EXACT SCIENCES CORP, 10-Q filed on 7/31/2020
Quarterly Report
v3.20.2
Cover Page - shares
6 Months Ended
Jun. 30, 2020
Jul. 30, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Jun. 30, 2020  
Entity File Number 001-35092  
Entity Registrant Name EXACT SCIENCES CORPORATION  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 02-0478229  
Entity Address, Address Line One 5505 Endeavor Lane  
Entity Address, City or Town Madison  
Entity Address, State or Province WI  
Entity Address, Postal Zip Code 53719  
City Area Code 608  
Local Phone Number 535-8815  
Title of 12(b) Security Common Stock, $0.01 par value per share  
Trading Symbol EXAS  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Entity Central Index Key 0001124140  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   150,167,320
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Current Assets:    
Cash and cash equivalents $ 703,926 $ 177,254
Marketable securities 518,731 146,401
Accounts receivable, net 163,608 130,667
Inventory 82,215 61,724
Prepaid expenses and other current assets 36,378 40,913
Total current assets 1,504,858 556,959
Long-term Assets:    
Property, plant and equipment, net 463,437 455,325
Operating lease right-of-use assets 132,751 126,444
Goodwill 1,237,672 1,203,197
Intangible assets, net 1,105,115 1,143,550
Other long-term assets, net 23,902 20,293
Total assets 4,467,735 3,505,768
Current Liabilities:    
Accounts payable 30,998 25,973
Accrued liabilities 139,505 193,329
Operating lease liabilities, current portion 9,871 7,891
Debt, current portion 1,319 834
Other current liabilities 40,581 8,467
Total current liabilities 222,274 236,494
Long-term Liabilities:    
Convertible notes, net 1,534,383 803,605
Long-term debt, less current portion 22,944 24,032
Other long-term liabilities 50,311 34,911
Operating lease liabilities, less current portion 126,630 118,665
Total liabilities 1,956,542 1,217,707
Commitments and contingencies
Stockholders’ Equity:    
Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—no shares at June 30, 2020 and December 31, 2019 0 0
Common stock, $0.01 par value Authorized—200,000,000 shares issued and outstanding—149,980,798 and 147,625,696 shares at June 30, 2020 and December 31, 2019 1,501 1,477
Additional paid-in capital 3,819,798 3,406,440
Accumulated other comprehensive income (loss) 1,489 (100)
Accumulated deficit (1,311,595) (1,119,756)
Total stockholders’ equity 2,511,193 2,288,061
Total liabilities and stockholders’ equity $ 4,467,735 $ 3,505,768
v3.20.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, Authorized shares (in shares) 5,000,000 5,000,000
Preferred stock, Issued shares (in shares) 0 0
Preferred stock, outstanding shares (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, Authorized shares (in shares) 200,000,000 200,000,000
Common stock, Issued shares (in shares) 149,980,798 147,625,696
Common stock, outstanding shares (in shares) 149,980,798 147,625,696
v3.20.2
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Income Statement [Abstract]        
Revenue $ 268,868 $ 199,870 $ 616,689 $ 361,913
Operating expenses        
Cost of sales (exclusive of amortization of acquired intangible assets) 77,892 51,139 159,498 93,966
Research and development 32,673 29,972 76,182 61,757
Sales and marketing 118,862 88,190 286,611 179,129
General and administrative 106,685 63,723 220,676 127,529
Amortization of acquired intangible assets 23,430 748 46,769 1,508
Total operating expenses 359,542 233,772 789,736 463,889
Other operating income 23,665 0 23,665 0
Loss from operations (67,009) (33,902) (149,382) (101,976)
Other income (expense)        
Investment income, net 2,912 7,669 3,009 14,324
Interest expense (22,912) (12,712) (48,065) (34,702)
Total other income (expense) (20,000) (5,043) (45,056) (20,378)
Net loss before tax (87,009) (38,945) (194,438) (122,354)
Income tax benefit 867 443 2,599 913
Net loss $ (86,142) $ (38,502) $ (191,839) $ (121,441)
Net loss per share - basic and diluted (in usd per share) $ (0.58) $ (0.30) $ (1.29) $ (0.95)
Weighted average common shares outstanding - basic and diluted (in shares) 149,727 129,182 148,938 127,723
v3.20.2
Condensed Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Statement of Comprehensive Income [Abstract]        
Net loss $ (86,142) $ (38,502) $ (191,839) $ (121,441)
