Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes included in this report and contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We have omitted discussion of 2023 results where it would be redundant to the discussion previously included in Item 7 of our 2024 Annual Report on Form 10-K. Forward-looking statements are statements other than historical facts and relate to future events or circumstances or our future performance, and they are based on our current assumptions, expectations and beliefs concerning future developments and their potential effect on our business. The forward-looking statements in this discussion and analysis include statements about, among other things, our future financial and operating performance, our future cash flows and liquidity and our growth strategies, as well as anticipated trends in our business and industry. These forward-looking statements are subject to a number of risks and uncertainties, including, among others, those described under “Item 1A. Risk Factors” in Part I of this report. Moreover, we operate in a competitive and rapidly evolving industry and new risks emerge from time to time. It is not possible for us to predict all of the risks we may face, nor can we assess the impact of all factors on our business or the extent to which any factor or combination of factors could cause actual results to differ from our expectations. In light of these risks and uncertainties, the forward-looking events and circumstances described in this discussion and analysis may not occur, and actual results could differ materially and adversely from those described in or implied by any forward-looking statements we make. Although we have based our forward-looking statements on assumptions and expectations we believe are reasonable, we cannot guarantee future results, levels of activity, performance or achievements or other future events. As a result, forward-looking statements should not be relied on or viewed as predictions of future events, and this discussion and analysis should be read with the understanding that actual future results, levels of activity, performance and achievements may be materially different than our current expectations. The forward-looking statements in this discussion and analysis speak only as of the date of this report, and 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.
Overview
We are a technology-based company with a well-established laboratory services business and a therapeutic development business. Our laboratory services business includes technical laboratory and testing services and professional interpretation of laboratory results by licensed physicians. Our therapeutic development business is focused on developing product candidates for treating a broad range of cancers using a novel nanoencapsulation and targeted therapy platform designed to improve the therapeutic window and PK profile of new and existing cancer drugs.
We recorded revenue and net (loss) from operations of $322.7 million and ($60.5) million, respectively, in 2025, compared to revenue and net (loss) from operations of $283.5 million and ($42.7) million, respectively, in 2024.
2025 Developments
Bako and StrataDx Acquisition
In December 2025, we announced that we entered into definitive agreements to acquire selected assets of Bako Diagnostics, a premier pathology laboratory headquartered in Alpharetta, Georgia and to acquire StrataDx, a premier dermatopathology laboratory located in Lexington, Massachusetts for a total combined purchase price of approximately $55.5 million, subject to adjustments, to be paid from cash on hand. The acquisition is expected to close during the first half of 2026, subject to satisfying customary closing conditions, including regulatory approvals. Refer to Note 15. Business Combinations , for additional details.
Purchase of Income Tax Credits
In 2025, we purchased $106.3 million worth of Investment Tax Credits, or ITCs, under the transferability provisions of the Inflation Reduction Act of 2022 for $99.5 million in cash. Refer to Note 11. Income Taxes , for additional details with regard to the treatment of Investment Tax Credits purchased previously.
ANP Acquisition
On July 9, 2025, we completed an acquisition of 100% of ANP, an innovation-driven company, which has developed multiple proprietary product platforms. This acquisition enables us to secure ownership of the patents previously licensed from ANP, which are currently utilized in ongoing clinical studies. By securing full ownership of these intellectual property rights, we aim to enhance our
control over the development and commercialization of related therapeutic candidates, thereby aligning with its strategic objectives to advance clinical programs. Refer to Note 15. Business Combinations , for additional details.
Factors Affecting Our Performance
Mix of Tests Delivered
We offer our tests and testing services at different price points, and we incur different amounts and types of costs, depending on the nature and level of complexity and customization of the test and the specific terms we have negotiated for the tests and testing services, which can vary from customer to customer. As a result, the mix of tests delivered in any period, and the customers that order these tests, impacts our financial results for the period.
Mix of Customers and Purchasing Terms
We consider each single billing and paying unit to be an individual customer, even though a unit may represent multiple physicians and healthcare providers ordering tests. The composition and concentration of our customer base often fluctuate from period to period, and in certain prior periods, a small number of customers have accounted for a significant portion of our revenue. When customers who, to our knowledge, are under common control or otherwise affiliated with each other are aggregated, one of our customers contributed $70.8 million or 22% of our total revenue during the year ended December 31, 2025. For this customer and for customers generally, tests are purchased on a test-by-test basis and not pursuant to any long-term purchasing arrangements. We expect reduced revenues moving forward into 2026 from this significant customer. We plan to continue to focus on developing other customers and capturing new customers. If these efforts are successful, we may be able to offset, or partially offset, this decrease in revenue.
We currently classify our customers into three payor types: (i) Insurance, (ii) Institutional, including hospitals, medical institutions, other laboratories, governmental bodies, and large corporations or (iii) Patients who pay directly. Typically, we bill our Institutional customers for our tests, and they are responsible for paying us directly and billing their patients separately or obtaining reimbursement from insurance payors in connection with a patient’s diagnosis related group. A small percentage of our customers are patients, who elect to pay for tests themselves with out-of-pocket payments after their physicians have ordered our tests.
