LICENSE AND

SERVICES AGREEMENT

 

This License and Services Agreement (“Agreement”) is made and entered into as of
June 10, 2013 (the “Effective Date”) by and between A5 Genetics KFT, Corporation
with its principal place of business at Gerecse u. 16, H-2094, Hungary (“A5”),
and Atossa Genetics Inc., a Delaware corporation, with its principal place of
business at 1616 Eastlake Ave. East, Suite 360, Seattle, Washington (“Atossa”).

 

WHEREAS, A5 has developed proprietary software called RecurrenceOnline for the
purpose of analyzing genes in biopsy samples from breast cancer tumors (the
“RecurrenceOnline Software”);

 

WHEREAS, Atossa is developing a laboratory test called the NextCYTE Breast
Health Test which will be used to perform a laboratory diagnostic test on
samples of breast cancer tumors to help inform treatment options and risk of
recurrence (the “NextCYTE Test”); and

 

WHEREAS, Atossa wishes to acquire rights, and A5 wishes to transfer certain
rights, to the RecurrenceOnline Software and other rights for use with its
NextCYTE Test.

 

NOW THEREFORE, in consideration of the mutual covenants set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:

 

1. LICENSE.

 

1.1. Grant of License. Subject to the terms and conditions of this Agreement A5
grants to Atossa an exclusive, irrevocable, license in the Field of Use to use,
sell, distribute, patent, sublicense and transfer the Licensed Property in the
Territory. For purposes of this Agreement:

 

“Territory” means world-wide except the European Union.

 

“Licensed Property” means all rights to the RecurrenceOnline Software and
related, hardware, data bases and related content and functionality to
www.recurrenceonline.com, Documentation, improvements, new versions, Error
corrections under Section 3 and bug fixes.

 

“Improvements” means all modifications, updates and Error corrections under
Section 3 to the algorithm used in the RecurrenceOnline Software, including
additions and deletions of genes, altering the weight of genes or otherwise
altering the algorithm.

 

 

 

 

“Documentation” means the user manuals or other documentation accompanying the
Licensed Property, as it may be revised and updated from time to time.

 

“License” means the license to use the Licensed Property granted to Atossa in
this Agreement.

 

“Field of Use” means the fields of breast cancer and pre-cancerous lesions
including ductal carcinoma in situ.

 

1.2. Restrictions. Atossa may not itself, or through any parent, subsidiary,
affiliate, agent or other third party: (a) decompile, disassemble, reverse
engineer or circumvent any technological measure controlling access to the
RecurrenceOnline Software in whole or in part; or (b) modify the
RecurrenceOnline Software or write or develop any derivative software or any
other software program based upon the RecurrenceOnline Software.

 

1.3. Specifications. The RecurrenceOnline Software contains the features and
specifications set forth on Exhibit A (the “Specifications”).

 

1.4. Source Code. The License is to the executable object code of the
RecurrenceOnline Software only, and does not include any license to the related
source code.

 

1.5. Copies. A5 will retain one copy of the RecurrenceOnline Software on a
secondary server or other host computer for backup purposes. Atossa may make
additional copies of the RecurrenceOnline Software in the normal course of its
back-up and archival operations but all of such copies will remain subject to
the terms of this Agreement.

 

1.6. Documentation. Atossa may make copies of the Documentation to the extent
necessary to enable use of the RecurrenceOnline Software in accordance with this
Agreement.

 

1.7. Shipments. All A5’s shipments to Atossa under this Agreement, if any, will
be F.O.B. Atossa’s facility at the address first set forth above. A5 will pay
for any shipping, handling, insurance and other similar costs.

 

1.8. Right of First Refusal to New Algorithms. Prior to licensing, selling or
distributing any new algorithms in the Field of Use that are intended for
commercialization, A5 shall first offer in writing to Atossa a license in the
Territory to such new algorithms substantially on the terms upon which the
Licensed Property is licensed under this Agreement and other commercially
reasonable terms to be agreed upon by the parties. Atossa shall have 60 days to
evaluate the potential license of such new algorithms.

 

1.9. Improvements. Improvements shall be promptly communicated and transferred
to Atossa, but subject to A5’s need to validate improvements with third party
clinical partners

 

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2. FEES.