Other comprehensive loss, before tax:        
Unrealized gain on available-for-sale investments 3,206 1,952 1,564 4,128
Foreign currency adjustment 0 0 25 0
Comprehensive loss, before tax (82,936) (36,550) (190,250) (117,313)
Income tax expense related to items of other comprehensive loss 0 (464) 0 (984)
Comprehensive loss, net of tax $ (82,936) $ (37,014) $ (190,250) $ (118,297)
v3.20.2
Condensed Consolidated Statements of Stockholders Equity - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-In Capital
Other Comprehensive Income (Loss)
Accumulated Deficit​
Beginning Balance at Dec. 31, 2018 $ 680,941 $ 1,232 $ 1,716,894 $ (1,422) $ (1,035,763)
Balance (in shares) at Dec. 31, 2018   123,192,540      
Increase (Decrease) in Stockholders' Equity          
Equity component of convertible notes, net of tax and issuance costs 268,390   268,390    
Shares issued to settle convertible notes (in shares)   2,158,991      
Shares issued to settle convertible notes 182,435 $ 22 182,413    
Settlement of convertible notes, net of tax (300,768)   (300,768)    
Exercise of common stock options 3,650 $ 2 3,648    
Exercise of common stock options (in shares)   235,278      
Issuance of common stock to fund the Company's 401(k) match 7,409 $ 1 7,408    
Issuance of common stock to fund the Company's 401(k) match (in shares)   86,532      
Compensation expense related to issuance of stock options and restricted stock awards 16,166 $ 35 16,131    
Compensation expense related to issuance of stock options and restricted stock awards (in shares)   3,410,481      
Net loss (82,939)       (82,939)
Accumulated other comprehensive income 1,656     1,656  
Ending Balance at Mar. 31, 2019 776,940 $ 1,292 1,894,116 234 (1,118,702)
Balance (in shares) at Mar. 31, 2019   129,083,822      
Beginning Balance at Dec. 31, 2018 680,941 $ 1,232 1,716,894 (1,422) (1,035,763)
Balance (in shares) at Dec. 31, 2018   123,192,540      
Increase (Decrease) in Stockholders' Equity          
Issuance of common stock for business combinations 0        
Net loss (121,441)        
Ending Balance at Jun. 30, 2019 765,532 $ 1,295 1,919,719 1,722 (1,157,204)
Balance (in shares) at Jun. 30, 2019   129,361,048      
Beginning Balance at Mar. 31, 2019 776,940 $ 1,292 1,894,116 234 (1,118,702)
Balance (in shares) at Mar. 31, 2019   129,083,822      
Increase (Decrease) in Stockholders' Equity          
Equity component of convertible notes, net of tax and issuance costs (22)   (22)    
Exercise of common stock options 1,348 $ 1 1,347    
Exercise of common stock options (in shares)   78,793      
Compensation expense related to issuance of stock options and restricted stock awards 20,143 $ 1 20,142    
Compensation expense related to issuance of stock options and restricted stock awards (in shares)   104,845      
Purchase of employee stock purchase plan shares 4,137 $ 1 4,136    
Purchase of employee stock purchase plan shares (in shares)   93,588      
Net loss (38,502)       (38,502)
Accumulated other comprehensive income 1,488     1,488  
Ending Balance at Jun. 30, 2019 765,532 $ 1,295 1,919,719 1,722 (1,157,204)
Balance (in shares) at Jun. 30, 2019   129,361,048      
Beginning Balance at Dec. 31, 2019 $ 2,288,061 $ 1,477 3,406,440 (100) (1,119,756)
Balance (in shares) at Dec. 31, 2019 147,625,696 147,625,696      
Increase (Decrease) in Stockholders' Equity          
Equity component of convertible notes, net of tax and issuance costs $ 346,641   346,641    
Settlement of convertible notes, net of tax (64,199)   (64,199)    
Exercise of common stock options 4,300 $ 2 4,298    
Exercise of common stock options (in shares)   160,286      
Issuance of common stock to fund the Company's 401(k) match 12,007 $ 1 12,006    
Issuance of common stock to fund the Company's 401(k) match (in shares)   136,559      
Compensation expense related to issuance of stock options and restricted stock awards 29,560 $ 11 29,549    
Compensation expense related to issuance of stock options and restricted stock awards (in shares)   1,141,376      
Issuance of common stock for business combinations 28,597 $ 4 28,593    
Issuance of common stock for business combinations (in shares)   382,947      
Net loss (105,697)       (105,697)
Accumulated other comprehensive income (1,617)     (1,617)  
Ending Balance at Mar. 31, 2020 2,537,653 $ 1,495 3,763,328 (1,717) (1,225,453)
