Item 1A. RISK FACTORS
Investors should carefully consider all of the information set forth in this Annual Report, including the following risk factors, before deciding to invest in any of the Company’s securities. The risks below are not the only ones that the Company faces. Additional risks not presently known to the Company, or that it presently deems immaterial, may also negatively impact the Company. The Company’s business, consolidated financial condition, revenues, results of operations, profitability, reputation, or cash flows could be materially impacted by any of these factors.
Risks Related to the Company’s Business and Operations
General or macro-economic factors and significant fluctuations in economic conditions in the U.S. and globally may have a material adverse effect on the Company.
The Company’s business depends on sustained demand for diagnostic testing and biopharma laboratory services by patients, physicians, hospitals, MCOs, CROs, pharmaceutical, biotechnology, medical device companies, and others. Significant changes in global economic conditions, inflationary pressures, and credit market volatility could negatively affect testing volumes, the demand for biopharma laboratory services, cash collections, profitability, and access to financing. Pressure on and uncertainty surrounding the U.S. federal government budget and potential changes in budgeting priorities could adversely affect the funding for government programs that comprise a portion of the Company’s revenue. In addition, uncertainty in the credit markets and interest rate volatility could reduce the availability and increase the cost of credit and impact the Company’s ability to meet its financing needs in the future.
Operations may be disrupted and adversely impacted by events beyond the Company’s control, including natural disasters, adverse weather, geopolitical events, public health crises, supply chain disruptions, and inaccessibility of natural resources.
Natural disasters (e.g., severe weather, fires, and earthquakes), geopolitical events (e.g., terrorism, war, and political instability), public health crises, criminal activity, supply chain disruptions, and other events beyond the Company’s control could negatively affect the Company’s operations. These disruptions may temporarily reduce testing volumes, delay study progress, hinder specimen transport, limit access to laboratories and IT systems, and interrupt supply deliveries. They may also affect customer operations, further decreasing demand. Prolonged disruptions caused by such events, especially in key operational locations, could harm the Company’s results of operations.
An inability to attract, retain, and develop experienced and qualified personnel, including personnel in key roles and critical positions, and increased personnel costs, could adversely affect the Company’s business.
The loss of personnel in key roles and critical positions or the inability to attract, retain, and develop experienced and qualified employees, at the Company’s clinical laboratories, drug development, and diagnostic facilities, and increased costs related to such personnel and employees, could adversely affect the business. Success in maintaining the Company’s leadership position in genomic and other advanced testing and diagnostic technologies will depend in part on the Company’s ability to attract and retain skilled research professionals. In addition, the success of the Company’s early discovery, clinical, and commercial laboratories also depends on employing and retaining qualified and experienced professionals, including specialists, who perform laboratory research activities and testing services. The same is true for patient-facing staff with specialized training required to perform activities related to specimen collection or clinical research activities. In the future, if competition for the services of these professionals increases, the Company may not be able to continue to attract and retain individuals in its markets. Changes to personnel in key roles and positions, and the ability to attract, develop, and retain qualified personnel, as a result of increased competition for talent, wage growth, or other market factors, could lead to strategic and operational and uncertainties, of management from other key initiatives, and and increased costs, any of which could affect the Company’s business, financial condition, results of operations, and cash flows.
Continued changes in healthcare reimbursement models and products (e.g., health insurance exchanges), changes in government payment and reimbursement systems, or changes in payer mix, including an increase in third-party benefits management and value-based payment models, could have a material adverse effect on the Company’s revenues, profitability, and cash flow.
The Company’s diagnostic testing services are primarily billed to third parties, including MCOs, employer plans, and other health insurance providers. A shift toward a higher mix of government and MCO payers may adversely effect revenues due to lower reimbursement rates. Ongoing efforts by payers to reduce reimbursement, tighten payment policies, and control utilization are expected to continue. If the Company cannot offset these reductions through cost efficiencies, increased volume or new services, its revenues, profitability, and cash flows may be materially impacted. PAMA has already reduced Medicare reimbursement rates for many tests, and further reductions are expected, although rate reductions are frozen for 2026 and capped at 15% per year for 2027-2029. Delays and changes in coding, billing, and payer policies have historically impacted
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revenue and margins, and similar disruptions may continue. Increasing patient cost-sharing and evolving value-based care models also pose collection challenges and may affect the Company’s ability to attract and retain MCOs.
Changes in government regulation or in practices relating to the pharmaceutical, biotechnology, or medical device industries could decrease the need for certain services that BLS provides.
BLS supports pharmaceutical, biotechnology, and medical device companies in navigating the regulatory approval and post-approval compliance requirements process. Changes in government regulations, whether easing or tightening requirements and changes in government operations, including staff reductions and reorganization efforts, could reduce the demand for BLS’s services or make them less competitive. Additionally, efforts to control drug and device costs, or changes in insurer reimbursement practices, may lead customers to reduce R&D spending, which could adversely affect BLS’s business.
Increased competition, including price competition, could have an adverse effect on the Company’s revenues and profitability.
