CAREDX, INC The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited condensed consolidated financial statements and related notes included elsewhere in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 , filed with theSecurities and Exchange Commission , or theSEC , onFebruary 28, 2020 . SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "potentially," "estimate," "continue," "anticipate," "intend," "could," "should," "would," "project," "plan," "target," "contemplate," "predict," "expect" and the negative and plural forms of these words and similar expressions are intended to identify forward-looking statements. These forward-looking statements may include, but are not limited to, statements concerning the following: •the potential impact to our business, revenue, financial condition and employees, including disruptions to our testing services, laboratories, clinical trials, supply chain and operations, due to the COVID-19 global pandemic; •our ability to take advantage of opportunities under the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, and the potential impact of the CARES Act on our business, results of operations, financial condition or liquidity; •our ability to generate revenue and increase the commercial success of our current and future testing services, products and digital solutions; •our ability to obtain, maintain and expand reimbursement coverage from payers for our current and other future testing services, if any; •our plans and ability to continue updating our testing services, products and digital solutions to maintain our leading position in transplantations; •the outcome or success of our clinical trial collaborations and registry studies; including Kidney Allograft Outcomes AlloSure Registry, or K-OAR, the Outcomes of KidneyCare™ on Renal Allografts registry study, or OKRA, and the Surveillance HeartCare Outcomes Registry, or SHORE; •the favorable review of our testing services and product offerings, and our future solutions, if any, in peer-reviewed publications; •our ability to obtain additional financing on terms favorable to us, or at all; •our anticipated cash needs and our anticipated uses of our funds, including our estimates regarding operating expenses and capital requirements; •anticipated trends and challenges in our business and the markets in which we operate; •our dependence on certain of our suppliers, service providers and other distribution partners; 25 -------------------------------------------------------------------------------- Table of Contents •disruptions to our business, including disruptions at our laboratories and manufacturing facilities; •our ability to retain key members of our management team; •our ability to make successful acquisitions or investments and to manage the integration of such acquisitions or investments; •our ability to expand internationally; •our compliance with federal, state and foreign regulatory requirements; •our ability to protect and enforce our intellectual property rights, our strategies regarding filing additional patent applications to strengthen our intellectual property rights, and our ability to defend against intellectual property claims that may be brought against us; •our ability to successfully assert, defend against or settle any litigation brought by or against us or other legal matters or disputes; and •our ability to comply with the requirements of being a public company. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 , filed with theSEC onFebruary 28, 2020 . Moreover, we operate in a very competitive and rapidly changing environment, and 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 and adversely 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 report 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, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with theSEC as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect. We qualify all forward-looking statements by these cautionary statements. Overview and Recent HighlightsCareDx, Inc. (collectively, the "Company", "we", "us" and "our") is a leading precision medicine company focused on the discovery, development and commercialization of clinically differentiated, high-value diagnostic solutions for transplant patients and caregivers. We offer testing services, products, and digital healthcare solutions along the pre- and post-transplant patient journey, and we are a leading provider of genomics-based information for transplant patients. Highlights for the Three Months EndedJune 30, 2020 and Recent Highlights •Achieved total revenue of$41.8 million for the three months endedJune 30, 2020 , increasing 33% year-over-year •Provided over 17,100 AlloSure Kidney and AlloMap Heart patient results, with over 40% originating from RemoTraC and mobile phlebotomy •Recorded first-ever AlloCell revenue from a cell therapy partnership •Completed successful public offering raising$134.6 million in net proceeds, increasing cash and cash equivalents to approximately$211.4 million Testing Services Heart 26 -------------------------------------------------------------------------------- Table of Contents AlloMap Heart is a gene expression test that helps clinicians monitor and identify heart transplant recipients with stable graft function who have a low probability of moderate-to-severe acute cellular rejection. Since 2008, we have sought to expand the adoption and utilization of our AlloMap Heart solution through ongoing studies to substantiate the clinical utility and actionability, secure positive reimbursement decisions from large private and public payers, develop and enhance our relationships with key members of the transplant community, including opinion leaders at major transplant centers, and explore opportunities and technologies for the development of additional solutions for post-transplant surveillance. We believe the use of AlloMap Heart, in conjunction with other clinical indicators, can help healthcare providers and their patients better manage long-term care following a heart transplant, can improve patient care by helping healthcare providers avoid the use of unnecessary, invasive surveillance biopsies and may help to determine the appropriate dosage levels of immunosuppressants. In 2008, AlloMap Heart received 510(k) clearance from theU.S. Food and Drug Administration for marketing and sale as a test to aid in the identification of heart transplant recipients, who have a low probability of moderate/severe acute cellular rejection at the time of testing, in conjunction with standard clinical assessment. AlloMap Heart has been a covered service for Medicare beneficiaries sinceJanuary 1, 2006 . The Medicare reimbursement rate for AlloMap Heart is currently$3,240 . AlloMap Heart has also received positive coverage decisions for reimbursement from many of the largestU.S. private payers, including Aetna, Anthem, Cigna,Health Care Services Corporation , or HCSC, Humana,Kaiser Foundation Health Plan, Inc. and UnitedHealthcare. We have also successfully completed a number of landmark clinical trials in the transplant field demonstrating the clinical utility of AlloMap Heart for surveillance of heart transplant recipients. We initially established the analytical and clinical validity of AlloMap Heart on the basis of our Cardiac Allograft Rejection Gene Expression Observational (Deng, M. et al., Am J Transplantation 2006), or CARGO, study, which was published in theAmerican Journal of Transplantation . A subsequent clinical utility trial, Invasive Monitoring Attenuation through Gene Expression (Pham MX et al.,N. Eng . J. Med., 2010), or IMAGE, published inThe New England Journal of Medicine , demonstrated that clinical outcomes in recipients managed with AlloMap Heart surveillance were equivalent (non-inferior) to outcomes in recipients managed with biopsies. The results of our clinical trials have also been presented at major medical society congresses. AlloMap Heart is now recommended as part of theInternational Society for Heart and Lung Transplantation , or ISHLT, guidelines. HeartCare HeartCare includes the gene expression profiling technology of AlloMap Heart with the dd-cfDNA analysis of AlloSure Heart in one surveillance solution. An approach to surveillance using HeartCare provides information from two complementary measures: (i) AlloMap Heart - a measure of immune activation, and (ii) AlloSure Heart - a measure of graft injury. Clinical validation data from the Donor-Derived Cell-Free DNA-Outcomes AlloMap Registry (NCT02178943), or D-OAR, was published inAmerican Journal of Transplant , or AJT, in 2019. D-OAR was an observational, prospective, multicenter study to characterize the AlloSure-Heart dd-cfDNA in a routine, clinical surveillance setting with heart transplant recipients. The D-OAR study was designed to validate that plasma levels of AlloSure-Heart dd-cfDNA can discriminate acute rejection from no rejection, as determined by endomyocardial biopsy criteria. HeartCare provides robust information about distinct biological processes, such as immune quiescence, active injury, Acute Cellular Rejection, or ACR, and Antibody Mediated Rejection. InSeptember 2018 , we initiated the SHORE study. SHORE is a prospective, multi-center, observational, registry of patients receiving HeartCare for surveillance. Patients enrolled in SHORE will be followed for 5 years with collection of clinical data and assessment of 5-year outcomes. InAugust 2019 , AlloSure Heart received a positive draft Local Coverage Determination for Medicare coverage. We have not yet made any applications to private payers for reimbursement coverage of AlloSure Heart. Kidney AlloSure Kidney, our transplant surveillance solution, which was commercially launched inOctober 2017 , is our donor-derived cell-free DNA, or dd-cfDNA, offering built on a Next Generation Sequencing, or NGS, platform. In transplantation, 109 papers from 55 studies globally have shown the value of dd-cfDNA in the management of solid organ transplantation. AlloSure allows sequencing of DNA and RNA much more quickly than the previously used Sanger sequencing. AlloSure is able to discriminate dd-cfDNA from recipient-cell-free DNA, targeting polymorphisms between donor and recipient. This single-nucleotide polymorphism, or SNPs, approach across all the somatic chromosomes is specifically designed for transplantation, allowing a scalable, high-quality test to differentiate dd-cfDNA. AlloSure Kidney has received positive coverage decisions for reimbursement from Medicare. The Medicare reimbursement rate for AlloSure Kidney is$2,841 . AlloSure Kidney has also received positive coverage decisions from BCBS South Carolina and BCBS Kansas City, and is reimbursed by other private payers on a case-by-case basis. 27 -------------------------------------------------------------------------------- Table of Contents Multiple studies have demonstrated that significant allograft injury can occur in the absence of changes in serum creatinine. Thus, clinicians have limited ability to detect injury early and intervene to prevent long term damage using this marker. While histologic analysis of the allograft biopsy specimen remains the standard method used to assess injury and differentiate rejection from other injury in kidney transplants, as an invasive test with complications, repetitive biopsies are not well tolerated. AlloSure provides a non-invasive test, assessing allograft injury that enables more frequent, quantitative and safer assessment of allograft rejection and injury status. Beyond allograft rejection, the assessment of molecular inflammation has shown further utility in the assessment of proteinuria, formation of De Novo donor specific antibodies, or DSAs, and also as a surrogate predictive measure of estimated glomerular filtration rate, or eGFR, decline. Monitoring of graft injury through AlloSure allows clinicians to optimize allograft biopsies, identify allograft injury and guide immunosuppression management more accurately. Since the analytical validation paper in theJournal of Molecular Diagnostics in 2016 before the commercial launch of AlloSure Kidney, an increasing body of evidence supports the use of AlloSure dd-cfDNA in the assessment and surveillance of kidney transplants. Bloom et al evaluated 102 kidney recipients and demonstrated that dd-cfDNA levels could discriminate accurately and non-invasively distinguish rejection from other types of graft injury. In contrast, serum creatinine has area under the curve, or AUC, of 50%, showing no significant difference between patients with and without rejection. Multiple publications and abstracts have shown AlloSure's value in the management of BK viremia, as well as numerous pathologies that cause molecular inflammation and injury such as DSAs and eGFR decline. Most recently its utility in the assessment of T-cell mediated rejection (TCMR) 1A and borderline rejection has also been published in the AJT. The prospective multicenter trial: Kidney Allograft Outcomes AlloSure Kidney Registry, or the K-OAR study, is currently ongoing and has enrolled over 1,600 patients, with plans to survey patients with AlloSure for 3 years and provide further clinical utility of AlloSure Kidney in the surveillance of kidney transplant recipients. KidneyCare KidneyCare combines the dd-cfDNA analysis of AlloSure Kidney with the gene expression profiling technology of AlloMap Kidney and the predictive artificial intelligence technology of KidneyCare iBox in one surveillance solution. We have not yet made any applications to payers for reimbursement coverage of AlloMap Kidney or KidneyCare iBox. InSeptember 2019 , we announced the enrollment of the first patient in the OKRA study, which is an extension of the K-OAR study. OKRA is a prospective, multi-center, observational registry of patients receiving KidneyCare for surveillance. Combined with K-OAR, 4,000 patients will be enrolled into the study. Lung InFebruary 2019 , AlloSure Lung became available for lung transplant patients through a compassionate use program while the test is undergoing further studies. AlloSure Lung applies proprietary NGS technology to measure dd-cfDNA from the donor lung in the recipient bloodstream to monitor graft injury. We have not yet made any applications to payers for reimbursement coverage of AlloSure Lung. Cellular Therapy InApril 2020 , we initiated a research partnership for AlloCell, a surveillance solution that monitors the level of engraftment and persistence of allogeneic cells for patients who have received cell therapy transplants. AlloCell will initially be commercialized through collaborative research agreements with biopharma companies developing cell therapies. Products We develop, manufacture, market and sell products that increase the chance of successful transplants by facilitating a better match between a solid organ or stem cell donor and a recipient, and help to provide post-transplant surveillance of these recipients. QTYPE enables Human Leukocyte Antigen or HLA typing at a low to intermediate resolution for samples that require a fast turn-around-time and uses real-time polymerase