Balance (in shares) at Mar. 31, 2020   149,446,864      
Beginning Balance at Dec. 31, 2019 $ 2,288,061 $ 1,477 3,406,440 (100) (1,119,756)
Balance (in shares) at Dec. 31, 2019 147,625,696 147,625,696      
Increase (Decrease) in Stockholders' Equity          
Shares issued to settle convertible notes (in shares) 2,158,991        
Issuance of common stock for business combinations $ 28,597        
Issuance of common stock for business combinations (in shares) 382,947        
Net loss $ (191,839)        
Ending Balance at Jun. 30, 2020 $ 2,511,193 $ 1,501 3,819,798 1,489 (1,311,595)
Balance (in shares) at Jun. 30, 2020 149,980,798 149,980,798      
Beginning Balance at Mar. 31, 2020 $ 2,537,653 $ 1,495 3,763,328 (1,717) (1,225,453)
Balance (in shares) at Mar. 31, 2020   149,446,864      
Increase (Decrease) in Stockholders' Equity          
Exercise of common stock options 6,638 $ 2 6,636    
Exercise of common stock options (in shares)   208,434      
Compensation expense related to issuance of stock options and restricted stock awards 40,039 $ 2 40,037    
Compensation expense related to issuance of stock options and restricted stock awards (in shares)   157,579      
Purchase of employee stock purchase plan shares 9,799 $ 2 9,797    
Purchase of employee stock purchase plan shares (in shares)   167,921      
Net loss (86,142)       (86,142)
Accumulated other comprehensive income 3,206     3,206  
Ending Balance at Jun. 30, 2020 $ 2,511,193 $ 1,501 $ 3,819,798 $ 1,489 $ (1,311,595)
Balance (in shares) at Jun. 30, 2020 149,980,798 149,980,798      
v3.20.2
Condensed Consolidated Statements of Stockholders Equity (Parenthetical) - $ / shares
Jun. 30, 2020
Mar. 31, 2020
Dec. 31, 2019
Jun. 30, 2019
Mar. 31, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]            
Common stock, par value (in dollars per share) $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.01 $ 0.01
v3.20.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities:    
Net loss $ (191,839) $ (121,441)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 33,632 13,507
Loss on disposal of property, plant and equipment 650 211
Unrealized loss on revaluation of marketable equity securities 333 0
Deferred tax benefit (3,222) (984)
Stock-based compensation 69,599 36,309
Loss on settlement of convertible notes 7,954 10,558
Amortization of convertible note debt discount and issuance costs 34,638 19,798
Amortization of deferred financing costs and other liabilities (2,505) (847)
Amortization of premium on short-term investments 503 (2,580)
Amortization of acquired intangible assets 46,769 1,508
Non-cash lease expense 6,860 1,762
Changes in assets and liabilities:    
Accounts receivable, net (30,644) (18,574)
Inventory, net (20,260) (8,633)
Operating lease liabilities (4,997) (1,607)
Accounts payable and accrued liabilities (47,587) 25,725
Other assets and liabilities 43,419 (11,920)
Net cash used in operating activities (56,697) (57,208)
Cash flows from investing activities:    
Purchases of marketable securities (640,085) (511,587)
Maturities and sales of marketable securities 268,483 447,674
Purchases of property, plant and equipment (33,455) (79,448)
Business combination, net of cash acquired (6,654) 0
Other investing activities (516) (380)
Net cash used in investing activities (412,227) (143,741)
Cash flows from financing activities:    
Proceeds from issuance of convertible notes, net 1,125,547 729,479
Proceeds from exercise of common stock options 10,938 4,998
Proceeds in connection with the Company’s employee stock purchase plan 9,799 4,137
Payments on settlement of convertible notes (150,054) (493,356)
Other financing activities (626) 319
Net cash provided by financing activities 995,604 245,577
Net increase in cash, cash equivalents and restricted cash 526,680 44,628
Cash and cash equivalents, beginning of period 177,528 160,430
Cash and cash equivalents, end of period 704,208 205,058
Supplemental disclosure of non-cash investing and financing activities:    
Property, plant and equipment acquired but not paid 8,684 24,402
Unrealized gain on available-for-sale investments, before tax 1,564 4,128
Issuance of 136,559 and 86,532 shares of common stock to fund the Company’s 401(k) matching contribution for 2019 and 2018, respectively 12,007 7,409