As further described in Item 1 and Item 1A of Part I of this Annual Report, both Dx and BLS operate in highly competitive industries and selection of a commercial laboratory or a drug development partner is based on a number of competitive factors. The commercial laboratory business is intensely competitive in terms of price, service, specialty offerings, and the type and number of commercial laboratories. Dx and BLS compete against a wide range of businesses, as well as in-house departments of pharmaceutical, biotechnology, medical device, and diagnostic companies, and, to a lesser extent, selected academic research centers, universities, and teaching hospitals. In addition, BLS’s services are subject to increased price competition that may have an adverse effect on the segment’s profitability and consolidated revenues and net earnings. Dx’s or BLS’s inability to compete effectively with other businesses as it relates to certain competitive factors, including the factors mentioned above, could have an adverse effect on the Company’s revenues and profitability.
Failure to obtain and retain new customers, the loss of existing customers or material contracts, or a reduction in services or tests ordered or specimens submitted by existing customers, or the inability to retain existing and/or create new relationships with health systems could impact the Company’s ability to successfully grow its business.
The Company’s growth depends on attracting new customers and business partners while retaining existing relationships. A decline in test orders or specimen volume from existing customers, or the loss of existing contracts without offsetting growth in its customer base, could impact the Company’s ability to successfully grow its business and could have a material adverse effect on the Company’s revenues and profitability. The Company competes primarily on the basis of reputation, efficient and timely performance, and leadership in science, technology, and innovation. The Company’s failure to successfully compete in any of these areas could result in the loss of existing customers, an inability to gain new customers, and reduced or stagnant growth of the Company’s business.
Failure to develop or acquire licenses for new or improved testing technologies, or the Company’s customers using new technologies to replace offerings currently provided by the Company could adversely affect its business.
The commercial laboratory industry is subject to changing technology and the introduction of new and improved test offerings. The Company’s success in maintaining a leadership position in genomic and other advanced testing technologies will depend, in part, on its ability to develop, acquire, or license new and improved technologies on favorable terms and to obtain appropriate coverage and reimbursement for these technologies. The Company may not be able to negotiate acceptable licensing arrangements, and it cannot be certain that such arrangements will yield commercially successful diagnostic tests. If the Company is unable to license these testing methods at competitive rates, its R&D costs may increase as a result. In addition, if the Company is unable to license new or improved technologies to expand its esoteric testing operations, its testing methods may become outdated and testing volume and revenue may be materially and affected.
In addition, advances in technology may lead to the development of more technologies, such as point-of-care testing equipment, that can be operated by healthcare providers in their offices or by patients themselves without requiring the services of commercial laboratories. Development of such technology and its use by the Company’s customers could reduce the demand for its laboratory testing services and the utilization of certain tests offered by the Company and negatively impact its revenues. Similarly, application of AI to testing could reduce demand for the Company’s services, or competitors could adopt use of these technologies and derive benefits from them sooner than the Company, which could adversely affect the Company’s business.
Manufacturers of laboratory equipment and test kits could seek to increase their sales by marketing point-of-care laboratory equipment to physicians and by selling test kits approved by regulatory agencies for home or physician office use to both physicians and patients. Increased approval and use of such test kits could lead to increased testing by physicians in their offices or by patients at home, which could affect the Company’s market for laboratory testing services and negatively impact its revenues.
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Changes or disruption in services, supplies, or transportation provided by third parties have impacted, and could in the future materially impact, the Company’s operations and business.
Despite having proprietary transport capabilities, the Company remains dependent on third parties for critical supplies and services, including transportation, laboratory materials, and specialized animal populations. Disruptions in supply chains or access to transport—due to factors such as geopolitical instability, public health crises, natural disasters, or vendor noncompliance—have impacted, and could in the future materially impact, the Company’s operations. Furthermore, from time to time, manufacturers discontinue or recall reagents, test kits, or instruments used by the Company to perform laboratory testing. Such discontinuations or recalls could adversely impact the Company’s costs, testing volume and revenue.
A failure to identify suitable acquisition targets and successfully close and integrate acquisitions could have a material adverse effect on the Company’s business objectives and its revenues and profitability.
Part of the Company’s strategy involves deploying capital in investments that enhance the Company’s business, which includes pursuing strategic acquisitions to strengthen the Company’s scientific capabilities and enhance therapeutic expertise, enhance esoteric testing and global drug development capabilities, and increase presence in key geographic areas. Since January 1, 2021, the Company has invested net cash of approximately $3.8 billion in strategic business acquisitions. However, the Company cannot assure that it will be able to identify acquisition targets that are attractive to the Company or that are of a large enough size to have a meaningful impact on the Company’s results of operations. Furthermore, the successful closing and integration of a strategic acquisition entails numerous risks, including, among others:
• failure to obtain regulatory clearance, including due to antitrust concerns;
• loss of key customers or employees as a result of the acquisition;
• difficulty in consolidating redundant facilities and infrastructure and in standardizing information and other systems;
• unidentified regulatory problems at the acquired company or business;
• failure to maintain the quality of services that such companies or businesses have historically provided;
• unanticipated costs and other liabilities;
• potential liabilities related to litigation related to the acquired company or business, or from its prior owners;
• failure to timely identify and remediate noncompliant activities of the acquired company or business;
• potential periodic impairment of goodwill and intangible assets acquired;
• coordination of geographically separated facilities and workforces; and
• the potential disruption of the Company’s ongoing business and diversion of management’s resources.