chain reaction, or PCR, methodology. Olerup SSP is used to type HLA alleles based on the sequence specific primer, or SSP, technology. Olerup SBT is a complete product range for sequence-based typing of HLA alleles. OnMay 4, 2018 , we entered into a license agreement with Illumina, Inc., or the Illumina Agreement, which provides us with worldwide distribution, development and commercialization rights to Illumina's NGS products and technologies for use in transplantation diagnostic testing. OnJune 1, 2018 , we became the exclusive worldwide distributor of Illumina's TruSight HLA product line. TruSight HLA is a high-resolution solution that uses NGS methodology. In addition, we were granted the exclusive right to develop and commercialize other NGS product lines in the field of bone marrow and solid organ transplantation on diagnostic testing. These 28 -------------------------------------------------------------------------------- Table of Contents NGS products include: AlloSeq Tx, a high-resolution HLA typing solution, AlloSeq cfDNA, our surveillance solution designed to measure dd-cfDNA in blood to detect active rejection in transplant recipients, and AlloSeq HCT, a NGS solution for chimerism testing for stem cell transplant recipients. InSeptember 2019 , we commercially launched AlloSeq cfDNA, our surveillance solution designed to measure dd-cfDNA in blood to detect active rejection in transplant recipients, and we received CE mark approval onJanuary 10, 2020 . Our ability to increase the clinical uptake for AlloSeq cfDNA will be a result of multiple factors including local clinical education, customer lab technical proficiency and levels of country-specific reimbursement. Also inSeptember 2019 , we commercially launched AlloSeq Tx, the first of its kind NGS high-resolution HLA typing solution utilizing hybrid capture technology. This technology enables the most comprehensive sequencing, covering more of the HLA genes than current solutions and adding coverage of non-HLA genes that may impact transplant patient matching and management. AlloSeq Tx has simple NGS workflow, with a single tube for processing and steps to reduce errors. AlloSeq Tx 17 received CE mark approval onMay 15, 2020 . InJune 2020 , we commercially launched AlloSeq HCT, a NGS solution for chimerism testing for stem cell transplant recipients. This technology can provide better sensitivity and data analysis compared to current solutions on the market. Digital In 2019, we began providing digital solutions to transplant centers following the acquisition of Ottr Complete Transplant Management, or OttrCare, andXynManagement, Inc. , or XynManagement. OnMay 7, 2019 , we acquired 100% of the outstanding common stock of OttrCare. OttrCare was formed in 1993 and is a leading provider of transplant patient tracking software, or the Ottr software, which provides comprehensive solutions for transplant patient management. The Ottr software enables integration with electronic medical records, systems, including Cerner and Epic, providing patient surveillance management tools and outcomes data to transplant centers. OnAugust 26, 2019 , we acquired 100% of the outstanding common stock of XynManagement. XynManagement provides two unique solutions, XynQAPI software, or XynQAPI, and Waitlist Management. XynQAPI simplifies transplant quality tracking and Scientific Registry of Transplant Recipients, or SRTR, reporting. Waitlist Management includes a team of transplant assistants who maintain regular contact with patients on the waitlist to help prepare for their transplant and maintain eligibility. COVID-19 Impact In the final weeks of March and duringApril 2020 , with hospitals increasingly caring for COVID-19 patients, hospital administrators chose to limit or even defer, non-emergency procedures. Immunosuppressed transplant patients either self-prescribed or were asked to avoid transplant centers and caregiver visits to reduce the risk of contracting COVID-19. As a result, with transplant surveillance visits down, we experienced a slowdown in testing services volumes in the final weeks of March and duringApril 2020 . As a response to the COVID-19 pandemic, and to enable immune-compromised transplant patients to continue to have their blood drawn, in lateMarch 2020 we launched RemoTraC, a remote home-based blood draw solution using mobile phlebotomy for AlloSure and AlloMap surveillance tests, as well as for other standard monitoring tests. To date, more than 150 transplant centers can offer RemoTraC to their patients and over 4,000 kidney, heart, and lung transplant patients have enrolled. Based on existing and new relationships with partners, we have established a nationwide network of more than 10,000 mobile phlebotomists. Following the introduction of RemoTraC and with the easing of stay-at-home restrictions and the opening up of many hospitals to non-COVID-19 patients, our testing services volumes returned to levels consistent with those experienced immediately prior to the impact of COVID-19, and volumes continued to be at or above those levels throughoutMay 2020 andJune 2020 . However, our product business experienced a reduction in forecasted sales volume throughout the second quarter 2020, as we were unable to undertake onsite discussions and demonstrations of our recently launched NGS products, including AlloSeq Tx 17, which was awarded CE mark approval inMay 2020 . We are maintaining our testing, manufacturing, and distribution facilities while implementing specific protocols to reduce contact among our employees. In areas where COVID-19 impacts healthcare operations, our field-based sales and clinical support teams are supporting providers through telephone and online platforms. To reduce the risk to employees and their families from potential exposure to COVID-19, most of our corporate employees have been asked to work from home. We have also restricted non-essential business travel to protect the health and safety of its employees, patients, and customers. In addition, we have created a COVID-19 task force that is responsible for crisis decision making, employee communications, enforcing pre-arrival temperature checking, daily health check-ins and enhanced safety training/protocols in our offices for employees that cannot work from home. Due to COVID-19, quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur or could impact personnel at third-party suppliers inthe United States and other countries, or the availability or cost of materials, there may be disruptions in our supply chain. Any 29 -------------------------------------------------------------------------------- Table of Contents manufacturing supply interruption of materials could adversely affect our ability to conduct ongoing and future research and testing activities. In addition, our clinical studies may be affected by the COVID-19 pandemic. Clinical site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 pandemic. Some patients may not be able to comply with clinical study protocols if quarantines impede patient movement or interrupt healthcare services. Similarly, the ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19, may adversely impact our clinical trial operations. Financial Operations Overview Revenue We derive our revenue from testing services, products sales and digital and other revenues. Revenue is recorded considering a five-step revenue recognition model that includes identifying the contract with a customer, identifying the performance obligations in the contract, determining the transaction price, allocating