Issuance of 2,158,991 shares of common stock upon settlement of convertible notes 0 182,435
Retirement of equity component of convertible notes settled (64,199) (300,768)
Issuance of common stock for business combinations 28,597 0
Supplemental disclosure of cash flow information:    
Interest paid $ 3,908 $ 1,216
v3.20.2
Condensed Consolidated Statements of Cash Flows (Parenthetical) - shares
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Statement of Cash Flows [Abstract]    
Issuance of shares of common stock to fund the Company's 401(k) matching contribution (in shares) 136,559 86,532
Issuance of common stock upon convertible notes settlement (in shares) 2,158,991  
Issuance of common stock for business combinations (in shares) 382,947  
v3.20.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Jun. 30, 2020
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Exact Sciences Corporation (together with its subsidiaries, “Exact,” or the “Company”) was incorporated in February 1995. Exact is a leading global cancer diagnostics company. It has developed some of the most impactful brands in cancer screening and diagnostics, including Cologuard® and Oncotype DX®. Exact is currently working on the development of additional tests for other types of cancer, with the goal of bringing new innovative cancer tests to patients throughout the world.
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements, which include the accounts of Exact Sciences Corporation and those of its wholly owned subsidiaries and variable interest entities, are unaudited and have been prepared on a basis substantially consistent with the Company’s audited financial statements and notes as of and for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K (the “2019 Form 10-K”). All intercompany transactions and balances have been eliminated upon consolidation. These condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair statement of its financial position, operating results and cash flows for the periods presented. The condensed balance sheet at December 31, 2019 has been derived from audited financial statements, but does not contain all of the footnote disclosures from the 2019 Form 10-K. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year. The statements should be read in conjunction with the audited financial statements and related notes included in the 2019 Form 10-K.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are those that affect the Company’s financial statements materially and involve difficult, subjective or complex judgments by management, and actual results could differ from those estimates. These estimates include revenue recognition, valuation of convertible notes, valuation of intangible assets and goodwill, and accounting for income taxes among others. The Company’s critical accounting policies and estimates are explained further in the notes to the condensed consolidated financial statements in this Quarterly Report and the 2019 Form 10-K.

The spread of the coronavirus (“COVID-19”) has affected many segments of the global economy, including the cancer screening and diagnostics industry. The COVID-19 outbreak, which the World Health Organization has classified as a pandemic, has prompted governments and regulatory bodies throughout the world to enact broad precautionary measures, including “stay-at-home” orders, restrictions on the performance of “non-essential” services, public gatherings and travel. Health systems, including key markets where the Company operates, have been, or may be, overwhelmed with high volumes of patients suffering from COVID-19.

The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19, the extent to which it will impact worldwide macroeconomic conditions including interest rates, employment rates and health insurance coverage, the speed of the anticipated recovery, access to capital markets, and governmental and business reactions to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of June 30, 2020 and through the date of the filing of this Quarterly Report
on Form 10-Q. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, equity investments, software, and the carrying value of the goodwill and other long-lived assets. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in additional material impacts to the Company’s consolidated financial statements in future reporting periods.