 

2.1. Fees and Patent Costs.

 

(a)           Within 60 days of the date of this Agreement, Atossa shall pay A5
a one-time fee of $100,000. Atossa shall pay for all costs and expenses of
pursuing all patents under Section 3 of this Agreement.

 

(b)           Within 60 days of the date that the Licensed Property is installed
and tested at Atossa’s site to Atossa’s reasonable satisfaction, Atossa shall
pay A5 a one-time fee of $100,000.

 

2.2. Milestones.

 

(a)           Within three months of the Atossa achieving either of the
following milestones Atossa shall pay A5 US$200,000: (i) submission by Atossa of
an application to the U.S. FDA seeking clearance of the NextCYTE Test as a
medical device, or (ii) commercial launch by Atossa of the NextCYTE Test. Atossa
agrees to use good faith commercial efforts to submit the application for the
foregoing FDA clearance on or before January 1, 2015.

 

(b)           Within 60 days of receiving FDA clearance for the NextCYTE Test,
Atossa shall pay A5 an additional fee of US$1,000,000.

 

2.3. Royalties. On or before January 31 of each year, Atossa shall pay A5 a
royalty fee equal to US$50 for each NextCYTE Test for which Atossa receives
payment. Atossa shall provide a report to A5 of all NextCYTE tests processed and
for which Atossa receives payment during each six month periods ending June 30
and December 31. Such reports shall be provided within 30 days after each such
six month period. Atossa shall be responsible for any third-party royalties that
Atossa incurs as a result of commercialization of the NextCYTE Test.

 

2.4. Support Services Fees. For the services provided by A5 under Section 3 (the
“A5 Services”), Atossa will pay A5 a service fee equal to US$65 for each
NextCYTE Test for which A5 Services are provided; provided, however, that no
such fee shall be due for NextCYTE Tests performed during the validation and
pre-commercial launch periods. The service fees shall be paid quarterly in
arrears within 30 days after the end of each calendar quarter.

 

2.5. Payments. All payments due under this Agreement will be made in U.S.
dollars.

 

3. SERVICES.

 

3.1. Support. A5 will provide Atossa with Support Services consisting of the
following (the “Support Services”):

 

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(a)           Installation and Testing. A5 will provide reasonable support and
assistance to Atossa in installing and otherwise integrating the Licensed
Property with the NextCYTE Test and Atossa’s other operations.

 

(b)           Email Support. A5 will provide assistance via email to Atossa
related to Atossa’s operation of RecurrenceOnline Software and its use with the
NextCYTE Test. A5 will respond to emails within 24 hours. A5 will also be
available for occasional phone consultations at mutually agreeable times.

 

(c)           Maintenance. A5 will provide diagnostic services and other
assistance to Atossa for Errors in the RecurrenceOnline Software. A5 may provide
Atossa with a report form for reporting suspected Errors. An “Error” means any
defect in the RecurrenceOnline Software that prevents the RecurrenceOnline
Software from operating substantially in accordance with the Specification and
Documentation. A5 will work diligently to provide an immediate correction or
modification for all Errors.

 

(d)           Updates and Upgrades. A5 will make available to Atossa without
charge one copy of any update or upgrade generally made available by A5 without
charge to its other licensees.

 

(e)           Operations. A5 will provide operational support to assist Atossa
in processing samples with the NextCYTE Test by performing the quality control
of the processed samples and statistical evaluation for a gene expression based
diagnostic report.

 

3.2. Atossa Responsibilities. Atossa agrees to provide A5 with all information
and materials reasonably requested by A5, to the extent reasonably available to
Atossa, for use in replicating, diagnosing and correcting an Error or other
problem with the A5 Software reported by Atossa to the extent such information
and materials are reasonably available to Atossa. Atossa will maintain permanent
internet connection with a fixed IP address through which the RecurrenceOnline
Software can be accessed and to otherwise facilitate maintenance and Support
Services.

 

4. OWNERSHIP.

 

4.1. Ownership of Atossa Data. All of Atossa’s data, including the data
generated by use of the Licensed Property and the NextCYTE Test (the “Atossa
Data”) will remain the sole and exclusive property of Atossa.