the transaction price to the performance obligations and recognizing revenue when, or as, an entity satisfies a performance obligation. Testing Services Revenue Our testing services revenue is derived from AlloSure Kidney and AlloMap Heart tests, which represented 87% and 84% of our total revenues for the three and six months endedJune 30, 2020 , respectively, and 82% of our total revenues for each of the three and six months endedJune 30, 2019 . Our testing services revenue depends on a number of factors, including (i) the number of tests performed; (ii) establishment of coverage policies by third-party insurers and government payers; (iii) our ability to collect from payers with whom we do not have positive coverage determination, which often requires that we pursue a case-by-case appeals process; (iv) our ability to recognize revenues on tests billed prior to the establishment of reimbursement policies, contracts or payment histories; (v) our ability to expand into markets outside ofthe United States ; and (vi) how quickly we can successfully commercialize new product offerings. We currently market testing services to healthcare providers through our direct sales force that targets transplant centers and their physicians, coordinators and nurse practitioners. The healthcare providers that order the tests and on whose behalf we provide our testing services are generally not responsible for the payment of these services. Amounts received by us vary from payer to payer based on each payer's internal coverage practices and policies. We generally bill third-party payers upon delivery of a test result report to the ordering physician. As such, we take the assignment of benefits and the risk of collection from the third-party payer and individual patients. InApril 2020 , we announced our first biopharma research partnership for AlloCell, a surveillance solution that monitors the level of engraftment and persistence of allogeneic cells for patients who have received cell therapy transplants. AlloCell will initially be commercialized through collaborative research agreements with biopharma companies developing cell therapies. Product Revenue Our product revenue is derived primarily from sales of Olerup SSP, QTYPE, TruSight and AlloSeq Tx products. Product revenue represented 8% and 10% of total revenue for the three and six months endedJune 30, 2020 , respectively, and 15% and 16% of total revenue for the three and six months endedJune 30, 2019 , respectively. We recognize product revenue from the sale of products to end-users, distributors and strategic partners when all revenue recognition criteria are satisfied. We generally have a contract or a purchase order from a customer with the specified required terms of order, including the number of products ordered. Transaction prices are determinable and products are delivered and risk of loss passed to the customer upon either shipping or delivery, as per the terms of the agreement. There are no further performance obligations related to a contract and revenue is recognized at the point of delivery consistent with the terms of the contract or purchase order. Digital and Other Revenue Our digital and other revenue is mainly derived from sales of our Ottr software and XynQAPI licenses and services and other licensing agreements. Digital and other revenue represented 5% and 6% of total revenue for the three and six months endedJune 30, 2020 , respectively, and 4% and 2% of total revenue for the three and six months endedJune 30, 2019 , respectively. Critical Accounting Policies and Significant Judgments and Estimates Our management's discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance withUnited States generally accepted accounting principles. The preparation of these unaudited condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, as well as the reported revenue generated 30 -------------------------------------------------------------------------------- Table of Contents 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 different assumptions or conditions. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our financial statements. We believe the following critical accounting policies are affected by significant judgments and estimates used in the preparation of our unaudited condensed consolidated financial statements: •Revenue recognition; •Business combination; •Acquired intangible assets; •Impairment of goodwill, intangible assets and other long-lived assets; and •Common stock warrant liability. There were no material changes in the matters for which we make critical accounting estimates in the preparation of our unaudited condensed consolidated financial statements during the three and six months endedJune 30, 2020 as compared to those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our annual report on Form 10-K for the year endedDecember 31, 2019 , except that there is no derivative liability outstanding as ofDecember 31, 2019 andJune 30, 2020 and the determination of the estimated present value of lease payments using our incremental borrowing rate as discussed in Note 2, Summary of Significant Accounting Policies, in the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Recently Issued Accounting Standards Refer to Note 2, Summary of Significant Accounting Policies - Recent Accounting Pronouncements, to the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a description of recently issued accounting pronouncements, including the expected dates of adoption and estimated effects on our results of operations, financial position and cash flows. 31 -------------------------------------------------------------------------------- Table of Contents Results of Operations Comparison of the Three Months EndedJune 30, 2020 and 2019 (In thousands) Three Months Ended June 30, 2020 2019 Change Revenue: Testing services revenue$ 36,293 $ 25,677 $ 10,616 Product revenue 3,291 4,593 (1,302) Digital and other revenue 2,217 1,184 1,033 Total revenue 41,801 31,454 10,347 Cost of revenue 15,025 11,512 3,513 Gross profit 26,776 19,942 6,834 Operating expenses: Research and development 13,129 7,630 5,499 Sales and marketing 12,134 10,644 1,490 General and administrative 12,316 8,512 3,804 Total operating expenses 37,579 26,786 10,793 Loss from operations (10,803) (6,844) (3,959) Other income (expense): Interest income, net 21 300 (279)
Change in estimated fair value of common stock warrant liability
(664) (1,351) 687
CARES Act Provider Relief Fund 4,813 - 4,813
Other expense, net (255) (172) (83)
Total other income (expense) 3,915 (1,223) 5,138
Loss before income taxes (6,888) (8,067) 1,179
Income tax benefit 330 220 110
Net loss $ (6,558) $ (7,847) $ 1,289
Testing Services Revenue
Testing services revenue increased by $10.6 million , or 41%, for the three
months ended June 30, 2020 as compared to the same period in 2019. This increase
is primarily due to an increase of more than 5,200 test results provided in the
three months ended June 30, 2020 , compared to the same period in 2019. Due to
COVID-19, with transplant surveillance visits down, we experienced a slowdown in
testing services volumes in the final weeks of March and during April 2020 .
Following the introduction of RemoTraC and with the easing of stay-at-home
restrictions and the opening up of many hospitals to non-COVID-19 patients, the
Company's testing services volumes returned to levels consistent with those
experienced immediately prior to the COVID-19 pandemic, and volumes continued to
be at or above those levels throughout May 2020 and June 2020 .