We continue to make efforts to diversify our customer market, including building relationships with hospitals and affiliated specialties related to our service offerings. We are also pursuing relationships with payors, including Medicare, some state Medicaid programs, and commercial payors, in an effort to obtain coverage and reimbursement for our tests to make them accessible to more individual physicians. Generally, when we establish these new customer relationships, we agree with the applicable payor, laboratory, or other customer to provide certain of our tests at negotiated rates, but, subject to limited exceptions, most of these relationships do not obligate any party to order our tests at any agreed volume or frequency or at all. Further, any relationships we may or have developed with any government agencies are subject to unique risks associated with government contracts, including cancellation if adequate appropriations for subsequent performance periods are not made and modification or termination at the government’s convenience without prior notice. These efforts may not lead to meaningful or any increases in our customer base and may not improve our ability to achieve or sustain profitability.
Ability to Maintain Our Broad and Flexible Test Menu
We believe the large number of genes we incorporate into our test menu provides a meaningful competitive advantage. We believe the breadth of genes in our portfolio allows us to provide more comprehensive genetic information and improves our variant detection rate, which can increase the clinical actionability of the data we produce. The breadth of genes in our portfolio also allows us to offer hundreds of pre-established, multi-gene panels that focus on specified genetic conditions, including our Focus and Comprehensive oncology panels and Beacon carrier screening panels and somatic cancer panels. In addition, all of our genetic panel tests can be adjusted up or down to include more or fewer genes, or customers can design their own panels to their exact specifications, resulting in a flexible and customizable test menu. We believe our ability to continue to offer more genes and more ordering flexibility than our competitors could be a key contributor to the long-term growth of our business.
Ability to Maintain Low Internal Costs and Inflation
We have developed various proprietary technologies, including various AI tools, that improve our laboratory efficiency and reduce the costs we incur to perform our tests, including our proprietary gene probes, data algorithms, adaptive learning software and genetic reference library. This technology platform enables us to perform each test and deliver its results at a lower cost to us than many of our competitors, and this low cost allows us to maintain affordable and competitive pricing for our customers, which we
believe encourages repeat ordering from existing customers and attracts new customers. We believe this low internal cost is a key factor in our ability to grow our business and obtain margins on our sales that allow us to drive toward sustained profitability.
Investments in our operational capabilities could increase our cost of revenue, but these investments could also, on a near-term and/or long-term basis, increase our operating efficiencies and lead to cost of revenue decreases. As a result, the amount, timing, nature and success of these investments, as well as other influences on our cost of revenue from period to period, can impact our costs. Moreover, changes in our other operating expenses, due to investments in these aspects of our business or other factors, are not taken into account but impact our overall results, which can limit the utility of cost as an overall cost measurement tool.
Similar to other companies in our industry, we have and may again experience the effects of inflation in the costs of labor, materials, and services in connection with the marketing of our tests and testing services and in connection with our research and development efforts.
Ability to Obtain Reimbursement and Government Audits and Investigations
Much of our revenue depends on receiving reimbursement for our tests from insurance payors, including our Insurance and Institutional customers. These payors have complicated rules and procedures regarding submissions for reimbursement, and their reimbursement practices and procedures may vary from period to period. Reimbursed amounts are often subject to audit, and our ability to collect and retain reimbursement from these payors may vary from period to period. If we are unable to obtain or retain reimbursement during any period, our rate of reimbursement is lower than expected or if reimbursement is delayed, our results of operations may be correspondingly affected and fluctuate significantly from period to period. As part of our business plan for future growth, we intend to pursue coverage and reimbursement from insurance payors at a level adequate for us to again achieve and maintain profitability. However, we cannot predict whether, under what circumstances, or at what payment levels payors will cover and reimburse for our tests, and even if we are successful, we believe it could take several years to achieve coverage and adequate contracted reimbursement with insurance payors. To date, we have contracted directly with national health insurance companies to become an in-network provider and enrolled as a supplier with the Medicare program and some state Medicaid programs, which means that we have agreed with these payors to provide certain of our tests at negotiated rates. Although this does not guarantee that we will receive reimbursement for our tests from these or any other payors at adequate levels, we believe our low cost could enhance our ability to compete effectively in the insurance payor market and our flexibility in establishing relationships with additional insurance payors in the future. Our level of success in obtaining and maintaining adequate coverage and reimbursement from insurance payors for our testing services will, we believe, be a key factor in the rate and level of growth of our business over the long term.
These reimbursement activities also subject us to payor and government audits and investigations such as the HRSA audit and the CIDs discussed in Note 8, Debt, Commitments and Contingencies to our consolidated financial statements. The results of these matters and the expenses and use of resources needed in connection with these and similar matters could materially affect our results of operations.
