-out” for LDTs and retains discretion to take action when appropriate, such as when certain genomic tests raise significant public health concerns.

As manufacturers develop more complex diagnostic tests and diagnostic software, the FDA may increase its regulation of LDTs. Any future legislative or administrative rule making or oversight of LDTs, if and when finalized, may impact the sales of our products and how customers use our products, and may require us to change our business model in order to maintain compliance with these laws. We cannot predict how these various efforts will be resolved, how Congress or the FDA will regulate LDTs in the future, or how that regulatory system will impact our business. Changes to the current regulatory framework, including the imposition of additional or new regulations, including regulation of our products, could arise at any time during the development or marketing of our products, which may negatively affect our ability to obtain or maintain FDA or comparable regulatory approval of our products, if required. Further, sales of devices for diagnostic purposes may subject us to additional healthcare regulation and enforcement by the applicable government agencies. Such laws include, without limitation, state and federal anti-kickback or anti-referral laws, healthcare fraud and abuse laws, false claims laws, privacy and security laws, Physician Payments Sunshine Act and related transparency and manufacturer reporting laws, and other laws and regulations applicable to medical device manufacturers. Our operations may subject us to certain of these health care laws through our customers who use our platform for the development or sale of diagnostic tests. Failure to comply with such laws and regulations, as applicable, may result in substantial penalties.

 

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Additionally, on November 25, 2013, the FDA issued Final Guidance “Distribution of In Vitro Diagnostic Products Labeled for Research Use Only.” The guidance emphasizes that the FDA will review the totality of the circumstances when it comes to evaluating whether equipment and testing components are properly labeled as RUO. The final guidance states that merely including a labeling statement that the product is for RUO will not necessarily render the device exempt from the FDA’s clearance, approval, and other regulatory requirements if the circumstances surrounding the distribution, marketing and promotional practices indicate that the manufacturer knows its products are, or intends for its products to be, used for clinical diagnostic purposes. These circumstances may include written or verbal sales and marketing claims or links to articles regarding a product’s performance in clinical applications and a manufacturer’s provision of technical support for clinical applications.

As part of the previous Administration’s efforts to combat COVID-19 and consistent with the President Trump’s direction in Executive Orders 13771 and 13924, the Department of Health and Human Services (HHS) announced rescission of guidance and other informal issuances of the FDA regarding premarket review of LDT absent notice-and-comment rulemaking, stating that, absent notice-and-comment rulemaking, those seeking approval or clearance of, or an emergency use authorization, for an LDT may nonetheless voluntarily submit a premarket approval application, premarket notification or an Emergency Use Authorization request, respectively, but are not required to do so. However, laboratories opting to use LDTs without FDA premarket review or authorization would not be eligible for liability protection under the Public Readiness and Emergency Preparedness Act. While this action by HHS is expected to reduce the regulatory burden on clinical laboratories certified under the Clinical Laboratory Improvement Amendments of 1988 that develop LDTs, it is unclear how this action as well as future legislation by federal and state governments and the FDA will impact the industry, including our business and that of our customers. Such HHS measure may compel the FDA to formalize earlier enforcement discretionary policies and informal guidance through notice-and-comment rulemaking and/or impose further restrictions on LDTs. HHS’ rescission policy may change over time and we cannot be certain if the new administration will withdraw Executive Orders 13771 and 13924. Congress could also enact legislation restricting LDTs. Any restrictions on LDTs by the FDA, HHS, Congress, or state regulatory authorities may decrease the demand for our products. The adoption of new restrictions on RUO products, whether by the FDA or Congress, could adversely affect demand for our specialized reagents and instruments. Further, we could be required to obtain premarket clearance or approval before we can sell our products to certain customers.

Additionally, in the United States and some foreign jurisdictions there have been, and continue to be, several legislative and regulatory changes and proposed reforms of the healthcare system in an effort to contain costs, improve quality, and expand access to care. Further, third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for medications and other health care products and services. Our ability to commercialize any of our products successfully, and our customers’ ability to commercialize their products successfully, will depend in part on the extent to which coverage and adequate reimbursement for these products and will be available from third-party payors. As such, cost containment reform efforts may result in an adverse effect on our operations.

We are currently subject to, and may in the future become subject to additional, U.S. federal and state laws and regulations imposing obligations on how we collect, store and process personal information. Our actual or perceived failure to comply with such obligations could harm our business. Ensuring compliance with such laws could also impair our efforts to maintain and expand our future customer base, and thereby decrease our revenue.

In the ordinary course of our business, we currently, and in the future will, collect, store, transfer, use or process sensitive data, including personally identifiable information of employees, and intellectual property and proprietary business information owned or controlled by ourselves and other parties. The secure processing, storage, maintenance, and transmission of this critical information is vital to our operations and business strategy. We are, and may increasingly become, subject to various laws and regulations, as well as contractual obligations, relating to data privacy and security in the jurisdictions in which we operate. The regulatory environment related to data privacy and security is increasingly rigorous, with new and constantly changing requirements applicable

 

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to our business, and enforcement practices are likely to remain uncertain for the foreseeable future. These laws and regulations may be interpreted and applied differently and inconsistently over time and from jurisdiction to jurisdiction, and it is possible that they will be interpreted and applied in ways that may have a material adverse effect on our business, financial condition, results of operations and prospects.

In the United States, various federal and state regulators, including governmental agencies like the Consumer Financial Protection Bureau and the Federal Trade Commission, have adopted, or are considering adopting, laws and regulations concerning personal information and data security. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts. For example, the California Consumer Privacy Act (CCPA), which increases privacy rights for California residents and imposes obligations on companies that process their personal information, came into effect on January 1, 2020. Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for certain data breaches that result in the loss of personal information. This private right of action may increase the likelihood of, and risks associated with, data breach litigation. In addition, laws in all 50 U.S. states require businesses to provide notice to consumers whose personal information has been disclosed as a result of a data breach. State laws are changing rapidly and there is discussion in the U.S. Congress of a new comprehensive federal data privacy law to which we would become subject if it is enacted. Additionally, California voters approved a new privacy law, the California Privacy Rights Act (CPRA), in the November 3, 2020 election. Effective starting on January 1, 2023, the CPRA will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain sensitive personal information. The CPRA also creates a new state agency that will be vested with authority to implement and enforce the CCPA and the CPRA. New legislation proposed or enacted in various other states will continue to shape the data privacy environment nationally. Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to confidential, sensitive and personal information than federal, international or other state laws, and such laws may differ from each other, which may complicate compliance efforts.

Furthermore, regulations promulgated pursuant to the Health Insurance Portability and Accountability Act of 1996 (HIPAA), establish privacy and security standards that limit the use and disclosure of individually identifiable health information (known as “protected health information” or PHI) and require the implementation of administrative, physical and technological safeguards to protect the privacy of PHI and ensure the confidentiality, integrity and availability of electronic PHI. Determining whether protected health information has been handled in compliance with applicable privacy standards and our contractual obligations can require complex factual and statistical analyses and may be subject to changing interpretation. Although we take measures to protect sensitive data from unauthorized access, use or disclosure, our information technology and infrastructure may be vulnerable to attacks by hackers or viruses or breached due to employee error, malfeasance or other malicious or inadvertent disruptions. Any such breach or interruption could compromise our networks and the information stored there could be accessed by unauthorized parties, manipulated, publicly disclosed, lost or stolen. Any such access, breach or other loss of information could result in legal claims or proceedings, liability under federal or state laws that protect the privacy of personal information (such as the HIPAA and the Health Information Technology for Economic and Clinical Health Act (HITECH)), and regulatory penalties. Notice of breaches must be made to affected individuals, the Secretary of the Department of Health and Human Services, and for extensive breaches, notice may need to be made to the media or State Attorneys General. Such a notice could harm our reputation and our ability to compete.

In Europe, the collection, use, storage, disclosure, transfer, or other processing of personal data regarding individuals in the European Economic Area (EEA), including personal health data, is subject to the General Data Protection Regulation (GDPR), which became effective on May 25, 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to

 

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processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches and taking certain measures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the EEA, including the United States, and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the GDPR. In addition, the GDPR includes restrictions on cross-border data transfers. The GDPR may increase our responsibility and liability in relation to personal data that we process where such processing is subject to the GDPR, and we may be required to put in place additional mechanisms to ensure compliance with the GDPR, including as implemented by individual countries. Compliance with the GDPR will be a rigorous and time- intensive process that may increase our cost of doing business or require us to change our business practices, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation and reputational harm in connection with our European activities.

The exit of the United Kingdom (UK) from the EU, often referred to as Brexit, also has created uncertainty with regard to data protection regulation in the UK. Specifically, the UK exited the EU on January 1, 2020, subject to a transition period that ended December 31, 2020. Under the post-Brexit Trade and Cooperation Agreement between the EU and the UK, the UK and EU have agreed that transfers of personal data to the UK from EEA member states will not be treated as ‘restricted transfers’ to a non-EEA country for a period of up to four months from January 1, 2021, plus a potential further two months extension (the “Extended Adequacy Assessment Period”). Although the current maximum duration of the Extended Adequacy Assessment Period is six months, it may end sooner, for example, in the event that the European Commission adopts an adequacy decision in respect of the UK, or the UK amends the UK GDPR and/or makes certain changes regarding data transfers under the UK GDPR/Data Protection Act 2018 without the consent of the EU (unless those amendments or decisions are made simply to keep relevant UK laws aligned with the EU’s data protection regime). If the European Commission does not adopt an ‘adequacy decision’ in respect of the UK prior to the expiry of the Extended Adequacy Assessment Period, from that point onwards the UK will be an ‘inadequate third country’ under the GDPR and transfers of personal data from the EEA to the UK will require a ‘transfer mechanism’ such as the Standard Contractual Clauses.

Further, the European Court of Justice (ECJ) invalidated the EU-U.S. Privacy Shield, which had enabled the transfer of personal data from the EU to the U.S. for companies that had self-certified to the Privacy Shield in July 2020. The ECJ decision also raised questions about the continued validity of one of the primary alternatives to the EU-U.S. Privacy Shield, namely the European Commission’s Standard Contractual Clauses, and EU regulators have issued additional guidance regarding considerations and requirements that we and other companies must consider and undertake when using the Standard Contractual Clauses. Although the EU has presented a new draft set of contractual clauses, at present, there are few, if any, viable alternatives to the EU-U.S. Privacy Shield and the Standard Contractual Clauses. To the extent that we were to rely on the EU-U.S. or Swiss-U.S. Privacy Shield programs, we will not be able to do so in the future, and the ECJ’s decision and other regulatory guidance or developments otherwise may impose additional obligations with respect to the transfer of personal data from the EU and Switzerland to the U.S., each of which could restrict our activities in those jurisdictions, limit our ability to provide our products and services in those jurisdictions, or increase our costs and obligations and impose limitations upon our ability to efficiently transfer personal data from the EU and Switzerland to the U.S.

We are in the process of evaluating compliance needs, and are still finalizing formal policies and procedures related to the storage, collection and processing of information, and still need to conduct internal or external data privacy audits, to ensure our compliance with all applicable data protection laws and regulations. Additionally, we still need to assess our third-party vendors’ compliance with applicable data protection laws and regulations. All of these evolving compliance and operational requirements impose significant costs, such as costs related to

 

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organizational changes, implementing additional protection technologies, training employees and engaging consultants, which are likely to increase over time. In addition, such requirements may require us to modify our data processing practices and policies, distract management or divert resources from other initiatives and projects, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Any failure or perceived failure by us or our third-party vendors, collaborators, contractors and consultants to comply with any applicable federal, state or similar foreign laws and regulations relating to data privacy and security, or could result in damage to our reputation, as well as proceedings or litigation by governmental agencies or other third parties, including class action privacy litigation in certain jurisdictions, which could subject us to significant fines, sanctions, awards, penalties or judgments, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological and radioactive materials. Our research and development and manufacturing operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risks of contamination or injury from these materials. We could be held liable for any resulting damages in the event of contamination or injury resulting from the use of hazardous materials by us, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain general liability insurance as well as workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research and development. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Further, with respect to the operations of our any future third-party contract manufacturers, it is possible that if they fail to operate in compliance with applicable environmental, health and safety laws and regulations or properly dispose of wastes associated with our products, we could be held liable for any resulting damages, suffer reputational harm or experience a disruption in the manufacture and supply of our product candidates or products. In addition, our supply chain may be adversely impacted if any of our third-party contract manufacturers become subject to injunctions or other sanctions as a result of their non-compliance with environmental, health and safety laws and regulations.

We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal liability and other serious consequences for violations, which can harm our business.

We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, (FCPA), the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the

 

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USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are interpreted broadly and prohibit companies and their employees, agents, contractors, and other collaborators from authorizing, promising, offering, or providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. We may engage third parties to sell our products outside the United States, to conduct clinical trials, and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals. We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors, and other collaborators, even if we do not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations described above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.

Risks Related to this Offering and Ownership of our Common Stock

There has been no prior public market for our common stock, the stock price of our common stock may be volatile or may decline regardless of our operating performance and you may not be able to resell your shares at or above the initial public offering price.

There has been no public market for our common stock prior to this offering. The initial public offering price for our common stock was determined through negotiations between the underwriters and us and may vary from the market price of our common stock following this offering. If you purchase shares of our common stock in this offering, you may not be able to resell those shares at or above the initial public offering price. An active or liquid market in our common stock may not develop upon the completion of this offering or, if it does develop, it may not be sustainable. The market price of our common stock may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

   

the timing of our launch and commercialization of our products and degree to which such launch and commercialization meets the expectations of securities analysts and investors;

 

   

actual or anticipated fluctuations in our operating results, including fluctuations in our quarterly and annual results;

 

   

operating and research and development expenses exceed our plans and expectations;

 

   

the failure or discontinuation of any of our product development and research programs;

 

   

changes in the structure or funding of research at academic and research laboratories and institutions, including changes that would affect their ability to purchase our instruments or consumables;

 

   

variations in the financial results of competitive companies;

 

   

the introduction and success of existing or new competitive businesses or technologies;

 

   

announcements about new research programs or products by us or our competitors;

 

   

announcements of new pricing or product bundling terms offered by our competitors;

 

   

intellectual property litigation or developments in disputes concerning infringement of patents or other proprietary rights;

 

   

the recruitment or departure of key personnel;

 

   

litigation and governmental investigations involving us, our industry or both;

 

   

regulatory or legal developments in the United States and other countries;

 

   

volatility and variations in market conditions in the life sciences technology sector generally, or the genomics and proteomics sectors specifically;

 

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investor perceptions of us or our industry;

 

   

the level of expenses related to any of our research and development programs or future products or product enhancements;

 

   

actual or anticipated changes in our estimates as to our financial results or development timelines;

 

   

changes in estimates or recommendations by securities analysts, if any, that cover our common stock or companies that are perceived to be similar to us;

 

   

whether our financial results meet the expectations of securities analysts or investors;

 

   

the announcement or expectation of additional financing efforts;

 

   

sales of our common stock by us or sales of our common stock or common stock by our insiders or other stockholders;

 

   

the expiration of market standoff or lock-up agreements;

 

   

the COVID-19 pandemic, natural disasters or major catastrophic events; and

 

   

general economic, industry and market conditions.

We will have broad discretion in the use of the net proceeds from this offering and may not use them effectively.

We cannot specify with any certainty the particular uses of the net proceeds that we will receive from this offering, but we currently expect to use the net proceeds to finalize the development and commercialization of our G4 Integrated Solution through our ongoing sales and marketing activities, to fund the product development and commercialization of our PX Integrated Solution, for other development work associated with advancing the integration of our core sequencing engine into other platforms and kits, working capital and other general corporate purposes. We will have broad discretion in the application of the net proceeds from this offering, including working capital and other general corporate purposes, and you and other stockholders may disagree with how we spend or invest these proceeds. The failure by our management to apply these funds effectively could adversely affect our business and financial condition. Pending their use, we may invest the net proceeds from our initial public offering in a manner that does not produce income or that loses value. These investments may not yield a favorable return to our investors.

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution.

If you purchase shares of our common stock in this offering, you will experience substantial and immediate dilution in the pro forma net tangible book value per share of $17.01 per share as of March 31, 2021, based on the initial public offering price of our common stock of $22.00 per share, because the price that you pay will be substantially greater than the pro forma net tangible book value per share of the common stock that you acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the initial public offering price when they purchased their shares of our capital stock. You will experience additional dilution upon exercise of options to purchase common stock under our equity incentive plans, upon vesting of options to purchase common stock under our equity incentive plans, if we issue restricted stock to our employees under our equity incentive plans or if we otherwise issue additional shares of our common stock.

Substantial amounts of our outstanding shares may be sold into the market when lock-up periods end. If there are substantial sales of shares of our common stock, the price of our common stock could decline.

The price of our common stock could decline if there are substantial sales of our common stock, particularly sales by our directors, executive officers and significant stockholders, or if there is a large number of shares of our

 

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common stock available for sale and the market perceives that sales will occur. After this offering, we will have 69,382,349 outstanding shares of our common stock, based on the number of shares outstanding as of March 31, 2021, and assuming the automatic conversion of our 2021 Notes into 7,531,777 shares of our common stock, based on the initial public offering price of $22.00 per share. All of the shares of common stock sold in this offering will be available for sale in the public market, unless purchased by our affiliates or existing stockholders. Substantially all of our outstanding shares of common stock are currently restricted from resale as a result of market-standoff agreements and “lock-up” agreements, which may be waived by J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC with or without notice as more fully described in the section titled “Underwriting.” These shares will become available to be sold 181 days after the date of this prospectus. Shares held by directors, executive officers and other affiliates will be subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, and various vesting agreements.

After this offering, certain of our stockholders will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders, subject to lockup agreements. We also intend to register shares of common stock that we have issued and may issue under our employee equity incentive plans. Once we register these shares, they will be able to be sold freely in the public market upon issuance, subject to existing market standoff or lock-up agreements.

The market price of the shares of our common stock could decline as a result of the sale of a substantial number of our shares of common stock in the public market or the perception in the market that the holders of a large number of shares intend to sell their shares.

The concentration of our stock ownership will likely limit your ability to influence corporate matters, including the ability to influence the outcome of director elections and other matters requiring stockholder approval.

Prior to this offering, based upon the 54,862,762 shares of common stock outstanding as of March 31, 2021 (including 3,212,190 shares subject to repurchase), after giving effect to the conversion of all outstanding shares of convertible preferred stock as of that date, into an aggregate of 38,826,388 shares of our common stock (but excluding the automatic conversion of the 2021 Notes into 7,531,777 shares of our common stock), our executive officers, directors and the holders of more than 5% of our outstanding common stock, in the aggregate, beneficially owned approximately 67.13% of our common stock, and upon the completion of this offering, that same group, in the aggregate, will beneficially own approximately 53.03% of our common stock, after giving effect to the automatic conversion of the 2021 Notes into 7,531,777 shares of our common stock, based on the initial public offering price per share of $22.00. This assumes no purchases of shares in this offering or the directed share program by any members of this group, no exercise by the underwriters of their option to purchase additional shares, no exercise of outstanding options or warrants and after giving effect to the issuance of shares in this offering. As a result, these stockholders, acting together, will have significant influence over all matters that require approval by our stockholders, including the election of directors and approval of significant corporate transactions. Corporate actions might be taken even if other stockholders, including those who purchase shares in this offering, oppose them. This concentration of ownership might also have the effect of delaying or preventing a change of control of our company that other stockholders may view as beneficial.

Participation in this offering by our existing stockholders and/or their affiliated entities may reduce the public float for our common stock.

To the extent certain of our existing stockholders and their affiliated entities participate in this offering, such purchases would reduce the non-affiliate public float of our shares, meaning the number of shares of our common stock that are not held by officers, directors and controlling stockholders. A reduction in the public float could reduce the number of shares that are available to be traded at any given time, thereby adversely impacting the liquidity of our common stock and depressing the price at which you may be able to sell shares of common stock purchased in this offering.

 

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If our estimates or judgments relating to our critical accounting policies are based on assumptions that change or prove to be incorrect, our results of operation could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes. We base our estimates on historical experience and estimates and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets, liabilities, equity, revenue and expenses that are not readily apparent from other sources. For example, in connection with the implementation of the new revenue accounting standard if and when we have product sales, management makes judgments and assumptions based on our interpretation of the new standard. The new revenue standard is principle-based and interpretation of those principles may vary from company to company based on their unique circumstances. It is possible that interpretation, industry practice and guidance may evolve as we apply the new standard. If our assumptions underlying our estimates and judgements relating to our critical accounting policies change or if actual circumstances differ from our assumptions, estimates or judgements, our operating results may be adversely affected and could fall below our publicly announced guidance or the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.

We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company” as defined in the JOBS Act and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies, including:

 

   

the option to present only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

 

   

not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act;

 

   

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

 

   

not being required to disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation; and

 

   

not being required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden parachutes.”

The JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to avail ourselves of this exemption and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for private companies.

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. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion

 

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of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. Even after we no longer qualify as an emerging growth company, we may continue to qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements including reduced disclosure obligations regarding executive compensation in this prospectus and our periodic reports and proxy statements, if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million.

We do not intend to pay dividends for the foreseeable future.

We have never declared nor paid cash dividends on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any dividends in the foreseeable future. The Loan Agreement also contains a negative covenant which prohibits us from paying dividends subject to limited exceptions. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

Delaware law and provisions in our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect at the completion of this offering could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of our common stock.

Following the completion of this offering, our status as a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our amended and restated certificate of incorporation and amended and restated bylaws that will be in effect at the completion of this offering will contain provisions that may make the acquisition of our company more difficult, including the following:

 

   

a classified board of directors with three-year staggered terms, which could delay the ability of stockholders to change the membership of a majority of our board of directors;

 

   

the ability of our board of directors to issue shares of preferred stock and to determine the price and other terms of those shares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownership of a hostile acquirer;

 

   

the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;

 

   

a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;

 

   

the requirement that a special meeting of stockholders may be called only by a majority vote of our entire board of directors, the chair of our board of directors or our chief executive officer, which could delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors;

 

   

the requirement for the affirmative vote of holders of at least 66 2/3% of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class, to amend the provisions of our amended and restated certificate of incorporation or our amended and restated bylaws, which may inhibit the ability of an acquirer to effect such amendments to facilitate an unsolicited takeover attempt; and

 

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advance notice procedures with which stockholders must comply to nominate candidates to our board of directors or to propose matters to be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of us.

In addition, as a Delaware corporation, we are subject to Section 203 of the Delaware General Corporation Law. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time. A Delaware corporation may opt out of this provision by express provision in its original certificate of incorporation or by amendment to its certificate of incorporation or bylaws approved by its stockholders. However, we have not opted out of this provision.

These and other provisions in our amended and restated certificate of incorporation, amended and restated bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including delay or impede a merger, tender offer or proxy contest involving our company. The existence of these provisions could negatively affect the price of our common stock and limit opportunities for you to realize value in a corporate transaction.