Despite the Company’s efforts, the ultimate impact of COVID-19 depends on factors beyond the Company’s knowledge or control, including the duration and severity of the outbreak, as well as third-party actions taken to contain its spread and mitigate its public health effects. As a result, the Company is unable to estimate the extent to which COVID-19 will negatively impact its financial results or liquidity.

Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
In April 2020, the Company received $23.7 million from the United States Department of Health and Human Services (“HHS”) as a distribution from the Public Health and Social Services Emergency Fund provided for in the CARES Act. The fund payments are grants, not loans, and HHS will not require repayment provided the funds are utilized to offset expenses incurred to address COVID-19 or to replace lost revenues. The Company accepted the terms and conditions of the grant in May 2020 and recognized the entire $23.7 million during the three months ended June 30, 2020, due to lost revenue attributable to COVID-19, which is reflected in other operating income in the condensed consolidated statement of operations. The Company cannot predict the extent to which the Company will receive any additional funds to be paid out under the Provider Relief Fund, and to what extent the financial impact of receiving such funds would do to effectively offset the broad implications of the COVID-19 pandemic which include increases in the Company’s costs and lost revenues.

Cash and Cash Equivalents
The Company considers cash on hand, demand deposits in bank, money market funds, and all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents.
Marketable Securities
Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities carried at amortized cost are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value. The unrealized gains and losses, net of tax, on the Company’s debt securities are reported in other comprehensive income. Marketable equity securities are measured at fair value and the unrealized gains and losses, net of tax, are recognized in other income (expense) in the condensed consolidated statements of operations. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity computed under the straight-line method. Such amortization is included in investment income, net. Realized gains and losses and declines in value as a result of credit losses on available-for-sale securities are included in the condensed consolidated statements of operations as investment income, net. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in the condensed consolidated statements of operations as investment income, net.

The Company’s investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer. Investments in which the Company has the ability and intent, if necessary, to liquidate, in order to support its current operations (including those with a contractual term greater than one year from the date of purchase), are classified as current.
The Company periodically evaluates its available-for-sale debt securities in unrealized loss positions to determine whether any impairment is a result of a credit loss or other factors. This evaluation includes, but is not limited to, significant quantitative and qualitative assessments and estimates regarding credit ratings, significance of a security’s loss position, adverse conditions specifically related to the security, and the payment structure of the security.

Allowance for Doubtful Accounts
The Company estimates an allowance for doubtful accounts against accounts receivable using historical collection trends, aging of accounts, current and future implications surrounding the ability to collect such as economic conditions, and regulatory changes. The allowance for doubtful accounts is evaluated on a regular basis and adjusted when trends, significant events or other substantive evidence indicate that expected collections will be less than applicable accrual rates. At June 30, 2020 and December 31, 2019 the allowance for doubtful accounts recorded was not material to the Company’s condensed consolidated balance sheets. For the three and six months ended June 30, 2020 and 2019, there was an immaterial amount of bad debt expense written off against the allowance and charged to operating expense.
Inventory
Inventory is stated at the lower of cost or net realizable value. The Company determines the cost of inventory using the first-in, first out method (“FIFO”). The Company estimates the recoverability of inventory by reference to internal estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory levels to identify inventory that may expire prior to expected sale, no longer meet quality specifications, or has a cost basis in excess of its estimated realizable value and records a charge to cost of sales for such inventory as appropriate.
Direct and indirect manufacturing costs incurred during process validation with probable future economic benefit are capitalized. Validation costs incurred for other research and development activities, which are not permitted to be sold, have been expensed to research and development in the Company’s condensed consolidated statements of operations.
Inventory consisted of the following:
(In thousands)June 30,
2020
December 31,
2019
Raw materials$35,713  $24,958  
Semi-finished and finished goods46,502  36,766  
Total inventory$82,215  $61,724  
Property, Plant and Equipment
​Property, plant and equipment are stated at cost and depreciated using the straight-line method over the assets’ estimated useful lives. Land is stated at cost and does not depreciate. Additions and improvements are capitalized, including direct and indirect costs incurred to validate equipment and bring it to working conditions. Revalidation costs, including maintenance and repairs are expensed when incurred.