Product Revenue
Product revenue decreased $1.3 million , or 28%, for the three months ended June
30, 2020 , compared to the same period in 2019. The Company's product business
experienced a reduction in sales volume throughout the second quarter 2020, as
it was unable to undertake onsite discussions and demonstrations of its recently
launched NGS products, including AlloSeq Tx 17, which was awarded CE mark
approval in May 2020 .
Digital and Other Revenue
Digital and other revenue increased by $1.0 million , or 87% for the three months
ended June 30, 2020 compared to the same period in 2019, primarily due to the
acquisition of OttrCare in May 2019 and XynManagement in August 2019 .
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Cost of Revenue and Gross Profit
Cost of revenue increased by approximately $3.5 million , or 31%, for the three
months ended June 30, 2020 , compared to the same period in 2019, primarily due
to an increase in testing volume, the cost of providing RemoTrac and increased
utilization of mobile phlebotomy, and the acquisitions of OttrCare in May 2019
and XynManagement in August 2019 .
Gross profit increased by $6.8 million , or 34%, for the three months ended June
30, 2020 compared to the same period in 2019, primarily due to an increase in
revenue from testing volumes and the acquisitions of OttrCare in May 2019 and
XynManagement in August 2019 , partially offset by the cost of providing
RemoTraC, increased utilization of mobile phlebotomy and a reduction in product
revenue.
Research and Development
Research and development expenses increased by $5.5 million , or 72%, for the
three months ended June 30, 2020 , compared to the same period in 2019, primarily
due to an increase in personnel-related costs of $2.9 million , an increase of
$1.3 million in clinical studies, a $0.8 million increase in consulting and
professional fees and a $0.4 million increase in license and collaboration fees.
Sales and Marketing
Sales and marketing expenses increased by approximately $1.5 million , or 14%,
for the three months ended June 30, 2020 , compared to the same period in 2019,
primarily due to an increase in personnel-related costs of $2.0 million and
stock-based compensation expense of $0.6 million . These increases were partially
offset by a decrease in travel costs of $1.0 million and a decrease of $0.3
million in tradeshow and marketing costs due to COVID-19.
General and Administrative
General and administrative expenses increased by $3.8 million , or 45%, for the
three months ended June 30, 2020 compared to the same period in 2019. This
increase was primarily due to an increase in personnel-related costs of $1.7
million and stock-based compensation expense of $0.6 million , an increase in
legal fees of $1.2 million related to litigation and a $0.7 million increase in
consulting and professional fees, partially offset by a decrease in travel
expenses of $0.3 million due to COVID-19.
Change in Estimated Fair Value of Common Stock Warrant Liability
The change in estimated fair value of common stock warrant liability decreased
from an expense of $1.4 million for the three months ended June 30, 2019 to an
expense of $0.7 million for the three months ended June 30, 2020 , resulting in a
net change of $0.7 million , or 51%.
The $0.7 million expense in the three months ended June 30, 2020 reflects a
remeasurement charge of related to the change in the fair value of our common
stock warrant liability.
The $1.4 million expense in the three months ended June 30, 2019 is comprised of
a $0.1 million remeasurement charge for warrants exercised during the period and
a $1.3 million remeasurement charge related to the change in fair value of our
common stock warrant liability. These remeasurement charges reflect the increase
in the price of shares of our common stock during the three months ended June
30, 2019 .
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Comparison of the Six Months Ended June 30, 2020 and 2019
Six Months Ended June 30,
2020 2019 Change
Revenue:
Testing services revenue $ 67,735 $ 47,195 $ 20,540
Product revenue 7,986 9,026 (1,040)
Digital and other revenue 4,460 1,215 3,245
Total revenue 80,181 57,436 22,745
Cost of revenue 27,417 21,245 6,172
Gross profit 52,764 36,191 16,573
Operating expenses:
Research and development 23,142 13,244 9,898
Sales and marketing 23,857 17,569 6,288
General and administrative 22,319 17,618 4,701
Total operating expenses 69,318 48,431 20,887
Loss from operations (16,554) (12,240) (4,314)
Other income (expense):
Interest income, net 117 642 (525)Change in estimated fair value of common stock warrant liability
(1,069) (4,360) 3,291
CARES Act Provider Relief Fund 4,813 - 4,813
Other expense, net (318) (246) (72)
Total other income (expense) 3,543 (3,964) 7,507
Loss before income taxes (13,011) (16,204) 3,193
Income tax benefit 630 826 (196)
Net loss $ (12,381) $ (15,378) $ 2,997
Testing Services Revenue
Testing services revenue increased by $20.5 million , or 44%, for the six months
ended June 30, 2020 as compared to the same period in 2019. This increase is
primarily due to an increase of more than 10,200 test results provided in the
six months ended June 30, 2020 , compared to the same period in 2019. Due to
COVID-19, with transplant surveillance visits down, we experienced a slowdown in
testing services volumes in the final weeks of March and during April 2020 .
Following the introduction of RemoTraC and with the easing of stay-at-home
restrictions and the opening up of many hospitals to non-COVID-19 patients, the
Company's testing services volumes returned to levels consistent with those
experienced immediately prior to the COVID-19 pandemic, and volumes continued to
be at or above those levels throughout May 2020 and June 2020 .
Product Revenue
Product revenue decreased $1.0 million , or 12% for the six months ended June 30,
2020 , compared to the same period in 2019. The Company's product business
experienced a reduction in sales volume throughout the second quarter 2020, as
it was unable to undertake onsite discussions and demonstrations of its recently
launched NGS products, including AlloSeq Tx 17, which was awarded CE mark
approval in May 2020 .
Digital and Other Revenue
Digital and other revenue increased by $3.2 million for the six months ended
June 30, 2020 compared to the same period in 2019, primarily due to the
acquisition of OttrCare in May 2019 and XynManagement in August 2019 .
Cost of Revenue and Gross Profit
Cost of revenue increased by approximately $6.2 million , or 29%, for the six
months ended June 30, 2020 , compared to the same period in 2019, primarily due
to an increase in testing volume, the cost of providing RemoTraC and increased
utilization of mobile phlebotomy, and the acquisitions of OttrCare in May 2019
and XynManagement in August 2019 .