 

4.2. Use of Atossa Data by A5. Atossa hereby grants to A5 during the Term of
this Agreement, the limited, nontransferable and nonexclusive right and license
to Atossa Data to develop Improvements, and for research purposes, publish
research papers and for teaching purposes; provided, however, that at all times
A5 shall keep all Atossa Data confidential in accordance with Section 9
(Confidentiality). Any reference or use by A5 to the names Atossa, Atossa
Genetics, National Reference Laboratory for Breast Health, NextCYTE and other
trademarks or service marks of Atossa shall be subject to the prior written
approval of Atossa.

 

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4.3. Ownership by A5. Subject to Section 4.5:

 

(a)           all inventions, discoveries, improvements, enhancements, methods,
processes, models, algorithms, software technology, technical documentation and
other methodologies owned or developed by A5 in the course of providing Services
to Atossa or preparing the RecurrenceOnline Software will remain the property of
A5;

 

(b)           no title or ownership of the RecurrenceOnline Software or any part
thereof will be transferred to Atossa; and

 

(c)           Atossa acknowledges that Atossa is acquiring only a license to use
the Licensed Property and not any title to or ownership of the Licensed Property
or any part thereof.

 

4.4. Patent Prosecution. A5 represents that it has not sought patent protection
on the Licensed Property in the Territory and A5 shall not seek or permit others
to seek, any such patent protection in the Territory. Atossa shall have the
right, but not the obligation, to pursue patents in the Territory and in the
Field of Use on the Licensed Property (the “Atossa Software Patents”). If Atossa
chooses to apply for such Atossa Software Patents, a person designated by A5
shall be identified as the inventor in all patent applications; provided that
such inventor shall immediately upon request assign to Atossa all right, title
and interest in and to the patent applications and Atossa Software Patents and
A5 and any such inventor shall execute and deliver all reasonably necessary
documents reflecting such assignment to Atossa.

 

4.5. Ownership of Atossa Software Patents. A5 hereby transfers and assigns all
right, title and interest in and to any intellectual property claimed in the
Atossa Software Patents, including source and object code, so that Atossa shall
be the sole and exclusive owner of any such Atossa Software Patents and related
patent applications. For clarification, the Atossa Software Patents shall
include rights only in the Field of Use and only in the Territory so that A5 is
free to pursue patent protection or otherwise commercialize its intellectual
property rights outside the Field of Use and outside the Territory. If the
Atossa Software Patents include any claims outside of the Field of Use Atossa
hereby grants a fully-paid, irrevocable license to A5 to any such claims.

 

5. INTELLECTUAL PROPERTY DEFENSE.

 

5.1. Defense. Atossa shall have the right but not the obligation to defend the
Licensed Property and the Atossa Software Patents against any assertion that
they infringe any issued patent, copyright, or trade secret of any third party
in the Territory (an “Infringement Claim”). If Atossa chooses not to defend any
Licensed Property or Atossa Software Patent against an Infringement Claim, it
shall so notify A5 in writing and A5 shall have the right to assume the defense.
A5 shall provide reasonable assistance, information and documentation in
prosecuting, defending and enforcing all Licensed Property and Atossa Software
Patents. A5 shall immediately notify Atossa in writing of any infringements or
threats of infringement of the intellectual property rights included in the
Licensed Property and Atossa Software Patent.

 

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5.2. Modification of Licensed Software. Should the Licensed Software become, or
in A5’s opinion be likely to become, the subject of an Infringement Claim, A5
will have the right, at A5’s option and expense, (i) to procure for Atossa, on
terms reasonably acceptable to Atossa, the right to continue using the Licensed
Software, or (ii) to replace or modify it with a non-infringing version of
substantially equivalent function and performance.

 

6. WARRANTIES.

 

6.1. Warranties of Atossa. Atossa represents, warrants, and covenants that it
has the power and authority to enter into this Agreement and that this Agreement
does not conflict with any other agreement to which it is a party.