Foreign Currency Exchange Rate Fluctuations
Some of our business to date has been from non-U.S. customers, and we may record increasing revenue levels from non-U.S. sources as we focus on growing our international customer base. These revenue sources expose us to fluctuations in our results associated with changes in foreign currency exchange rates depending on the value of the U.S. dollar compared to the foreign currencies in which we record revenue. During all periods covered by this report, we consider the estimated effect on our revenue of foreign currency exchange rate fluctuations to be immaterial; however, the impact of foreign currency exchange rate fluctuations may increase in future periods as we pursue continued international expansion.
Business Risks and Uncertainties
Our business and prospects are exposed to numerous risks and uncertainties. For more information, see “Item 1A. Risk Factors” in this report.
Financial Overview
Revenue
Our laboratory service segment generates revenue from molecular testing, including precision diagnostics and anatomic pathology, BioPharma services, and COVID-19 testing (which is not expected to produce material revenue). We recognize revenue upon delivery of a report to the ordering physician or other customer based on the established billing rate, less contractual and other
adjustments, to arrive at the amount we expect to collect. Our therapeutic development segment has started producing BioPharma services revenue with the acquisition of ANP.
Cost of Revenue
Cost of revenue reflects the aggregate costs incurred in delivering test results and consists of: costs of laboratory reagents and supplies; personnel costs, including salaries, employee benefit costs, bonuses and equity-based compensation expenses; depreciation of laboratory equipment; delivery and courier costs relating to the transportation of specimens to be tested; amortization of building or leasehold improvements; and allocated overhead expenses, including rent and utilities. Costs associated with performing tests are recorded as tests are processed.
Operating Expenses
Our operating expenses are classified into five categories: research and development; selling and marketing; general and administrative; amortization of intangible assets; and goodwill impairment loss, if any. For each category except for amortization of intangible assets and goodwill impairment loss, the largest component is personnel costs, which include salaries, employee benefit costs, bonuses and equity-based compensation expenses.
Research and Development Expenses
Research and development expenses represent costs incurred to develop our technology and future tests and treatments and our product candidates. These costs consist of:
personnel costs, including salaries, benefits, and other employee-related costs, such as bonuses and equity-based compensation expenses;
consulting costs, including consulting fees and related travel expenses;
laboratory supplies;
costs associated with in-process research and conducting clinical studies to develop and support our products;
costs related to production of clinical materials;
set up costs, including electronic medical record set up costs, costs associated with setting up and conduct clinical studies at domestic and international sites;
costs related to compliance with regulatory requirements; and
allocated overhead expenses, including rent, information technology, equipment depreciation and utilities.
We expense all research and development costs in the periods in which they are incurred. We expect our research and development expenses will continue to increase in absolute dollars, as we expect to continue to invest in research and development activities and continue to innovate and expand the application of our testing platform. Furthermore, we expect our research and development expenses for our therapeutic development segment to increase as we incur incremental expenses associated with our product candidates that are currently under development and in clinical trials. Product candidates in later stages of clinical development generally have higher development costs, primarily due to the increased size and duration of later-stage clinical trials. Accordingly, we expect to incur significant research and development expenses in connection with our clinical trials for FID-007 and FID-022.
Selling and Marketing Expenses
Selling and marketing expenses consist of personnel costs, customer service expenses, direct marketing expenses, educational and promotional expenses, market research and analysis and allocated overhead expenses, including rent and utilities. We expense all selling and marketing costs as incurred. We expect our selling and marketing expenses will increase in absolute dollars, primarily driven by our increased investment in sales and marketing, including developing and expanding our sales team, creating and implementing new sales and marketing strategies and increasing the overall scope of our marketing efforts.
General and Administrative Expenses
General and administrative expenses include executive, finance, accounting, legal, and human resources functions. These expenses consist of personnel costs, audit and legal expenses, consulting costs and allocated overhead expenses, including rent and utilities. We expense all general and administrative costs as incurred. We expect our general and administrative expenses will continue to increase in absolute dollars as we seek to continue to scale our operations. We also expect to continue to incur general and administrative expenses as a result of operating as a public company, including expenses related to compliance with the rules and
regulations of the SEC, and Nasdaq, additional insurance expenses, investor relations activities and other administrative and professional services.
Goodwill Impairment Loss
A goodwill impairment loss is measured as the amount by which a reporting unit’s carrying value, including goodwill, exceeds its fair value, not to exceed the carrying amount of goodwill.
Amortization of Intangible Assets
Amortization of intangible assets consist of amortization expense on customer relationships, royalty-free technology, trade name, laboratory information system platform and in-place intangible assets that arose from the business combinations and a patent acquired. We amortize finite lived intangible assets over the period of estimated benefit using the straight-line method. Indefinite lived intangible assets are tested for impairment annually or whenever events or circumstances indicate that the carrying amount of the asset may not be recoverable. If impairment is indicated, we measure the amount of the impairment loss as the amount by which the carrying amount exceeds the fair value of the asset.