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Gross profit increased by $16.6 million , or 46%, for the six months ended
June 30, 2020 compared to the same period in 2019, primarily due to an increase
in revenue from testing volumes and the acquisitions of OttrCare in May 2019 and
XynManagement in August 2019 , partially offset by the cost of providing
RemoTraC, increased utilization of mobile phlebotomy and a reduction in product
revenue.
Research and Development
Research and development expenses increased by $9.9 million , or 75%, for the six
months ended June 30, 2020 , compared to the same period in 2019, primarily due
to an increase in personnel-related costs of $5.1 million , a $2.4 million
increase in clinical studies, a $1.6 million increase in consulting and
professional fees and a $0.4 million increase in license and collaboration fees.
Sales and Marketing
Sales and marketing expenses increased by approximately $6.3 million , or 36%,
for the six months ended June 30, 2020 , compared to the same period in 2019,
primarily due to an increase in personnel-related costs of $4.6 million , and
stock-based compensation expense of $0.9 million , a $1.2 million increase in
marketing and sponsorship event costs partially offset by a decrease in travel
costs of $0.6 million due to COVID-19.
General and Administrative
General and administrative expenses increased by $4.7 million , or 27%, for the
six months ended June 30, 2020 , compared to the same period in 2019. This
increase was primarily due to a $2.5 million increase in personnel-related
costs, an increase in consulting and professional fees of $1.9 million and a
$1.5 million increase in legal fees related to litigation, partially offset by a
decrease in stock-based compensation expense of $1.0 million and a decrease in
travel expenses of $0.4 million due to COVID-19.
Change in Estimated Fair Value of Common Stock Warrant Liability
The change in estimated fair value of common stock warrant liability decreased
from an expense of $4.4 million for the six months ended June 30, 2019 to an
expense of $1.1 million for the six months ended June 30, 2020 , resulting in a
net change of $3.3 million , or 75%.
The $1.1 million expense in the six months ended June 30, 2020 reflects a
remeasurement gain of $4.9 million for the change in the fair value of our
common stock warrant liability and a remeasurement charge of $6.0 million for
warrants exercised during the period. In the six months ended June 30, 2020 ,
warrants to purchase approximately 272,000 shares of common stock with an
average exercise price of $1.12 per share were exercised.
The $4.4 million expense in the six months ended June 30, 2019 is comprised of a
$1.0 million remeasurement charge for warrants exercised during the period and a
$3.4 million remeasurement charge related to the change in fair value of our
common stock warrant liability.
Cash Flows for the Six Months Ended June 30, 2020 and 2019
The following table summarizes the primary sources and uses of cash for the
periods presented:
Six Months Ended
June 30,
2020 2019
(in thousands)
Net cash provided by (used in):
Operating activities $ 21,043 $ (2,291)
Investing activities (5,684) (17,722)
Financing activities 157,961 (960)Effect of exchange rate changes on cash, cash equivalents and restricted cash
(137) (111)
Net increase (decrease) in cash, cash equivalents and restricted
cash $ 173,183 $ (21,084)
Operating Activities
Net cash provided by (used in) operating activities consists of net loss,
adjusted for certain noncash items in the condensed consolidated statement of
operations and changes in operating assets and liabilities.
Cash provided by operating activities for the six months ended June 30, 2020 was
$21.0 million . Our net loss of $12.4 million included $4.8 million of cash
provided by the CARES Act Provider Relief Fund , and our net loss was our primary
use of cash
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in operating activities that included a number of noncash items. Our noncash
items included a $10.7 million stock-based compensation expense, a $1.1 million
loss on the revaluation of common stock warrant liability to estimated fair
value and $3.2 million of depreciation and amortization expense. Net operating
assets decreased by $16.9 million , primarily due to the increase in Deferred
revenue - CMS advance payment of $20.5 million .
Cash used in operating activities for the six months ended June 30, 2019 was
$2.3 million . Our net loss of $15.4 million was our primary use of cash in
operating activities and included a number of noncash items. Our noncash items
included a $11.0 million stock-based compensation expense, a $4.4 million loss
on the revaluation of common stock warrant and derivative liabilities to
estimated fair value, a $2.4 million of depreciation and amortization expense, a
$0.2 million non-cash lease expense and an impairment expense of $0.1 million .
Net operating assets decreased by $5.0 million .
Investing Activities
For the six months ended June 30, 2020 , net cash used in investing activities of
$5.7 million consisted of $3.4 million related to additions of capital
expenditures, net, $1.0 million related to payments for the license and
commercialization agreement with Cibiltech and $1.3 million related to payments
for acquired intangibles.
For the six months ended June 30, 2019 , net cash used in investing activities of
$17.7 million consisted of $16.0 million related to the acquisition of OTTR,
$1.1 million related to the license and commercialization agreement with
Cibiltech and $0.6 million related to purchases of property and equipment.
Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2020
of $158.0 million was primarily related to $135.1 million of proceeds from the
issuance of common shares in a public equity offering, net of issuance costs,
$23.5 million of proceeds from the issuance of common shares in a
"at-the-market" equity offering, net of issuance costs, proceeds from issuances
of common stock under our employee stock purchase plan of $0.6 million , proceeds
from exercises of warrants of $0.3 million and proceeds from exercises of stock
options of $2.1 million . These proceeds were partially offset by taxes paid
related to net share settlements of restricted stock units of $3.5 million .
For the six months ended June 30, 2019 , net cash used in financing activities of
$1.0 million was primarily related to taxes paid related to net share
settlements of restricted stock units of $4.0 million , partially offset by
proceeds from exercises of stock options of $2.8 million , and proceeds from
issuances of common stock under our employee stock purchase plan of $0.3
million .
Liquidity and Capital Resources
We have incurred significant losses and negative cash flows from operations
since our inception and had an accumulated deficit of $346.2 million at June 30,
2020 . As of June 30, 2020 , we had cash and cash equivalents of $211.4 million
and no debt outstanding.