The Company cannot assure that current or future acquisitions, if any, or any related integration efforts will be successful, or that the Company’s business will not be adversely affected by any future acquisitions, including with respect to revenues and profitability. Even if the Company is able to successfully integrate the operations of companies and businesses that it acquires in the future, the Company may not be able to realize the benefits that it expects from such acquisitions.
Unfavorable labor environments, union strikes, work stoppages, union or works council negotiations, or failure to comply with labor or employment laws could adversely affect the Company’s operations and have a material adverse effect upon the Company’s business.
The Company is a party to a limited number of collective bargaining agreements with various labor unions and is subject to employment and labor laws and unionization activity in the U.S. Similar employment and labor obligations exist across other countries in which it conducts business, including appropriate engagement with works councils in Europe. Disputes with regard to the terms of labor agreements or obligations for consultation, potential inability to negotiate acceptable contracts with these unions, unionization activity, or a failure to comply with labor or employment laws could result in, among other things, labor unrest, strikes, work stoppages, slowdowns by the affected workers, fines and penalties. If any of these events were to occur, or other employees were to become unionized, the Company could experience a significant disruption of its operations or higher ongoing labor costs, either of which could have a material adverse effect upon the Company’s business. Additionally, future labor agreements, of labor agreements, or changes in labor or employment laws, could compromise its service reliability and significantly increase its costs, which could have a material effect on the Company’s business. Also, the Company may incur substantial additional costs and become subject to and enforcement actions if the Company to comply with legal requirements affecting its workforce and labor practices, including laws and regulations related to wage and hour practices, Office of Federal Contract Compliance Programs compliance, and workplace and discrimination.
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Continued and increased consolidation of pharmaceutical, biotechnology and medical device companies, health systems, physicians and other customers could adversely affect the Company’s business.
Consolidation of healthcare companies and providers, including pharmaceutical, biotechnology, and medical device companies, health systems, and physician practices through horizontal and vertical mergers, acquisitions, and partnerships, is increasing competition and giving some combined companies greater control over more aspects of healthcare, including increased bargaining power. This competition and increased bargaining power may adversely affect the pricing and volume of the Company’s services.
In addition, as health systems acquire physician practices, maintaining strong relationships with hospital-based systems and integrated delivery networks is increasingly important to the Company’s business. Dx’s inability to retain its existing relationships with those physicians as they become part of healthcare systems and networks and/or create new relationships could impact its ability to successfully grow and maintain its business, which could adversely affect the Company’s business.
Damage or disruption to the Company’s facilities or operations therein could adversely affect the Company’s business.
Many of the Company’s facilities, or the operations conducted therein could be difficult to replace in a short period of time. Any event that causes a disruption of the operation of these facilities might impact the Company’s ability to provide services to customers and, therefore, could have a material adverse effect on the Company’s financial condition, results of operations, and cash flows.
The failure to establish, update, or perform to appropriate quality standards could adversely affect the Company’s business and reputation.
The Company has quality control systems and processes to support the performance and delivery of its services. A failure to establish, update, or perform in accordance with those systems or processes could result in the loss of customers, loss or suspension of licensure or certifications, or imposition of sanctions or other penalties, among other things, which could adversely affect the Company’s business and reputation.
Risks Related to Financial Matters
The Company bears financial risk for contracts that, including for reasons beyond the Company’s control, may be underpriced, subject to cost overruns, delayed, or terminated or reduced in scope.
The Company enters into fixed-price and capped fee-for-service contracts, bearing financial risk if costs exceed estimates or pricing is insufficient. Such underpricing or significant cost overruns could have an adverse effect on the Company’s business, results of operations, financial condition, and cash flows. Many BLS contracts may be terminated or reduced in scope, including for reasons such as safety issues, undesired product results, insufficient clinical trial or investigator enrollment, customer decisions to halt development, or failure to perform contractual obligations. Loss, reduction, or delay of large or multiple contracts could materially adversely affect BLS’s business, results of operations, financial condition, and cash flows.
A significant increase in the Company’s days sales outstanding could have an adverse effect on the Company’s business, including by increasing its bad debt or decreasing its cash flow.
Billing for laboratory services is a complex process due to varying billing requirements across different payers, including physicians, patients, health plans, Medicare, and Medicaid. A material increase in Dx’s days sales outstanding level, driven by billing complexity or otherwise, could have an adverse effect on the Company’s business, including potentially increasing the Company’s bad debt rate and reducing cash flows. While BLS faces less billing complexity, delays in billing or collections could similarly have an adverse effect on the Company’s business, including potentially decreasing cash flows.
