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Commitment and Contingencies | 12 Months Ended
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Dec. 31, 2022
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies | Commitments and Contingencies Leases The Company adopted ASC 842, Leases, as of January 1, 2022. Prior period amounts have not been adjusted and continue to be reported in accordance with the Company's historic accounting under ASC 840, Leases. Operating Leases The Company leases office and laboratory spaces in Vista, California, under leases that expire in April 2027, with an option to extend portions of the leases for additional 5-year periods. The Company has not included the optional renewal periods in the measurement of the lease liabilities because it is not reasonably certain that the Company will exercise these renewal options. The Company's lease payments under each of these leases are subject to escalation clauses. Effective on August 23, 2021, the Company entered into a sub-lease agreement for an additional office space in Carlsbad, California. The sub-lease commenced in October 2021 and expires in April 2027. The sub-lease agreement provides for monthly base rent of $66,021 which began on October 1, 2021, and such amount increases by approximately 3% annually beginning October 1, 2022. The Company determines if a contract contains a lease at inception or modification of a contract. The Company discounts their lease obligations using its incremental borrowing rate at the commencement date. The incremental borrowing rate is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment. The Company primarily considers industry data, its credit rating and the lease term to determine its incremental borrowing rate. Finance Leases The Company has entered into various finance lease agreements to obtain laboratory equipment. The terms of the Company's finance leases generally range from three to five years and are typically secured by the underlying equipment. The portion of the future payments designated as principal repayments were classified as finance lease liabilities on the Company's balance sheet. Operating and Finance Leases Balances and Costs Operating and finance leases consist of the following (in thousands):
Lease Balance |  | Classification |  | December 31, 2022
Lease Assets |  |  |  |
Operating |  | Operating lease right-of-use assets |  | $ | 4,885 |
Finance |  | Property and equipment, net |  | $ | 1,427 |
Lease Liabilities |  |  |  |
Current |  |  |  |
Operating |  | Operating lease liabilities |  | $ | 1,040 |
Finance |  | Accrued and other current liabilities |  | $ | 700 |
Non-current |  |  |  |
Operating |  | Non-current operating lease liabilities |  | $ | 4,493 |
Finance |  | Other non-current liabilities |  | $ | 848 |
Costs associated with the Company's leases were included in the statements of operations as follows (in thousands):
Lease Cost |  | Year Ended December 31, 2022
Operating leases |  |
Operating lease cost(1) |  | $ | 1,540 |
Finance lease cost |  |
Amortization of lease assets |  | 679 |
Interest on finance lease liabilities |  | 80 |
Total lease cost |  | $ | 2,299 |
(1) Includes variable lease cost of $165,000 for the year ended December 31, 2022. Supplemental cash flow information on leases is as follows (in thousands):
Cash paid for amounts included in the measurement of lease liabilities |  | Year Ended December 31, 2022
Operating cash out flows from operating leases |  | $ | 1,262 |
Operating cash out flows from interest paid on finance leases |  | $ | 80 |
Financing cash out flows from finance leases |  | $ | 667 |
Information regarding the weighted-average lease term and weighted average discount rate are as follows:
|  | December 31, 2022
Weighted-average remaining lease term (years) |  |
Operating leases |  | 4.3
Finance leases |  | 1.94
Weighted-average discount rate |  |
Operating leases |  | 8.0 | %
Finance leases |  | 4.8 | %
Future payments under operating and finance leases as of December 31, 2022 are as follows (in thousands):
|  | Operating Leases |  | Finance Leases
2023 |  | $ | 1,446 |  |  | $ | 828 |
2024 |  | 1,489 |  |  | 574 |
2025 |  | 1,533 |  |  | 248 |
2026 |  | 1,584 |  |  | 147 |
Thereafter |  | 539 |  |  | 29 |
Total minimum lease payments |  | 6,591 |  |  | 1,826 |
Less: imputed interest |  | (1,058) |  |  | (278) |
Total lease liabilities |  | 5,533 |  |  | 1,548 |
Less: current portion |  | (1,040) |  |  | (700) |
Lease obligations, net of current portion |  | $ | 4,493 |  |  | $ | 848 |
Disclosures Under ASC 840 Minimum annual lease payments under non-cancelable operating lease arrangements as of December 31, 2021 are as follows (in thousands):