Software Development Costs
Costs related to internal use software, including hosting arrangements, are incurred in three stages: the preliminary project stage, the application development stage, and the post-implementation stage. Costs incurred during the preliminary project and post-implementation stages are expensed as incurred. Costs incurred during the application development stage that meet the criteria for capitalization are capitalized and amortized, when the software is ready for its intended use, using the straight-line basis over the estimated useful life of the software, or the duration of the hosting agreement.
Investments in Privately Held Companies
The Company determines whether its investments in privately held companies are debt or equity based on their characteristics, in accordance with the applicable accounting guidance for such investments. The Company also evaluates the investee to determine if the entity is a variable interest entity (“VIE”) and, if so, whether the Company is the primary beneficiary of the VIE, in order to determine whether consolidation of the VIE is required. If consolidation is not required and the Company does not have voting control of the entity, the investment is evaluated to determine if the equity method of accounting should be applied. The equity method applies to investments in common stock or in substance common stock where the Company exercises significant influence over the investee.
Investments in privately held companies determined to be equity securities are accounted for as non-marketable securities. The Company adjusts the carrying value of its non-marketable equity securities for changes from observable transactions for identical or similar investments of the same issuer, less impairment. All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in other income (expense) in the condensed consolidated statements of operations.
Investments in privately held companies determined to be debt securities are accounted for as available-for-sale or held-to-maturity securities, in accordance with the applicable accounting guidance for such investments.​
Derivative Financial Instruments
The Company hedges a portion of its foreign currency exposures related to outstanding monetary assets and liabilities using foreign currency forward contracts. The foreign currency forward contracts are included in prepaid expenses and other current assets or in accrued liabilities in the condensed consolidated balance sheets, depending on the contracts’ net position. These contracts are not designated as hedges, and as a result, changes in their fair value are recorded in other income (expense) in the condensed consolidated statements of operations. There were no gains or losses recorded for the three and six months ended June 30, 2020 and 2019. As of June 30, 2020 and December 31, 2019, the Company had open foreign currency forward contracts with notional amounts of $16.0 million and $17.9 million, respectively. The Company's foreign exchange derivative instruments are classified as Level 2 within the fair value hierarchy as they are valued using inputs that are observable in the market or can be derived principally from or corroborated by observable market data. The fair value of the foreign currency forward contracts was zero at June 30, 2020 and December 31, 2019.
Intangible Assets
Purchased intangible assets are recorded at fair value. The Company uses a discounted cash flow model to value intangible assets. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, risk, the cost of capital, terminal values and market participants.
Patent costs are capitalized as incurred, only if the Company determines that there is some probable future economic benefit derived from the transaction. A capitalized patent is amortized over its estimated useful life, beginning when such patent is approved. Capitalized patent costs are expensed upon disapproval, upon a decision by the Company to no longer pursue the patent or when the related intellectual property is either sold or deemed to be no longer of value to the Company. The Company determined that all patent costs incurred during the three and six months ended June 30, 2020 and 2019 should be expensed and not capitalized as the future economic benefit derived from the patent costs incurred cannot be determined.​
Acquired In-process Research and Development (IPR&D)
Acquired IPR&D represents the fair value assigned to research and development assets that have not reached technological feasibility. The value assigned to acquired IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenues from the projects and discounting the net cash flows to present value. The revenues and cost projections used to value acquired IPR&D are, as applicable, reduced based on the probability of success. IPR&D projects acquired in a business combination that are not complete are capitalized and accounted for as indefinite-lived intangible assets until completion or
abandonment of the related R&D efforts. Upon successful completion of the project, the capitalized amount is amortized over its estimated useful life. If a project is abandoned, all remaining capitalized amounts are written off immediately. There are often major risks and uncertainties associated with IPR&D projects as we are required to obtain regulatory approvals in order to be able to market the resulting products. Such approvals require completing clinical trials that demonstrate the products effectiveness. Consequently, the eventual realized value of the IPR&D project may vary from its fair value at the date of acquisition, and IPR&D impairment charges may occur in future periods.