For information regarding these and other provisions, see the section titled “Description of Capital Stock.”

Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware and the U.S. federal district courts are the exclusive forums 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 amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws or any action asserting a claim against us that is governed by the internal affairs doctrine.

This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our certificate of incorporation will further provide that the U.S. federal district courts will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act, including all causes of action asserted against any defendant named in such complaint. For the avoidance of doubt, this provision is intended to benefit and may be enforced by us, our officers and directors, the underwriters to any offering giving rise to such complaint, and any other professional entity whose profession gives authority to a statement made by that person or entity and who has prepared or certified any part of the documents underlying the offering. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our certificate of incorporation. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.

This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees and may discourage these types of lawsuits. Alternatively, if a court were to find the choice of forum provision contained in our amended and

 

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restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

General Risk Factors

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 will depend in part on the research and reports published by securities or industry analysts about us or our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no or only very few securities analysts commence coverage of us, or if industry analysts cease coverage of us, the trading price for our common stock would be negatively 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.

We could be subject to securities class action litigation.

In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is especially relevant for us because life science technology companies have experienced significant stock price volatility in recent years. If we face such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.

Requirements associated with being a public company will increase our costs significantly, as well as divert significant company resources and management attention.

After the completion of this offering, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or the other rules and regulations of the Securities and Exchange Commission, or the SEC, or any securities exchange relating to public companies. Compliance with the various reporting and other requirements applicable to public companies requires considerable time and attention of management and we will incur significant legal, accounting and other expenses that we did not incur as a private company. We cannot assure you that we will satisfy our obligations as a public company on a timely basis.

In addition, as a public company, it may be more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified personnel to serve on our board of directors, our board committees or as executive officers.

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could result in sanctions or other penalties that would harm our business.

After the completion of this offering, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the Nasdaq Global Select Market. The Sarbanes Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal controls over financial reporting. Commencing with our fiscal year ending the year after this offering is completed, we must perform system and process design evaluation and testing of the effectiveness of our internal controls over financial reporting to allow management to report on the effectiveness of our internal controls over financial reporting in our Form 10-K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to

 

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document and evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal resources, including through hiring additional financial and accounting personnel, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting. This will require that we incur substantial additional professional fees and internal costs to expand our accounting and finance functions and that we expend significant management efforts. Prior to this offering, we have never been required to test our internal controls within a specified period and, as a result, we may experience difficulty in meeting these reporting requirements in a timely manner.

We may discover weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls over financial reporting, we may not be able to produce timely and accurate financial statements. If that were to happen, our investors could lose confidence in our reported financial information, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities including equivalent foreign authorities.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus contains forward-looking statements. All statements other than statements of historical facts contained in this prospectus, including statements regarding our future results of operations and financial position, future revenue, business strategy, prospects, products, research and development costs, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that are in some cases beyond our control and may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

The words “anticipate,” “believe,” contemplate,” “continue” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential” “predict,” “project,” “should,” “target,” “will” or “would” or the negative of these terms or other similar expressions are intended to identify forward looking statements. Forward-looking statements contained in this prospectus include, but are not limited to, statements about:

 

   

estimates of our addressable market, market growth, future revenue, expenses, capital requirements and our needs for additional financing;

 

   

our ability to successfully implement our commercialization plan for our G4 Integrated Solution and planned PX Integrated Solution;

 

   

the implementation of our business model and strategic plans for our G4 Integrated Solution and planned PX Integrated Solution;

 

   

our expectations regarding the rate and degree of market acceptance of our G4 Integrated Solution and planned PX Integrated Solution;

 

   

our ability to compete with competitive companies and technologies in our industry;

 

   

our ability to manage and grow our business and commercialize our G4 Integrated Solution and planned PX Integrated Solution;

 

   

our ability to develop and commercialize new products and development product enhancements;

 

   

our ability to establish and maintain intellectual property protection for our products or avoid or defend claims of infringement;

 

   

the performance of third-party manufacturers and suppliers;

 

   

our ability to effectively manufacture our products

 

   

the potential effects of government regulation;

 

   

our ability to hire and retain key personnel and to manage our future growth effectively;

 

   

our ability to obtain additional financing in this or future offerings;

 

   

the volatility of the trading price of our common stock;

 

   

our expectations regarding use of proceeds from this offering;

 

   

the impact of local, regional, and national and international economic conditions and events;

 

   

the impact of COVID-19 on our business;

 

   

our expectations about market trends; and

 

   

our expectations regarding the period during which we will qualify as an emerging growth company under the JOBS Act

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors” elsewhere in this prospectus. Moreover, we operate in a very

 

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competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this prospectus may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, advancements, discoveries, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, except as required by law, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Except to the extent required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

 

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MARKET, INDUSTRY AND OTHER DATA

This prospectus contains estimates, projections and other information concerning our industry, including market size and growth rates of the markets in which we participate, that are based on our management’s estimates and research, as well as industry and general publications and research, surveys and studies conducted by third parties. In some cases, we do not expressly refer to the sources from which this data is derived. In addition, industry publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. The third-party industry publications, studies and surveys contained in this prospectus are provided below:

 

   

DeciBio LLC. “Next Generation Sequencing (NGS) Market Size, Growth and Trends (2017-2023)” (December 2020).

 

   

Allied Market Research. “Next Generation Sequencing Market – Global Opportunity Analysis and Industry Forecast, 2019-2026” (June 2019).

 

   

DeciBio LLC. “NGS and Spatial Omics and Landscape and Trends” (February 2020).

 

   

Allied Market Research. “Global Proteomics Market – Opportunity Analysis and Industry Forecast, 2018-2025” (March 2019).

Management’s estimates are derived from publicly available information, their knowledge of our industry and their assumptions based on such information and knowledge, which we believe to be reasonable. This data involves a number of assumptions and limitations which are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section titled “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates.

Certain monetary amounts, percentages, and other figures included elsewhere in this prospectus have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables or charts may not be the arithmetic aggregation of the figures that precede them, and figures expressed as percentages in the text may not total 100% or, as applicable, when aggregated may not be the arithmetic aggregation of the percentages that precede them.

 

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USE OF PROCEEDS

The net proceeds from this offering will be approximately $205.6 million (or $236.9 million if the underwriters exercise their option to purchase additional shares in full) after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, based on the initial public offering price of $22.00 per share.

The principal purposes of this offering are to increase our financial flexibility and create a public market for our common stock.

We currently intend to use the net proceeds from this offering, together with our existing cash and cash equivalents and short-term investments, as follows:

 

   

approximately $53.0 million to finalize the development and commercialization of our G4 Integrated Solution; and

 

   

approximately $50.0 million to fund the product development and commercialization of our PX Integrated Solution; and

 

   

the remainder, if any, for other development work associated with advancing the integration of our core sequencing engine into other platforms and kits, working capital and other general corporate purposes.

We may also use a portion of the net proceeds from this offering to acquire, in-license or invest in products, technologies or businesses that complement our business. However, we do not have binding agreements or commitments for any acquisitions or investments outside the ordinary course of business at this time.

Based on our current business plans, we believe that the net proceeds of this offering, together with our existing cash and cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements for at least the next four years from the date of this prospectus.

This expected use of the net proceeds from this offering represents our intentions based upon our current plans and business conditions. As of the date of this prospectus, we cannot predict with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering or the amounts that we will actually spend on the uses set forth above.

The amount and timing of our actual expenditures will depend on numerous factors, including the results of our research and development and commercialization efforts, cash flows from operations, the anticipated growth of our business and any unforeseen cash needs. As a result, our management will have broad discretion over the use of the proceeds from this offering.

Pending our use of the net proceeds from this offering, we plan to invest the net proceeds in a variety of capital preservation investments, including short-term interest-bearing investment-grade securities, certificates of deposit or government securities.

 

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DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock and we do not currently intend to pay any cash dividends on our capital stock for the foreseeable future. We currently intend to retain all available funds and any future earnings to support operations and to finance the growth and development of our business. Any future determination to declare and pay dividends will be made at the discretion of our board of directors subject to applicable laws and will depend upon, among other factors, our results of operations, financial condition, business prospects, contractual restrictions, capital requirements and other factors our board of directors may deem relevant. Additionally, our Loan Agreement contains customary covenants, including restrictions on our ability to pay cash dividends.

 

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CAPITALIZATION

The following table sets forth our cash and cash equivalents and short-term investments and total capitalization as of March 31, 2021, as follows:

 

   

on an actual basis;

 

   

on a pro forma basis to reflect: (i) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 38,826,388 shares of common stock; (ii) the automatic conversion of the outstanding SVB warrant to purchase convertible preferred stock into a warrant to purchase 129,156 shares of our common stock; (iii) the conversion of the 2021 Notes into 7,531,777 shares of our common stock based on the initial public offering price of $22.00 per share, immediately prior to the closing of this offering; and (iv) the filing and effectiveness of our amended and restated certificate of incorporation, each of which will occur immediately prior to the completion of this offering; and

 

   

on a pro forma as adjusted basis to give effect to (i) the pro forma adjustments set forth above and (ii) the sale and issuance of 10,200,000 shares of our common stock by us in this offering, based upon the receipt by us of the estimated net proceeds from this offering at the initial public offering price of $22.00 per share, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

This information should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus, as well as the section of this prospectus titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

                                            
     As of March 31, 2021  
     Actual      Pro Forma      Pro Forma
As Adjusted(1)
 
    

(in thousands, except share and

per share data)

 
     (unaudited)  

Cash and cash equivalents

   $ 45,526      $ 45,526      $ 251,167  

Short-term investments

     104,595        104,595        104,595  
  

 

 

    

 

 

    

 

 

 

Warrant liability

   $ 2,653      $ —        $ —    

Convertible Promissory Notes

     141,900        —          —    

Long-term debt, net of debt discount

     9,473        9,473        9,473  

Series Seed convertible preferred stock, $0.0001 par value per share; 6,520,790 shares authorized and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     4,486        —          —    

Series A convertible preferred stock, $0.0001 par value per share; 12,932,429 shares authorized and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     19,908        —          —    

Series B convertible preferred stock, $0.0001 par value; 19,373,169 shares authorized and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted

     44,790        —          —    

Stockholders’ (deficit) equity:

        

Common stock, $0.0001 par value per share; 60,272,685 shares authorized, 12,824,184 shares outstanding, which excludes 3,212,190 shares subject to repurchase, actual; 400,000,000 shares authorized, 59,182,349 shares outstanding, which excludes 3,212,190 shares subject to repurchase, pro forma; 400,000,000 shares authorized, 69,382,349 shares issued and shares outstanding, pro forma as adjusted

     1        6        7  

 

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     As of March 31, 2021  
     Actual     Pro Forma     Pro Forma
As Adjusted(1)
 
    

(in thousands, except share and

per share data)

 
     (unaudited)  

Additional paid-in capital

     3,735       217,467       423,107  

Accumulated other comprehensive income (loss)

     (32     (32     (32

Accumulated deficit

     (77,046     (77,046     (77,046

Total stockholders’ (deficit) equity

     (73,342     140,395       346,036  
  

 

 

   

 

 

   

 

 

 

Total capitalization

   $ 149,868     $ 149,868     $ 355,509  
  

 

 

   

 

 

   

 

 

 

If the underwriters exercise their option to purchase additional shares of our common stock in full, our pro forma as adjusted cash and cash equivalents, additional paid-in capital, total stockholders’ (deficit) equity, total capitalization, and shares of common stock outstanding as of March 31, 2021 would be $282.5 million, $454.4 million, $377.3 million, $386.8 million, and 70,912,349 shares, respectively.

The number of shares of our common stock to be outstanding after this offering on a pro forma and pro forma as adjusted basis is based on 59,182,349 shares of our common stock outstanding as of March 31, 2021, assuming the conversion of all of our 38,826,388 outstanding shares of convertible preferred stock, and after giving effect to the Note Conversion, and excludes the following:

 

   

4,475,799 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2021, with a weighted-average exercise price of $3.05 per share;

 

   

118,300 shares of common stock issuable upon the exercise of stock options granted after March 31, 2021, with a weighted-average exercise price of $22.43 per share;

 

   

3,212,190 shares of common stock issued as of March 31, 2021 upon the early exercise of certain stock options, but not deemed outstanding as they are subject to a right of repurchase;

 

   

129,156 shares of our common stock issuable upon the exercise of the SVB warrant to purchase shares of our Series B convertible preferred stock (which will convert into a warrant to purchase 129,156 shares of our common stock immediately prior to the completion of this offering) with an exercise price of $2.32 per share;

 

   

934,124 shares of common stock reserved for future issuance under our 2016 Plan, as of March 31, 2021, which shares will be added to the shares to be reserved under our 2021 Plan upon its effectiveness;

 

   

7,500,000 shares of common stock reserved for future issuance under our 2021 Plan, which became effective on its adoption (although no awards were to be granted under the 2021 Plan until the effective date of the registration statement of which this prospectus forms a part), as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan; and

 

   

730,000 shares of common stock reserved for issuance under our 2021 ESPP, which became effective on the effective date of the registration statement of which this prospectus forms a part, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan.

2021 Convertible Notes

Immediately prior to the completion of this offering, each of the 2021 Notes will automatically convert into 7,531,777 shares of our common stock at a conversion price equal to the lower of (i) 80% of the initial public offering price per share set forth on the cover page of this prospectus and (ii) the price per share obtained by dividing $1.5 billion by the fully-diluted capitalization of the Company prior to this offering.

 

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DILUTION

If you invest in our common stock in this offering, your ownership interest will be immediately diluted to the extent of the difference between the initial public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering.

Historical net tangible book value (deficit) per share represents our total tangible assets less our liabilities and convertible preferred stock that is not included in equity divided by the total number of shares of common stock outstanding (excluding 3,212,190 shares subject to repurchase). As of March 31, 2021, our historical net tangible book value (deficit) was approximately $(73.3) million, or $(5.72) per share. Our pro forma net tangible book value as of March 31, 2021, was approximately $140.4 million, or $2.37 per share, after giving effect to (i) the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 38,826,388 shares of common stock immediately prior to the completion of this offering and (ii) the conversion of the 2021 Notes into 7,531,777 shares of our common stock, based on the initial public offering price of $22.00 per share, in connection with the closing of this offering, and (iii) giving the effect of exchange of the warrant to purchase preferred stock into a warrant to purchase common stock. Pro forma net tangible book value per share represents our pro forma net tangible book value divided by the number of shares of our common stock outstanding as of March 31, 2021, after giving effect to the pro forma adjustments described above.

After giving effect to (i) the pro forma adjustments set forth above and (ii) our sale in this offering of 10,200,000 shares of common stock at the initial public offering price of $22.00 per share, and after deducting underwriting discounts and commissions and estimated offering expenses, our pro forma as adjusted net tangible book value as of March 31, 2021 would have been approximately $346.0 million, or $4.99 per share of our common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $2.62 per share to our existing stockholders and an immediate dilution of $17.01 per share to investors purchasing common stock in this offering.

The following table illustrates this dilution to new investors on a per share basis:

 

Initial public offering price per share

      $ 22.00  

Historical net tangible book value (deficit) per share as of March 31, 2021

   $ (5.72   

Pro forma increase in net tangible book value (deficit) per share as of March 31, 2021, attributable to the pro forma transactions described above

     8.09     
  

 

 

    

Pro forma net tangible book value per share as of March 31, 2021

     2.37     

Increase in pro forma net tangible book value per share attributable to new investors in this offering

     2.62     
  

 

 

    

Pro forma as adjusted net tangible book value per share immediately after this offering

        4.99  
     

 

 

 

Dilution per share to new investors purchasing shares in this offering

        $17.01  
     

 

 

 

If the underwriters’ option to purchase additional shares in this offering is exercised in full, the pro forma as adjusted net tangible book value would be $5.32 per share, the increase in the pro forma net tangible book value per share for existing stockholders would be $2.95 per share and the dilution to new investors participating in this offering would be $16.68 per share.

 

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The table below summarizes, as of March 31, 2021, on a pro forma as adjusted basis, the number of shares of our common stock, the total consideration, and the weighted-average price per share (i) paid to us by our existing stockholders and (ii) to be paid by new investors participating in this offering at the initial public offering price of $22.00 per share, before deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

     Shares Purchased     Total Consideration     Weighted-
Average
Price Per
Share
 
     Number      Percent     Amount      Percent  

Existing stockholders(1)

     59,182,349        85.3   $ 203,420,000        47.5   $ 3.44  

New investors

     10,200,000        14.7       224,400,000        52.5     $ 22.00  
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     69,382,349      100.0    $ 427,820,000        100.0  
  

 

 

    

 

 

   

 

 

    

 

 

   

 

(1)

The presentation in this table regarding ownership by existing stockholders does not give effect to any purchases that existing stockholders may make through our directed share program or otherwise purchase in this offering.

In addition, if the underwriters’ option to purchase additional shares is exercised in full, the number of shares held by existing stockholders will be reduced to 83.5% of the total number of shares of common stock to be outstanding upon completion of this offering, and the number of shares of common stock held by new investors participating in this offering will be further increased to 16.5% of the total number of shares of common stock to be outstanding upon completion of the offering.

The foregoing tables and calculations (other than historical net tangible book value) are based on 59,182,349 shares of common stock outstanding as of March 31, 2021, assuming the conversion of all of our 38,826,388 outstanding shares of convertible preferred stock, and after giving effect to the Note Conversion and excludes the following:

 

   

4,475,799 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2021, with a weighted-average exercise price of $3.05 per share;

 

   

118,300 shares of common stock issuable upon the exercise of stock options granted after March 31, 2021, with a weighted-average exercise price of $22.43 per share;

 

   

3,212,190 shares of common stock issued as of March 31, 2021 upon the early exercise of certain stock options, but not deemed outstanding as they are subject to a right of repurchase;

 

   

129,156 shares of our common stock issuable upon the exercise of the SVB warrant to purchase shares of our Series B convertible preferred stock (which will convert into a warrant to purchase 129,156 shares of our common stock immediately prior to the completion of this offering) with an exercise price of $2.32 per share;

 

   

934,124 shares of common stock reserved for future issuance under our 2016 Plan, as of March 31, 2021, which shares will be added to the shares to be reserved under our 2021 Plan upon its effectiveness;

 

   

7,500,000 shares of common stock reserved for future issuance under our 2021 Plan, which became effective on its adoption (although no awards were to be granted under the 2021 Plan until the effective date of the registration statement of which this prospectus forms a part), as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan; and

 

   

730,000 shares of common stock reserved for issuance under our 2021 ESPP, which became effective on the effective date of the registration statement of which this prospectus forms a part, as well as any automatic increases in the number of shares of common stock reserved for future issuance under this plan.

To the extent that any outstanding options or warrants are exercised or new awards are granted under our equity compensation plans, new investors will experience further dilution.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those discussed under the section titled “Risk Factors” and elsewhere in this prospectus. See also the section titled “Special Note Regarding Forward-Looking Statements.”

Overview

We are a life science technology company that is leveraging NGS and multiomics technologies to build products that empower researchers and clinicians. We developed a unique and proprietary NGS technology, which we refer to as our Sequencing Engine. This Sequencing Engine is the foundational platform technology that forms the basis of our products in development and our core product tenets: accuracy, speed, flexibility and scale. We are currently developing two integrated solutions that are purpose built to target specific applications in which these core product tenets matter most. Our first integrated solution is targeted at the NGS market and comprises the G4 Instrument and an associated menu of consumable kits, which we refer to collectively as our G4 Integrated Solution. The G4 Instrument is a benchtop next generation sequencer designed to produce fast and accurate genetic sequencing results. The integrated purpose built kits that run on the G4 Instrument address specific applications in fast growing markets including oncology and immune profiling. We have completed our beta pilot program and anticipate initiating an early access program followed by a commercial launch of the G4 Integrated Solution by the end of 2021, with intentions for units to ship in the first half of 2022. Our second integrated solution in development comprises the PX Instrument and an associated menu of consumable kits, which we refer to collectively as our PX Integrated Solution. Leveraging sequencing as a universal readout, the PX Integrated Solution combines single cell analysis, spatial analysis, genomics and proteomics in one integrated instrument providing a versatile multiomics solution. We anticipate commercial launch of the PX Integrated Solution in 2023.

The core of our Sequencing Engine is comprised of unique and proprietary chemistry, including novel chemical compounds, polymers and enzymes. This chemistry is designed to produce high sequencing accuracy and rapid cycle times that we believe can drive improvements in NGS. To take full advantage of the proprietary chemistry, we are developing purpose built instrumentation consisting of high speed, high resolution imaging and innovative fluidic design. We believe that our Sequencing Engine, together with our proprietary innovations in molecular biology techniques, will enable differentiated applications in fast growing markets. These innovations are supported by our intellectual property portfolio.

Each of our two integrated solutions in development consists of an instrument that incorporates our Sequencing Engine and associated consumables that are used exclusively on each instrument. The G4 Integrated Solution is designed to target the NGS market in particular applications that require accuracy, speed, flexibility and scale. We are focused on oncology where there is an increasing need for higher sensitivity technology such as rare variant detection in liquid biopsy. Another area of focus is immunology where there is a need to better understand and harness the immune system in infectious disease, autoimmune disorders, and cancer immunotherapy. We aim to execute a three step commercialization plan for our G4 Integrated Solution consisting of: (i) collaborating with select partners to conduct beta pilot tests, which we have completed, (ii) expanding collaborations with additional potential customers in an early access program and (iii) offering our G4 Integrated Solution broadly to the market, with commercial launch by the end of 2021 and shipping units in the first half of 2022.

The PX Integrated Solution is our second product in development and is a multiomics platform designed to target the markets for single cell, spatial analysis and proteomics. The PX Integrated Solution will leverage our

 

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Sequencing Engine as a readout mechanism to provide a high-resolution view of biology at the single cell and tissue level. We believe the PX Integrated Solution, when launched, will be a high-throughput, versatile platform capable of measuring levels of RNA transcription, protein expression, and sequence specific information directly in cells and tissues. We believe the PX Integrated Solution will have broad application across many areas of biology. We are initially focused on applications in oncology and immunology, with future expansion into other applications such as neurology. We are currently in an advanced prototype development stage for the PX Integrated Solution, and expect to begin an early access program in 2022 and full commercial launch in 2023. We believe that our G4 and PX Integrated Solutions can unleash the full power of sequencing as a universal reader of biology, and open new frontiers in research and medicine.

Our research and development teams have designed and developed our proprietary products using an interdisciplinary approach that combines expertise across a broad range of scientific disciplines including chemistry, molecular biology, hardware, software and engineering. Our research and development groups work together to build products that enable researchers and clinicians to accelerate discoveries across the fastest growing markets in basic research, clinical applications, single cell analysis and spatial genomics and proteomics. Our research and development teams are located in our headquarters in La Jolla, California. The overarching goal of our research and development programs is to accelerate genomics for the advancement of science and medicine. To this end, we focus our research and development efforts on the following areas: improving the performance of our core Sequencing Engine; developing new applications for our G4 Integrated Solution; developing our PX Integrated Solution; and enabling future instruments.