Years Ending December 31, |  | Operating Leases
2022 |  | $ | 1,337 |
2023 |  | 1,445 |
2024 |  | 1,489 |
2025 |  | 1,533 |
2026 |  | 1,584 |
Thereafter |  | 539 |
Total minimum lease payments |  | $ | 7,927 |
For the year ended December 31, 2021, rent expense was $0.9 million. Acquisition-related liabilities In connection with the acquisition of the medical diagnostics division of Royalty Pharma Collection Trust (Royalty Pharma) (formerly known as Cypress Bioscience, Inc.) in 2010, the Company was required to pay certain amounts in the event that certain revenue milestones were achieved and upon the first commercial sale of a product associated with this acquisition, for which the obligations no longer exist at December 31, 2022. In addition, the Company has ongoing royalty payment obligations with Royalty Pharma of 2.5% on net sales of products which incorporate certain acquired technologies. Future royalties payable under these arrangements are limited to the lesser of (i) an aggregate of $1.2 million (including an upfront payment of $0.1 million) and (ii) the total royalties earned through January 1, 2024. Licensing Agreements The Company has licensed technology for use in its diagnostic tests. In addition to the milestone payments required by these agreements, individual license agreements generally provide for ongoing royalty payments ranging from 1.5% to 7.0% on net sales of products which incorporate licensed technology, as defined in such agreements. Royalties are accrued when earned and recorded in costs of revenue in the accompanying statement of operations. In May 2021, the Company entered into an exclusive license agreement with Allegheny Health Network Research Institute (AHN) to obtain an exclusive license to AHN's patent rights in certain inventions, pursuant to which the Company paid AHN an initial license fee of $0.4 million. In addition, under the terms of the exclusive license agreement, the Company is required to pay the greater of royalties in the low single digits on net sales of diagnostic tests using the assigned patents or a flat annual minimum royalty amount, pending approvals and commercialization. In November 2021, the Company entered into an exclusive license agreement with Queen Mary University of London (QMUL) to obtain an exclusive license to QMUL's patent rights in certain inventions, pursuant to which the Company paid QMUL an initial license fee of $0.4 million. The Company is obligated to make a one-time payment of $0.1 million relating to the first commercial sale of the licensed products. In addition, after the first 18 months of commercial sales under the terms of the exclusive license agreement, the Company is required to pay royalties in the high single-digits on net sales of testing products using the assigned patents, pending approvals and commercialization. Supply Agreement In December 2021, the Company entered into an amended supply agreement with one supplier for reagents which includes minimum annual purchase commitments of $6.0 million and $6.9 million for the years ended December 31, 2022 and 2023, respectively, with a 15% annual increase thereafter for unconditional minimum purchase commitments through the year ending December 31, 2025. Collaboration Obligations In May 2021, the Company entered into a master research collaboration agreement with AHN, pursuant to which the Company is required to pay AHN a collaboration fee of $0.4 million for each year during the initial term of the agreement. Collaboration expenses under the master research collaboration agreement were $0.4 million for the year ended December 31, 2022. Collaboration expenses under the AHN collaboration are included in research and development expenses. Contingencies In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications; including for subpoenas and other civil investigative demands, from governmental agencies, Medicare or Medicaid and managed care organizations reviewing billing practices or requesting comment on allegations of billing irregularities that are brought to their attention through billing audits or third parties. The Company's exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made or that the Company believes to be immaterial. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. Litigation From time to time, the Company may be subject to various legal proceedings that arise in the ordinary course of business activities. The Company does not believe the outcome of any such matters will have a material effect on its financial position or results of operations.

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