Capitalized IPR&D projects are tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company considers various factors for potential impairment, including the current legal and regulatory environment and the competitive landscape. Adverse clinical trial results, significant delays in obtaining marketing approval, the inability to bring a product to market and the introduction or advancement of competitors' products could result in partial or full impairment of the related intangible assets.
Goodwill​
The Company evaluates goodwill for possible impairment in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350 on an annual basis during the fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors affecting the Company's business. Based on the qualitative assessment, if it is determined that the fair value of goodwill is more likely than not to be less than its carrying amount, the fair value of a reporting unit will be calculated and compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value.
Impairment of Long-Lived Assets
The Company evaluates the fair value of long-lived assets, which include property, plant and equipment, intangible assets, and investments in privately held companies, for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. There were no impairment losses for the periods ended June 30, 2020 and December 31, 2019.
Fair Value Measurements
The FASB has issued authoritative guidance that requires fair value to be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under that standard, fair value measurements are separately disclosed by level within the fair value hierarchy. The fair value hierarchy establishes and prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.
Convertible Notes
The Company accounts for convertible notes that may be settled in cash or equity upon conversion by separating the liability and equity components of the instruments in a manner that reflects the Company’s nonconvertible debt borrowing rate. The Company determines the carrying amount of the liability component of the convertible notes by using assumptions that market participants would use in pricing a debt instrument, including
market interest rates, credit standing, yield curves and volatilities. Determining the fair value of the debt component requires the use of accounting estimates and assumptions. These estimates and assumptions are judgmental in nature and could have a significant impact on the determination of the debt component, and the associated non-cash interest expense.
Leases
The Company acts as lessee in its lease agreements, which includes operating leases for corporate offices, laboratory space, warehouse space, vehicles and certain laboratory and office equipment. The Company also has finance leases for certain equipment, which are not material to the Company’s condensed consolidated financial statements.
The Company determines whether an arrangement is, or contains, a lease at inception. At the beginning of fiscal year 2019, the company adopted ASC Topic 842. The Company records the present value of operating lease payments as right-of-use (“ROU”) assets and lease liabilities on the condensed consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments based on the present value of lease payments over the lease term. Classification of operating lease liabilities as either current or non-current is based on the expected timing of payments due under the Company’s obligations.
As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term and at an amount equal to the lease payments in a similar economic environment. In order to determine the appropriate incremental borrowing rates, the Company has used a number of factors including the credit rating, and the lease term. Certain vehicle leases include variable lease payments that depend on an index or rate. Those lease payments are initially measured using the index or rate at the lease commencement date.
The ROU asset also consists of any lease incentives received. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. “Reasonably certain” is assessed internally based on economic, industry, company, strategic and contractual factors. The leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the lease for up to 10 years, and some of which include options to terminate the lease within 1 year. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense.
The Company accounts for leases acquired in business combinations by measuring the lease liability at the present value of the remaining lease payments as if the acquired lease were a new lease for the Company. This measurement includes recognition of a lease intangible for any below-market terms present in the leases acquired. The below-market lease intangible is included in the ROU asset on the condensed consolidated balance sheets and are amortized over the remaining lease term. The Company has not acquired any leases with above-market terms.
The Company has taken advantage of certain practical expedients offered to registrants at adoption of ASC 842. The Company does not apply the recognition requirements of ASC 842 to short-term leases. Instead, those lease payments are recognized in profit or loss on a straight-line basis over the lease term. Further, as a practical expedient, all lease contracts are accounted for as one single lease component, as opposed to separating lease and non-lease components to allocate the consideration within a single lease contract.
Net Loss Per Share​
Basic net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average common shares outstanding during the period. Basic and diluted net loss per share is the same because all outstanding common stock equivalents have been excluded, as they are anti-dilutive as a result of the Company’s losses.