As of March 31, 2021, we had 106 employees in research and development. Looking forward, we will continue to invest in efforts to support the ongoing development of our instruments and consumables, as well as enhance the overall performance of our solutions.

Our business model focuses on first driving customer adoption of our G4 Integrated Solution followed by our PX Integrated Solution. We believe customer adoption will then form a base of users who in turn drive an on going revenue stream by purchasing our consumables. We plan to focus our commercial efforts on (i) expanding the installed base of our G4 Integrated Solution and PX Integrated Solution across a wide array of customer segments and (ii) driving applications, scale of experimentation and discoveries that lead to increasing utilization of our integrated platforms by our customers. Similar to our strategy of developing purpose built products based on feedback from potential customers, we also plan to develop a service and support organization that will focus on creating an unparalleled customer experience. We believe in the value of creating new customers while expanding utilization of existing customers through the sale of purpose built products and the establishment of customer loyalty.

We are in the process of building out our commercial organization and we expect to have direct commercial staff in sales, customer success, technical support, field service and market development functions. Throughout our commercial rollout, we will need to scale each function within our commercial organization in anticipation of demand and with the intent to deliver exceptional customer experience. We believe that coupling customer experience with a transformative integrated solution will allow us to deliver substantial value to our customers, build long-term customer loyalty and enhance our competitive differentiation.

We expect to initially target customers in North America through direct sales and customer support organizations. We also plan to expand outside North America to sell and support our products in the European Union, United Kingdom, Asia Pacific and Japan, and expect to expand access to our products in other geographies through well established distribution networks.

The majority of our consumable products and instruments are manufactured in-house at our facilities in La Jolla, California. These manufacturing operations include: flow cell surface synthesis and flow cell assembly, reagent formulation and cartridge filling, kit assembly and packaging as well as analytical and functional quality control testing. We obtain some components of our consumables from third-party suppliers. While some of these

 

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components are sourced from a single supplier, we have qualified second sources for several of our critical components including reagents, flow cells, optics and oligonucleotides. We believe that having dual sources for our components helps reduce the risk of a production delay caused by a disruption in the supply of a critical component.

Since we were incorporated in 2016, we have devoted substantially all of our resources to research and product development activities, initiating our commercialization plans, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, building our commercial infrastructure and providing general and administrative support for these activities. Since our incorporation, we have incurred significant losses and negative cash flows from operations. During the year ended December 31, 2020, we incurred a net loss of $27.9 million and used $24.9 million of cash in operations. During the three months ended March 31, 2021, we incurred a net loss of $23.9 million and used $9.2 million of cash in our operations. As of March 31, 2021, we had an accumulated deficit of $77.0 million. We expect to continue to incur significant and increasing losses and do not expect positive cash flows from operations for the foreseeable future, and our net losses may fluctuate significantly from period to period, depending on the timing of and expenditures on our planned commercialization and research and development activities.

From the date of our incorporation through March 31, 2021, we have financed our operations primarily through private placements of convertible preferred stock and convertible promissory notes. We have raised aggregate net proceeds of approximately $199.7 million, net of issuance costs, including the $130.5 million we raised through the issuance of convertible promissory notes in February 2021 (the 2021 Notes). As of March 31, 2021, we had cash and cash equivalents and short-term investments totaling $150.1 million.

We expect our expenses to increase significantly in connection with our ongoing activities, as we:

 

   

continue to develop and then commercialize our G4 Integrated Solution and planned PX Integrated Solution;

 

   

attract, hire and retain qualified personnel;

 

   

expand our sales, marketing, service, support and distribution infrastructure to support our commercialization plans and engage in commercialization activities;

 

   

build-out and expand our in-house manufacturing capabilities and engage in larger scale manufacturing activities;

 

   

continue to engage in research and development of other products and enhancements;

 

   

implement operational, financial and management information systems;

 

   

obtain, maintain, expand, and protect our intellectual property portfolio; and

 

   

operate as a public company.

COVID-19 Pandemic

As a result of the COVID-19 pandemic, we have, and could continue to, experience disruptions that could severely impact our business. For instance, there have been standing “stay-at-home” orders in California, and specifically San Diego County where our headquarters is located. We have continued to operate within the rules applicable to our business; however, an extended implementation of these governmental mandates or reinstitution of additional more stringer mandates could further impact our ability to operate effectively and conduct ongoing research and development or other activities. The COVID-19 pandemic has also adversely affected the broader economy and created volatility in the financial markets which could curtail the research and development budgets of our customers, our ability to hire additional personnel and our financing prospects.

We are continuing to assess the impact of the COVID-19 pandemic on our current and future business and operations, as well as on our industry and the healthcare system. Any of the foregoing could harm our operations

 

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and we cannot anticipate all the ways in which it could be adversely impacted by health epidemics such as COVID-19. For additional information, see the section titled “Risk Factors—Risks Related to Our Business and Industry—The COVID-19 pandemic and efforts to reduce its spread have adversely impacted, and are expected to continue to materially and adversely impact, our business and operations.”

Key Factors Affecting Our Performance

We believe that our financial performance will be driven primarily by the factors below. While each of these factors presents significant opportunities for our business, they also pose important challenges that we must successfully address in order to grow our business and improve our results of operations. Our ability to successfully address the factors below is subject to various risks and uncertainties, including those described under the section titled “Risk Factors”.

Commercial adoption of our G4 Integrated Solution and planned PX Integrated Solution

Our financial performance will be driven by, and a key factor to our future success will be, the rate of commercial adoption of our G4 Integrated Solution and planned PX Integrated Solution. We plan to drive customer adoption, beginning with our beta pilot program and early access program, to generate clear use-cases and peer-reviewed publications that illustrate our product performance claims and value proposition. Following our beta pilot and early access programs, we plan to commercially launch through a direct sales and marketing organization in the United States and to sell and support our products in the European Union, United Kingdom, Asia Pacific and Japan, either through direct sales or through established distribution networks. Throughout our commercial rollout, we aim to grow our sales and marketing team to foster deep customer relationships initially with customers running our G4 Integrated Solution and to establish and grow distribution networks capable of deploying our G4 Integrated Solution in select areas of the World. We also plan to offer different access options, including capital sale and lease options for the G4 Integrated Solution to meet each customer’s unique needs. As a result of this effort, we will aim to increase our installed base of G4 Integrated Solution and planned PX Integrated Solution.

Utilization by our customers of our G4 Integrated Solution and planned PX Integrated Solution

The utilization of our integrated solutions and the corresponding purchases of consumables and other products and services will represent a source of potential recurring revenue from our customers. We plan to drive utilization of our G4 Integrated Solution and planned PX Integrated Solutions by engaging with customers to help them advance through the adoption cycle from early stage validation to integration of our integrated solutions with existing NGS workflows with plug and play interoperability. As our integrated solutions advance towards becoming fully integrated within customer workflows, we believe customers will utilize more of our consumables and other products and services, thus driving recurring revenue.

Expansion of our G4 Integrated Solution and PX Integrated Solution beyond initial applications

The rate of growth of our revenue will rely on part in our ability to expand our market opportunity. We aim to continually innovate and develop new products, applications, workflows and analysis tools that may potentially lead to new end markets, applications and business models. We believe that the capabilities offered by our integrated solutions and future products may potentially lead to additional or complementary addressable markets, and may expand our market opportunity.

Revenue mix between our instruments and consumables, and gross margin

Any revenue we generate will be derived from sales of our instruments, consumables and services. As our customers begin adopting our G4 Integrated Solution, we expect our revenue will be derived principally from sales of such instruments. As we drive utilization of our G4 Integrated Solution, and customers begin utilizing

 

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more of our consumables, we estimate that the portion of our revenue from sales of our consumables will grow over time. We expect the revenue contribution from our consumables to vary on a quarterly basis due to several factors, including the timing and number of publications of scientific papers demonstrating the value of our consumables, the availability of grants to fund research, budgetary timing and our introduction of new product features and new consumables offerings. Additionally, we expect the mix and variance of sales between our instruments and consumables to cause our gross margin to vary on a quarterly basis.

Rate of investment in our growth

As we commercially launch and grow sales of our G4 Integrated Solution and, once developed and commercially launched, our PX Integrated Solution, we expect to continue investing in our manufacturing capabilities and commercial infrastructure. Additionally, we plan to further invest in research and development as we hire employees with the necessary scientific and technical backgrounds to enhance and expand our existing products and help us bring new products to market, and expect to incur additional research and development expenses as a result. We also plan to invest in sales and marketing activities and expect to incur additional general and administrative expenses as we support our growth and our operations as a publicly traded company.

Expansion of our geographic presence

We are initially building our commercial infrastructure to sell and support our products directly in the United States and Canada. We also have plans in place to sell and support our products in the European Union, United Kingdom, Asia Pacific and Japan, either through direct sales or through well established distribution networks and expect to expand access to our products in other geographies through distributors. We expect to incur expenses as we expand our geographic presence and generate revenue either through direct sales or through distribution networks. Our expenses and revenue will fluctuate depending on the extent to which we pursue direct sales or distribution arrangements outside the United States and Canada.

Columbia License Agreement and Sponsored Research Agreement

In August 2016, we entered into an Exclusive License Agreement (the License Agreement) with the Trustees of Columbia University in the City of New York (Columbia). The License Agreement includes a number of diligence obligations that require us to use commercially reasonable efforts to research, discover, develop and market Patent Products and/or Other Products (as defined in the License Agreement) by certain dates. Under the License Agreement, we pay an annual license fee that increases each year, until it reaches a low six digit fee for the fifth year, and for each subsequent year, for so long as the License Agreement remains in force. For any products within the scope of the License Agreement that we commercialize, we are required to pay royalties ranging from low to mid-single digits on net sales of Patent Products and low single digit royalty rates on net sales of Other Products. We can credit our yearly annual license fee against any yearly royalty fees payable to Columbia. Additionally, if we receive any income in connection with any sublicenses, we must pay Columbia a high single digit percentage of that income. Finally, the License Agreement provides for payments to Columbia based upon our achievement of certain development and commercialization milestones, which could total up to $3.9 million over the life of the License Agreement. As of March 31, 2021, we have paid an aggregate of $0.1 million to Columbia pursuant to the terms of the License Agreement.

We do not believe that our G4 or PX Instruments or the associated consumables, as we presently intend to commercialize them, fit within the definitions of Patent Products or Other Products as defined in the License Agreement. As a result, we do not believe that we will be required to make milestone payments or pay royalties on sales of these products. However, in the future, we may decide to incorporate features covered by one or more licensed patent(s) or directly use or incorporate materials and/or technical information provided by Columbia, such that we would incur milestone and royalty obligations under the License Agreement.

We are currently in discussions with Columbia related to the application of the License Agreement to our G4 and PX Integrated Solutions and our efforts to satisfy the diligence obligations under the License Agreement.

 

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There is no assurance that Columbia will agree with our interpretation of the License Agreement or our payment obligations thereunder or agree that we have complied with our other obligations under the License Agreement.

In addition to the License Agreement, the Company entered into a sponsored research agreement (the Research Agreement) to fund a research program with Columbia. The program ended in 2019. The Company recorded $0.1 million of expense in connection with the Research Agreement for the year ended December 2019.

Components of Results of Operations

Revenue

We have not generated any revenue from product sales to date and may not do so in the near future. If our development and commercialization efforts are successful for our G4 Integrated Solution and planned PX Integrated Solution, we expect to generate revenue in the future from sales of our G4 Instrument and planned PX Instrument and the associated consumables and services. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our integrated solutions.

Operating Expenses

Research and Development

Research and development expenses consist primarily of:

 

   

salaries, payroll taxes, employee benefits and stock-based compensation for personnel engaged in research and development activities;

 

   

fees paid to consultants;

 

   

license fees paid to third parties for use of their intellectual property, laboratory supplies and development compound materials;

 

   

allocated overhead costs; and

 

   

facilities and depreciation costs.

All research and development costs are charged to expense as incurred.

We plan to continue to increase our investment in our research and development efforts related to our product development pipeline and our proprietary technology, including our G4 Integrated Solution and planned PX Integrated Solution. Therefore, we expect our research and development expenses will increase in absolute dollars in future periods as we incur expenses associated with hiring additional personnel, purchasing supplies and materials, and the allocation of facility expense associated with the ongoing build-out of our expansion facilities to support our research and development efforts.

General and Administrative

General and administrative expenses consist primarily of salaries, payroll taxes, employee benefits and stock-based compensation for personnel in our executive management, finance, administration and human resources functions, professional service fees, including for legal, accounting, patent, and auditing and other services, allocated overhead costs, facilities and depreciation costs, and other costs to support our operations.

We plan to continue to increase our investment in our personnel as we grow. We also expect to incur additional costs as a result of operating as a public company, including costs of accounting, audit, legal, regulatory and tax compliance services, director and officer insurance costs, and investor and public relations costs. As a result, we expect our general and administrative expenses will increase in absolute dollars in future periods.

 

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Interest and Other Income

Interest income consists of interest earned on cash and cash equivalents and on our short-term investments in corporate notes and government agency notes.

Interest Expense

Interest expense consists of interest related to our Loan Agreement with Silicon Valley Bank, including amortization of the debt issuance cost.

Change in Fair Value of Warrant Liability

We account for the warrant for preferred stock in accordance with the provisions of Accounting Standards Codification 480, Distinguishing Liabilities from Equity, which requires that warrants for the purchase of shares in contingently redeemable instruments be accounted for as liabilities. We adjust the carrying value of such warrant liability to its estimated fair value at the end of each reporting period, with increases or decreases in fair value recorded as other income or expense in the statements of operations.

Change in Fair Value of 2021 Notes

We account for the 2021 Notes in accordance with the provisions of Accounting Standards Codification (ASU) 480, Distinguishing Liabilities from Equity and ASU 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). We adjust the carrying value of such notes liability to its estimated fair value at the end of each reporting period, with increases or decreases in fair value recorded as other income or expense in the statements of operations.

Results of Operations

Comparison of the Three Months Ended March 31, 2020 and 2021

The following table summarizes our results of operations for the periods indicated:

 

     Three Months Ended
March 31,
             
             2020             2021     $ Change     % Change  
           (unaudited)              
           (in thousands)              

Operating expenses:

        

Research and development

   $ 4,026     $ 6,608     $ 2,582       64.1

General and administrative

     1,377       3,654       2,277       165.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

   $ (5,403   $ (10,262   $ (4,859     89.9

Interest and other income

     216       131       (85     (39.4 )% 

Interest expense

     (66     (188     (122     184.8

Change in fair value of convertible promissory notes

           (11,400     (11,400     100.0

Change in fair value of warrant liability

           (2,202     (2,202     100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (5,253   $ (23,921   $ (18,668     355.4
  

 

 

   

 

 

   

 

 

   

 

 

 

Research and Development Expenses

The following table summarizes our research and development expenses for the periods indicated:

 

     Three Months Ended
March 31,
               
     2020      2021      $ Change      % Change  
            (unaudited)                
            (in thousands)                

Research and development expenses

   $ 4,026      $ 6,608      $ 2,582        64.1

 

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Research and development expenses increased by $2.6 million, or 64.1%, from the three months ended March 31, 2020 to the three months ended March 31, 2021. The increase was primarily due to an increase in product development efforts related to our G4 Integrated Solution, including $1.3 million in employee compensation costs, stock-based compensation and other related costs as a result of an increase in research and development personnel, $0.9 million in laboratory materials, supplies and reagents used for in-house research, $0.2 million related to the expansion of facilities and maintenance and $0.1 million in professional and consulting fees.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the periods indicated:

 

     Three Months Ended
March 31,
               
     2020      2021      $ Change      % Change  
            (unaudited)                
            (in thousands)                

General and administrative expenses

   $ 1,377      $ 3,654      $ 2,277        165.4

General and administrative expenses increased by $2.3 million, or 165.4%, from the three months ended March 31, 2020 to the three months ended March 31, 2021. The increase was primarily due to a $1.6 million increase in employee compensation costs, stock-based compensation and other related costs, as a result of both converting consultants to full-time employees and an increase in personnel. Other increases include $0.6 million in professional and consulting fees related to accounting and audit services and corporate legal matters.

Other Income (Expense)

 

     Three Months Ended
March 31,
             
     2020     2021     $ Change     % Change  
                 (unaudited)        
     (in thousands)        

Interest and other income

   $ 216     $ 131     $ (85     (39.4 )% 

Interest expense

     (66     (88     (122     184.8

Change in fair value of convertible promissory notes

           (11,400     (11,400     100.0

Change in fair value of warrant liability

           (2,202     (2,202     100.0

Other expense increased by $13.8 million for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, primarily due to increase in fair value of warrant liabilities by $2.2 million and increase in the fair value of our convertible promissory notes by $11.4 million.

Comparison of the Years Ended December 31, 2019 and 2020

The following table summarizes our results of operations for the periods indicated:

 

     Year Ended December 31,              
     2019     2020     $ Change     % Change  
           (in thousands)              

Operating expenses:

        

Research and development

   $ 10,484     $ 21,247     $ 10,763       102.7

General and administrative

     2,286       6,287       4,001       175.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (12,770     (27,534     (14,764     115.6

Interest and other income

     463       505       42       9.1

Interest expense

     (17     (718     (701     4123.5

Change in fair value of warrant liability

           (198     (198     100.0
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (12,324   $ (27,945   $ (15,621     126.8
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Research and Development Expenses

The following table summarizes our research and development expenses for the periods indicated:

 

     Year Ended December 31,                
     2019      2020      $ Change      % Change  
            (in thousands)                

Research and development expenses

   $ 10,484      $ 21,247      $ 10,763        102.7

Research and development expenses increased by $10.8 million, or 102.7%, from the year ended December 31, 2019 to the year ended December 31, 2020. The increase was primarily due to an increase in product development efforts related to our G4 Integrated Solution, including $5.6 million in employee compensation costs, stock-based compensation and other related costs as a result of an increase in research and development personnel, $3.3 million in laboratory materials, supplies and reagents used for in-house research, $0.8 million related to the expansion of facilities and maintenance, and $0.8 million in professional and consulting fees.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the periods indicated:

 

     Year Ended December 31,                
     2019      2020      $ Change      % Change  
            (in thousands)                

General and administrative expenses

   $ 2,286      $ 6,287      $ 4,001        175.0

General and administrative expenses increased by $4.0 million, or 175.0%, from the year ended December 31, 2019 to the year ended December 31, 2020. The increase was primarily due to a $3.0 million increase in employee compensation costs, stock-based compensation and other related costs, as a result of both converting consultants to full-time employees and an increase in personnel. Other increases include $0.5 million in professional and consulting fees related to accounting and audit services and corporate legal matters.

Liquidity and Capital Resources

Since we were incorporated in 2016, we have devoted substantially all of our resources to research and product development activities, initiating our commercialization plans, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, building our commercial infrastructure and providing general and administrative support for these activities. Since our incorporation, we have not generated any revenues from product sales and have incurred significant operating losses and negative cash flows from operations. Our operations have been funded primarily through the sale and issuance of convertible preferred stock and convertible promissory notes since inception. We expect to continue to incur significant and increasing losses and do not expect positive cash flows from operations for the foreseeable future, and our net losses may fluctuate significantly from period to period, depending on the timing of and expenditures on our planned commercialization and research and development activities. In particular, we expect to incur increasing costs in the near term in connection with the commercial launch of our G4 Integrated Solution, which will include, among others, increasing our sales and marketing and other commercialization efforts to drive market adoption of our G4 Integrated Solution and scaling up our manufacturing and customer support capabilities. During the year ended December 31, 2020, we incurred a net loss of $27.9 million and used $24.9 million of cash in operations. During the three months ended March 31, 2021, we incurred a net loss of $23.9 million and used $9.2 million of cash operations. As of March 31, 2021, we had an accumulated deficit of $77.0 million. As of March 31, 2021, we had cash and cash equivalents and short-term investments totaling, in aggregate, $150.1 million.

Based upon our current operating plan, we believe our existing cash, cash equivalents and investments will enable us to fund our operating expenses and capital expenditure requirements through at least the next twelve

 

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months from the date of this prospectus. We have based our estimate of capital requirements on assumptions that may prove to be incorrect and as we continue to face challenges and uncertainties, our available capital resources may be consumed more rapidly than currently expected due to a variety of factors, including: (i) delays in execution of or a significant expansion of our commercialization plans; (ii) changes we may make to the business that affect ongoing operating expenses; (iii) changes we may make in our business or commercialization strategy; (iv) changes we may make in our research and development spending plans; (v) actions taken by our competitors; (vi) the impact of the COVID-19 pandemic; and (vii) other items affecting our forecasted level of expenditures and use of cash resources including potential acquisitions. See the section titled “Risk Factors.”

We may need to seek additional financing in the future to support our operations, research and development activities and commercialization plans. If we are not able to generate sufficient revenue to finance our cash requirements or raise additional capital or enter into financing agreements or arrangements when required on favorable terms, or at all, we may have to delay, reduce the scope of, or discontinue one or more development programs, delay potential commercialization or reduce the scope of sales or marketing activities, and pursue other cost cutting measures, including the reduction of headcount, scope of operations, and planned capital expenditures, which may have a material adverse effect on our business, results of operations, financial condition and/or ability to fund our scheduled obligations on a timely basis, or continue as a going concern. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities or that, if we achieve profitability, we will be able to sustain it.

Cash Flows

The following table presents a summary of our cash flows for the periods indicated:

 

     Year Ended
December 31,
    Three Months
Ended March 31,
 
     2019     2020     2020     2021  
     (in thousands)    

(unaudited)

(in thousands)

 

Net cash provided by (used in)

        

Operating activities

   $ (11,399   $ (24,873   $ (4,709   $ (9,185

Investing activities

     (31,500     24,005       2,396       (90,461

Financing activities

     47,304       7,515       7,510       133,484  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in cash and cash equivalents

   $ 4,405     $ 6,647     $ 5,197     $ 33,838  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Activities

During the year ended December 31, 2020, cash used in operating activities was $24.9 million, attributable to a net loss of $27.9 million, partially offset by non-cash charges of $2.2 million and by a net change in our net operating assets and liabilities of $0.9 million. Non-cash charges primarily consisted of $1.1 million in stock-based compensation and $0.6 million of depreciation. The change in our net operating assets and liabilities was primarily due to increased accrued liabilities related to corporate bonuses of $1.2 million, partially offset by deposits related to a lease agreement of $0.3 million.

During the year ended December 31, 2019, cash used in operating activities was $11.4 million, attributable to a net loss of $12.3 million, partially offset by non-cash charges of $0.5 million and by a net change in our net operating assets and liabilities of $0.4 million. Non-cash charges primarily consisted of $0.4 million of depreciation and $0.2 million in stock-based compensation. The change in our net operating assets and liabilities was primarily due to increased accounts payable and accrued liabilities related to professional services and consulting costs of $0.5 million, partially offset by interest receivable related to short-term investments of $0.1 million.