Benefit from Income Taxes
Benefit from income taxes consists of U.S. federal and state income taxes. A deferred tax liability is recognized for all taxable temporary differences, and a deferred tax asset is recognized for all deductible temporary differences, operating losses and tax credit carryforwards. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The factors that most significantly impact our effective tax rate include the levels of net earnings and certain deductions, including those related to equity-based compensation, tax credits, the reclassification of stranded tax effects from other comprehensive income, and the effect of state income taxes. We expect that these factors could cause our consolidated effective tax rate to differ significantly from the U.S. federal income tax rate in future periods.
Results of Operations
The table below summarizes the results of our continuing operations for each of the periods presented. Historical results are not indicative of the results to be expected in the current period or any future period.
Year Ended December 31,
$ Change
% Change
(in thousands, except percentages)
Statement of Operation Data
Revenue
Cost of revenue
Gross profit
Operating expenses
Research and development
Selling and marketing
General and administrative
Amortization of intangible assets
Total operating expenses
Operating loss
Other income (expenses)
Interest income
Interest expense
Impairment loss
Other income, net
Total other income, net
Loss before income taxes
Benefit from income taxes
Net loss from consolidated operations
Net loss attributable to noncontrolling interests
Net loss attributable to Fulgent
Revenue
Year Ended December 31,
$ Change
% Change
Revenue from laboratory services
Precision diagnostics (1)
Anatomic pathology
BioPharma services
COVID-19
Total laboratory services
Revenue from therapeutic development
BioPharma services
Total therapeutic development
Total revenue
* not meaningful
(1) Beginning in 2025, COVID-19 revenue is grouped with precision diagnostics, which was insignificant in 2025.
Revenue increased by $39.2 million, or 14%, from $283.5 million in 2024 to $322.7 million in 2025. The increase in revenue between periods was driven by increases of $22.7 million in precision diagnostics, $9.4 million in anatomic pathology, and $9.4 million in BioPharma services. However, these increases were offset by a decrease of $2.3 million in COVID-19 revenue.
The increase in precision diagnostics revenue for the year was driven by growth in our reproductive health services and continued strength in legacy diagnostic offerings. The increase in anatomic pathology services was primarily due to the absence of weather-related disruptions and client losses that had affected the prior year. The increase in BioPharma services revenue was
primarily due to the timing of service projects, though this revenue is expected to remain variable due to the long sales cycle and fluctuations in project timing. Conversely, the decrease in COVID-19 testing services resulted from the cessation of testing operations at the end of March 2023, leading to the subsequent inclusion of any remaining COVID-19 revenue to be grouped under precision diagnostics, beginning in 2025. Continuing COVID-19 revenues after March 2023 are expected to be minimal, and are typically due to variable consideration recognized for services completed in prior periods.
We believe the factors that will affect our ability to grow these revenue streams are 1) the average price point we offer and the reimbursement rate from insurance payors; 2) the concentration of our payor base; 3) the competitive advantage we have due to our broad and flexible test menu, detection rate, and turnaround times; and 4) growth in size of an addressable market. Estimated collection amounts from insurance payors are subject to the complexities and ambiguities of billing, reimbursement regulations and claims processing, as well as considerations unique to Medicare and Medicaid programs. Because our proprietary technology platform allows for rapid scaling of a broad, flexible testing menu, we can offer our customers more scalable and affordable testing. Going forward, we will strive to maintain this competitive advantage and emphasize this in our marketing efforts to grow our testing revenue.
Our customer base includes insurance, institutional, and individual payors. In some periods, our revenue is concentrated on a smaller number of customers. For the laboratory services segment, aggregating customers that are under common control, one customer comprised $70.8 million or 22% of our revenue in 2025 and $62.6 million or 22% of our revenue in 2024. We began to see lower than anticipated testing volume from our largest customer in the fourth quarter of 2025, and we expect revenues for this customer to decline in 2026 (particularly through the second quarter of 2026) as this customer begins to perform tests internally. The tests and testing services this customer has historically purchased were primarily precision diagnostic tests. To reduce this revenue risk, we will focus on developing existing customers and increasing the number of customers and thereby reducing the concentration.
Revenue from the therapeutic development segment includes amounts recognized by ANP, a recently acquired entity, from technologies licensed to pharmaceutical and biotechnology companies, as well as CROs. In addition, ANP has entered into a manufacturing and supply agreement with a customer for specific COVID-19 testing kits, under which, ANP is entitled to participate in gross-margin sharing on the sale of those kits. The timing of the gross-margin sharing revenue is dependent on the customer’s downstream sales of the kits. An insignificant amount of gross-margin sharing revenue was recognized for the year ended December 31, 2025.
Revenue from non-U.S. sources increased by $1.8 million, or 7%, from $24.3 million in 2024 to $26.1 million in 2025. The increase in revenue from non-U.S. sources between periods were primarily due to increased sales of our traditional genetic testing services to customers in China, which increased $0.3 million in 2025, as well as increases in total revenue to Australia of $0.7 million and Canada of $0.5 million.