BLS’s revenues depend on R&D spending by companies in the pharmaceutical, biotechnology and medical device industries.
BLS’s revenues are closely tied to R&D spending by pharmaceutical, biotechnology, and medical device companies, which may depend on access to capital and reimbursement from payers. Economic conditions, industry trends, or funding constraints could lead to reduced or delayed R&D activity or outsourcing, materially impacting BLS’s business and financial performance.
Foreign currency exchange fluctuations could have an adverse effect on the Company’s business.
The Company operates internationally and BLS derives a significant portion of its revenues from non-U.S. operations. Since the Company’s Consolidated Financial Statements are denominated in USD, fluctuations in foreign currency exchange rates may impact reported financial results, especially when costs and revenues are denominated in different currencies. These factors could significantly affect BLS’s results of operations, financial condition, and cash flows, which could have an adverse effect on the Company’s business.
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The Company’s uses of financial instruments to limit its exposure to interest rate and currency exchange fluctuations could expose it to risks and financial losses that may adversely affect the Company’s financial condition, liquidity, and results of operations.
To limit the Company’s exposure to interest rate and currency exchange fluctuations, the Company enters into financial swaps and hedging arrangements, with various counterparties. In addition to any risk related to the counterparties, there can be no assurance that this hedging strategy will be effective in insulating the Company from the risk associated with the underlying transactions or that the Company will not have to pay additional amounts upon settlement.
The Company’s level of indebtedness and debt service requirements could adversely affect the Company’s liquidity, results of operations, and business.
At December 31, 2025, the indebtedness on the Company’s outstanding senior notes totaled $5.2 billion in aggregate principal, of which $500.0 million is payable within the next 12 months. The Company is also party to credit agreements relating to a $1.0 billion revolving credit facility subject to negative financial covenants limiting subsidiary indebtedness and certain other covenants typical for investment-grade-rated borrowers, and the Company is required to maintain a leverage ratio within certain limits.
The Company’s level of indebtedness could adversely affect its business. In particular, such indebtedness could increase the Company’s vulnerability to sustained, adverse macro-economic downturns, limit financing flexibility, and limit its ability to pursue certain operational and strategic opportunities, including large acquisitions. Higher interest rates and changes in debt ratings could increase borrowing costs and reduce access to capital. Additional debt or credit arrangements may further restrict operations and liquidity. The Company may incur additional long-term debt, which could further increase its obligations and business restrictions. Additionally, major debt rating agencies regularly assess the Company’s debt, and there is no assurance that the Company will be able to maintain its existing debt ratings and a failure to do so could raise funding costs and limit access to capital.
The Company’s quarterly results of operations may vary significantly from quarter to quarter making it harder to predict future results.
The Company’s results of operations may vary significantly from quarter to quarter and are influenced by factors over which the Company has little control, such as:
• changes in the global economy, including the imposition of tariffs;
• currency exchange rate fluctuations;
• the commencement, completion, delay, or cancellation of large projects or contracts or groups of projects;
• the progress of ongoing projects;
• adverse weather, natural disasters, geopolitical events, public health crises, hostilities or acts of terrorism, acts of vandalism, disruption to supply chains, inaccessibility of natural resources, and other events beyond the Company’s control;
• the timing of and costs associated with completed acquisitions or other events; and
• changes in the utilization mix of the Company’s services.
The Company believes that results of operations for any particular quarter are not necessarily a meaningful indication of future results. While fluctuations in the Company’s quarterly results of operations could negatively or positively affect the market price of the Company’s common stock, these fluctuations may not be related to the Company’s future overall operating performance.
The Company depends on a variety of U.S. and international financial institutions to provide us with banking services. The default or failure of one or more of the financial institutions that the Company relies on may adversely affect the Company’s business and financial condition.
The Company maintains the majority of its cash and cash equivalents in accounts with major U.S. and international financial institutions, and its deposits at certain of these institutions exceed insured limits. Market conditions can impact the viability of these institutions. In the event of failure of any of the financial institutions where the Company maintains its cash and cash equivalents, there can be no assurance that the Company would be able to access uninsured funds in a timely manner or at all. Additionally, bank payment processes could become unavailable which could temporarily impact the Company’s ability to operate, pay employees, or meet obligations on a timely basis. Any of these could adversely affect the Company’s business and financial condition.
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The Company might not be able to engage in certain desirable capital raising or strategic transactions as a result of the Spin-off and may not achieve its intended results.
To preserve, for U.S. federal income tax purposes, the tax-free qualification of the Spin-off and certain related transactions under Sections 355 and 368(a)(1)(D) of the U.S. Internal Revenue Code, the Company may be limited or restricted in pursing certain transactions. Even if the Spin-off and certain related transactions otherwise qualify for tax-free treatment under Section 355 of the Code, they may result in corporate-level gain to the Company if there is a 50% or greater change in ownership, by vote or value, of the shares of the Company’s stock, Fortrea’s stock, or the stock of a successor of either occurring as part of a plan or series of related transactions that includes the Spin-off, which is generally presumed to include any acquisitions or issues of stock within two years of the Spin-off. To avoid realizing such taxable gain, the Company may be restricted or limited in its capital raising or in the strategic transactions that it elects to pursue during such time period. Additionally, the Spin-off presents risks that could affect the Company’s business, including exposure to unexpected claims, liabilities, or costs under the Company’s agreements with Fortrea in connection with the Spin-off.