 

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During the three months ended March 31, 2021, cash used in operating activities was $9.2 million, attributable to a net loss of $23.9 million, offset by non-cash charges of $15.1 million and by a net change in our net operating assets and liabilities of $0.3 million. Non-cash charges primarily consisted of $11.4 million change in fair value of the 2021 Notes and $2.2 million change in fair value of warrants and stock-based compensation expense of $1.1 million.

During the three months ended March 31, 2020, cash used in operating activities was $4.7 million, attributable to a net loss of $5.3 million, offset by non-cash charges of $0.4 million. Non-cash charges primarily consisted of stock-based compensation expense of $0.2 million and $0.1 million of depreciation.

Investing Activities

During the year ended December 31, 2020, cash provided by investing activities was $24.0 million, which related to maturities of available-for-sale securities of $31.5 million, net of purchases of $6.1 million, in addition to $1.4 million in payments for purchases of property and equipment.

During the year ended December 31, 2019, cash used in investing activities was $31.5 million, which related to purchases of available-for-sale securities of $42.7 million, net of proceeds from maturities of $12.0 million, in addition to $0.8 million in payments related to purchases of property and equipment.

During the three months ended March 31, 2021, cash used in investing activities was $90.5 million, which related to purchases of available-for-sale securities of $101.6 million, net of proceeds from maturities of $11.6 million, in addition to $0.5 million in payments related to purchases of property and equipment.

During the three months ended March 31, 2020, cash provided by investing activities was $2.4 million, which related to maturities of available-for-sale securities of $4.7 million, net of purchases of $2.1 million, in addition to $0.3 million in payments related to purchases of property and equipment.

Financing Activities

During the year ended December 31, 2020, cash provided by financing activities was $7.5 million, which was primarily related to proceeds from long-term debt.

During the year ended December 31, 2019, cash provided by financing activities was $47.3 million which primarily related to net proceeds of $44.8 million from the issuance and sale of shares of our Series B convertible preferred stock. Additionally, we received $2.5 million in gross proceeds from issuance of long-term debt.

During the three months ended March 31, 2021, cash provided by financing activities was $133.5 million, which was primarily related to proceeds from the 2021 Notes of $130.5 million and $3.0 million related to issuance of common stock.

During the three months ended March 31, 2020, cash provided by financing activities was $7.5 million, which was primarily related to proceeds from long-term debt.

Indebtedness

In November 2019, we entered into the Loan Agreement with Silicon Valley Bank (SVB) pursuant to which Silicon Valley Bank agreed to lend us up to $15 million in a series of term loans (the Loan). Contemporaneously, we borrowed $2.5 million in the first of three draw-downs available through September 30, 2021. The additional draws are at our discretion, but we are subject to penalties and fees if not fully drawn down. Simultaneously with the first draw-down, Silicon Valley Bank entered into the SVB warrant with us to purchase 32,289 shares of our Series B convertible preferred stock at an exercise price of $2.3228 per share. Pursuant to the terms of the Loan Agreement, the SVB warrant will be adjusted to increase the number of shares of our Series B convertible preferred stock exercisable pursuant to the SVB warrant if we elect to draw down additional funds under the Loan.

 

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In March 2020, we borrowed an additional $7.5 million as a second draw down related to the Loan and we adjusted the SVB warrant to increase the number of shares of our Series B convertible preferred stock exercisable pursuant to the SVB warrant by 96,867 shares at an exercise price of $2.3228 per share.

The outstanding balance of the Loan is due on the scheduled maturity date of September 1, 2023 (the Maturity Date). Payment on the Loan will be interest only through September 30, 2021, followed by 24 equal monthly payments of principal plus accrued interest commencing on October 1, 2021. The per annum interest rate for any outstanding Loan balance is the greater of (i) 0.65% above the Prime Rate or (ii) 5.90%. The interest rate as of December 31, 2019 and 2020 and March 31, 2021 was 5.90%. In addition, a final payment (Final Payment) equal to the original principal amount of each advance multiplied by 5.50% will be due on the Maturity Date.

We may prepay the borrowed amounts, provided that we will be obligated to pay a prepayment fee equal to (i) 3% of the outstanding principal balance of all draw-downs if the draw-downs are repaid prior to the first anniversary of the draw-down date, (ii) 2% of the outstanding principal balance of all draw-downs if the draw-downs are repaid on or after the first anniversary of the draw-down date but prior to the second anniversary of the draw-down date, and (iii) 1% of the outstanding principal balance of all draw-downs if the draw-downs are repaid on or after the second anniversary of the draw-down date but before the Maturity Date. Further, we are subject to a 1% unused line fee payable to Silicon Valley Bank related to the undrawn portion of the borrowing capacity on September 30, 2021 or, if applicable, upon prepayment.

Subject to certain limited exceptions, the covenants under the Loan Agreement limit our ability to or prohibit us to permit any of our subsidiaries to, as applicable, among other things: pay cash dividends, make other distributions or make certain other changes with respect to our shares of capital stock, effect certain changes in our business, management, ownership or business locations; enter into certain mergers and acquisitions with other companies; create, incur, assume, or be liable for any additional indebtedness, or create, incur, allow, or permit to exist any additional liens; make certain investments; and enter into transactions with our affiliates.

While we have not previously breached and are currently in compliance with the covenants contained in the Loan Agreement, we may breach these covenants in the future. Our ability to comply with these covenants may be affected by events and factors beyond our control. In the event that we breach one or more covenants, Silicon Valley Bank may choose to declare an event of default and require that we immediately repay all amounts outstanding under the applicable loan agreement, terminate any commitment to extend further credit and foreclose on the collateral. The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations. An event of default includes, but is not limited to, the following: if we fail to make any payment under the Loan Agreement when due, if we fail or neglect to perform certain obligations under the Loan Agreement, if we violate certain covenants under the Loan Agreement, if certain material adverse changes occur, if we are unable to pay our debts as they become due or otherwise become insolvent, or if we begin an insolvency proceeding.

In February 2021, we issued the 2021 Notes to various investors, in the aggregate principal amount of $130.5 million. The 2021 Notes bear interest at 6% per annum and have a maturity date in February 2023, or earlier upon certain events of default. We cannot prepay the 2021 Notes, without the consent of the holders of a majority in interest of the outstanding 2021 Notes (the Majority Noteholders). The 2021 Notes shall automatically convert, upon the first of the following transactions to occur, into: (i) shares of our common stock upon a qualified initial public offering (IPO) or a qualified transaction with a Special Purpose Acquisition Company (SPAC); or (ii) shares of our convertible preferred stock in the event of a qualified equity financing in which we issue shares of convertible preferred stock. The 2021 Notes are also convertible into shares of our convertible preferred stock issued in a non-qualifying financing transaction upon the election of the Majority Noteholders. In each case, the 2021 Notes are convertible at a conversion price equal to the lessor of (i) a per share price equal to 80% of the per share price paid by the new investors in such financing, IPO or SPAC transaction or (ii) a per share price equal to the price per share obtained by dividing $1.5 billion by the fully-

 

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diluted capitalization of our Company (the Valuation Cap). In the event of a change of control, each note holder can elect to either receive an amount equal to two times the outstanding principal and interest on such holder’s 2021 Note or convert the 2021 Note into shares of our common stock at the Valuation Cap.

Off-Balance Sheet Arrangements

During the periods presented we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules.

JOBS Act

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act. We will remain an emerging growth company until the earliest to occur of: (i) the last day of the fiscal year in which we have more than $1.07 billion in annual gross revenue; (ii) the date we qualify as a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, with at least $700 million of equity securities held by non-affiliates; (iii) the issuance, in any three-year period, by us of more than $1.0 billion in non-convertible debt securities; or (iv) the last day of the fiscal year ending after the fifth anniversary of our initial public offering. As a result of this status, we have taken advantage of certain exemptions from various reporting requirements in this prospectus that are applicable to other publicly-traded entities that are not emerging growth companies and may elect to take advantage of other exemptions from reporting requirements in our future filings with the SEC. In particular, in this prospectus, these exemptions include:

 

   

the option to present only two years of audited financial statements and only two years of Management’s Discussion and Analysis of Financial Condition and Results of Operations;

 

   

not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes Oxley Act;

 

   

not being required to submit certain executive compensation matters to stockholder advisory votes, such as “say-on-pay,” “say-on-frequency,” and “say-on-golden parachutes;” and

 

   

not being required to disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation.

As a result, we do not know if some investors will find our common stock less attractive. The result may be a less active trading market for our common stock, and the price of our common stock may become more volatile.

In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to avail ourselves of this exemption and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for private companies. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenue and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under

 

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different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

While our significant accounting policies are described in Note 2 to our financial statements included elsewhere in this prospectus, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results.

Stock-Based Compensation

We account for stock-based compensation by measuring and recognizing compensation expense for all share-based awards made to employees and non-employees based on estimated grant-date fair values. We use the straight-line method to allocate compensation cost to reporting periods over the requisite service period, which is generally the vesting period. We recognize actual forfeitures by reducing the stock-based compensation in the same period as the forfeitures occur. We estimate the fair value of share-based awards to employees and non-employees using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of subjective assumptions, including fair value of common stock, expected term, expected volatility, risk-free interest rate and expected dividend yield, which are described in greater detail below.

Estimating the fair value of equity-settled awards as of the grant date using the Black-Scholes option pricing model is affected by assumptions regarding a number of complex variables. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. These inputs are as follows:

 

   

Fair value of common stock: There has been no public market for our common stock to date. The exercise prices of our grants were determined by our board of directors based in part on valuations of our common stock prepared by a third-party valuation specialist. In connection with the preparation of our financial statements for the year ended December 31, 2020 and the three months ended March 31, 2021, we performed a retrospective review of the fair value of our common stock related to the current events available. Based on this review, we recorded stock compensation as reflected in our financial statements.

 

   

Expected term: The expected term represents the average period that our options granted are expected to be outstanding and is determined using the simplified method (based on the mid-point between the weighted-average vesting date and the end of the contractual term). We have very limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for our stock option grants.

 

   

Expected volatility: Since we have been a privately-held company and have not had any trading history for our common stock, the expected volatility was estimated based on the historical average volatility for comparable publicly traded life sciences technology companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, life cycle stage, or area of specialty. We will continue to apply this process until enough historical information regarding the volatility of our own stock price becomes available.

 

   

Risk-free interest rate: The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the options.

 

   

Expected dividend yield: We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.

For options granted to non-employee consultants, the fair value of these options is also measured using the Black-Scholes option pricing model reflecting the same assumptions as applied to employee options in each of the reported periods, other than the expected term which is assumed to be the remaining contractual life of the option.

We will continue to use judgment in evaluating the expected volatility, expected terms, and interest rates utilized for our stock-based compensation calculations on a prospective basis. Assumptions we used in applying

 

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the Black-Scholes option pricing model to determine the estimated fair value of our stock options granted involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our equity-based compensation could be materially different.

See Note 11 to our financial statements included elsewhere in this prospectus for more information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options.

We recorded stock-based compensation expense of $0.2 million and $1.1 million for the years ended December 31, 2019 and 2020, respectively. We recorded stock-based compensation expense of $0.2 million and $1.1 million for the three months ended March 31, 2020 and 2021, respectively. As of March 31, 2021, there was $28.1 million of total unrecognized stock-based compensation expense related to unvested stock options, which we expect to recognize over a remaining weighted-average period of 1.76 years. We expect to continue to grant stock options and other equity-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase. The intrinsic value of all outstanding options as of March 31, 2021 was $71.5 million.

Fair Value of Common stock

Historically, for all periods prior to our initial public offering, the fair values of the shares of our Common stock underlying our share-based awards were determined by our board of directors with input from management and the assistance of an independent third-party valuation specialist. Given the previous absence of a public trading market of our common stock and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (the Practice Aid), in addition to the third-party valuations referenced above, our board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of our Common stock, including:

 

   

our stage of development and material risks related to our business;

 

   

our operating results and financial performance, including our levels of available capital resources;

 

   

the progress of our research and development efforts and business strategy;

 

   

the rights, preferences and privileges of our convertible preferred stock relative to those of our common stock;

 

   

the prices at which we sold shares of our convertible preferred stock to outside investors in arms-length transactions;

 

   

the lack of marketability of our common stock as a private company;

 

   

external market conditions affecting the life sciences technology industry and trends within the industry;

 

   

equity market conditions affecting comparable public companies; and

 

   

general U.S. market conditions.

In valuing our common stock, the fair value of our business, or enterprise value, was determined using various valuation methods, including combinations of income, market and asset approaches with input from management. The income approach determines value by using one or more methods that convert anticipated economic benefits into a present single amount. The application of the income approach establishes value by methods that discount or capitalize earnings or cash flow, by a discount or capitalization rate that reflects investors’ rate of return expectations, market conditions and the relative risk of the subject investment. The market approach involves identifying and evaluating comparable public companies and acquisition targets that operate in the same industry or which have similar operating characteristics as the subject company. From the

 

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comparable companies, publicly available information is used to extrapolate market-based valuation multiples that are applied to historical or prospective financial information in order to derive an indication of value. The asset approach determines the value of the underlying assets and liabilities of a business as a means of determining the value of the business in aggregate. This approach can include the value of both tangible and intangible assets.

The Practice Aid identifies various available methods for allocating enterprise value across classes and series of capital stock to determine the estimated fair value of common stock at each valuation date. In accordance with the Practice Aid, we considered the following methods:

 

   

Option Pricing Method (OPM). Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The estimated fair values of the convertible preferred stock and common stock are inferred by analyzing these options. This method is appropriate to use when the range of possible future outcomes is difficult to predict and thus creates highly speculative forecasts.

 

   

Probability-Weighted Expected Return Method (PWERM). The PWERM is a scenario-based analysis that estimates value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class. This method is generally most appropriate to use when the time to a liquidity event is short, making the range of possible future outcomes relatively easy to predict.

Based on our early stage of development and other relevant factors, we determined that an OPM was the most appropriate method for allocating our enterprise value to determine the estimated fair value of our common stock for valuations during 2019 and most of 2020.

Starting in December 2020 and through March 31, 2021, we used a hybrid method to determine the estimated fair value of our common stock, which included both the OPM and PWERM models.

Application of these approaches involves the use of estimates, judgment, and assumptions that are highly complex and subjective, such as those regarding our expected future revenue, expenses, and cash flows, discount rates, market multiples, the selection of comparable companies, and the probability of future events. Changes in any or all of these estimates and assumptions, or the relationships between those assumptions, impact our valuations as of each valuation date and may have a material impact on the valuation of common stock. The assumptions underlying these valuations represent our management’s best estimate, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

Following the closing of this offering, our board of directors will determine the fair market value of our common stock based on its closing price as reported on the date of grant on the primary stock exchange on which our common stock is traded.

2021 Notes

We elected to account for the 2021 Notes at fair value, as of the issuance date. Management believes that the fair value option better reflects the underlying economics of the 2021 Notes, which contain multiple embedded derivatives. Under the fair value election, changes in fair value are reported as “Change in fair value of convertible promissory notes” in the statements of operations in each reporting period subsequent to the issuance. We measured the fair value of the 2021 Notes using the probability weighted “as converted” plus black scholes model based on the inputs such as probability of IPO scenario vs. Non-IPO scenario, the estimated fair value of common stock price, discount yield, risk free rate, equity volatility, years expected term, number of converted shares and price negotiation adjustment for the calibration. We believe the fair value of the 2021 Notes is derived using assumptions that are consistent with the assumptions used to value our common stock and the warrant liability. In the future, depending on the valuation approaches used and the expected timing and weighting of

 

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each, the inputs described above, or other inputs, may have a greater or lesser impact on our estimates of fair value. For the three months ended March 31, 2021, we recognized $11.4 million of other expense in the statements of operations and comprehensive loss related to increases in the fair value of the 2021 Notes.

Recent Accounting Pronouncements

A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our financial statements included elsewhere in this prospectus.

Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks in the ordinary course of our business. These risks primarily include interest rate risk, foreign currency exchange rate risk and inflation risk as follows:

Interest Rate Risk

We had cash, cash equivalents and short-term investments of $26.9 million and $150.1 million as of December 31, 2020 and March 31, 2021, respectively, which came from private placements of our preferred stock and debt financing arrangements. The goals of our investment policy are liquidity and capital preservation and we do not enter into investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value of these assets as a result of changes in interest rates due to the short-term nature of our cash, cash equivalents and short-term investments. Additionally, the interest rate for borrowings under the Loan Agreement is variable. We believe a hypothetical 10% increase or decrease in interest rates during any of the periods presented would not have had a material impact on our financial statements included elsewhere in this prospectus.

Foreign Currency Exchange Risk

All of our employees and our operations are currently located in the United States and our expenses and payment obligations are denominated in and have been satisfied with U.S. dollars. There was no material foreign currency risk for the years ended December 31, 2019 and 2020 and the three months ended March 31, 2021. In the future, our sales may be denominated in foreign currencies and to the extent they are, we will be subject to foreign currency transaction gains or losses. To date, we have had no foreign currency transaction gains and losses, and we have not had a formal hedging program with respect to foreign currency. We believe a hypothetical 10% increase or decrease in exchange rates during any of the periods presented would not have a material effect on our financial statements included elsewhere in this prospectus.

Effects of Inflation

Inflation generally affects us by increasing our cost of labor and research, manufacturing and development costs. We believe that inflation has not had a material effect on our financial statements included elsewhere in this prospectus.

 

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BUSINESS

Our Mission

Our mission is to accelerate genomics for the advancement of science and medicine. The genomic tools and technologies developed over the last two decades since the first sequencing of the human genome have greatly improved our understanding of biology, empowered the development of novel therapies, and advanced clinical diagnostics. And yet the transformative potential of genomics is just starting to be realized. For example, in oncology, we are just at the beginning of an era in which cancer can be detected early, analyzed at the molecular level, treated with targeted therapies, and monitored through blood tests able to detect and profile minimal residual disease. Today’s sequencing technologies and products have made a significant impact, but real limitations remain to incorporate these tools into routine clinical practice: long analysis times, labor intensive protocols, sample batching requirements and high cost. We are developing fast, powerful, efficient, flexible sequencing platforms, along with novel applications and sample-to-result workflows to solve these challenges.

We believe the next generation of biological discovery and translational medicine will be powered by even more advanced molecular technologies. These technologies can enable a high resolution view of DNA, RNA and proteins in individual cells, along with their spatial arrangement. This multiomics view will enable greater insight into the function of both cells and tissues. We are building these new technologies by leveraging our core DNA sequencing engine as a universal detection method of biological information. We take advantage of the vast combinatorial range of DNA bases as a nature inspired barcode and combine it with powerful molecular biology techniques and the latest advances in high speed, high resolution imaging. Our goal is to unleash the full power of sequencing as a universal reader of biology, which we believe will ultimately open new frontiers in research and medicine.

Overview

We are a life science technology company that is leveraging novel NGS and multiomics technologies to build products that empower researchers and clinicians. We developed a unique and proprietary NGS technology, which we refer to as our Sequencing Engine. This Sequencing Engine is the foundational platform technology that forms the basis of our products in development and our core product tenets: accuracy, speed, flexibility and scale. We are currently developing two integrated solutions that are purpose built to target specific applications in which these core product tenets matter most. Our first integrated solution is targeted at the NGS market and comprises the G4 Instrument and an associated menu of consumable kits, which we refer to collectively as our G4 Integrated Solution. The G4 Instrument is a benchtop next generation sequencer designed to produce fast and accurate genetic sequencing results. The integrated purpose built kits that run on the G4 Instrument address specific applications in fast growing markets including oncology and immune profiling. We have completed our beta pilot program and anticipate initiating an early access program followed by a commercial launch of the G4 Integrated Solution by the end of 2021, with intentions for units to ship in the first half of 2022. Our second integrated solution in development comprises the PX Instrument and an associated menu of consumable kits, which we refer to collectively our PX Integrated Solution. Leveraging sequencing as a universal readout, the PX Integrated Solution combines single cell analysis, spatial analysis, genomics and proteomics in one integrated instrument providing a versatile multiomics solution. We anticipate commercial launch of the PX Integrated Solution in 2023.

The core of our Sequencing Engine is comprised of unique and proprietary chemistry, including novel chemical compounds, polymers and enzymes. This chemistry is designed to produce high sequencing accuracy and rapid cycle times that we believe can drive improvements in NGS. To take full advantage of the proprietary chemistry, we are developing purpose built instrumentation consisting of high speed, high resolution imaging and innovative fluidic design. We believe that our Sequencing Engine, together with our proprietary innovations in molecular biology techniques, will enable differentiated applications in fast growing markets. These innovations are supported by our intellectual property portfolio.

 

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Each of our two integrated solutions in development consists of an instrument that incorporates our Sequencing Engine and associated consumables that are used exclusively on each instrument. The G4 Integrated Solution is designed to target the NGS market, in particular, applications that require accuracy, speed, flexibility and scale. We are focused on oncology where there is an increasing need for higher sensitivity technology such as rare variant detection in liquid biopsy. Another area of focus is immunology where there is a need to better understand and harness the immune system in infectious disease, autoimmune disorders and cancer immunotherapy. We aim to execute a three step commercialization plan for our G4 Integrated Solution consisting of: (1) collaborating with select partners to conduct beta pilot tests, which we have completed, (2) expanding collaborations with additional potential customers in an early access program and (3) offering our G4 Integrated Solution broadly to the market, with commercial launch by the end of 2021 and shipping units in the first half of 2022.

The PX Integrated Solution is our second product in development and is a multiomics platform designed to target the markets for single cell, spatial analysis and proteomics. The PX Integrated Solution will leverage our Sequencing Engine as a readout mechanism to provide a high-resolution view of biology at the single cell and tissue level. We believe the PX Integrated Solution, when launched, will be a high-throughput, versatile platform capable of measuring levels of RNA transcription, protein expression and sequence specific information directly in cells and tissues. We believe the PX Integrated Solution will have broad application across many areas of biology. We are initially focused on applications in oncology and immunology, with future expansion into other applications such as neurology. We are currently in an advanced prototype development stage for the PX Integrated Solution and expect to begin an early access program in 2022 and full commercial launch in 2023. We believe that our G4 and PX Integrated Solutions can unleash the full power of sequencing as a universal reader of biology, and open new frontiers in research and medicine.

Background

Nature has evolved an elegant solution where four nucleotides – adenine (A), cytosine (C), guanine (G), thymine (T) – form the primary code upon which all of life and biologic diversity is built. NGS directly reads the four nucleotides (or DNA bases) and thus can read out a limitless number of possible sequences. This is in contrast to alternative genetic detection technologies that require a priori knowledge of the DNA sequence of interest, such as DNA microarrays, targeted probe hybridization and polymerase chain reaction (PCR). These technologies require prior knowledge of the sequence of a DNA target, and in many cases are also limited by detection with a small number of fluorescent dyes. The capability of NGS to read the vast combinatorial repertoire of DNA, even without prior knowledge of the DNA target, makes it a uniquely powerful platform technology and universal detection method to read and interrogate biology. Beyond reading genomic DNA and RNA, the combination of NGS and designed DNA probes attached to antibodies introduce a wide range of multiomics applications, including imaging and measuring gene transcription and protein expression in individual cells and tissue pathology samples.