 

6.2. Warranties of A5. A5 represents and warrants that: (a) it has the power and
authority to enter into this Agreement and this Agreement does not conflict with
the any other agreement to which it is a party; (b) the Services will be
performed in a professional and workmanlike manner, (c) the Licensed Property
will perform the functions materially in accordance with the Documentation and
Specifications, (d) it has all right, title and interest in and to the Licensed
Property and to the knowledge of A5 no third party is infringing any of the
intellectual property rights included in the Licensed Property , (e) there are
no governmental or other regulatory approvals, consents or notices required to
enter into and perform under this Agreement, and (f) it will diligently protect
the Licensed Property from and against any claims or threats of infringement of
any third party and that it will not allow any lien, claim or encumbrance to be
placed on the Licensed Property.

 

6.3. Regulatory Support. The parties will provide copies of their respective
regulatory submissions in support of each other’s regulatory submissions.

 

7. LIMITATION OF LIABILITY.

 

7.1. No Consequential Damages, Etc. IN NO EVENT WILL A5 OR ATOSSA BE LIABLE,
WHETHER IN TORT, CONTRACT OR OTHERWISE (I) FOR ANY LOST PROFITS, (II) FOR ANY
LOSS OR REPLACEMENT OF DATA FILES THAT ARE LOST OR DAMAGED, OR (III) FOR ANY
INCIDENTAL, INDIRECT, CONSEQUENTIAL OR SPECIAL DAMAGES, ARISING OUT OF THIS
AGREEMENT, THE DELIVERY, USE, SUPPORT, EVALUATION, OPERATION OR FAILURE OF THE
LICENSED PROPERTY.

 

8. TERM AND TERMINATION.

 

8.1. Term of Agreement and License. The term of this Agreement and the License
and Support obligations hereunder will commence on the date hereof and will
continue for the later of 10 years from the date hereof or the expiration of any
Atossa Software Patent on a country by country basis; provided, however, that A5
may, with 60 days prior written notice, terminate the services under Section 3
if Atossa has not applied for FDA clearance of the NextCYTE Test on or before
January 1, 2015 as contemplated by Section 2.2(a).

 

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8.2. Termination. Either party may terminate this Agreement if the other party
fails to correct, after 60 days written notice, any material breach of this
Agreement.

 

8.3. Effect of Termination. If the Agreement is terminated by A5 because of a
material breach in this Agreement by Atossa, then Atossa will immediately
discontinue usage of the Licensed Property and return to A5 or destroy all
copies of the RecurrenceOnline Software. However, upon any termination by Atossa
or A5 Atossa shall continue to be the sole and exclusive owner of all Atossa
Software Patents, related source and object code and any pending patent
applications.

 

9. NONDISCLOSURE AND CONFIDENTIALITY.

 

9.1. Confidential Information. Each party hereunder may disclose to the other
party certain Confidential Information of such party or of such party’s
associated companies, suppliers, or Atossa’s. For purposes of this Agreement,
“Confidential Information” means information which: (a) derives economic value,
actual or potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use; (b) is the subject of efforts that are reasonable
under the circumstances to maintain its secrecy; and (c) that is of value to its
owner and is treated as confidential. A5’s “Confidential Information” includes
without limitation the RecurrenceOnline Software. Atossa’s “Confidential
Information” includes without limitation Atossa Data. “Confidential Information”
does not include information to the extent that the (a) information communicated
was already known to Recipient, without obligations to keep such information
confidential, at the time of Recipient’s receipt from Owner; (b) information
communicated was received by Recipient in good faith from a third party lawfully
in possession thereof and having no obligation to keep such information
confidential; and (c) information communicated was publicly known at the time of
Recipient’s receipt from Owner or has become publicly known other than by a
breach of this Agreement. “Owner” refers to the party disclosing Confidential
Information hereunder, whether such party is A5 or Atossa and whether such
disclosure is directly from Owner or through Owner’s employees or agents; and
“Recipient” refers to the party receiving any Proprietary Information hereunder,
whether such party is A5 or Atossa and whether such disclosure received directly
or through Recipient’s employees or agents.