Cost of Revenue
Year Ended December 31,
$ Change
% Change
Cost of revenue
Cost of revenue as a % of revenue
Our consolidated cost of revenue increased by $15.5 million, or 9%, from $176.3 million in 2024 to $191.8 million in 2025. The increase was primarily due to increases of $7.5 million in personnel costs, including equity-based compensation, $4.2 million in reagent and supplies cost, $1.7 million in consulting and outside labor costs for production, $1.1 million in depreciation expenses, $0.8 million in software and software licensing expenses, $0.7 million in office expenses, and $0.7 million in facilities expenses, and partially offset by a decrease of $1.1 million in shipping and handling costs.
The cost of revenue for the therapeutic development segment resulted from ANP, is insignificant for the year ended December 31, 2025.
Our consolidated cost of revenues as a percentage of revenue decreased from 62.2% to 59.4%.
Our gross profit increased by $23.7 million, or 22%, from $107.2 million in the year ended December 31, 2024, to $130.9 million in the year ended December 31, 2025. Our gross profit as a percentage of revenue, or gross margin, increased from 38% in the year ended December 31, 2024, to 41% in the year ended December 31, 2025. This was driven by the increased revenue, efforts of optimizing cost structures as discussed above, and efficiency as a result of our investments in scaling and centralizing lab operations.
Research and Development
Year Ended December 31,
$ Change
% Change
Research and development
Laboratory services
Therapeutic development
Total research and development
Laboratory Services
For the laboratory services segment, the research and development expenses were mainly for advancing our technology and future testing and testing services. The expenses increased by $1.2 million, or 4%, from $28.4 million in 2024 to $29.6 million in 2025. The increase was primarily attributed to an increase of $1.3 million in personnel expenses.
In 2025, the research and development expenses primarily consisted of $26.6 million in personnel expenses, including bonuses and equity-based compensation, $1.3 million in reagent and supply costs, $0.5 million in facility expenses, $0.4 million in depreciation expense, and $0.2 million in software and licensing fees. The 2024 expenses primarily consisted of $25.3 million in personnel expenses, including bonuses and equity-based compensation, $1.4 million in reagent and supply costs, $0.6 million in facility expenses, $0.4 million in depreciation expense, and $0.4 million in software and licensing fees.
Therapeutic Development
For the therapeutic development segment, the research and development expenses in 2025 included $12.4 million in CRO costs, $10.5 million in personnel costs, including equity-based compensation, $0.5 million in facility expenses, and $0.5 million in depreciation expenses. In 2024, these expenses comprised $10.9 million in CRO costs, $8.6 million of personnel expenses, including equity-based compensation, $0.7 million in depreciation expense, and insignificant facility expenses.
Research and development expenses for the therapeutic development segment increased by $3.9 million, or 19%, from $20.4 million in 2024 to $24.3 million in 2025. The increase was primarily driven by increases of $1.9 million in personnel costs, including equity-based compensation expense, $1.5 million in CRO costs, and $0.5 million in facility expenses.
The overall increase was attributed to the advancement and continuation of the clinical study of FID-007, along with FID-022. In 2024, approximately $2.1 million was incurred for the pre-clinical development of FID-022, compared to $3.2 million in 2025 for the pre-clinical and clinical development. Expenses for our therapeutic development segment will be influenced by our ability to progress our therapeutic candidates through development with the FDA, the timing of which can be uncertain and delayed due to a variety of factors beyond our control, including recently announced staff reductions at the FDA and the effects or residual effects of the recent U.S. “government shutdowns,” which may affect the FDA’s ability to provide any required approvals or review in a timely manner or in the timelines expected.
Looking ahead, we expect research and development expenses to continue increasing as clinical trials progress for FID-007, FID-022, and other pre-clinical studies.
Selling and Marketing
Our consolidated selling and marketing expenses increased by $7.1 million, or 20%, from $36.2 million in 2024 to $43.4 million in 2025. The increase was primarily due to increases of $4.0 million personnel costs, including equity-based compensation expense, $1.9 million in advertising and marketing expenses, $0.4 million in travel expenses, $0.3 million in consulting and outside labor expenses, $0.2 million in supply and material costs, and $0.2 million in software and software licensing expenses.
General and Administrative
Our consolidated general and administrative expenses increased by $28.6 million, or 32%, from $88.1 million in 2024 to $116.7 million in 2025. The increase was primarily due to increases of $17.0 million in legal and professional fees including an accrual related to a professional liability matter, $9.4 million in provision for credit losses, $2.2 million in personnel costs, including equity-based compensation, $1.9 million in acquisition-related costs, $1.0 million in consulting and outside labor costs, $0.9 million in
insurance expenses, and $0.9 million in office expenses, and partially offset by decreases of $2.5 million in facility expenses and $1.6 million in depreciation expenses, and $0.8 million in accounting expenses.
Amortization of Intangible Assets
Our consolidated amortization of intangible assets represents amortization expenses on the intangible assets that arose from the business combinations in 2025, 2022 and 2021, and a patent purchased in 2021.