NGS has been a transformational technology for the life sciences industry and has been critical to ushering in the genomics age and accelerating our understanding of biology. Since its introduction in the mid-2000s, NGS technology has advanced greatly, which has increased the power of the technology and enabled its broad adoption by the life sciences community. The first NGS platform in the mid-2000s enabled a 50,000-fold drop in cost of sequencing the human genome as compared to the initial first genome sequenced as part of the Human Genome Project at a cost of $300 million. By 2015, the cost of sequencing a human genome reached $1,000 (at ~30X coverage, to achieve sufficient accuracy). Over the last six years, there have been additional improvements in technology and further reduction in cost. Additionally, the range of applications for sequencing has been greatly expanded by the genomics community. This has catalyzed the creation of large markets across both research and clinical applications and a flourishing genomics ecosystem that leverages NGS technology.

We believe that NGS can serve as an extremely versatile molecular tool in biology, extending well beyond its current applications. Today, NGS is used to sequence DNA and RNA to identify inherited and acquired mutations, measure gene expression by counting RNA transcripts, detect and identify pathogens, and when combined with certain sample preparation techniques, determine the epigenetic state of the DNA.                

 

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While modern NGS instruments are complex, the most widely adopted NGS technologies today consist of the following steps or elements:

 

   

Library preparation: Before loading the sample into a sequencer, the user must prepare a sequencing library. This involves preparing a sample of the target DNA or RNA for sequencing by using a few common molecular biology steps to ensure that the genetic input material can be converted into a form that is compatible with the sequencing instrument.

 

   

Flow cell: Following sample preparation, the resulting sample library is loaded onto a sequencer. From there, the libraries are automatically loaded onto a flow cell. The flow cell incorporates microfluidic channels and nanoscale patterned wells. The template DNA is immobilized and fixed onto the flow cell. Afterwards, the next two steps of the sequencing process occur on the flow cell, which include cluster amplification and the sequencing chemistry. The flow cell enables fluid reagents to be exchanged and flushed away to catalyze the cluster formation and the sequencing chemistry. Flow cells are designed to provide specific levels of throughput or number of reads. The flow cell is disposable and discarded following each run.

 

   

Cluster amplification: In order for the small amounts of starting genetic material to be detected by a NGS instrument, or sequencer, it must be amplified (copied). This process is called cluster amplification and it involves replication of each DNA strand on the flow cell. This creates a population of clonal DNA molecules (clusters) that are copies of the original template strands and are more easily read by the sequencer.

 

   

Sequencing chemistry: At their core, modern next generation sequencers rely on chemical processes to enable the target genetic material to be read by a sequencer. The most widely used NGS chemistry methodology today is sequencing-by-synthesis (SBS). This method involves a chemical process by which a DNA polymerase copies the target strand of DNA by adding a single nucleotide base one-by-one. These nucleotides can be modified with a marker that creates a signal when the nucleotide is incorporated along the strand. This marker can be a fluorophore, for example, which emits a color, or it can be a change in ionic concentration that can identify the incorporation of a nucleotide into the elongating strand. This signal can then be read by a detector within the sequencer. Throughout this process, chemically modified nucleotides are used to ensure that only one base at a time can be incorporated by the DNA polymerase during each sequencing cycle. Then once the identity of the new incorporated base has been read, the process of nucleotide addition is restarted and the next subsequent base is incorporated and read and so forth until the desired read length has been completed.

 

   

Paired end reads: This capability allows the instrument to sequence from both ends of the DNA fragment and can double the number of reads of a sequencing run for the same amount of genetic input material. This technology can (1) enable longer reads, which allows for more efficient mapping and detection of gene rearrangements for better genome assembly; (2) overlap reads for higher quality data; (3) support single cell genomics and other barcode enabled applications; and (4) enable the ability to detect indels, and inversions. Many NGS instruments today cannot address certain markets because of their lack of paired end capability.

 

   

Detection technology: The detection technology is responsible for reading the output of the sequencing chemistry process to detect the four individual bases of the DNA. The most commonly used detection technology today is optical imaging of fluorescence. This technology detects the colors emitted by different fluorophores associated with each of the bases as they are incorporated into the extended DNA strand.

 

   

Software analysis: The resulting data comes out of the sequencer in a standardized format and is then collected, organized and analyzed through software. There are a wide variety of commercially available software analytics platforms available from third parties as well as tailored solutions developed by NGS customers themselves.

 

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LOGO

Despite the advances that NGS has enabled in the genomics space, we believe the power of sequencing has not been fully realized and that innovation across the core elements of a sequencer can drive further improvement in the technology. For example, optimizing and speeding up the chemistry process or using faster imaging technology could lead to more accurate and faster results. Combined with innovations in molecular biology that span library prep through sequencing, we believe there is a need to offer purpose built genomics solutions targeting unmet needs in fast growing markets.

Furthermore, we believe that sequencing can be extended beyond genomics and leveraged as a multiomics reader of biology. Our envisioned applications include genomics, epigenetics, transcriptomics, and proteomics within millions of individual cells as well as in the spatial context of tissue, and associating cellular phenotype with genotype.

Our Foundational Technology

We have developed a novel and proprietary Sequencing Engine that is a foundational technology for our products in development. The core of our Sequencing Engine is a unique and proprietary chemistry that enables high sequencing accuracy and rapid cycle times that we believe can drive improvements in NGS technology and enable performance of highly accurate and massively parallel sequencing at speed. Our aim is to develop products that employ this engine and that both improve NGS technology, and deploy it into new applications beyond where it is being used today. We are leveraging our Sequencing Engine for the development of our first two integrated solutions, the G4 Integrated Solution and the PX Integrated Solution. We aim to deploy our foundational technology as a universal reader of biology, which can ultimately open new frontiers in research and medicine.

We built our Sequencing Engine from the ground up, and it incorporates the following innovations:

 

   

Cluster amplification: We have developed an optimized cluster amplification method that is designed to ensure generation of high quality and high density clusters with minimal sequence bias and high signal-to-background ratios. This enables high accuracy sequencing regardless of the type of genetic input material.

 

   

Paired end reads: We are developing a novel method to achieve an accurate paired end equivalent. We believe our method will be fast and efficient with reagent usage, while still providing the critical value of efficient mapping and detection of gene rearrangements, higher quality data or single cell genomics.

 

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Sequencing chemistry: We have recognized that chemistry has historically been a particularly challenging area to improve in the sequencing process. Therefore, we developed a new and proprietary sequencing chemistry. This chemistry includes novel enzymes and nucleotides. We have also designed and synthesized our own dyes to optimize performance. This new and proprietary chemistry enables fast sequencing cycle times.

 

   

Detection technology: We have developed a proprietary high speed and high resolution imaging system. The imaging system has been designed to optimize throughput, cycle time, accuracy and efficiency.

While the above comprises the technology used in our Sequencing Engine, we also incorporate additional technologies into our G4 Instrument and PX Instrument. For example, our G4 Instrument includes a unique flow cell design to improve workflow flexibility for the user and our PX Instrument includes a well-plate format intended to push the boundaries of throughput for both single cell and spatial analysis applications.

We believe our Sequencing Engine imparts the following unique capabilities to our products, which are the core tenets for each of our products in development:

 

   

High accuracy: Our Sequencing Engine is designed to provide high accuracy for each base detected during sequencing for reliable data generation. Currently, we can demonstrate accuracy of 99.7% on 150 base reads. This corresponds to Q30 quality scores on greater than 70% of base calls. As we continue to optimize our technology, we are targeting Q30 for greater than 80% of base calls for 150 base reads.

 

   

Speed: We are targeting a 2.5 minute cycle time for each base sequenced, supporting fast sequencing runs. We expect that this will give us a sequencing time of approximately 16 hours to complete a 2x150 base run. For other run modes such as RNA-Seq, we are targeting run times of approximately 5 hours. In our two beta pilot tests, our third-party external partners demonstrated a 4.0 minute cycle time. In our experiments, we have previously demonstrated high quality sequencing with a 2.7 minute cycle time on our previous prototype. We are optimizing to achieve a 2.5 minute cycle time. We anticipate that future versions of our chemistry will allow us to continue to reduce the cycle time even further. This is a key element that enables our technology to deliver results quickly. Speed also gives our instruments the capacity for higher throughput by enabling multiple runs in a day.

 

   

Flexibility: Our Sequencing Engine is designed to be flexible and deployed into different integrated solutions across a variety of markets. In the context of our G4 Integrated Solution, flexibility includes the ability to run 1 to 4 independent flow cells concurrently. In addition, each flow cell has 4 individually addressable lanes that allow for samples to be run independently.

 

   

Scale: Our Sequencing Engine is built to provide the throughput needed for widely run research and clinical applications. The G4 Integrated Solution is designed to address a wide range of sequencing applications requiring scalable throughput including targeted cancer gene panels, deep sequencing for rare variant detection in liquid biopsy, high depth exome and high resolution whole genome. The PX Instrument is designed to provide scale at three levels: (1) number of samples, (2) number of cells per sample and (3) depth of multiomics information.

Our Integrated Solutions

Our product development pipeline comprises two initial integrated solutions, each designed to leverage our Sequencing Engine and purpose built to address different applications. Our G4 Integrated Solution is designed to target the NGS market. Our PX Integrated Solution is designed to target the single cell, spatial analysis and proteomics markets. Each integrated solution consists of an instrument that incorporates our Sequencing Engine and associated consumables that are used exclusively on each instrument.

 

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LOGO

G4 Integrated Solution

We surveyed numerous labs and KOLs while developing our G4 Integrated Solution to listen to their needs and to identify the limitations of current solutions. In parallel, we engineered an instrument around our Sequencing Engine to address those real-world needs. Our G4 Integrated Solution is designed to seamlessly fit into existing workflows, including library preparation and bioinformatics. It is also designed to provide flexibility in terms of sample batching and number of flow cells in a sequencing run. We believe this design will enable customers to better manage a wide range of daily sample volume demands without sacrificing turnaround times or incurring extra expenses from inefficient reagent kit use. We are targeting applications for which we believe accuracy, speed, flexibility and scale matter, and where our novel molecular biology methods offer unique advantages. We have nearly completed development of our G4 Integrated Solution and are pursuing a three-step commercialization plan consisting of: (1) collaborating with select partners to conduct beta pilot tests, which we have completed, (2) expanding collaborations with additional potential customers in an early access program and (3) offering our G4 Integrated Solution broadly to the market with commercial launch. We expect commercial launch by the end of 2021 with intentions for shipping units in the first half of 2022.

The G4 Instrument

Our G4 Instrument incorporates our Sequencing Engine and its underlying chemistry and optical detection technology. We engineered the G4 Instrument to allow using multiple flow cells to enable customers to scale their daily output needs by running between one to four flow cells in parallel on one instrument. Our flow cells are designed to allow further flexibility with four independent lanes on each flow cell. This allows users to keep samples physically separated and avoid potential carry-over or misinterpretation among samples. In research settings, such as core labs, different projects can be run in different lanes on the flow cell, avoiding potential incompatibilities in barcodes or library preparation. By reducing the need to batch samples or combine projects, the design should minimize errors and inefficiencies in process and costs. We anticipate that these improvements coupled with fast sequencing cycle times can lead to single-day turnaround times and high daily max data output, which we believe will have a significant impact on delivery of timely results in clinically relevant applications.

Consumables supporting our G4 Instrument

We plan to commercialize our G4 Instrument with proprietary associated consumables that will support our broad range of research and clinical applications. Our G4 Integrated Solution is designed to support library prep, target enrichment, cluster amplification and sequencing. For example, one of our sequencing kits will be a Rapid

 

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Seq kit where the sequencing time will be approximately 5 hours for a 50-75 base run for short read applications such as RNA-Seq. We also intend to offer commercially available library preparation kits through third-party partners to allow customers to perform important applications within NGS including, among others: (1) whole genome sequencing, (2) whole exome sequencing, (3) targeted panels, (4) epigenetics and (5) methylation studies. Our G4 Instrument is designed to return standardized data formats and to be compatible with a wide variety of commercially available and customer developed bioinformatics platforms.

 

LOGO

Capabilities of the G4 Integrated Solution

We believe there are several key criteria that have determined the commercial success of sequencers, including accuracy, speed, flexibility and scale. In addition, read length and the ability to sequence DNA from both ends of the fragment, commonly referred to as paired end sequencing, are important factors. We designed the G4 Integrated Solution to have the following characteristics to address these key criteria:

 

   

High Accuracy: Sequencing accuracy is critical to correctly determining the order of bases present in DNA. Errors can be introduced in the sequencing process itself, or in the upstream steps involved in sample processing and library preparation. In some cases, inaccuracies can be overcome by multiple coverage of the DNA of interest and determining the consensus sequence. For example, human genomes are typically sequenced at a coverage depth of at least 30-fold, to obtain a sufficiently accurate consensus sequence for the approximately 3 billion bases in the genome. Accuracy can be particularly important in applications that analyze acquired mutations (somatic mutations) where the DNA sequence deviates from the germline genome. If the frequency of the mutation is in the same range or lower than the frequency of the error rate, it will be difficult or even impossible to identify the target amongst the errors, or noise. Lower accuracy can cause challenges for identifying rare DNA mutations. In cancer and immunology, the presence of a rare mutation or rare clone may be clinically relevant and impact the diagnosis and treatment decision. Accuracy is also particularly important for liquid biopsy applications, for which the presence of a target is typically very limited amongst the other genetic material present in blood. Widely adopted approaches to deal with accuracy limitations involve labeling target DNA with unique molecular identifiers (UMI’s) and making multiple copies of these labeled molecules. This approach requires sequencing greater number of reads and/or sequencing a smaller number of unique genomic regions. This is a brute force approach and can be costly and inefficient, so there is a strong motivation for using sequencing platforms that provide inherent high accuracy. Base calling accuracy, measured by the Q score, is the most common metric used to assess the accuracy of a sequencing platform. It indicates the probability that a given base is called correctly by the sequencer. We believe that a sequencer must have at least Q30 accuracy (i.e., 1 in 1000

 

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probability of calling a base incorrectly) to be commercially successful. In internal testing, we have demonstrated Q30 accuracy on greater than 70% of base calls. This gives a demonstrated accuracy of 99.7% on 150 base reads. In our two beta pilot tests, our third-party external partners demonstrated Q30 or higher accuracy of greater than 70% of base calls. One third-party external partner conducted standard RNA sequencing, and the other conducted testing with single-cell RNA sequencing using paired-end reads consistent with the methods it currently uses. In both cases, the gene expression levels measured by these third-parties in their tests utilizing our G4 Integrated Solution correlated strongly to the independent reference data these third-parties generated with their current commercially available sequencing methods. For our commercial G4 Instrument, we are targeting Q30 for greater than 80% of base calls for 150 base reads, which we believe we can achieve through continually optimizing multiple parameters in clustering, sequencing, imaging and signal processing. Additionally, we have demonstrated uniform G/C coverage over the range of 20-70% G/C content. We believe this high accuracy is competitive with what customers are accustomed to with current sequencing solutions.

 

   

Speed of Sequencing: Dramatically decreasing the chemistry time needed for each base to be detected means that the overall sequencing time can be significantly faster, resulting in more samples being run in a day on a given platform. This translates to researchers being able to perform more science in a given period. We also believe speed is critical in clinical settings where turnaround time is important to drive patient treatment programs. The speed of sequencing can be measured in multiple ways. Cycle time is the measurement of time needed to add one nucleotide, image and prepare the elongating strand for the next nucleotide and the start of the next sequencing cycle. We are targeting a 2.5 minute cycle time for each base sequenced, which we believe we can achieve through ongoing upgrades to the G4 Instrument’s optical system, which will allow for faster imaging. We expect that this will give us a sequencing time of approximately 16 hours to complete a 2x150 base run. For other run modes such as RNA-Seq, we are targeting run times of approximately 5 hours. Currently, we are running a 4.0 minute cycle time, with previous demonstration of high quality sequencing with a 2.7 minute cycle time on our previous prototype. In our two beta pilot tests, our third-party external partners demonstrated a 4.0 minute cycle time. We anticipate that future versions of our chemistry will allow us to reduce the cycle time even further. Speed also gives our G4 Instrument the capacity for higher throughput as our fast runtime will facilitate the possibility of processing multiple runs in a day.

 

   

High, independent, flexible throughput: Every sequencing run requires reagents and disposable parts, including flow cells. To save costs, widely adopted approaches involve maximizing the number of samples, or sample libraries run in the experiment, which is a technique called batching or pooling. The requirement to batch, or pool experiments together in order to take advantage of the lowest sequencing cost introduces performance and timing issues and inconveniences in the sequencing process. First, batching can result in lower sequencing performance due to incorporating different types of samples or libraries that do not cluster or sequence well together. Examples of challenges introduced with batching include barcode hopping, uneven sequencing coverage requirements for each sample and losing data from multiple projects with a sequencing failure. Batching also results in longer turnaround times as labs are forced to wait for the arrival of an appropriate number of experiments to run together in a sequencing run. Our G4 Integrated Solution has flow cells with independent lanes, enabling libraries to be kept separate in each lane while still retaining high throughput capacity. We believe this allows for easier and more convenient processing of samples, thus enabling the G4 Integrated Solution to cover a wide range of throughput requirements. Alternative sequencing technologies that do not have this flexibility in throughput may require customers with different volume requirements across different experiments to have multiple instruments in their lab or encounter a slow turnaround time with a backlog of projects. In internal testing, we have demonstrated the capability to produce 150 million reads per flow cell. In our two beta pilot tests, our third-party external partners demonstrated average throughput of greater than 150 million reads per flow cell for single-end reads, and an average throughput of greater than 100 million reads for paired-end reads. If all four flow cells are utilized in a sequencing run and with a full read length of 150 bases, our G4 Integrated Solution can generate 600 million reads per sequencing run. We are targeting 330 million reads per flow cell at commercial launch for a total of 1,320 million reads if

 

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all four flow cells were utilized in a sequencing run, which we believe we can achieve through ongoing upgrades to the G4 Instrument’s optical system, which will allow for higher resolution imaging and cluster density.

 

   

Paired end equivalent sequencing: In some applications, users value the ability to perform paired end reads and tune the system to different read lengths. Paired end sequencing is a technique involving reading from both ends of DNA fragments. This technology can (1) enable longer reads, which allows for more efficient mapping and detection of gene rearrangements for better genome assembly; (2) overlap reads for higher quality data; (3) support single cell genomics and other barcode enabled applications; and (4) enable the ability to detect indels and inversions. We are developing and plan to offer a novel way to achieve paired end equivalent sequencing such as 2x150. We believe that this is just the starting point of our capabilities for paired end equivalent sequencing and that we will be able to improve this metric further as our technology develops.

 

   

Read lengths: We are developing kits with read lengths of 50 bases to 150 bases. We also plan to extend read length beyond 150 bases in our G4 Integrated Solution with SLR kits.

 

   

Workflow: We have designed our G4 Integrated Solution for customers to efficiently switch to our products and platform as the upstream workflow and downstream analysis will be compatible with current NGS processes.

Our reported sequencing performance was measured in multiple internal experiments, run on our G4 Instrument. Sequencing libraries were prepared from human DNA, as well as bacterial DNA, following standard protocols and using our custom DNA adapters. The libraries were sequenced on the G4 Instrument, using our custom sequencing kits. The results were analyzed using standard bioinformatics analysis, where the sequenced reads are aligned and compared to the reference genome to determine accuracy. Q-scores represent the prospective confidence in the base calls, and are derived based on empirical accuracy data developed in training runs.

 

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This figure displays the current sequencing performance of our core Sequencing Engine with a demonstrated accuracy of 99.7% on 150 base reads (Q30 on greater than 70% of base calls) with a throughput of 153M reads per flow cell. We are targeting sequencing performance of Q30 on greater than 80% of base calls for 150 base reads and 330M reads per flow cell.

 

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Applications for the G4 Integrated Solution

We believe that our G4 Integrated Solution has broad potential application across research and clinical markets. While we believe that the G4 Integrated Solution will be able to run a wide variety of available sequencing applications that are currently available on the market today, we specifically designed our G4 Integrated Solution to excel with applications that benefit from accuracy, speed, flexibility and scale. Our initial targeted applications for our G4 Integrated Solution include rare variant detection with HD-Seq and SLR. These applications target large markets across oncology, including liquid biopsy detection of cfDNA and immunology.

Rare variant detection with HD-Seq

We designed our G4 Integrated Solution to support HD-Seq, a unique library prep kit and sequencing method for double-stranded DNA, which we are designing to provide higher accuracy than standard single-strand NGS sequencing methods (including ours), and is expected to enable rare variant detection with higher efficiency and lower costs. HD-Seq is intended to achieve accuracy levels of Q50, which can help differentiate a real mutation from random errors. In NGS, errors are often generated in the sample DNA during the amplification step that occurs during both library prep and the sequencing process. These technical errors become a concern when the expected frequency of the mutation is at the same or lower frequency as the error rate. This can make it very difficult to correctly identify whether the called mutation is a technical error or a real mutation. Today, this challenge is typically addressed by a brute force approach, using unique molecular identifiers (UMIs) or duplex sequencing, a method that employs tagging each double-stranded DNA with a UMI (for a total of two UMIs for each DNA fragment) to detect mutations with higher accuracy and lower error rates. These single- and duplex UMI-based sequencing methods require deep sequencing to read multiple copies of DNA associated with each UMI, and form a more accurate consensus sequence. Furthermore, duplex sequencing (with two UMIs) requires additional sequencing to find the matched pair in order to achieve the highest accuracy with consensus of both the matched strands in addition to the UMI groupings. Today, the typical way to get higher level of accuracy with NGS data is through these costly and highly inefficient methods. Our HD-Seq library prep workflow is designed to carry the cfDNA or DNA from tissue through the entire process of DNA capture and amplification, and is integrated into how we sequence on the surface of the flow cell while maintaining the integrity of the duplex DNA. In internal testing, we have demonstrated 99.99% accuracy for 100 base reads with our current methodology, and we anticipate that we will be able to reach 99.999% accuracy for greater than 100 base reads. Our internal testing involved using commercial reference materials for cfDNA. The average fragment size of the starting material was 177bp. We prepared sequencing libraries using our HD-Seq methodology, including adapter ligation, amplification by Polymerase Chain Reaction (PCR) and targeted capture using a commercially available panel. We then clustered and sequenced the double-stranded DNA library, with bi-directional readout of 100 bases in one direction (Read 1), and 150 bases in the other direction (Read 2). To assess the improvement in accuracy, we examined the overlapped region of 100 bases. For HD-Seq, the base call was only made if there was agreement in the corresponding base calls between the complementary strands (i.e., Reads 1 and 2). Relative to reference, the consensus accuracy of the HD-Seq base calls (Read 1 + Read 2) was 99.99%. Compared to the uncorrected accuracy of the single-strand Reads 1 and 2 (99.6% average), the HD-Seq method results in approximately a 40X reduction in error rate. A low error rate is required for detection of rare single-nucleotide polymorphisms, and has particular relevance to tissue biopsy and liquid biopsy in cancer.