 

9.2. Confidentiality. Recipient agrees to hold the Confidential Information
disclosed by Owner in strictest confidence and not to, directly or indirectly,
copy, reproduce, distribute, manufacture, duplicate, reveal, report, publish,
disclose, cause to be disclosed, or otherwise transfer the Confidential
Information disclosed by Owner to any third party (other than Recipient’s
consultant or agent who has executed an agreement that will protect the
Confidential Information under similar terms as those set forth herein), or
utilize the Confidential Information disclosed by Owner for any purpose
whatsoever other than as expressly contemplated by this Agreement. The foregoing
obligations will not apply if and to the extent that the Confidential
Information is required to be disclosed by law, whether under an order of a
court or governmental body or other legal obligation, provided the Recipient
uses reasonable efforts to give the disclosing party reasonable notice of such
required disclosure.

 

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10. GENERAL

 

10.1.      Entire Agreement. This Agreement, including any Exhibits, and any
agreements between A5 and Atossa specifically referred to herein or in any
Exhibit, constitute the entire agreement between the parties with respect to
their subject matter and supersede all other prior agreements. In the event any
provision of an Exhibit conflicts with a provision of this Agreement, the
Exhibit will govern.

 

10.2.      Survival. Any provision of this Agreement that contemplates
performance subsequent to any termination of this Agreement, including without
limitation Sections 4.5 (Atossa Software Patents), 5 (Intellectual Property), 6
(Warranties), 7 (Limitation of Liability), 8 (Effect of Termination), 9
(Confidentiality), and 10 (General), will survive the termination of this
Agreement.

 

10.3.      Non-Disclosure of Terms. Except pursuant to court order or as
otherwise required by law, neither party may disclose the terms and conditions
of this Agreement without prior written consent of the other party.

 

10.4.      Assignment. Atossa may assign or transfer this Agreement; however,
the right of Atossa to receive the services under Section 3 may only be assigned
by Atossa with the prior written consent of A5 which shall not be unreasonably
withheld, conditioned or delayed. A5 may transfer this Agreement with the prior
written approval of Atossa. This Agreement will bind and inure to the benefit of
each party’s successors and permitted assigns.

 

10.5.      Independent Principals. A5 and Atossa are independent principals in
all relationships and actions under and contemplated by this Agreement. This
Agreement will not be construed to create any employment relation, partnership,
joint venture, or agency relationship between the parties or to authorize either
party to enter into any commitment or agreement binding on the other.

 

10.6.      Waiver or Modification. Any waiver, amendment, supplement or
modification of this Agreement will not be effective unless set forth in writing
and signed by an authorized representative of both parties. Any such waivers,
amendments, supplements and modifications will be deemed a part of this
Agreement as if incorporated herein. The failure of either party to exercise any
of its rights under this Agreement will not be deemed a waiver or forfeiture of
such rights.

 

10.7.      Severability. If any provision hereof is declared invalid by a court
of competent jurisdiction, such provision will be ineffective only to the extent
of such invalidity, so that the remainder of that provision and all remaining
provisions of this Agreement will continue in full force and effect.

 

10.8.      Force Majeure. Neither party will be liable for any failure or delay
in performance of its obligations hereunder by reason of acts of God or the
public enemy, war, fire, flood, shortage or failure of suppliers, interruption
or failure of telecommunication or digital transmission links, Internet
disruptions, power failures and other events or circumstances beyond its
reasonable control (“Force Majeure”).

 

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10.9.      Injunctive Relief. The parties acknowledge that the agreements of the
parties are of a special and unique character, and that money damages alone will
not reasonably or adequately compensate the other party for any breach of this
Agreement. Therefore, A5 and Atossa expressly agree that in the event of the
breach or threatened breach of the Agreement, in addition to other rights or
remedies which A5 or Atossa may have, at law, in equity or otherwise, A5 or
Atossa, as applicable, will be entitled to seek injunctive or other equitable
relief compelling specific performance of, and other compliance with, the terms
of the Agreement.

 

10.10.     Headings. The headings in this Agreement are solely for convenience
of reference and will not be given any effect in construction or interpretation
of this Agreement.

 

10.11.     Counterparts. This Agreement may be executed in counterparts, each of
which so executed will be deemed to be an original and such counterparts
together will constitute one and the same agreement.