Other Income (Expenses)
Other income (expense) is primarily comprised of interest income, which was $30.9 million and $31.3 million for 2025 and 2024, respectively, and impairment of available-for-sale debt and equity securities of $9.9 million and $10.1 million in 2025 and 2024, respectively. This interest income included interest earned on marketable securities and realized gain or loss on sale of marketable securities. The decrease in interest income was primarily due to decreased interest rates on marketable securities relative to the prior comparative period.
Benefit from Income Taxes
Benefit from income taxes were $8.4 million and $8.1 million in 2025 and 2024, respectively. The effective income tax rate was 12% and 16% of loss before income taxes for 2025 and 2024, respectively.
On July 4, 2025, OBBBA was signed into law, making permanent certain provisions of the Tax Cuts and Jobs Act, including 100% bonus depreciation and domestic research cost expensing. In accordance with ASC 740, “ Income Taxes ,” we have recognized the effects of the new tax law in the period of enactment. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented through 2027. The legislation does not have a material impact on our consolidated financial statements for the year ended December 31, 2025.
See Note 11, Income Taxes , to our consolidated financial statements included in this report for more information regarding our income taxes.
Net Loss Attributable to Noncontrolling Interest
Net loss attributable to noncontrolling interest represents net loss attributable to minority stockholders from entities not wholly owned.
Liquidity and Capital Resources
Liquidity and Sources of Cash
We had $705.5 million and $828.6 million in cash, cash equivalents, restricted cash, and marketable securities as of December 31, 2025 and 2024, respectively. Our marketable securities primarily consist of U.S. government and U.S. agency debt securities, U.S. treasury bills, corporate bonds, municipal bonds, and Yankee debt securities as of December 31, 2025, and 2024.
Our primary uses of cash are for strategic acquisitions; capital expenditures, mainly in buildings, building improvements, and equipment; repurchases of our stock; the funding of our clinical trials; and the funding of our operations as we continue to invest in and seek to grow our business. Cash used to fund operating expenses is impacted by the timing of our expense payments, as reflected in the changes in our outstanding accounts payable and accrued expenses.
We expect our existing cash, cash equivalents, restricted cash, and marketable securities to continue to be sufficient to meet our anticipated cash requirements for at least the next 12 months. Cash provided by operations has significantly contributed to our ability to meet our liquidity needs, including paying for capital expenditures, however, cash provided by our operations has in the past experienced fluctuations from period to period, which we expect may continue in the future. These fluctuations can occur because of a variety of factors, including, among others, factors relating to the demand for our tests, whether large customers continue ordering our tests, the amount and timing of sales, the prices we charge for our tests due to changes in product mix, customer mix, general price degradation for tests, or other factors, the rate and timing of our billing and collections cycles and the timing and amount of our commitments and other payments. We intend to improve our profitability by improving margins and expanding in new markets for our tests, but these efforts are subject to risks, including those described in Item 1A of this Annual Report, and may not be successful. Moreover, even if our liquidity expectations are correct, we may still seek to raise additional capital through securities offerings, credit facilities or other debt financings, asset sales or collaborations or licensing arrangements.
If we raise additional funds by issuing equity securities, our existing stockholders could experience substantial dilution. Additionally, any preferred stock we issue could provide for rights, preferences or privileges senior to those of our common stock, and our issuance of any additional equity securities, or the possibility of such an issuance, could cause the market price of our common stock to decline. The terms of any debt securities we issue or borrowings we incur, if available, could impose significant restrictions on our operations, such as limitations on our ability to incur additional debt or issue additional equity or other restrictions that could adversely affect our ability to conduct our business, and would result in increased fixed payment obligations. If we seek to sell assets or enter into collaborations or licensing arrangements to raise capital, we may be required to accept unfavorable terms or relinquish or license to a third-party our rights to important or valuable technologies or tests we may otherwise seek to develop ourselves. Moreover, we may incur substantial costs in pursuing future capital raises, including investment banking, legal and accounting fees, printing and distribution expenses and other similar costs. Additional funding may not be available to us when needed, on acceptable terms or at all. If we are not able to secure funding if and when needed and on reasonable terms, we may be forced to delay, reduce the scope of or eliminate one or more sales and marketing initiatives, research and development programs or other growth plans or strategies. In addition, we may be forced to work with a partner on one or more aspects of our tests or market development programs or initiatives, which could lower the economic value to us of these tests, programs or initiatives. Any such outcome could significantly harm our business, performance and prospects.
Cash Flows
The following table summarizes cash flows from continuing operations for each of the periods presented:
Year Ended December 31,
(in thousands)
Net cash (used in) provided by operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
Operating Activities
During the year ended December 31, 2025, our operations used $101.6 million of cash as compared to $21.1 million provided in 2024. The decrease in cash provided from operating activities in 2025 compared to the corresponding 2024 period was primarily due to the purchase of Investment Tax Credits for $99.6 million in cash in 2025, as well as by timing of cash receipts from customers and cash payments for operating expenses. We expect to incur more operating expenses and use more cash in operating activities in the coming year as a result of our planned and ongoing clinical trials for FID-007 and FID-022, and as we continue to invest resources to grow our laboratory services business.