 

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*Source: cfDNA library, 100 + 150 paired-end reads. Read 1 and Read 2 refer to the two sequencing reads that together comprise the HD-Seq readout of the two complementary strands of the DNA molecule.

We believe this capability for significantly enhanced accuracy will be particularly important in applications where there is a rare variant among a background of normal, such as oncology.

Oncology: Accuracy is especially important in oncology for the detection of somatic mutations. It is also critical in liquid biopsy where the frequency of mutations in a sample is extremely low. Today, researchers handle the NGS accuracy limitations by deep sequencing a small number of targets which is both very costly and highly inefficient. As the field continues to move towards liquid biopsy especially for early cancer screening, for which the frequency of mutations is very low, we believe there will be an even greater need for higher sensitivity technologies. With the accuracy that our HD-Seq could provide, we anticipate that customers will be able to achieve higher accuracy in a cost-effective manner relative to other commercially available technologies.

Synthetic long reads (SLR)

We also plan to offer proprietary specialized library prep kits for targeted SLR, which we expect to facilitate reads of up to 2,000 to 3,000 base pairs using our G4 Integrated Solution. We have currently demonstrated approximately 450 base reads with B cells for VDJ sequencing. We expect this to be a key capability for applications requiring long sequencing reads, such as immunology.

Immunology: A better understanding of how the immune system functions can improve treatment of infectious diseases, autoimmune diseases, allergic reactions as well as cancer. We believe that our G4 Integrated Solution will be able to deliver the throughput, accuracy and read lengths required to support comprehensive analysis of the immune system, especially the adaptive immune response which consists of B and T cells. The B and T cells of the adaptive immune system enable us to fight off infections. While most cells in the human body carry the same genome, B and T cells have a wide genetic diversity that results in a repertoire of millions of unique antibodies and T cell receptors. The genes that carry this diversity correspond to the heavy and light chains of antibodies, and the alpha and beta chains of T cell receptors. Longer reads can be helpful in decoding the full sequences. For example, the heavy chain is encoded by approximately 450 bases in the VDJ region, which requires longer reads than offered by typical NGS methods. For therapeutic development of antibodies, the heavy and light chains are often fused together in phage display libraries. These require even longer reads of greater than 800 bases to fully characterize. We believe that a high throughput, high accuracy, cost effective solution for reading these longer gene sequences can advance the understanding of the immune system and ultimately improve the diagnosis and monitoring of blood cancers, provide new

 

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insights into immunotherapy for cancer, facilitate therapeutic antibody and T cell discovery, and accelerate the development of vaccines for infectious disease.

Expansion of the G4 Integrated Solution

We anticipate that there will be customers who have high volumes who will still need the flexibility to batch less while still maintaining high throughput. Examples of these types of customers would include:

 

   

Laboratories that do not want to batch together hundreds or thousands of samples onto one sequencing flow cell because of the risk that one failure might ruin data from all samples in the run; or

 

   

Laboratories with high sample volumes of diverse sample types and/or run modes which would make it difficult to combine those samples together on one sequencing flow cell.

For these specific types of customers, which include commercial laboratories and academic laboratories, we plan to offer an expansion of our G4 Instrument in a configuration that we have named the G4x4. This special four instrument configuration will be designed to address a different part of the NGS market for those needing high sequencing output while maintaining speed and flexibility of the G4 Integrated Solution.

PX Integrated Solution

Our PX Integrated Solution is focused on the single cell and spatial analysis markets and consists of our PX Instrument and associated consumables. The PX Instrument leverages our Sequencing Engine to enable multiomics analysis of single cells and tissues as both a universal detection method and in situ sequencing. Importantly, the PX Instrument is designed to provide high throughput analysis of nucleic acids and proteins, while also generating high resolution images of cellular morphology to enable computer-vision based analysis of cellular phenotype. This design reflects an appreciation of the tremendous potential for machine learning based image analysis to serve as a rich source of biomarker information for cancer and autoimmune disease translational research. We believe our PX Integrated Solution will eliminate the need for customers to employ multiple systems over several day workflows, which is required by existing commercial methods. Ultimately, we believe this will enable researchers to perform large scale experiments that may fundamentally advance our understanding of biology, and, in turn, advance human health. We are currently in an advanced prototype development stage and expect to begin an early access program in 2022, with full commercial launch in 2023 through a targeted and phased commercial strategy similar to the strategy for launching our G4 Integrated Solution. We anticipate being able to cross-market our PX Integrated Solution to customers of our G4 Integrated Solution.

The PX Instrument

Our PX Instrument is an integrated multiomics platform that combines novel methods for single cell and spatial analysis, with high resolution imaging, genomics and proteomics detection capability. The PX Instrument leverages our core Sequencing Engine for both a universal detection method and in situ sequencing and is designed to bring scale and high throughput to single cell and spatial analysis applications.

We expect to target our PX Instrument for applications that require (1) high resolution imaging of cellular morphology including subcellular localization of targets and (2) multiplex interrogation of molecular data types (nucleic acid and/or protein) of millions of cells in a single run. The PX Instrument is designed to image the cells in a specialized well-plate (96-well or 384-well) enabling analysis of 10,000 to 100,000 cells per well, with a total throughput of 1 million to 10 million cells in a 96-well plate. The cells are imaged with our proprietary optical system and molecular biomarkers are detected through our Sequencing Engine by either a universal detection method or in situ sequencing. For tissue samples, our PX Instrument is designed to retain the context of the cells within their cellular environment and to enable spatial analysis by returning both phenotypic data (cellular morphology, localization of different cell types and expression of different proteins within the context of the tissue) and molecular data at subcellular resolution and high throughput. We are designing the PX Instrument to utilize fresh, fresh frozen and FFPE samples.

 

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Consumables supporting our PX Instrument

We aim to provide reagent kits to support analysis of single cells and tissue sections on the PX Instrument. We are designing these kits to enable multiomics analysis, including RNA transcription, protein expression and targeted gene sequencing. Our kits will include specialized well-plates, and reagents for sample preparation and sequencing readout. For protein detection, we plan to offer DNA-conjugated antibodies.

Current challenges in single cell and spatial analysis

In recent years, systems have been developed for targeted gene sequencing in single cells, and for measuring levels of gene transcription in individual cells by sequencing readout. These tools have yielded new information that is not available from bulk sequencing measurements. However, current commercial methods have significant limitations. One limitation is that cells are broke open and tagged with DNA barcodes in droplets, then pooled together into a sequencing run, thus losing information about cell morphology. Another limitation is the number of cells and samples that can be processed in an experiment. Finally, current methods struggle to achieve multiomics readout, with only limited ability to measure proteins along with DNA or RNA, while maintaining cellular morphology.

For spatial analysis of tissue, the capabilities of current genomic technologies are even more limited. Most genomic analysis of tissue is done on a bulk basis, with no spatial resolution. Recently, several spatial analysis platforms have been developed and introduced commercially. However, we believe that these technologies currently have several limitations. First, we believe most of these platforms currently have limited resolution, unable to provide detailed information at the level of individual single cells, including subcellular localization, and information about how the cells are organized in space within the tissue. Second, we believe current commercial platforms are unable to provide high throughput. Experiments are limited to less than 20 samples per run, and in some cases just one sample per run, which limits the ability of users to conduct large scale experiments.

Although the single cell and spatial analysis fields are still in their infancy, we anticipate that the following elements will be critical for determining success in the future.

 

   

Cell capacity: Historically, instruments that have been able to analyze the highest number of single cells have shown the most success. We believe this will continue to be an important success factor.

 

   

Resolution: We believe that the ability to provide genomic and proteomics data at the single cell level, and even resolve subcellular features, will be informative to researchers.

 

   

Throughput: Similar to NGS, we believe that researchers will continue to push the boundaries of research to understand biology and instruments will need to handle more samples to stay relevant.

 

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Multiomics capabilities: We believe that having the ability to measure multiple types of analytes (e.g. RNA transcripts and cellular proteins) from the same cell will be invaluable in piecing together how different genes and proteins interact within a spatial context. We believe that machine learning based image analysis will serve as an increasingly critical component of multiomics based discovery.

 

   

Tissue sample type: 80% of translational research studies that involve tissue analysis utilize FFPE preserved tissue. Thus, it will be critical for an instrument to be compatible with this sample type.

 

   

Cost: We believe researchers want to continue to push towards larger scale single cell studies requiring millions of cells. Without integration of the cell preparation and the sequencing into one platform, we believe that the cost will become too high using current methods.

Capabilities of the PX Integrated Solution

We are designing the PX Integrated Solution to have the following characteristics, which we believe are important differentiating characteristics of single cell and spatial analysis approaches:

 

   

Multiomics detection: We are developing the PX Integrated Solution to identify specific RNA and proteins (through the use of oligo-conjugated antibodies) using our core Sequencing Engine either as a universal detection method or for in situ sequencing along with cellular morphology and tissue organization. We believe this provides significantly more information than is available today with current commercial single cell technologies. The addition of the cellular morphology along with spatial organization of biomolecules within the tissue microenvironment can provide a data rich solution across many research applications to better understand cell development, maturation and pathogenesis. We believe that the combination of these useful datasets from individual cells will provide a more complete cellular picture as it will combine both phenotypic data along with detailed molecular characterization.

 

   

High throughput and large scale: We are designing the PX Integrated Solution to be high throughput in order to enable researchers to perform large scale studies that are currently inaccessible but are needed for a more complete characterization and understanding of cells, and therefore biology. Current commercially available single cell technologies detect 10,000 to 100,000 cells in an experiment. Our PX Instrument will use a well-plate approach (either with a 96 or 384-well consumable plate) designed to process 10,000 to 100,000 cells per well at a throughput of 1 million to 10 million cells in a 96 well plate. We believe that this will meet the growing need in this market for millions of cells and the large scale that is currently unattainable today. Current commercially available spatial analysis instruments can run an experiment involving only 4 to 20 tissue samples. With our PX Integrated Solution, we expect to run up to 96 tissue samples per run.

 

   

High resolution: The PX Integrated Solution will be designed to resolve molecules at the single cell level including subcellular localization of targets. We anticipate that this will enable researchers to differentiate between single cells to truly understand cellular characterization.

 

   

Targeted panels: We believe that current discovery efforts with bulk sequencing will lead to translational panels that are targeted on the key genes of interest. Our PX Integrated Solution will be designed for larger scale studies that will process a higher number of samples with these focused panels.

 

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Performance metrics of the PX Integrated Solution

 

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Applications for the PX Integrated Solution

We are developing our PX Integrated Solution to have a broad set of applications in single cell and tissue analysis. Examples of applications for our PX Integrated Solution may include but are not limited to the following:

 

   

Single cell RNA counting for differential gene expression: Targeted gene panels (with customization available) for specific research areas and diagnostic applications to measure the gene expression within each cell. It is anticipated that the imaging readout will also provide cell morphology information.

 

   

Single cell proteomics: Targeted protein panels for specific research areas and diagnostic applications to measure intracellular and surface proteins.

 

   

Single cell RNA sequencing for variant detection: In situ sequencing of selected gene targets directly within each cell while also simultaneously providing phenotype data for each cell, such as binding of antigens to B cells.

 

   

Spatial RNA and proteomics applications for tissue in development: Targeted panels (with customization available) for specific basic and translational research applications to measure gene transcription and protein expression within tissue and then link this information to additional phenotypic data to help provide biological context.

Key disease areas for the PX Integrated Solution

We are designing our PX Integrated Solution to have broad applicability across multiple large disease areas. Although our initial applications will focus on indications across oncology and immunology, we are designing our PX Integrated Solution to possess the foundational technology and capabilities to address additional areas, including neurology and developmental biology. We believe that key existing biological challenges can be addressed through improved multiomics information, higher resolution and enhanced spatial context, which we are designing our PX Integrated Solution to provide. The following large disease areas are examples of where we are designing our PX Integrated Solution to address significant challenges.

 

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Oncology

We believe that by maintaining the spatial and cellular component and providing molecular characterization, researchers with a PX Instrument will be able to gain more contextual data than is currently possible today at scale. Today, two samples could be molecularly indistinguishable from each other despite the fact that one might be showing a response to treatment while the other may not. With the addition of visual data from the same sample layered in, it would be possible to identify that the difference between the two samples is in the spatial relationship of whether the immune cells have infiltrated the tumor cells. We believe that this is one potential application of our PX Instrument to help researchers further decipher and understand the tumor microenvironment.

We believe the PX Instrument will be ideally suited to study blood cancers initially. We are designing the PX Instrument to enable the mapping of the progression of blood cancers as they develop, pre and post treatment, to fully characterize them across multiple molecular markers. The cellular phenotype, including morphology, could be valuable in helping to further characterize these cancer cells along with the molecular data of gene expression. We anticipate that the coupling of molecular data with the cellular phenotype and morphology can help to drive further understanding and identification of different types of cancer as well as provide the ability to interpret biological function.

Immunology

We believe that differential gene expression in combination with the cellular morphology as well as protein information will bring a powerful perspective to understanding the function and role of immune cells and their biological properties that have currently been unattainable. The genotype, morphology and protein associations that will be provided by our PX Instrument will help researchers dissect relationships between the functions of different cell types with more direct data on cellular structure. Additionally, we believe that the scale and throughput of our instrument will help to standardize the phenotypic assessment of cell morphology to the same level as researchers are accustomed to with genomic data.

We also anticipate that our single cell sequencing will be valuable for identifying the paired receptor data (light and heavy chains in B cell or alpha and beta chains in T cell) that is currently lacking at scale today. By having a high throughput method that will sequence and retain the linkage of the two chains of the immune receptors, researchers will be able to study in more depth the immune repertoire while also correlating each cell with its cellular phenotype. Additionally, we believe that we will be able to use a DNA-conjugated antibody that recognizes the antigen to confirm the immune cell is binding to a specific antigen. We believe this combination of data can provide powerful information to interpret biological function as well as to further characterize immune cell types.

Markets

We believe our product pipeline, which is designed to analyze biology comprehensively, targets multiple markets across life sciences. We believe that our G4 and the PX Integrated Solutions, which have capabilities spanning NGS, single cell, spatial analysis and proteomics, address a substantially large and growing market opportunity, based on our estimates that these markets are underserved by existing products and technologies and our target customers will recognize the value proposition offered by our products.

NGS market

According to Allied Market Research, the global NGS market is expected to grow to approximately $18.6 billion in 2026 at a CAGR of approximately 19.2% between 2020 and 2026. According to DeciBio, the NGS market in 2020 consisted of 58% basic research and translational medicine and 42% clinical applications, and in 2021, the basic research and translational medicine market was estimated to be approximately $4 billion and the clinical applications market was estimated to be approximately $3 billion, which we believe we can

 

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access based on the capabilities of our G4 Integrated Solution and assuming that target customers will view our G4 Integrated Solution as a competitive alternative to existing tools and technologies. The current landscape of NGS instruments available in the market today are comprised of lower and medium throughput benchtop platforms, and production scale high throughput platforms. The lower throughput instruments are typically less expensive and cost around $100,000 or less, but these platforms generally have a higher cost per gigabase of data generated relative to other available instruments, which results in a cost per sample that is often too high for routine clinical applications. The medium throughput platforms typically range from $200,000 up to $500,000 and have a lower cost per gigabase relative to lower throughput platforms. The higher throughput production scale instruments have price points approaching $1,000,000, but typically have a much lower cost per gigabase than the other platforms. We believe that the majority of instruments currently in the market are medium throughput instruments and that these platforms generally have a larger number of applications for which the cost of ownership makes more sense to customers. For example, we believe these platforms are well suited for clinical applications particularly in more decentralized settings where the volume demands may not be high enough to justify a high throughput system. We purposely designed our G4 Integrated Solution to target specific applications and to be capable of competing with other instruments across a range of throughput levels, particularly in the medium throughput segment. Based on the current designs and capabilities we have demonstrated in our G4 Integrated Solution, we also believe the G4 Integrated Solution can capture market share from both the lower throughput applications but also some of the higher throughput applications given its speed and anticipated operating costs.

NGS basic research and clinical markets

Within the basic research market, we believe that our G4 Integrated Solution will address challenges that are currently seen in market segments within oncology, immunology and other disease areas. These market segments struggle with the current time needed for sequencing, the batching requirements and the cost of sequencing. We are developing our G4 Integrated Solution to address these concerns. Further, we are developing applications to provide new and currently inaccessible data with novel products for longer sequencing reads and higher accuracy.

While we initially plan to sell and market our G4 Integrated Solution for RUO, we believe that the capabilities (especially the speed and accuracy) of our G4 Integrated Solution may enable our customers to use our platforms in clinical applications. While we currently do not intend to pursue clinical diagnostics applications, we may in the future seek premarket approval or clearance for our platforms in order to allow our customers to use our platforms in other product offerings.

Single cell, spatial analysis and proteomics markets

We are building our PX Integrated Solution to address the single cell and spatial analysis markets, which we estimate to be approximately $17 billion in 2021 based on available market data. We believe that the single cell capabilities of our G4 and PX Integrated Solutions will address an estimated global market opportunity of approximately $15 billion. Our G4 Integrated Solution addresses this market through single cell sequencing, while our PX Integrated Solution has complete single cell capabilities. According to DeciBio, the spatial analysis market, which will be addressed by our PX Integrated Solution, has a total addressable market of more than $2 billion, of which less than 10% has been penetrated as of 2020. According to Allied Market Research, the life sciences research portion of the global proteomics market, which will be addressed by our PX Integrated Solution, was estimated at approximately $20 billion in 2020. Given the performance of our PX Integrated Solution, we believe that our platform will address the current limitations of scale and throughput for this market. We believe we can access these markets based on the capabilities we have designed for our PX Integrated Solution and assuming that target customers will view our PX Integrated Solution as a competitive alternative to existing tools and technologies. We are designing the PX Integrated Solution to allow researchers to undertake the scale of studies that we believe are needed to further understand the complexity of cellular and tissue organization.

 

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New markets

Both of our integrated solutions can be used in many different and diverse market segments, including basic biology, oncology, immunology, genetic disease, neurological disease, infectious disease, the human microbiome and many others. We believe that the multiomics study of cells in their cellular and tissue environment will create a more complete, data rich understanding of biology that will advance a broad and growing range of industries including broader segments of the healthcare industry and beyond. Therefore, we believe that the capabilities offered by our integrated solutions and future products may potentially lead to new end markets, applications and business models that complement our current addressable markets, and will expand our market opportunity.

These markets are characterized by rapid technological changes, frequent new product introductions, established and emerging competition, extensive intellectual property disputes and litigation, price competition, aggressive marketing practices, evolving industry standards and changing customer preferences. Accordingly, our prospects must be considered in light of the uncertainties, risks, expenses, and difficulties frequently encountered by new companies operating in rapidly changing and competitive markets.

We plan to sell and market our products for RUO to academic institutions, life sciences and research laboratories that conduct research, and to biopharmaceutical and biotechnology companies for non-diagnostic and non-clinical purposes. Additionally, CLIA-certified laboratories have the ability to develop LDTs using RUO products, and we believe that the capabilities of our products will enable our customers to use them in clinical applications as LDTs. In fact, today a significant majority of NGS-based diagnostic tests are performed as LDTs on DNA sequencers that are labeled for RUO. Over the near term, references throughout this prospectus to clinicians, clinical markets and clinical practice all refer to the potential use of our RUO labeled products for LDTs. While our initial products are intended for RUO, our longer-term plans include seeking FDA clearance for IVD products, and corresponding clearances in other countries.

Competitive Strengths

To address the challenges of sequencing, single cell, spatial and proteomics we aim to bring together the following unique capabilities:

 

   

We are developing innovative purpose built products to address underserved applications: We have designed our G4 Integrated Solution and are designing our PX Integrated Solution to address challenges and bottlenecks within specific NGS, single cell and spatial analysis applications that we believe are not well-addressed today. We believe this will provide a differentiated product offering in the market and facilitate adoption with our customers.

 

   

Our Sequencing Engine is a foundational platform technology that optimizes key performance characteristics for our products: Our Sequencing Engine is designed to provide a fast, accurate and high throughput detection system to sequence the fundamental unit that encodes all biological information, DNA. This engine provides the advantages of accuracy, speed, flexibility and scale to our G4 Integrated Solution and our planned PX Integrated Solution as both a universal detection method and for in situ sequencing.

 

   

Our integrated solutions are designed around customer needs and intended to offer advantages in key performance metrics: Our experience shows that KPIs include accuracy, read length, turnaround time, throughput and efficient operational workflows. Our G4 Integrated Solution and planned PX Integrated Solution each consist of consumables and an instrument, which offer KPIs that we believe customers value. We believe that focusing our development and commercialization processes around our customers’ needs, we will optimize our ability to achieve broad commercial adoption at launch.

 

   

Our innovative assays in development are designed to support novel applications in oncology and immunology: Building on the Sequencing Engine foundation of accuracy, speed and flexibility, we are developing applications that can extend SLR and increase accuracy in rare variant detection with HD-Seq.

 

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Our complementary product portfolio can serve multiple customer needs: We believe that our G4 Integrated Solution and PX Integrated Solution, while they are designed to address different biological questions, will have significant overlap in terms of the potential customer base. Academic and research labs often consist of different departments which are focused on sequencing on the one hand and would find the G4 Integrated Solution most convenient, and, on the other hand, separate departments which would find utility in the single cell and spatial capabilities of the PX Integrated Solution. Therefore, we believe once our G4 Integrated Solution is commercialized and our PX Integrated Solution is developed and commercialized we will be uniquely positioned to cross sell both products to our customers, as once customers use one integrated solution, they often find utility in also purchasing the other to address additional research and development needs.

Our Growth Strategy

Our goal is to establish our Sequencing Engine as the standard for genomics and proteomics detection and to drive adoption of our platforms. Our growth strategy includes the following key elements:

 

   

Drive commercial adoption and utilization of the G4 Integrated Solution: We aim to execute a three step commercialization plan for our G4 Integrated Solution consisting of: (1) collaborating with select partners to conduct beta pilot tests, which we have completed, (2) expanding collaborations with additional potential customers in an early access program and (3) offering our G4 Integrated Solution broadly to the market, with commercial launch by the end of 2021 and shipping units in the first half of 2022. Throughout our commercial rollout, we aim to grow our sales and marketing team to foster deep customer relationships initially with customers running our target G4 Integrated Solutions. We intend to focus on driving expansion of the installed base of our instruments and facilitating utilization of our consumables. We also plan to offer different access options, including capital sale and lease options for the G4 Integrated Solution to meet each customer’s unique needs. As we grow we aim to build other commercial capabilities and manufacturing infrastructure to the scale needed to facilitate broad commercial adoption.