The spread of COVID-19, which has caused a broad impact globally, may materially
affect us economically. While the potential economic impact brought by, and the
duration of, COVID-19 may be difficult to assess or predict, a widespread
pandemic could result in significant disruption of global financial markets,
reducing our ability to access capital, which could in the future negatively
affect our liquidity.
Since March 31, 2020 , and in response to the outbreak of the COVID-19 pandemic,
we have increased our cash and cash equivalents by undertaking the following:
CMS Accelerated and Advance Payment Program for Medicare Providers
On March 27, 2020 , the U.S. government enacted the CARES Act. Pursuant to the
CARES Act, the Centers for Medicare & Medicaid Services , or CMS, expanded its
current Accelerated and Advance Payment Program in order to increase cash flow
to providers of services and suppliers impacted by the COVID-19 pandemic. CMS is
authorized to provide accelerated or advance payments during the period of the
public health emergency to any Medicare provider who submits a request to the
appropriate Medicare Administrative Contractor and meets the required
qualifications. During April 2020 , we received an advance payment from CMS of
approximately $20.5 million and recorded the payment as Deferred revenue - CMS
advance payment on the Company's condensed consolidated balance sheet.
We will continue to submit claims as usual after the issuance of the advance
payment. We will receive full payments for our claims during the 120-day period
from the date the advance payment was received. At the end of the 120-day
period, the recoupment process will begin and every claim submitted by us will
be offset to repay the advance payment. Thus, instead of receiving payment for
newly submitted claims, our outstanding advance payment balance will be reduced
by the claim payment amount. We will have up to 210 days for the repayment to be
completed.
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At-the-Market Equity Offering
On August 31, 2018 , we entered into a sales agreement, or the Sales Agreement,
with Jefferies, LLC , as sales agent, or Jefferies, pursuant to which we may
offer and sell, from time to time, through Jefferies, up to $50.0 million in
shares of our common stock, by any method permitted by law deemed to be an
"at-the-market" offering as defined in Rule 415 promulgated under the Securities
Act of 1933, as amended. During April 2020 , we issued and sold 1,000,000 shares
of our common stock under the Sales Agreement. The shares were sold at an
average price of $24.24 per share for aggregate net proceeds to us of
approximately $23.5 million , after deducting sales commissions and offering
costs payable by us.
CARES Act Provider Relief Fund for Medicare Providers
Pursuant to the CARES Act, the U.S. Department of Health & Human Services , or
HHS, distributed an initial tranche of $30.0 billion in funds to healthcare
providers that received Medicare fee-for-service, or FFS, reimbursements in
2019. These payments to healthcare providers are not loans and will not be
required to be repaid. As a condition to receiving these payments, providers
must agree to certain terms and conditions and submit sufficient documentation
demonstrating that the funds are being used for healthcare-related expenses or
lost revenue attributable to the COVID-19 pandemic. Due to the recent enactment
of legislation and absence of definitive guidance, there is a high degree of
uncertainty around the CARES Act's implementation and we continue to assess the
impact on our business. Furthermore, HHS has indicated that it will be closely
monitoring and auditing, along with the Office of Inspector General , auditing
providers to ensure that recipients comply with the terms and conditions of
relief programs and to prevent fraud and abuse. All providers will be subject to
civil and criminal penalties for any deliberate omissions, misrepresentations or
falsifications of any information given to HHS. Providers will be distributed a
portion of the initial $30.0 billion based on their share of total Medicare FFS
reimbursements made by the U.S. in 2019. During April 2020 , we received a
payment of approximately $4.8 million , representing our portion of the initial
tranche of funds recorded in other income (expense), net on the condensed
consolidated statement of operations.
Underwritten Public Offering
In June 2020 , we sold 4,492,187 shares of common stock (which includes shares
sold pursuant to the underwriters' full exercise of an overallotment option
granted to the underwriters in connection with the offering) through an
underwritten public offering at a price of $32.00 per share for aggregate net
proceeds of approximately $134.6 million .
Factors Affecting Our Performance
COVID-19 Pandemic
COVID-19 may impact personnel at third-party suppliers in the United States and
other countries, or the availability or cost of materials, which would disrupt
our supply chain. Any manufacturing supply interruption of materials could
adversely affect our ability to conduct ongoing and future research and testing
activities. Clinical trials, clinical site initiation and patient enrollment may
be delayed due to prioritization of hospital resources toward the COVID-19
pandemic. Some patients may not be able to comply with clinical trial protocols
if quarantines impede patient movement or interrupt healthcare services.
Similarly, the ability to recruit and retain patients and principal
investigators and site staff who, as healthcare providers, may have heightened
exposure to COVID-19, may adversely impact our clinical trial operations.
The Number of AlloSure Kidney and AlloMap Heart Tests We Receive and Report
The growth of our testing services business is tied to the number of AlloSure
Kidney and AlloMap Heart patient samples we receive and patient results we
report. We incur costs in connection with collecting and shipping all samples
and a portion of the costs when we cannot ultimately issue a report. As a
result, the number of patient samples received largely correlates directly to
the number of patient results reported.
Reimbursement for AlloMap Heart
AlloMap Heart test volume and the corresponding reimbursement revenue has
generally increased over time since the launch of AlloMap Heart, as Medicare
provided reimbursement and payers adopt coverage policies and fewer payers
consider AlloMap Heart to be experimental and investigational. The rate at which
our tests are covered and reimbursed has, and is expected to continue to vary by
payer. Revenue growth depends on our ability to maintain Medicare reimbursement,
achieve broader reimbursement from third party payers and to expand the number
of tests per patient and the base of healthcare providers.
The Protecting Access to Medicare Act of 2014, or PAMA, includes a substantial
new payment system for clinical laboratory tests under the Clinical Laboratory
Fee Schedule, or CLFS. Under PAMA, laboratories that receive the majority of
their Medicare revenues from payments made under the CLFS would report initially
and then on a subsequent three-year basis thereafter (or annually for advanced
diagnostic laboratory tests, or ADLTs), private payer payment rates and volumes
for their tests. The final PAMA ruling was issued June 17, 2016 indicating that
data for reporting for the new PAMA process would
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begin in 2017 and the new market based rates took effect on January 1,
2018 . Effective January 1, 2018 , Medicare reimburses us $3,240 for AlloMap Heart
testing of Medicare beneficiaries, an increase from the 2017 reimbursement rate
of $2,841 . The CARES Act freezes current (2020) CMS CLFS rates through 2021.