Investing Activities
The cash provided by or used in investing activities is impacted by capital expenditures for operation needs and timing of payments, timing of maturities of marketable securities, and discretionary business combinations and other investment.
Cash provided by investing activities in 2025 was $111.4 million, which primarily related to $211.0 million related to maturities of marketable securities, and $3.8 million related to the acquisition of ANP, and partially offset by $80.8 million in purchase of marketable securities, $22.6 million related to the purchase of fixed assets consisting mainly of building improvement and medical laboratory equipment.
Cash used in investing activities in 2024 was $58.4 million, which primarily related to $472.4 million in purchase of marketable securities, $40.3 million related to the purchase of fixed assets consisting mainly of building, building improvement, and medical laboratory equipment, and partially offset by $349.8 million related to maturities of marketable securities, $104.3 million related to proceeds from sales of marketable securities, and $0.3 million related to the sale of fixed assets.
Financing Activities
Cash used in financing activities in 2025 was $14.8 million, which primarily related to $3.0 million used in common stock withholding for employee tax obligations, $10.9 million used to repurchase common stock, and $0.5 million used in the repayment of notes payable.
Cash used in financing activities in 2024 was $4.8 million, which primarily related to $2.9 million used in common stock withholding for employee tax obligations and $1.2 million used in the repayment of notes payable.
We do not expect to use any credit facilities due to the strong cash position as of December 31, 2025.
Stock Repurchase Program
In March 2022, our board of directors authorized a $250.0 million stock repurchase program. The stock repurchase program has no expiration from the date of authorization. Under the stock repurchase program, we may repurchase shares from time to time in the open market or in privately negotiated transactions.
During the year ended December 31, 2025, we repurchased 0.6 million shares of our common stock at an aggregate cost of $10.9 million under the stock repurchase program. During the year ended December 31, 2024, we repurchased ten thousand shares of our common stock at an aggregate cost of $0.2 million under the stock repurchase program. During the year ended December 31, 2023, we repurchased 1.0 million shares of our common stock at an aggregate cost of $25.1 million under the stock repurchase program. As of December 31, 2025, a total of approximately $139.6 million remained available for future repurchases of our common stock under our stock repurchase programs.
Material Cash Requirements and Contractual Obligations as of December 31, 2025
As of December 31, 2025, we have an outstanding balance of $2.4 million on an installment loan, of which, the current portion is $0.5 million. See Note 8, Debt, Commitments and Contingencies , to our consolidated financial statements included in this report.
The following summarizes our contractual obligations as of December 31, 2025:
Payments Due by Period
Total
Less than 1 year
1-3 years
3-5 years
More than 5 years
(in thousands)
Operating lease obligations (1)
Finance lease obligations (2)
Purchase obligations (3)
Total contractual obligations
Represents non-cancelable operating leases. For further information, refer to Note 9, Leases, to our consolidated financial statements.
Represents non-cancelable finance leases. For further information, refer to Note 9, Leases , to our consolidated financial statements.
Represents purchase obligations for medical lab equipment, reagents and other supplies. These purchase obligations are not unconditional, and they are generally cancellable in full or in part through the contractual provisions.
Critical Accounting Policies and Use of Estimates
This discussion and analysis is based on our consolidated financial statements included in this report, which have been prepared in accordance with U.S. GAAP. The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make certain estimates, judgments, assumptions and decisions that affect the reported amounts and related disclosures, including the selection of appropriate accounting principles and the assumptions on which to base accounting estimates. In making these estimates and assumptions and reaching these decisions, we apply judgment based on our understanding and analysis of the relevant circumstances, including historical data and experience available at the date of the consolidated financial statements, as well as various other factors management believes to be reasonable under the circumstances, including but not limited to valuation of intangible assets and goodwill in recent business combinations. Actual results could differ from our estimates. We are committed to incorporating accounting principles, assumptions and estimates that promote the representational faithfulness, verifiability, neutrality and transparency of the accounting information included in our consolidated financial statements.
While our significant accounting policies are described in more detail in the notes to the consolidated financial statements included in this report, we believe the accounting policies discussed below used in the preparation of our consolidated financial statements require the most significant estimates, judgments, assumptions and decisions.
Revenue Recognition
We generate revenue from sales of our testing services. We currently receive payments from: (i) Insurance, (ii) Institutional customers, including hospitals, medical institutions, other laboratories, governmental bodies, and large corporations; and (iii) Patients, who pay directly.
We recognize revenue in an amount that reflects the consideration to which we expect to be entitled in exchange for the transfer of promised goods or services to our customers.