Risks Related to Technology and Cybersecurity
Failure to maintain the security of customer-related information or compliance with security requirements could damage the Company’s reputation with customers, cause it to incur substantial additional costs and become subject to litigation and enforcement actions.
The Company collects, stores, transmits, and processes personal and financial information, and works with third-party service providers in connection with such data processing activities. A compromise of the Company’s or a vendor’s systems that results in confidential information being acquired, accessed, or changed by unauthorized persons, or failure to meet security standards, such as the HIPAA security regulations and the Payment Card Industry Data Security Standard, could harm the Company’s reputation, operations, financial condition, and liquidity, and may result in litigation, fines, or regulatory actions. For example, the AMCA Incident (as defined below under “Cybersecurity” in Item 1C) resulted in costs, pending and threatened litigation, and regulatory inquiries. For additional information about the AMCA Incident, see Note 15 Commitments and Contingencies to the Consolidated Financial Statements of Part III of the Annual Report.
Failure in the information technology systems of the Company or its vendors and other third-party service providers, or newly acquired businesses, or delays or failures in the development and implementation of new systems or updates or enhancements to existing systems, could adversely affect the Company’s business.
The Company’s operations rely on the continued performance and security of its information technology systems. System failures, cybersecurity incidents, disruptions, or other issues affecting information technology systems could impair data processing, service delivery, billing, and customer communications. The Company also relies on third parties for critical services, including transportation, supplies, and data processing and expects them to comply with applicable laws and regulations, including environmental, health and safety, and privacy and data security laws. Failures by these providers, whether operational, legal, or cybersecurity-related, and issues affecting their information technology systems, could disrupt services, compromise personal or other confidential information, expose the Company to liability and could materially impact its business, even if the Company is not responsible for the underlying cause of any such failure or issue. In addition, the Company may be subject to regulatory, contractual, or other obligations arising from any such failure or issues. contingency plans, risks remain, and a significant information technology system could affect the Company’s reputation, operations, financial condition, and .
Cybersecurity incidents and unauthorized access to the Company's or its customers’ data could harm the Company’s reputation and adversely affect its business.
The Company continues to face cybersecurity threats, including ransomware attempts, data breaches, and phishing and social engineering attempts targeting its systems and its employees, and those of third-party vendors. Increasingly sophisticated methods, including the use of AI by threat actors, heighten these risks. The Company has implemented a formal cybersecurity program; however, threat actors’ techniques continue to evolve and may not be identifiable until deployed, which could limit the Company’s ability to prevent unauthorized access, data compromise, service disruption, or fraudulent activity. The Company may be unable to anticipate and/or implement appropriate controls needed to protect against these evolving threats or be required to expend additional resources to prepare for and respond to any cybersecurity vulnerabilities. Evolving threats may outpace defenses, requiring ongoing investment in security measures. Data and cybersecurity , including those involving third parties, such as the AMCA , could result in data , service , reputational , , regulatory , and increased insurance costs. Remote work arrangements further elevate exposure to cyber risks.
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The use of AI and machine learning tools in the Company’s operations and the services of third-parties may introduce risks that could adversely affect the Company’s business, financial condition, and reputation.
The Company and certain of its third-party vendors use AI and machine learning tools to enhance productivity and innovation, but these technologies also introduce risks. Improper use may lead to data leaks of sensitive, proprietary, or confidential information, flawed outputs, biased decisions, or reputational harm. In addition, rapid advancements could render existing tools obsolete or give competitors an edge, emerging regulations may subject the Company to new restrictions or penalties, and AI systems may be vulnerable to new security threats. These risks could result in legal liabilities, customer loss, and reputational damage, each of which could have an adverse impact on the Company’s business and operations.
Risks Related to Regulatory and Compliance Matters
Changes in payer regulations or policies, insurance regulations or approvals, or changes in laws, regulations, or policies in the U.S. or globally, including changes in their interpretation, may adversely affect the Company.
Government payers, including Medicare and Medicaid, and private insurers, such as MCOs, continue to implement measures to control healthcare costs, utilization, and delivery. These efforts include changes of reimbursement rates, coverage criteria, and administrative requirements.
Under PAMA, phased reductions to Medicare reimbursement began in January 1, 2018, and are now frozen for 2026 but will resume in 2027, with capped reductions in 2027-2029, with potential for further reductions thereafter. Additional changes such as prior authorization requirements, diagnosis code edits, and other claims processing rules may also impact payment for diagnostic services. Reimbursement for pathology services performed by Dx under the Medicare PFS is subject to ongoing statutory and regulatory adjustments. Similar actions by commercial payers have historically led to lower payments, increased administrative costs, and reduced test utilization. Future changes in payer policies, laboratory benefit management programs, or insurance regulations could materially and adversely affect Dx’s business, financial condition, and results of operations, which could have an adverse effect on the Company’s business.