 

   

Complete development and drive commercial adoption of our PX Integrated Solution: We aim to complete development of our PX Integrated Solution which targets the single cell and spatial markets. We are currently in an advanced prototype development stage and expect to begin an early access program in 2022 and full commercial launch in 2023 through a targeted and phased commercial strategy similar to the strategy we are employing for the G4 Integrated Solution.

 

   

Create an ecosystem of customers, partners and collaborators whose expertise and offerings complement and enhance the capabilities and utility of our integrated solutions: Recognizing the strength of the current NGS ecosystem, we have designed our G4 Integrated Solution to seamlessly integrate into existing NGS workflows with plug and play interoperability both upstream and downstream. Additionally, we aim to partner with leading kit manufacturers to develop a wide range of library prep kits that will be accessible for our G4 Integrated Solution for numerous applications. For our PX Integrated Solution, we intend to work with external collaborators to foster and create an ecosystem around single cell and spatial analysis technology. We expect that this will facilitate adoption and market creation for our PX Integrated Solution to be readily available for our customers. Through activities such as collaborations with KOLs, generation of peer-reviewed publications, sponsorship of targeted projects, joint publications and seminars and industry partnerships, we aim to establish the value of our sequencing detection method as well as the utility of multiomics cellular and tissue data at large scale.

 

   

Expand the G4 and PX Integrated Solutions beyond initial applications: We aim to continually innovate and develop new products, applications, workflows and analysis tools. Our aim is to simplify and accelerate researchers and clinicians’ ability to generate multiomics data that will drive novel biological insights and drive more powerful and efficient workflows beyond sequencing, single cell, spatial analysis and other initial applications of our integrated solutions. We believe that the

 

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capabilities offered by our integrated solution and future products may potentially lead to new end markets, applications and business models that complement our current addressable markets, and will expand our market opportunity.

 

   

Expand our commercial geographic presence: We are initially building our commercial infrastructure to sell and support our products directly in the United States and Canada. We also have plans in place to sell and support our products in the European Union, United Kingdom, Asia Pacific and Japan, and expect to expand access to our products in other geographies through distributors. We are also building our manufacturing capabilities in our facility in La Jolla, California, and plan to continually evaluate and optimize our manufacturing and supply chain footprint to meet the scale needed for worldwide expansion.

Commercialization Strategy

Commercial strategy overview

Our business model focuses on first driving customer adoption of our G4 Integrated Solution followed by our PX Integrated Solution. We believe customer adoption will then form a base of users who in turn drive an on going revenue stream by purchasing our consumables. We plan to focus our commercial efforts on (1) expanding the installed base of our G4 Integrated Solution and PX Integrated Solution across a wide array of customer segments and (2) driving applications, scale of experimentation and discoveries that lead to increasing utilization of our integrated platforms by our customers. Similar to our strategy of developing purpose built products based on feedback from potential customers, we also plan to develop a service and support organization that will focus on creating an unparalleled customer experience. We believe in the value of creating new customers while expanding utilization of existing customers through the sale of purpose built products and the establishment of customer loyalty.

We plan to initially target customers who are already familiar with genomic analysis, including academic institutions, genomic research centers/core labs, government laboratories, hospitals/integrated delivery networks, as well as pharmaceutical, CROs, biotechnology, consumer genomics, commercial molecular diagnostic laboratories and agrigenomics companies. Our direct sales, support and marketing efforts will be focused on the principal investigators, researchers, department heads, research laboratory directors, core facility directors, medical directors and scientific/technology officers who control the buying decisions. We expect these customers to purchase our integrated solutions in line with typical purchasing of other life sciences tools, and we anticipate pricing both of our integrated solutions on a competitive basis to other similar sequencing instruments currently available.

The general publication and scientific presentation of our system performance are a core pillar of our market awareness strategy and are important for establishing validity and utility of new products in the life sciences community. We plan to work closely with our customers, including KOLs and our select centers in our beta pilot and early access programs, to generate clear use-cases as well as peer-reviewed publications that illustrate our product performance claims and value proposition. Furthermore, we intend on generating our own authored publications detailing our novel applications to create awareness and validate the available applications unique to our integrated solutions. In addition, we plan to drive awareness by developing and deploying online and in-person training and education tools that explain our sequencing technology and key applications in easy-to-access, easy-to-understand, and scientifically rigorous and credible ways.

To service our customers, we expect to provide multiple levels of technical support for our G4 Integrated Solution and planned PX Integrated Solution. We recognize that excellent customer support can be a critical part of a customer’s experience, and we plan to invest accordingly in our technical, application and service support functions. Given the diversity of our target customers, both immediate phone support and on-site support will be required. Likewise, we intend to leverage these assets to develop general and specialized educational programs that will be delivered to our customers in a manner that will help them optimize instrument and consumables utilization.

 

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G4 Integrated Solution commercial launch plan

We intend to follow a three-phase launch plan to commercialize our G4 Integrated Solution, which will include (1) collaborating with select partners to conduct beta pilot programs, which we have completed, (2) expanding collaborations with additional selected partners in an early access program and (3) offering our G4 Integrated Solution broadly to the market via commercial launch by the end of 2021 with intentions for shipping units in the first half of 2022. This three-phase approach has been successfully deployed to introduce transformative technologies in numerous life science sectors over many years, including previous genomics products and services, single cell technologies and proteomics platforms. We believe that this phased approach will allow us to introduce our products in a measured way, demonstrate clear customer use-cases and help ensure we are scaling and expanding efficiently to deliver a positive and differentiated customer experience. We believe this approach will also build a prospective customer pipeline and demonstrate visibility to future demand.

Validate core sequencing engine KPIs

We have established an applications lab, which began service in early 2020 as a way to create data that validated our platform’s performance (the Applications Lab). We expect to continue to leverage our Applications Lab capabilities to demonstrate integrated system performance. We are targeting KOLs who are highly skilled at evaluating sequencing data and whose feedback could help solidify the attributes of our G4 Integrated Solution while simultaneously creating external validation to other interested target customers. Additionally, we believe these KOLs are highly influential in the genomics community. We intend to work with these collaborators to establish early models of impactful research and discovery that will highlight the unique capabilities and value proposition of our G4 Integrated Solution. These initial external partners have also been instrumental in validating our core Sequencing Engine, our differentiated applications and beginning to raise awareness in the scientific community.

Phase 1 beta pilots

We targeted a limited number of collaborators for our beta pilot program who are familiar with our G4 Integrated Solution. We plan to leverage these collaborators as our first externally installed integrated solutions to demonstrate how our products will be shipped, installed, validated and utilized in a field-based setting. We recently completed our beta pilot testing. We plan to work with these collaborators to establish early models of impactful research and discovery to highlight the unique attributes, capabilities and value proposition of our G4 Integrated Solution. Additionally, these sites have provided key feedback to us on the usability and functionality of our G4 Integrated Solutions from an end-user perspective. Additionally, we received validation on the performance, installation procedures, instrument validation processes and end user training.

Phase 2 early access program

For our early access program we plan to expand to six to ten additional collaborators across our target market segments who represent institutions across a broad spectrum of research centers and commercial companies pushing the frontiers of their science efforts. We intend to primarily focus on collaborators who can scale quickly and demonstrate the power and utility of our G4 Integrated Solution across a number of applications, such as immunology, oncology and biomedical research. During this phase, we expect to broaden our commercial footprint to access and support an increasing number of customers and to set the foundation for the final phase of our commercial roll out. We expect this early access program to provide a path for customers to adopt our G4 Integrated Solution.

Broad commercial availability

We intend to build on the momentum we expect to have created through our Applications Lab, beta pilot program and our early access program to provide for broad commercial availability in the first half of 2022. We

 

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plan to launch our G4 Integrated Solution at the end of 2021 to targeted customers at our proposed list price, with certain volume discounts for consumables consistent with industry standards. We also intend to consider different sales strategies that have previously been used in the industry to drive demand and adoption of our instruments including among others, trade-in programs, reagent rentals, instrument leasing programs. As we grow our installed base, we plan to simultaneously optimize our customers’ use and adoption of our corresponding consumables. We plan to further expand our penetration of our accessible markets by continuing to develop differentiated products, applications, workflows and analysis tools that simplify workflows, provide a complete solution and expand beyond sequencing, single cell, spatial analysis and other initial applications of our G4 Integrated Solution.

Commercial organization

We are in the process of building out our commercial organization and we expect to have direct commercial staff in sales, customer success, technical support, field service and market development functions. Throughout our commercial rollout, we will need to scale each function within our commercial organization in anticipation of demand and with the intent to deliver exceptional customer experience. We believe that coupling customer experience with a transformative integrated solution will allow us to deliver substantial value to our customers, build long-term customer loyalty and enhance our competitive differentiation.

We expect to initially target customers in North America through direct sales and customer support organizations. We also plan to expand outside North America to sell and support our products in the European Union, United Kingdom, Asia Pacific and Japan, and expect to expand access to our products in other geographies through well established distribution networks.

Our People, Culture and Human Capital Resources

As of March 31, 2021 we had 138 full-time employees, 106 of whom were engaged in research and development activities, and many of which are based at our global headquarters in La Jolla, California. Innovating in this field requires being able to attract, develop, engage and retain top scientific experts in a wide variety of scientific disciplines. Out of the full-time employees, 76 hold advanced degrees in their field of expertise, including 40 who hold medical or doctoral degrees. None of our employees are subject to a collective bargaining agreement and we have not experienced any work stoppages. We believe relations with our employees are generally good.

We invest significant resources to attract, develop, engage and retain the talent needed to achieve our mission of accelerating genomics for the advancement of science and medicine. By investing significant resources in our people, we are better able to make discoveries across the fastest growing markets in basic research, clinical applications, single cell analysis and spatial genomics and proteomics and grow our business. We offer competitive total rewards, including salary, bonuses, benefits and equity compensation for our employees. Further, we offer unique perks to delight our employees so that they will in turn delight our customers. We strive to maintain and promote a culture that fosters the values, behaviors and attributes necessary to advance our business and execute our strategy.

Our mission and core values are incorporated into everything we do. We reinforce our mission and core values at multiple touchpoints with our employees and intend to reinforce this messaging with our customers. The following core values guide the decisions that we make and permeate into all of our decisions and into our product and service offerings:

 

   

Embrace the Challenge.

 

   

Collaborate & Be Humble.

 

   

Be an Ambassador.

 

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Think at Scale.

 

   

Care Deeply & Be Accountable.

 

   

Be Authentic and Thoughtful.

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and additional employees. The principal purposes of our equity incentive plans are to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards and cash-based performance bonus awards.

Research and Development

Our research and development teams have designed and developed our proprietary products using an interdisciplinary approach that combines expertise across a broad range of scientific disciplines including chemistry, molecular biology, hardware, software and engineering. They work together to build products that enable researchers and clinicians to accelerate discoveries across the fastest growing markets in basic research, clinical applications, single cell analysis and spatial genomics and proteomics. Our research and development teams are currently located at our headquarters in La Jolla, California.

The overarching goal of our research and development programs is to accelerate genomics for the advancement of science and medicine. To this end, we focus our research and development efforts on the following areas:

 

   

Improve the performance of our core Sequencing Engine: We plan to improve our existing core Sequencing Engine. These improvements may provide higher density on our flow cells, faster cycle time and larger amounts of biological information that can be obtained from each sequencing run.

 

   

Develop new applications for our G4 Integrated Solution: We plan to expand the range of applications that are available on our G4 Integrated Solution to allow researchers access to new types of biological information. For example, we are planning to develop new methods that will allow for longer reads on the G4 Instrument.

 

   

Develop our PX Integrated Solution: We plan to introduce a product that offers high spatial resolution and high sensitivity. We are working to develop our PX Integrated Solution to ensure high throughput, high spatial resolution and multiomics capabilities.

 

   

Enable Future Instruments: We intend to continue to leverage our core Sequencing Engine to develop future instruments across fast growing market segments.

As of March 31, 2021, we had 106 employees in research and development. Looking forward, we will continue to invest in efforts to support the ongoing development of our instruments and consumables, as well as enhance the overall performance of our solutions.

Competition

The life sciences market is highly competitive. There are other companies, both established and early-stage, that have indicated that they are designing, manufacturing and marketing products for, among other things, genomics analysis, single cell analysis and spatial analysis. These companies include 10x Genomics Inc., Becton, Dickinson and Company, Bio-Rad Laboratories, Inc., Illumina Inc., MissionBio Inc., and Nanostring Technologies, Inc., Oxford Nanopore Technologies Inc., Pacific Biosciences Inc. and Thermo Fisher Scientific Inc., each of which has products that compete to varying degrees with some but not all of our product solutions, as well as a number of other emerging and established companies. Some of these companies may have substantially greater financial and other resources than us, including larger research and development staff or more established marketing and sales forces. Other competitors are in the process of developing novel technologies for the life sciences market which may lead to products that rival or replace our products.

 

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However, we believe we are substantially differentiated from our competitors for many reasons, including our proprietary ultra-fast core Sequencing Engine and our unique G4 Integrated Solution and planned PX Integrated Solution, scalable infrastructure and multidisciplinary teams. We believe our customers will favor our products and company because of these differentiators.

For further discussion of the risks we face relating to competition, see the section titled “Risk Factors—Risks related to our business and industry — The life sciences technology market is highly competitive. If we fail to compete effectively, our business and operating results will suffer”.

Intellectual Property

Developing and maintaining a strong intellectual property position is an important element of our business. Our success depends in part on our ability to obtain and maintain intellectual property protection for our products, technologies and our brand. We utilize a variety of intellectual property protection strategies, including patents, trademarks, trade secrets and other methods of protecting proprietary information.

As of May 19, 2021, we own or exclusively license five (5) allowed U.S. patents, twenty-four (24) pending U.S. Utility patent applications, four (4) pending European patent applications, eleven (11) pending Patent Cooperation Treaty (PCT) patent applications and twenty-two (22) pending U.S. Provisional patent applications. The pending European patent applications were filed in the European Patent Organization (EPO), designating all thirty-eight (38) member countries. Our owned patents and patent applications, if issued, are expected to expire between 2038 and 2041, in each case without taking into account any possible patent term adjustments or extensions and assuming payment of all appropriate maintenance, renewal, annuity, or other governmental fees.

Our patent strategy seeks broad patent protection on new developments in sequencing technology in addition to new implementations and applications of our technology. The intellectual property portfolio includes patents and pending patent applications that generally relate to the following areas: chemistry (e.g., nucleotides, dyes and polymers); enzymes; nucleic acid sequencing and amplification methodologies; systems, devices and software; spatial analysis; and applications of our technology.

The device components, reagents, and methods used in the G4 Integrated Solution are protected in, for example, at least two (2) issued U.S. patents, sixteen (16) pending U.S. Utility patent applications, two (2) pending European patent applications, seven (7) pending PCT patent applications, and eighteen (18) pending U.S. Provisional patent applications of our intellectual property portfolio. The device components, reagents, and methods used in the PX Integrated Solution are protected in, for example, at least 2 issued U.S. patents, eight (8) pending U.S. Utility patent applications, two (2) pending European patent applications, six (6) pending PCT patent applications and thirteen (13) pending U.S. Provisional patent applications of our intellectual property portfolio.

Additional specific protection for SLR is provided in, for example, at least one (1) pending PCT patent application and one (1) U.S. Utility pending patent application of our intellectual property portfolio. Additional protection for HD-Seq is provided in, for example, at least one (1) pending PCT patent application and one (1) U.S. Utility pending patent application of our intellectual property portfolio.

We exclusively license from The Trustees of Columbia University in the City of New York (Columbia), two (2) pending U.S. Utility patent applications, and one (1) pending European patent application, as of May 19, 2021 and certain materials and technical information provided by Columbia. The pending European patent application was filed in the EPO, designating all thirty-eight (38) member countries. These patent applications are directed to compositions and methods for sequencing utilizing nucleotides containing disulfide linkers. Our in-licensed patent applications, if issued, are expected to expire in 2036 and 2037, in each case without taking into account any possible patent term adjustments or extensions and assuming payment of all appropriate maintenance, renewal, annuity, or other governmental fees.

 

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In addition to our reliance on patent protection for our inventions, products and technologies, we also rely on trade secrets, know-how, confidentiality agreements and continuing technological innovation and licensing opportunities to develop and maintain our competitive position. For example, some elements of manufacturing processes such as our nucleotide synthesis and flow cell assembly, analytic techniques and assays, imaging and optics implementations, as well as computational algorithms, and related processes and software, are based on unpatented trade secrets and know-how that are not publicly disclosed. Our success will depend in part on our ability to obtain patent protection for our products and technologies, to preserve our trade secrets, to operate without infringing the proprietary rights of third parties and to acquire licenses related to enabling technology or products.

We use Singular Genomics®, G4 and PX as trademarks in the United States. This disclosure contains references to our trademark and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this disclosure, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate in any way that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other entities’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other entity.

Columbia University License Agreement

In August 2016, we entered into an Exclusive License Agreement with Columbia (the License Agreement). Under the License Agreement, we received (i) an exclusive, sublicensable, worldwide license under certain patents owned by Columbia to discover, develop, make and sell products or services covered by the claims of such licensed patents (the Patent Products), and (ii) an exclusive, sublicensable, worldwide license under certain materials and technical information provided by Columbia to discover, develop, make and sell products or services that directly use or incorporate such materials or information (the Other Products).

The License Agreement requires us to use commercially reasonable efforts to research, discover, develop and market Patent Products and/or Other Products as follows:

 

   

achieve successful sequencing of 150 base read length on a Company proprietary system that is or uses a Patent Product by August 12, 2021;

 

   

complete the first commercial sale of a Patent Product by August 12, 2022;

 

   

complete the first commercial sale of a Patent Product developed from a nucleotide derivative covered under a valid claim of a licensed patent by August 12, 2022;

 

   

commence and be engaged in active, bona fide development of a Patent Product from a nucleotide derivative covered under a valid claim of a licensed patent by August 12, 2019; and

 

   

conduct good faith due diligence on opportunities to develop and commercialize Patent Products or Other Products that (i) use or incorporate any information, data, or subject matter disclosed in a specific construct disclosed by Columbia or (ii) are developed from a nucleotide derivative covered under a valid claim of a licensed patent, including assessing the market opportunity and technical feasibility, and share these results with Columbia by June 20, 2022.

Under the License Agreement, we are required to pay an annual license fee that increases each year, until it reaches a low six digit fee for the fifth year, and for each subsequent year, for so long as the License Agreement remains in force. For any products within the scope of the License Agreement that we commercialize, we are required to pay royalties ranging from low to mid-single digits on net sales of Patent Products and low single digit royalty rates on net sales of Other Products. We can credit our yearly annual license fee against any yearly royalty fees payable to Columbia. Additionally, if we receive any income in connection with any sublicenses, we must pay Columbia a high single digit percentage of that income. Finally, the License Agreement provides for

 

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payments to Columbia based upon our achievement of certain development and commercialization milestones, which could total up to $3.9 million over the life of the License Agreement. As of March 31, 2021, we have paid an aggregate of $0.1 million to Columbia pursuant to the terms of the License Agreement.

The License Agreement, and any associated royalty payment obligations, continue in effect on a country-by-country, product-by-product basis until the later of (i) the expiration of the last to expire of the licensed patents covering a Patent Product or (ii) 12 years from the first commercial sale of an Other Product in the applicable country, or the termination of the Agreement. Each party has customary rights to terminate the License Agreement due to the other party’s material breach, if such breach remains uncured. Columbia also has a right to terminate the License Agreement in the event we become insolvent or otherwise cease operations or in the event we assert any claim challenging the validity or enforceability of any patent licensed to us by Columbia under the License Agreement.

We do not believe that our G4 or PX Instruments or the associated consumables, as we presently intend to commercialize them, fit within the definitions of Patent Products or Other Products as defined in the License Agreement. As a result, we do not believe that we will be required to make milestone payments or pay royalties on sales of these products or any associated consumables or services based on our current commercialization plans. However, in the future, we may decide to incorporate features covered by one or more licensed patent(s) or directly use or incorporate materials and/or technical information provided by Columbia, such that we would incur milestone and royalty obligations under the License Agreement.

To the extent that we do not commercialize a Patent Product or Other Product, Columbia may contend that we have not complied with our diligence obligations under the License Agreement. In such case, Columbia could take the position that the License Agreement should convert to a non-exclusive license or pursue actions to terminate the License Agreement alleging that we have not satisfied our diligence obligations. Columbia could also file additional claims to the pending patent applications they licensed to us to attempt to cause our products to become Patent Products. Columbia could also disagree with our interpretation of our milestone and royalty obligations under the License Agreement and contend that a failure to make milestone payments or pay royalties constitutes a breach of the License Agreement. We are currently engaged in discussions with Columbia regarding the application of the License Agreement to our products and our efforts to satisfy the diligence obligations under the License Agreement. There is no assurance that Columbia will agree with our interpretation of the License Agreement or our payment obligations thereunder or agree that we have complied with our diligence obligations under the License Agreement.

Suppliers and Manufacturing

Consumables

The majority of our consumable products are manufactured in-house at our facilities in La Jolla, California. These manufacturing operations include: flow cell surface synthesis and flow cell assembly, reagent formulation and cartridge filling, kit assembly and packaging as well as analytical and functional quality control testing. We are expecting to achieve ISO 9001:2015 certification in the next few years, which covers design, development, manufacturing, distribution, service and sales.

We obtain some components of our consumables from third-party suppliers. While some of these components are sourced from a single supplier, we have qualified second sources for several of our critical reagents, including flow cells, optics and oligonucleotides. We believe that having dual sources for our components helps reduce the risk of a production delay caused by a disruption in the supply of a critical component. For further discussion of the risks relating to our third-party suppliers, see the section titled “Risk factors—Risks related to our business and industry—We are dependent on single source suppliers for some components to our consumables and the loss of any of these suppliers could harm our business.”.

 

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Instruments

The manufacturing for our instruments are conducted in-house at our facilities in La Jolla, California. We expect these operations to obtain 9001 and ISO 13485 certification within the next few years.

Regulatory

Government regulation

The development, testing, manufacturing, marketing, post-market surveillance, distribution, advertising and labeling of certain of medical devices are subject to regulation in the United States by the Center for Devices and Radiological Health of the FDA under the Federal Food, Drug, and Cosmetic Act (FDC Act) and comparable state and international agencies. FDA defines a medical device as an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent or other similar or related article, including any component part or accessory, which is (i) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals, or (ii) intended to affect the structure or any function of the body of man or other animals and which does not achieve any of its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes. Medical devices to be commercially distributed in the United States must receive from the FDA either clearance of a premarket notification, known as 510(k), premarket approval, or PMA, or authorization through a de-novo petition pursuant to the FDC Act prior to marketing, unless subject to an exemption.