For insurance payors, in the absence of Medicare coverage, contractually established reimbursement rates or other coverage, we have concluded that our contracts include variable consideration because the amounts paid by Medicare or commercial health insurance carriers may be paid at less than our standard rates or not paid at all, with such differences considered implicit price concessions. Variable consideration attributable to these price concessions is measured using the “expected value” method under Accounting Standards Codification, or ASC, 606 Revenue from Contracts with Customers, or ASC 606. The amounts are determined by the historical average collection rates by test type taking into consideration the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as the judgment and actions of third parties. Such variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. Variable consideration may be constrained and excluded from the transaction price in situations where there is the absence of a predictable pattern and history of collectability with a payor.
We re-assess our estimated transaction price at the end of each reporting period, including our assessment of whether our estimate of variable consideration is constrained to the extent that it is probable that a significant reversal of cumulative revenue will not occur once any uncertainty is resolved. We record any necessary adjustments in the current period’s revenue.
Valuation of Goodwill and Indefinite-Lived Intangible Assets
The valuation of assets acquired in a business combination and asset impairment reviews require the use of significant estimates and assumptions. The acquisition method of accounting for business combinations requires us to estimate the fair value of assets acquired, liabilities assumed, and any noncontrolling interest in an acquired business to properly allocate purchase price consideration between assets that are depreciated or amortized and goodwill.
See Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements included in this report for information about our valuation and assessment process with regard to potential impairment of goodwill and indefinite-lived
intangibles. Also see Note 17, Goodwill and Intangible Assets , to our consolidated financial statements included in this report for details on the valuations and results for 2025.
There can be no assurance that the estimates and assumptions management made for the purposes of the goodwill or in-process research & development, or IPR&D, impairment analysis will prove to be accurate predictions of future performance. It is possible that the conclusions regarding impairment or recoverability of goodwill or intangible assets could change in future periods. We will continue to monitor the therapeutic development reporting unit. For all IPR&D projects, there are major risks and uncertainties associated with the timely and successful completion of development and commercialization of these product candidates, including the ability to confirm their efficacy based on data from clinical trials, the ability to obtain necessary regulatory approvals, and the ability to successfully complete these tasks within budgeted costs. We are not able to market a human therapeutic without obtaining regulatory approvals, and such approvals require completing clinical trials that demonstrate a product candidate is safe and effective. In addition, the availability and extent of coverage and reimbursement from insurance payors, including government healthcare programs and private insurance plans, impact the revenues a product can generate. Consequently, the eventual realized value, if any, of these acquired IPR&D projects may vary from their estimated fair values.
Recent Accounting Pronouncements
See Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements included in this report for information about recent accounting pronouncements.
Off-Balance Sheet Arrangements
We did not have, and do not currently have, any off-balance sheet arrangements during the periods presented, as defined in the rules and regulations of the SEC, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
Item 7A. Quantitative and Qualitat ive Disclosures About Market Risk.
We are exposed to market risks from fluctuations in interest rates and foreign currency translation, which may adversely affect our results of operations and financial condition.
Interest Rate Risk
We invest in marketable debt securities, including corporate debt securities, municipal bonds, U.S. government and agency debt securities, and debt instruments issued by foreign governments. Our investment policy and strategy are focused on the preservation of capital and supporting our liquidity requirements. We typically invest in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. Our investments in fixed rate interest earning securities carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely affected due to a rise in interest rates. Unrealized gains or losses on our marketable debt securities are primarily due to interest rate fluctuations as compared to interest rates at the time of purchase. We measure our debt securities at fair value with gains and losses recorded in other comprehensive income (loss) until the securities are sold, less any expected credit losses.
To provide a meaningful assessment of the interest rate risk associated with our investment portfolio, we performed a sensitivity analysis to determine the impact a change in interest rates would have on the value of the investment portfolio assuming a 100-basis point parallel shift in the yield curve. Based on investment positions as of December 31, 2025 and 2024, a hypothetical 100 basis point increase in interest rates across all maturities would result in an incremental decline of $10.1 million and $14.5 million, respectively, in the fair market value of the portfolio. Such losses would only be realized if we sold the investments prior to maturity.
Foreign Currency Risk
We transact business in multiple currencies, in addition, we translate the assets and liabilities of our non-U.S. dollar functional currency subsidiaries into U.S. dollars. Foreign assets, liabilities, revenues, as well as costs and expenses denominated in foreign currencies, expose us to the risk of fluctuations in foreign currency exchange rates against the U.S. dollar. Our foreign currency exposures are primarily concentrated in the Chinese yuan. For the purpose of analyzing foreign currency exchange risk, we considered the historical trends in foreign currency exchange rates and determined that it was reasonably possible that adverse changes in exchange rates of 10% could be experienced in the near term.
If an adverse 10% foreign currency exchange rate change was applied to total monetary assets denominated in currencies other than the functional currencies at the balance sheet date, it would have resulted in a decrease in assets of approximately $0.7 million as of December 31, 2025, and $1.1 million as of December 31, 2024. The impact to income (loss) before income tax was not significant.
Item 8. Financial Statemen ts and Supplementary Data.
The information required by this Item 8 immediately follows the signature page to this report and is incorporated herein by reference.