The Company could face significant monetary damages and penalties and/or exclusion from government programs if it violates anti-fraud and abuse laws.
The Company is subject to comprehensive regulation at the federal, state, and local levels in the U.S., as well as in other countries where it operates. Noncompliance with laws governing billing practices, financial relationships, and other healthcare-related activities could result in civil or criminal penalties, exclusion from Medicare and Medicaid, and restrictions on the use of the Company’s laboratories. Although the Company believes it is in material compliance with applicable requirements, government authorities may take a contrary position. This includes potential interpretations of laws such as the Eliminating Kickbacks in Recovery Act, which currently lacks clarifying regulations or exceptions. Any enforcement action, regardless of outcome, could harm the Company’s reputation and disrupt key business relationships.
The Company’s business could be harmed from the loss or suspension of a license or imposition of a fine or penalties under, or future changes in, or interpretations of, the law or regulations of CLIA, Medicare, Medicaid or other national, state, or local agencies in the U.S. and other countries where the Company operates laboratories.
The commercial laboratory testing industry is subject to broad regulation in the U.S. and internationally. In the U.S. CLIA requires certification for virtually all clinical laboratories. Noncompliance with CLIA may result in suspension, revocation, or limitation of a laboratory’s certificate, and the ability to bill government and other payers, as well as significant fines or criminal penalties. The Company is also subject to state laws that may impose additional requirements on laboratory operations and personnel.
Outside the U.S., the Company’s laboratories are subject to local laws and regulations, which vary by jurisdiction. Laws and regulations—many of which lack judicial interpretation—could be applied by regulatory or enforcement authorities in ways that adversely affect the Company’s business. Potential sanctions include fines and loss of licenses or certifications. Additionally, future legislation may impose new compliance obligations that could be costly to implement.
Failure of the Company or its third-party service providers to comply with national security, privacy and data security laws and regulations could result in fines, penalties and damage to the Company’s reputation with customers and have a material adverse effect upon the Company’s business.
The Company and its third-party service providers are subject to numerous federal, state, and international laws governing national security, and the privacy and security of personal and health information. Noncompliance may result in fines, penalties, litigation, or criminal sanctions.
In the U.S., HIPAA imposes detailed requirements on the use, disclosure, and safeguarding of PHI. HIPAA violations can lead to significant civil and criminal penalties. HIPAA also provides individuals with certain privacy rights regarding their PHI
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and requires the Company to notify individuals about its privacy practices. The Company has implemented policies to comply with HIPAA, but evolving regulations—including a proposed rule to clarify the HIPAA Security Rule—may increase compliance obligations. State laws, such as the CCPA and the Washington My Health My Data Act, impose additional requirements that may exceed requirements under HIPAA and other federal standards. The Company must also comply with restrictions on international data transfers imposed through standards such as the DOJ’s Data Security Program, and emerging laws regulating AI, algorithms, and automated processing, which may increase compliance costs.
Internationally, the Company is subject to data protection laws, such as the EU GDPR and the U.K. GDPR, which impose strict requirements and significant penalties for noncompliance. Similar laws have been enacted in other regions where the Company operates, including Asia, Latin America, and other parts of Europe.
Compliance with these complex and evolving regulations may require changes to the Company’s business practices and result in increased operational costs. Failure to comply could materially and adversely affect the Company’s business and reputation, result in the imposition of fines, penalties, or orders to stop certain activities, and potentially expose the Company to actions for the wrongful use or disclosure of personal information.
The Company’s international operations could subject it to additional risks and expenses that could adversely impact the business or results of operations.
The Company’s international operations are subject to foreign laws and regulations that differ from those in the U.S. Noncompliance may result in penalties, restrictions, and reputational harm. Risks include changes in reimbursement by foreign governments, export controls, trade regulations, tax policies, labor laws, and currency repatriation restrictions. Some jurisdictions may lack clear legal frameworks or strong enforcement of contractual and intellectual property rights.
The Company may also face challenges related to regulatory approval, pricing, reimbursement, and marketing of its services abroad. Operating internationally can lead to unanticipated costs, including those related to compliance, staffing, collections, and managing local operations. In certain countries, success may depend on forming relationships with local partners, and failure to do so could adversely affect the Company’s business and operations.
International operations may increase the Company’s exposure to liabilities under applicable anti-corruption laws.
Anti-corruption laws in the countries where the Company conducts business, including the FCPA, U.K. Bribery Act, and similar laws in other jurisdictions, prohibit companies and their intermediaries from engaging in bribery including improperly offering, promising, paying, or authorizing the giving of anything of value to individuals or entities for the purpose of corruptly obtaining or retaining business. The Company operates in parts of the world where corruption may be common and where anti-corruption laws may conflict to some degree with local customs and practices. The Company maintains an anti-corruption program including policies, procedures, training, and safeguards in the engagement and management of third parties acting on the Company’s behalf. Despite these safeguards, the Company cannot guarantee protection from corrupt acts committed by employees or third parties associated with the Company. Violations or of of anti- laws could have a significant effect on the business or results of operations.