We intend to label and sell our products for research purposes only (RUO) and expect to sell them to academic institutions, life sciences and research laboratories that conduct research, and biopharmaceutical and biotechnology companies for non-diagnostic and non-clinical purposes. Our products are not intended or promoted for use in clinical practice in the diagnosis of disease or other conditions, and they are labeled for research use only, not for use in diagnostic procedures. Accordingly, we believe our products, as we intend to market them, generally are not subject to regulation by FDA. Rather, while FDA regulations require that research use only products be labeled with – “For Research Use Only. Not for use in diagnostic procedures.” – the regulations do not subject such products to the FDA’s jurisdiction or the broader pre- and post-market controls for medical devices.

In November 2013, the FDA issued a final guidance on RUO labeled products, which, among other things, reaffirmed that a company may not make any clinical or diagnostic claims about an RUO product, stating that merely including a labeling statement that the product is for research purposes only will not necessarily render the device exempt from the FDA’s clearance, approval, or other regulatory requirements if the totality of circumstances surrounding the distribution of the product indicates that the manufacturer knows its product is being used by customers for diagnostic uses or the manufacturer intends such a use. These circumstances may include, among other things, written or verbal marketing claims regarding a product’s performance in clinical diagnostic applications and a manufacturer’s provision of technical support for such activities. If FDA were to determine, based on the totality of circumstances, that our products labeled and marketed for RUO are intended for diagnostic purposes, they would be considered medical devices that will require clearance or approval prior to commercialization. Further, sales of devices for diagnostic purposes may subject us to additional healthcare regulation. We continue to monitor the changing legal and regulatory landscape to ensure our compliance with any applicable rules, laws and regulations.

In the future, certain of our products or related applications could become subject to regulation as medical devices by the FDA. If we wish to label and expand product lines to address the diagnosis of disease, regulation by governmental authorities in the United States and other countries will become an increasingly significant factor in development, testing, production and marketing. Products that we may develop in the molecular diagnostic markets, depending on their intended use, may be regulated as medical devices or in vitro diagnostic products (IVDs) by the FDA and comparable agencies in other countries. In the U.S., if we market our products

 

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for use in performing clinical diagnostics, such products would be subject to regulation by the FDA under pre-market and post-market control as medical devices, unless an exemption applies, we would be required to obtain either prior 510(k) clearance or prior premarket approval from the FDA before commercializing the product.

The FDA classifies medical devices into one of three classes. Devices deemed to pose lower risk to the patient are placed in either class I or II, which, unless an exemption applies, requires the manufacturer to submit a pre-market notification requesting FDA clearance for commercial distribution pursuant to Section 510(k) of the FDC Act. This process, known as 510(k) clearance, requires that the manufacturer demonstrate that the device is substantially equivalent to a previously cleared and legally marketed 510(k) device or a “pre-amendment” class III device for which PMAs have not been required by the FDA. This FDA review process typically takes from four to twelve months, although it can take longer. Most class I devices are exempted from this 510(k) premarket submission requirement. If no legally marketed predicate can be identified for a new device to enable the use of the 510(k) pathway, the device is automatically classified under the FDC Act as class III, which generally requires PMA approval. However, FDA can reclassify or use “de novo classification” for a device that meets the FDC Act standards for a class II device, permitting the device to be marketed without PMA approval. To grant such a reclassification, FDA must determine that the FDC Act’s general controls alone, or general controls and special controls together, are sufficient to provide a reasonable assurance of the device’s safety and effectiveness. The de novo classification route is generally less burdensome than the PMA approval process.

Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting, or implantable devices, or those deemed not substantially equivalent to a legally marketed predicate device, are placed in class III. Class III devices typically require PMA approval. To obtain PMA approval, an applicant must demonstrate the reasonable safety and effectiveness of the device based, in part, on data obtained in clinical studies. The PMA application must also contain a full description of the device and its components, a full description of the methods, facilities, and controls used for manufacturing, and proposed labeling. If the FDA accepts the application for review, it has 180 days to complete its review of a PMA application, although in practice, the FDA’s review often takes significantly longer, and can take up to several years. An advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation. In addition, the FDA will generally conduct a pre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the current good manufacturing practices. If we are required to submit our products for pre-market review by the FDA, we may be required to delay marketing and commercialization while we obtain premarket clearance or approval from the FDA. There would be no assurance that we could ever obtain such clearance or approval.

All clinical studies of investigational medical devices to determine safety and effectiveness must be conducted in accordance with FDA’s investigational device exemption (IDE) regulations, including the requirement for the study sponsor to submit an IDE application to FDA, unless exempt, which must become effective prior to commencing human clinical studies. All clinical investigations of devices to determine safety and effectiveness must be conducted in accordance with the FDA’s IDE regulations which govern investigational device labeling, prohibit promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. If the device presents a “significant risk,” to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective prior to commencing human clinical trials. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. An IDE application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE will automatically become effective 30 days after receipt by the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines that there are deficiencies

 

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or other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval. In addition, the study must be approved by, and conducted under the oversight of, an Institutional Review Board (IRB) for each clinical site. During a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them. The clinical investigators in the clinical study are also subject to FDA regulations and must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements. Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits.

As noted above, although we intend to label and sell our products for research purposes only, the regulatory requirements related to marketing, selling and supporting such products could be uncertain and depend on the totality of circumstances. This uncertainty exists even if such use by our customers occurs without our consent. If the FDA or other regulatory authorities assert that any of our RUO products are subject to regulatory clearance or approval, our business, financial condition, or results of operations could be adversely affected.

For example, in some cases, our customers may use our RUO products in their own laboratory-developed tests (LDTs) or in other FDA-regulated products for clinical diagnostic use. The FDA has historically exercised enforcement discretion in not enforcing the medical device regulations against LDTs and LDT manufacturers. However, on October 3, 2014, the FDA issued two draft guidance documents that set forth the FDA’s proposed risk-based framework for regulating LDTs, which are designed, manufactured and used within a single laboratory. In January 2017, the FDA announced that it would not issue final guidance on the oversight of LDTs and LDT manufacturers, but would seek further public discussion on an appropriate oversight approach and give Congress an opportunity to develop a legislative solution. More recently, the FDA has issued warning letters to genomics labs for illegally marketing genetic tests that claim to predict patients’ responses to specific medications, noting that the FDA has not created a legal “carve-out” for LDTs and retains discretion to take action when appropriate, such as when certain genomic tests raise significant public health concerns. Congress also has introduced legislation explicitly granting FDA jurisdiction to regulate LDTs, as well as create a regulatory framework for the regulation of LDTs based on risk. To date, no such legislation has been approved by Congress. Moreover, as part of the former Trump Administration’s efforts to combat COVID-19 and consistent with Executive Orders 13771 (Executive Order on Reducing Regulation and Controlling Regulatory Costs) and 13924 (Executive Order on Regulatory Relief to Support Economic Recovery), HHS announced rescission of guidance and other informal issuances of the FDA regarding premarket review of LDT absent notice-and-comment rulemaking, stating that, absent notice-and-comment rulemaking, those seeking approval or clearance of, or an emergency use authorization, for an LDT may nonetheless voluntarily submit a premarket approval application, premarket notification or an Emergency Use Authorization request, respectively, but are not required to do so. However, laboratories opting to use LDTs without FDA premarket review or authorization would not be eligible for liability protection under the Public Readiness and Emergency Preparedness Act. While this action by HHS is expected to reduce the regulatory burden on clinical laboratories certified under the Clinical Laboratory Improvement Amendments of 1988 that develop LDTs, it is unclear how this action as well as future legislation by federal and state governments and the FDA will impact the industry, including our business and that of our customers. Such HHS measure may compel the FDA to formalize earlier enforcement discretionary policies and informal guidance through notice-and-comment rulemaking or impose further restrictions on LDTs. HHS’ rescission policy may change over time. Congress could also enact legislation restricting LDTs. Any restrictions on LDTs by the FDA, HHS, Congress, or state regulatory authorities may decrease the demand for our products. The adoption of new restrictions on RUOs, whether by the FDA or Congress, could adversely affect demand for our specialized reagents and instruments.

As laboratories and manufacturers develop more complex genetic tests and diagnostic software, FDA may increase its regulation of LDTs. Any future legislative or administrative rule making or oversight of LDTs and

 

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LDT manufacturers, if and when finalized, may impact the sales of our products and how customers use our products, and may require us to change our business model in order to maintain compliance with these laws. We would become subject to additional FDA requirements if our products are determined to be medical devices or if we elect to seek 510(k) clearance or premarket approval. If our products become subject to FDA regulation as medical devices, we would need to invest significant time and resources to ensure ongoing compliance with FDA quality system regulations and other post-market regulatory requirements.

International sales of medical devices are subject to foreign government regulations, which vary substantially from country to country. In the future, if we decide to distribute or market our diagnostic products as IVDs in Europe, such products will be subject to regulation under the European Union (EU) IVD Directive and/or the IVD Medical Device Regulation (IVDR) European Union (EU) 2017/746. The IVDR was published in 2017, will replace the IVD Directive, is significantly more extensive than the IVD Directive, including requirements on performance data and quality system, and will become fully enforceable in 2022. Outside of the EU, regulatory approval needs to be sought on a country-by-country basis in order to market medical devices. Although there is a trend towards harmonization of quality system, standards and regulations in each country may vary substantially which can affect timelines of introduction.

In the future, to the extent we develop any clinical diagnostic assays, we may pursue payment for such products through a diverse and broad range of channels and seek coverage and reimbursement by government health insurance programs and commercial third-party payors for such products. In the United States, there is no uniform coverage for clinical laboratory tests. The extent of coverage and rate of payment for covered services or items vary from payor to payor. Obtaining coverage and reimbursement for such products can be uncertain, time-consuming and expensive, and, even if favorable coverage and reimbursement status were attained for our tests, to the extent applicable, less favorable coverage policies and reimbursement rates may be implemented in the future. Changes in healthcare regulatory policies could also increase our costs and subject us to additional regulatory requirements that may interrupt commercialization of our products, decrease our revenue and adversely impact sales of, and pricing of and reimbursement for, our products.

In the event that we develop clinical diagnostic assays for which third-party reimbursement becomes available, we would also become subject to various federal and state fraud and abuse and transparency laws. Among other things, these laws may impact our arrangements with customers, as well as our consulting and other arrangements with healthcare providers and others who purchase, recommend or order our clinical diagnostic products. The federal anti-kickback statute prohibits, among other things, persons and entities from knowingly and willfully offering, paying, soliciting, or receiving remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in return for or to induce or reward the purchase, lease, order, arrangement for, or recommendation of, any item or service that is reimbursable, in whole or in part, under a federal healthcare program. In addition, the federal civil and criminal false claims laws (including the civil False Claims Act, for which claims can be brought by private citizens on behalf of the government through qui tam actions), impose liability for, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment of federal funds, and knowingly making, or causing to be made, a false record or statement material to a false or fraudulent claim. Further, the Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics, and medical supplies for which reimbursement is available under certain federal health care programs to collect and report annually certain information on payments and other transfers of value to U.S.-licensed physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Beginning in 2022, applicable manufacturers also will be required to report such information regarding its payments and other transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, anesthesiologist assistants, certified registered nurse anesthetists and certified nurse midwives during the previous year and various other providers. Analogous state laws addressing these topics may also affect our arrangements. Violations of these laws can result in significant penalties, including civil, criminal and administrative penalties, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, imprisonment, and integrity oversight and reporting obligations.

 

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For further discussion of the risks we face relating to regulation, see the section titled “Risk factors—Risks related to our business and industry— Our products could become subject to government regulation as medical devices by the FDA and other regulatory agencies even if we do not elect to seek regulatory clearance or approval to market our products for diagnostic purposes, which would adversely impact our ability to market and sell our products and harm our business. If our products become subject to FDA regulation, the regulatory clearance or approval and the maintenance of continued and post-market regulatory compliance for such products will be expensive, time-consuming, and uncertain both in timing and in outcome.”

HIPAA, as amended by HITECH, and their implementing regulations, impose obligations, including mandatory contractual terms, with respect to safeguarding the transmission, security and privacy of protected health information by covered entities subject to HIPAA, such as health plans, healthcare clearinghouses and certain healthcare providers and their respective business associates and covered subcontractors that access protected health information. HITECH also created new tiers of civil monetary penalties and made civil and criminal penalties directly applicable to business associates in some cases, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions.

In addition, in the U.S., numerous federal and state laws and regulations, including state data breach notification laws, state health information privacy laws state genetic privacy laws, federal and state research laws and federal and state consumer protection laws, govern the collection, use, disclosure and protection of health-related and other personal information. For example, in June 2018, the State of California enacted the CCPA, which came into effect on January 1, 2020 and provides new data privacy rights for consumers and new operational requirements for companies. While we do not believe we are currently subject to the CCPA, we may in the future be required to comply with the CCPA, which may increase our compliance costs and potential liability. In addition, in November 2020, California voters approved the California Privacy Rights Act (CPRA) ballot initiative which introduced significant amendments to the CCPA and established and funded a dedicated California privacy regulator, the California Privacy Protection Agency (CPPA). The amendments introduced by the CPRA go into effect on January 1, 2023, and new implementing regulations are expected to be introduced by the CPPA. This could mark the beginning of a trend toward more stringent state privacy legislation in the U.S., which could increase our potential liability and adversely affect our business.

Furthermore, the collection, use, storage, disclosure, transfer, or other processing of personal data regarding individuals in the European Economic Area (EEA), including personal health data, is subject to the GDPR, which became effective on May 25, 2018. The GDPR is wide-ranging in scope and imposes numerous requirements on companies that process personal data, including requirements relating to processing health and other sensitive data, obtaining consent of the individuals to whom the personal data relates, providing information to individuals regarding data processing activities, implementing safeguards to protect the security and confidentiality of personal data, providing notification of data breaches and taking certain measures when engaging third-party processors. The GDPR also imposes strict rules on the transfer of personal data to countries outside the EEA, including the United States, and permits data protection authorities to impose large penalties for violations of the GDPR, including potential fines of up to €20 million or 4% of annual global revenues, whichever is greater. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the GDPR. In addition, the GDPR includes restrictions on cross-border data transfers. The GDPR may increase our responsibility and liability in relation to personal data that we process where such processing is subject to the GDPR, and we may be required to put in place additional mechanisms to ensure compliance with the GDPR, including as implemented by individual countries. Compliance with the GDPR will be a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation and reputational harm in connection with our European activities. Further, the United Kingdom’s decision to leave the EU, often referred to as Brexit, has created uncertainty with regard to data protection regulation in the United Kingdom.

 

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For further discussion of the risks we face relating to regulation, see the section titled “Risk factors—Risks related to our business and industry—We are currently subject to, and may in the future become subject to additional, U.S., state and foreign laws and regulations imposing obligations on how we collect, store and process personal information. Our actual or perceived failure to comply with such obligations could harm our business. Ensuring compliance with such laws could also impair our efforts to maintain and expand our future customer base, and thereby decrease our revenue compliance with such laws could also impair our efforts to maintain and expand our future customer base, and thereby decrease our revenue.

In addition, in the United States and certain foreign jurisdictions, there have been and continue to be a number of healthcare-related legislative initiatives that have significantly affected the healthcare industry. These reform initiatives may, among other things, result in modifications to the aforementioned laws and/or the implementation of new laws affecting the healthcare industry.

Facilities

We currently lease 86,698 square feet of office, laboratory, and manufacturing space in San Diego, California under various leases that expire in 2022, 2024, 2025 and 2026. Additionally, we have executed a lease for our new headquarters and laboratory space consisting of 76,778 square feet with a target lease commencement date of April 2022 and will replace our current headquarters and a portion of our laboratory space. We believe that the facilities under our current leases are sufficient to meet our needs for the foreseeable future and that any additional space we may require will be available on commercially reasonable terms.

Environmental Matters

Our operations require the use of hazardous materials (including biological materials) which subject us to a variety of federal, state and local environmental and safety laws and regulations. Some of the regulations under the current regulatory structure provide for strict liability, holding a party potentially liable without regard to fault or negligence. We could be held liable for damages and fines as a result of our, or others’, business operations should contamination of the environment or individual exposure to hazardous substances occur. We cannot predict how changes in laws or development of new regulations will affect our business operations or the cost of compliance.

Legal Proceedings

We are not currently a party to any material legal proceedings. We endeavor to avoid being involved in legal proceedings or investigations, which could have an adverse impact on our reputation, business and financial condition. We are not aware of any issued patents that belong to third parties that would preclude the sale or use of our products. From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. Regardless of outcome, litigation can have an adverse impact on us due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors.

 

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MANAGEMENT

Executive Officers and Directors

The following table sets forth the names, ages and positions of our executive officers and directors as of May 1, 2021:

 

Name

  

Age

    

Position

Executive Officers:

     

Andrew Spaventa

     36     

Chief Executive Officer and Chairperson of the Board

Eli Glezer, Ph.D.

     52     

Chief Scientific Officer

David Daly

     59     

President and Chief Operating Officer

Jorge Velarde

     54     

Senior Vice President, Corporate Development and Strategy

Daralyn Durie

     53     

General Counsel

Dalen Meeter

     43     

Senior Vice President, Finance

Vincent Brancaccio

     38     

Vice President, Human Resources

Non-Employee Directors:

     

David Barker, Ph.D.(1)(3)

     79     

Director

Andrew ElBardissi, M.D.*

     39     

Director

Kim Kamdar, Ph.D.(2)(3)

     53     

Director

Michael Pellini, M.D.(1)(2)

     55     

Lead Independent Director

Jason Ryan(1)(2)

     47     

Director

 

(1)

Member of the audit committee

(2)

Member of the compensation committee

(3)

Member of the nominating and corporate governance committee

*

Dr. ElBardissi has submitted a resignation letter to resign from the Board effective immediately prior to the effectiveness of the registration statement of which this prospectus forms a part

Executive Officers

Andrew Spaventa. Mr. Spaventa is a founder, has served as our Chief Executive Officer and has served on our Board since the Company was created in 2016. Mr. Spaventa has also served as managing partner at Axon Ventures since March 2014. Mr. Spaventa is also a founder of Truvian Sciences, a company created in 2015. He also serves as a member of the board of directors of Aspen Neuroscience. He is a member of the board of the non-profit San Diego Venture Group. Previously, from 2009 to 2013, Mr. Spaventa was a co-founder of ecoATM, which was acquired by Outerwall (Coinstar) in 2012. From 2013 to 2016, Mr. Spaventa was a consultant for Edico Genome, which was acquired by Illumina in 2018. Mr. Spaventa received a B.A. in political science and international relations from the University of California, San Diego and attended law school at the University of San Diego for one year. Mr. Spaventa also holds an M.B.A. from University of California, San Diego – Rady School of Management. We believe Mr. Spaventa’s service as our Chief Executive Officer, his experience as a venture capital investor, his professional experience in the life science and genomics space, and his extensive understanding of our business, operations, and strategy qualify him to serve on our board of directors.

Eli Glezer, Ph.D. Dr. Glezer is a founder and has been our Chief Scientific Officer since founding the Company in 2016. Prior to joining the Company, Dr. Glezer was the Chief Technology Officer for Meso Scale Diagnostics, where he led the design of design and development of multi-array electrochemiluminescence technology and multiplexed immunoassays from concept to multiple products, from 1997 to 2016. Dr. Glezer received a B.S. in Mechanical Engineering with highest honors from the University of California, Berkeley and a Ph.D. from Harvard University in Applied Physics. Dr. Glezer holds over 60 issued U.S. patents.

 

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David Daly. Mr. Daly has served as our President and Chief Operating Officer since February 2021. Prior to joining the Company, Mr. Daly was the chief executive officer of Thrive Earlier Detection Corp., a cancer detection and diagnostic company, from August 2019 to January 2021. Mr. Daly previously was the senior vice president and general manager of commercial operations for the Americas region at Illumina, Inc. from November 2017 to August 2019. Prior to Illumina, Mr. Daly was general manager and chief commercial officer at Foundation Medicine from December 2014 to August 2017, where he was responsible for all commercial functions, including sales, marketing, client services, payer relations and medical affairs. Previously, he led the oncology business unit at Life Technologies, served as chief commercial officer at Clarient, Inc., and held roles at Roche Diagnostics and Abbott Laboratories. Mr. Daly holds a B.A. in economics from the University of California, Irvine and an M.A. in economics from the University of California, Santa Barbara.

Jorge Velarde. Mr. Velarde has served as our Senior Vice President of Corporate Development and Strategy since October 2018. Mr. Velarde also served as Chief Executive Officer and President of BaseHealth, Inc., a company focused on developing an integrated health management platform combining genomic data- with clinical and behavioral analysis, from January 2014 until January 2015. Earlier in his career, Mr. Velarde was Vice President of Business Development at Illumina, Inc, a business development lead at Gen-Probe, Inc. and the scientific co-founder of Chugai Biopharmaceuticals. Mr. Velarde holds a B.S. in Molecular Biology and minor in Chemistry from Loyola University New Orleans and an M.B.A. from the University of California Irvine – Paul Merage School of Business.

Daralyn Durie. Ms. Durie has served as our General Counsel since March 2021. Ms. Durie is a co-founding partner of Durie Tangri, a leading litigation law firm, commencing in 2009. Ms. Durie previously was a partner at Keker & Van Nest and was an associate at the firm before that. Ms. Durie commenced her career as a clerk for the Honorable Douglas Ginsburg on the United States Court of Appeals for the District of Columbia Circuit. Ms. Durie is a fellow in the American College of Trial Lawyers, a past President of the Board of Directors of the Northern California Association of Business Trial Lawyers, a former co-chair of the Lawyer Representatives to the Ninth Circuit Judicial Conference, and a court-appointed Early Neutral Evaluator for the Northern District of California. Ms. Durie holds an A.B. in Human Biology and Comparative Literature from Stanford University, an M.A. in Comparative Literature from the University of California, Berkeley and a J.D. from the University of California, Berkeley.

Dalen Meeter. Mr. Meeter served as our Vice President of Finance from December 2019 until his appointment as Senior Vice President of Finance in May 2021. Prior to joining the Company, Mr. Meeter served in various finance positions at Illumina, Inc., including Senior Director, Finance, from September 2010 to November 2019. Prior to Illumina, Mr. Meeter held a variety of finance and accounting leadership positions at Websense and EMC Captiva Software. Mr. Meeter started his career at KPMG LLP in the Audit and Advisory practice. He holds a B.A. in Business Economics from the University of California, Santa Barbara, an M.B.A. from the Marshall School of Business at the University of Southern California, and is a licensed CPA in the state of California.

Vincent Brancaccio. Mr. Brancaccio has served as our Vice President of Human Resources since September 2019. Prior to joining the Company, Mr. Brancaccio served as Director of Global Compensation at NuVasive from May 2014 until August 2019. Mr. Brancaccio also serves as a consultant to PeopleTech Partners, a venture capital firm focused on the human resources space. Mr. Brancaccio holds a B.A. in Business Management and Economics from University of California, Santa Cruz and an M.B.A. from the Rady School of Management at the Uni