Further, the CARES Act delays the reporting cycle under PAMA to January 1 and
March 31, 2022 although the data collection period remains January 1 through
June 30, 2019 . AlloMap Heart has also received positive coverage decisions for
reimbursement from many of the largest U.S. private payers, including Aetna,
Anthem, Cigna, HCSC, Humana, Kaiser Foundation Health Plan, Inc. , and
UnitedHealthcare.
Reimbursement for AlloSure Kidney
On September 26, 2017 we received notice that the Molecular Diagnostics
Services, or MolDX, Program developed by Palmetto GBA had set AlloSure Kidney
reimbursement at $2,841 . Effective October 9, 2017 , AlloSure Kidney was made
available for commercial testing with Medicare coverage and reimbursement. We
believe the use of AlloSure Kidney, in conjunction with other clinical
indicators, can help healthcare providers and their patients better manage
long-term care following a kidney transplant. In particular, we believe AlloSure
Kidney can improve patient care by helping healthcare providers to reduce the
use of invasive biopsies and determine the appropriate dosage levels of
immunosuppressants.
Reimbursement for AlloSure Heart
On October 7, 2019 , the MolDX Program released the draft Local Coverage
Determination for AlloSure Cell-Free DNA Testing which added heart indication to
the existing kidney indication for AlloSure coverage. The public comment period
ended on November 21, 2019 , and we anticipate a final policy to be issued by the
end of 2020. If the proposed LCD is finalized, AlloSure Heart will be covered
for Medicare beneficiaries when it is used in conjunction with AlloMap Heart.
Continued Growth of Product Sales
We develop, manufacture, market and sell products that increase the chance of
successful transplants by facilitating a better match between a donor and a
recipient of stem cells and solid organs.
QTYPE enables speed and precision in HLA typing at a low to intermediate
resolution for samples that require a fast turn-around time and uses real-time
PCR methodology. QTYPE received CE mark certification on April 10, 2018 . Olerup
SSP is used to type HLA alleles based on the SSP technology. Olerup SBT is a
complete product range for sequence-based typing of HLA alleles.
On May 4, 2018 , we entered into the Illumina Agreement, which provides us with
worldwide distribution, development and commercialization rights to Illumina's
NGS product line for use in transplantation diagnostic testing. As a result,
from June 1, 2018 , we became the exclusive worldwide distributor of Illumina's
TruSight HLA product line. TruSight HLA is a high-resolution solution that uses
NGS methodology. In addition, we were granted the exclusive right to develop and
commercialize other NGS product lines for use in the field of bone marrow and
solid organ transplantation diagnostic testing. These NGS products include:
AlloSeq Tx, a high-resolution HLA typing solution, AlloSeq cfDNA, our
surveillance solution designed to measure dd-cfDNA in blood to detect active
rejection in transplant recipients, and AlloSeq HCT, a NGS solution for
chimerism testing for stem cell transplant recipients.
In September 2019 , we commercially launched AlloSeq cfDNA, our surveillance
solution designed to measure dd-cfDNA in blood to detect active rejection in
transplant recipients, and we received CE mark approval on January 20, 2020 . Our
ability to increase the clinical uptake for AlloSeq cfDNA will be a result of
multiple factors including local clinical education, customer lab technical
proficiency and levels of country-specific reimbursement.
Also in September 2019 , we commercially launched AlloSeq Tx, the first of its
kind NGS high-resolution HLA typing solution utilizing hybrid capture
technology. This technology enables the most comprehensive sequencing, covering
more of the HLA genes than current solutions and adding coverage of non-HLA
genes that may impact transplant patient matching and management. AlloSeq Tx has
a simple NGS workflow that reduces complexity and can reduce errors. AlloSeq Tx
17 received CE mark approval on May 15, 2020 .
In June 2020 , we commercially launched AlloSeq HCT, a NGS solution for chimerism
testing for stem cell transplant recipients. This technology can provide better
sensitivity and data analysis compared to current solutions on the market.
Continued Growth of Digital Sales
The growth of our digital revenues is tied to the continued successful
integration of our Ottr and XynQAPI software businesses, as well as continued
support and maintenance of existing OttrCare and XynManagement customers. The
Ottr software and XynQAPI are currently implemented in multiple locations in the
U.S. The Ottr software implementation and XynQAPI implementation and support
teams are based in Omaha, Nebraska .
Development of Additional Services and Products
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Table of Contents Our development pipeline includes other transplant diagnostic solutions, including AlloCell, to help clinicians and transplant centers make personalized treatment decisions throughout a transplant patient's lifetime. We expect to invest in research and development in order to develop additional products. Our success in developing new products and services will be important in our efforts to grow our business by expanding the potential market for our services and products and diversifying our sources of revenue. Timing of Research and Development Expenses Our spending on research and development may vary substantially from quarter to quarter. We conduct clinical studies to validate our new products, as well as on-going clinical and outcome studies to further the published evidence to support our commercialized tests. Spending on research and development for both experiments and studies may vary significantly by quarter depending on the timing of these various expenses. Contractual Obligations As ofJune 30, 2020 , there have not been any other material changes, outside of the ordinary course of business in our outstanding contractual obligations from our significant contractual obligations as ofDecember 31, 2019 , as disclosed in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations-Contractual Obligations" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 , filed with theSEC onFebruary 28, 2020 . Off-Balance Sheet Arrangements As ofJune 30, 2020 , we had no off-balance sheet arrangements as defined under Regulation S-K 303(a)(4) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and the instructions thereto. Foreign Operations The accompanying unaudited condensed consolidated balance sheets contain certain recorded assets in foreign countries, namelyStockholm, Sweden ,Vienna, Austria and Fremantle,Australia . Although these countries are considered economically stable and we have experienced no notable burden from foreign exchange transactions, export duties or government regulations, unanticipated events in foreign countries could have a material adverse effect on our operations.
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