Failure to comply with the regulations of pharmaceutical and medical device regulators, such as the FDA, the Medicines and Healthcare products Regulatory Agency in the U.K., the EU, the European Medicines Agency, the National Medical Products Administration in China, and the Pharmaceuticals and Medical Devices Agency in Japan, could result in fines, penalties, and sanctions against BLS and have a material adverse effect upon the Company.
The Company’s preclinical and central laboratory operations must comply with applicable standards, including GLP, GCP, and for certain services, cGMP. These operations also involve the import, export, and use of medical devices, reagents, and biological products, which are subject to extensive local and international regulations. Failure to comply with these requirements could result in regulatory enforcement, civil, criminal, or administrative sanctions, including fines, suspension of laboratory operations, or restrictions on import/export activities. Maintaining compliance may also require significant resources and ongoing investment. Any enforcement action or disruption in laboratory operations could have a material adverse effect on the Company’s business and results of operations.
Increased regulations and restrictions on the import of research animals, limitations of supply of research animals, and actions of animal rights activists may have an adverse effect on the operations of BLS or the Company.
BLS’s preclinical services utilize animals in preclinical testing of the safety and efficacy of drugs and devices. Such activities are typically required for the development of new medicines and medical devices under regulatory regimes in the U.S., Europe, Japan, and other countries. Increased or changed regulations and restrictions on the import of research animals into various countries, as well as limitations of supply could impact BLS’s ability to conduct preclinical research and could have an adverse effect on BLS’s financial condition, results of operations, and cash flows. In addition, acts of vandalism and
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other acts by animal rights activists who object to the use of animals in drug development could have an adverse effect on the Company.
Animal populations may suffer diseases that can damage BLS’s inventory, harm its reputation, or result in other liability.
BLS’s preclinical services rely on healthy research animal populations. The presence of infectious or other diseases can compromise research quality, result in inventory loss, and pose risks to human or external animal populations. Such incidents may lead to reputational damage, operational disruption, and increased costs, adversely affecting the Company’s financial condition and results of operations.
Failure to conduct animal research in compliance with animal welfare laws and regulations could result in sanctions and/or remedies against BLS and have a material adverse effect on the Company.
BLS’s preclinical research activities must comply with animal welfare laws in the jurisdictions where it operates, including the AWA and similar regulations in the U.K., the EU, and China. These laws govern standards for housing, care, and oversight of research animals. Failure to meet regulatory requirements may result in fines, suspension or revocation of licenses, confiscation of animals, and reputational harm, any of which could have a material adverse effect on the Company’s operations and financial results.
U.S. FDA regulation of LDTs and regulation by other countries of diagnostic offerings could have a material adverse effect on the Company’s business.
The Company’s diagnostic instruments, test kits, reagents, and point-of-care devices are subject to regulation by the FDA, which oversees their development, manufacturing, labeling, marketing, and performance. The FDA regularly inspects facilities and may take enforcement actions for noncompliance.
Historically, LDTs offered by high-complexity laboratories have been regulated under CLIA without FDA oversight. However, on April 29, 2024, the FDA issued a final rule asserting authority to regulate LDTs as medical devices, initiating a four-year phase-out of its prior enforcement discretion. Legal challenges to the rule led to its recission, but if the FDA reissues a revised rule or otherwise seeks to reassert authority over LDTs, such actions could increase regulatory burdens and enforcement risks for LDTs not cleared or approved by the FDA.
Noncompliance with FDA requirements may result in warning letters, fines, recalls, injunctions, and other civil or criminal penalties, potentially impacting the Company’s ability to develop and commercialize new tests.
Outside the U.S., the Company is subject to similar regulations, including the EU IVDR, which imposes classification, quality, and safety standards. Compliance with these evolving international frameworks may increase costs and affect the Company’s ability to support clinical trials and offer laboratory services.
Failure to comply with U.S., state, local, or international environmental, health and safety laws and regulations, including the U.S. Occupational Safety and Health Administration Act and the U.S. Needlestick Safety and Prevention Act, could result in fines, penalties and loss of licensure, and have a material adverse effect on the Company.
As previously discussed in Item 1 of Part I of this Annual Report, the Company is subject to licensing and regulation under laws and regulations relating to the protection of the environment and human health and safety, including laws and regulations relating to the handling, transportation and disposal of medical specimens, infectious and hazardous waste and radioactive materials, as well as regulations relating to the safety and health of laboratory employees. Failure to comply with these laws and regulations could subject the Company to denial of the right to conduct business, fines, criminal penalties, and/or other enforcement actions that would have a material adverse effect on its business. In addition, compliance with future legislation could impose additional requirements on the Company that may be costly.
Views on matters relating to corporate responsibility and governance and the perception of the Company’s activities in these areas by stakeholders may impact the Company’s business and reputation.