 

10.12.     Notice. All communications between the parties which are required or
permitted to be in writing will be sent by hand delivery, with receipt obtained,
or by prepaid, overnight courier, certified return receipt requested, or by
facsimile with confirmation by overnight courier, certified return receipt
requested, and sent to the addressed specified in the first paragraph of this
Agreement. By written communication, either party may designate a different
address for purposes hereof.

 

10.13.     Governing Law. This Agreement will be governed by, construed, and
interpreted in accordance with the laws of the State of Washington without
regard to its rules governing conflicts of law. Any legal action or proceeding
arising out of or in relation to this Agreement must be brought in United States
or state courts located in Seattle and such court(s) will have sole and
exclusive jurisdiction with respect to any such legal action or proceeding. Each
party hereby submits to the personal jurisdiction of, and venue in, such
court(s) for the purposes thereof, and expressly waives any claim of lack of
jurisdiction, improper venue, or that any such venue constitutes an inconvenient
forum.

 

10.14.     Conflict Between Agreement and Exhibits. In the event there is a
conflict between this Agreement and any other exhibits or schedules to the
Agreement, then the terms of such exhibits or schedules will govern.

 

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IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
representative of A5 and Atossa as of the date first stated above.

 

A5 Genetics KFT Atossa Genetics Inc.:

 

By: /s/ Balázs Győrffy   By: /s/ Steven C. Quay         Name: Balázs Győrffy
M.D., Ph.D.   Name: Steven C. Quay, M.D., Ph.D.       Title: Chief Executive
Officer   Title: Chief Executive Officer

 

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EXHIBIT A

Specifications and Features of RecurrenceOnline Software

 

Overview

 

The recurrenceonline software is a decision support tool by providing an online
diagnostic system for breast cancer patients utilizing transcriptomic data to
compute:

 

·array quality control

·survival [by employing two different algorithms as described below],

·response to hormonal treatment [ER status] and

·response to targeted therapy [HER2 status].

 

Input

 

The software uses Affymetrix microarrays designated by GEO platforms as GPL96,
GPL570 and GPL571 as an input for the analysis. Additionally, a patient ID and
for certain analysis options the lymph node status of the investigated patient
must be provided.

 

Array quality control

 

Heber and Sick (Heber et al, 2006) suggested eight quality metrics as a basic
quality assessment for Affymetrix microarrays. The distribution of a large
database of arrays was assessed and outliers were identified as those having a
parameter value outside of the range of 95% of samples. The “Array quality
control” parameter implemented in www.recurrenceonline.com is set to give a
warning in cases in which the thresholds published by Heber et al. are surpassed
or outliers are detected as compared to our previous meta-analysis.

 

The recurrence score algorithm

 

After an initial quality control the raw Affymetrix .CEL files are MAS5
normalized. The differences of the log-transformed expression of the 16 genes
and the housekeeping genes ACTB, GAPDH, RPLP0, GUS and TFRC are subtracted from
the pre-defined range top value to emulate RT-PCR results. For genes with
multiple probe sets available on the Affymetrix microarrays the average
expression, the probe set with the highest average expression can be used. Then,
the recurrence score is computed as described previously (Gyorffy et al, 2012).
Finally, the sample is classified as belonging to the high/intermediate/low risk
of relapse group based on their recurrence score.

 

The re-training algorithm

 

The system analyzes gene expression data from 3,534 breast cancers with clinical
annotation including survival. For each test case a case-specific training
subset is selected that includes only cases with the highest molecular
similarity to the tests case. Similarity is measured by Euclidean distance over
all genes. Informative genes are identified in the case-specific training cohort
by computing Cox regression coefficient and a case-specific predictor is
developed. This fixed predictor is then applied to the test case. This dynamic
predictor building method yields different training sets and different
predictors for each new case. The final output classifies the patient sample as
having high or low risk of relapse (or prediction not significant). The
retraining algorithm can also be used in a similar fashion to predict lymph node
involvement based on the primary tumor gene expression.

 

Output

 

The software generates a report in a PDF format including all analysis details
as well as the final classification. The report is generated in real time and is
downloadable directly from the analysis page.