Governmental authorities, non-governmental organizations, customers, investors, external stakeholders, and employees are sensitive to matters of corporate responsibility and governance, such as environmental sustainability. This focus on these concerns may lead to new requirements that could result in increased costs associated with developing, manufacturing, and distributing the Company’s offerings. The Company’s ability to compete could also be affected by changing preferences and requirements on these matters and the Company’s ability to meet them. If the Company does not meet the evolving and varied preferences and requirements of governmental authorities and others on these matters, the Company could experience reduced demand for its offerings, loss of customers, and other negative impacts on the Company’s business and results of operations.
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Risks Related to Legal Matters
Adverse results in material litigation matters could have a material adverse effect on the Company’s business.
The Company is currently and may continue to be subject in the ordinary course of business to legal actions related to, among other things, intellectual property disputes, contract disputes, data and privacy issues, professional liability and employee-related matters, which may be or may become material. The Company also has received and may in the future receive inquiries and requests for information from governmental agencies and bodies, including Medicare or Medicaid payers, requesting comment and/or information on various matters, including allegations of billing irregularities, billing and pricing arrangements, or privacy practices that are brought to its attention through audits or third parties. Legal actions can result in substantial monetary damages as well as damage to the Company’s reputation with customers, which could have a material adverse effect upon its business.
The failure to successfully obtain, maintain, and enforce intellectual property rights and defend against challenges to the Company’s intellectual property rights could adversely affect the Company.
The Company relies on intellectual property—including patents, copyrights, trademarks, and trade secrets—to support many of its offerings and processes. Some of this intellectual property is licensed from third parties, including on an exclusive basis. The Company’s ability to maintain and enforce its proprietary rights, prevent infringement, and defend claims of infringement is critical to its operations.
The Company has faced, and may continue to face, challenges relating to intellectual property rights. For example, in October 2020, Ravgen Inc. filed a patent infringement lawsuit against the Company alleging infringement of two Ravgen-owned U.S. patents. In September 2022, a jury rendered a verdict in favor of Ravgen on the remaining patent at issue and awarded damages of $272.0 million. In May 2023, the court awarded Ravgen additional enhanced damages in the amount of $100.0 million, and in January 2025, the court awarded Ravgen post-verdict supplemental damages of $2.6 million, an ongoing royalty of $100 per test through the life of the patent as issue, pre- and post-judgement interest, and other relief. The Company strongly disagrees with the verdict, based on a number of legal factors, and will vigorously the lawsuit through the appeal process.
Failure to successfully obtain, maintain, enforce, or defend intellectual property rights—or adverse outcomes in litigation—could result in the need to alter or discontinue offerings, pay significant costs, damages or licensing fees, or suffer reputational harm, any of which could materially affect the Company’s business, reputational, and results of operations.
Changes in tax laws and regulations or the interpretation of such may have a significant impact on the financial position, results of operations, and cash flows of the Company.
U.S. and foreign governments continue to review, reform and modify tax laws, including with respect to the Organisation for Economic Co-operation and Development’s base erosion and profit shifting initiative. Changes in tax laws and regulations could materially affect the Company’s tax obligations.
In addition, the Company is subject to regular audits with respect to its various tax returns and processes in jurisdictions in which it operates. Errors or omissions in tax returns, process failures or differences in interpretation of tax laws by tax authorities and the Company may lead to litigation, payments of additional taxes, penalties, and interest.
Contract services in the drug development industry create liability risks.
In contracting to work on drug development trials and studies, BLS faces potential risks inherent to the provision of diagnostic information services for clinical trial participants. Users of BLS for clinical trials may have a greater sensitivity to errors than the users of services or products that are intended for other purposes, such as research only. Other potential liabilities may include:
• errors or omissions that create harm to clinical trial subjects during a trial or to consumers of a drug after the trial is completed and regulatory approval of the drug has been granted;
• risks that animals in BLS’s facilities may be infected with diseases that may be harmful and even lethal to themselves and humans despite preventive measures contained in BLS’s business policies, including those for the quarantine and handling of imported animals; and
• errors and omissions during a trial or study that may undermine the usefulness of a trial or study, or data from the trial or study or that may delay the entry of a drug to the market.
While BLS endeavors to include in its contracts provisions entitling it to be indemnified and entitling it to a limitation of liability, these provisions are not always successfully obtained and, even if obtained, do not uniformly protect BLS against liability arising from certain of its own actions. BLS could be materially and adversely affected if it were required to pay
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damages or bear the costs of defending any claim that is not covered by a contractual indemnification provision, or in the event that a party which must indemnify it does not fulfill its indemnification obligations, or in the event that BLS is not successful in limiting its liability or in the event that the damages and costs exceed BLS’s insurance coverage. BLS may also be required to agree to contract provisions with clinical site selection or its customers related to the conduct of clinical trials, and BLS could be materially and adversely affected if it were required to indemnify a site or customer against claims pursuant to such contract terms. There can be no assurance that BLS will be able to maintain sufficient insurance coverage on acceptable terms.