The following potentially issuable common shares were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses for each period:
June 30,
(In thousands)20202019
Shares issuable upon exercise of stock options2,575  2,387  
Shares issuable upon the release of restricted stock awards4,662  4,123  
Shares issuable upon conversion of convertible notes20,309  12,197  
27,546  18,707  
Accounting for Stock-Based Compensation
The Company requires all share-based payments to employees, including grants of employee stock options, restricted stock, restricted stock units and shares purchased under an employee stock purchase plan (if certain parameters are not met), to be recognized in the financial statements based on their grant date fair values. Forfeitures of any share-based awards are recognized as they occur. ​
Revenue Recognition​
Revenues are recognized when control of the promised services are transferred to the patient’s healthcare provider, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. To determine revenue recognition for the arrangements that the Company determines are within the scope of FASB ASC Topic 606, Revenue from Contracts with Customers, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 2 for further discussion.
Foreign Currency Transactions
Prior to 2019, the Company’s international subsidiaries’ functional currency was the local currency and assets and liabilities were translated into U.S. dollars at the period-end exchange rate or historical rates, as appropriate. Condensed consolidated statements of operations were translated at average exchange rates for the period, and the cumulative translation adjustments resulting from changes in exchange rates were included in the Company’s condensed consolidated balance sheet as a component of additional paid-in capital. In 2019 and 2020 the Company’s international subsidiaries use the U.S. dollar as the functional currency, resulting in the Company not being subject to gains and losses from foreign currency translation of the subsidiary financial statements. The Company recognizes gains and losses from foreign currency transactions in the condensed consolidated statements of operations. Net foreign currency transaction gains or losses were not material to the condensed consolidated statements of operations for the periods presented.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation in the condensed consolidated financial statements and accompanying notes to the condensed consolidated financial statements including the amortization of acquired intangible assets, which is now presented as a separate line item on the Company's condensed consolidated statements of operations and was previously included in cost of sales, research and development, and general and administrative expenses. Due to these reclassifications, the Company is no longer presenting gross margin on the Company's condensed consolidated statements of operations.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The updated guidance requires companies to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets, including trade receivables. The updates also require available-for-sale debt security credit losses to be recognized as allowances rather than a reduction in amortized cost.The guidance was adopted by the Company on January 1, 2020. The requirements of the ASU did not result in the recognition of a material allowance for current expected credit losses, as the Company’s analysis of collectability looks at historical experience as well as current and future implications surrounding the ability to collect. Adoption of the updated guidance did not have a material impact on the Company’s condensed consolidated financial statements.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments –Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The updated guidance provides clarity regarding measurement of securities without readily determinable fair values. The guidance was adopted on January 1, 2020 and did not have a material impact on the Company's condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles –Goodwill and Other –Internal-Use Software(Subtopic 350-40). The update provided guidance for evaluating the accounting for fees paid by a customer in a cloud computing arrangement that is a service contract. The guidance was adopted on a prospective basis, beginning on January 1, 2020 and it did not have a material impact on the Company's condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820); Disclosure Framework -Changes to the Disclosure Requirements for Fair Value Measurement. The guidance provided an update to the disclosure requirements for fair value measurements under the scope of ASC 820. The updates were adopted on January 1, 2020 and did not have a material impact on the Company’s condensed consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808). The update provided additional guidance regarding the interaction between Topic 808 on Collaborative Arrangements and Topic 606 on Revenue Recognition. The guidance was adopted on January 1, 2020 and did not have a material impact on the Company's condensed consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The update simplifies the accounting for income taxes through removing exceptions related to certain intraperiod allocations and deferred tax liabilities; clarifying guidance primarily related to evaluating the step-up tax basis for goodwill in a business combination; and reflecting enacted changes in tax laws or rates in the annual effective tax rate. The amended guidance is effective for interim and annual periods in 2021, however early adoption is permitted. The guidance was early adopted on January 1, 2020 and did not have a material impact on the Company’s condensed consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The updated guidance provides optional expedients for applying the requirements of certain topics in the codification for contracts that are modified because of reference rate reform. In addition to the optional expedients, the update includes a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The updated guidance is effective for all entities as of March 12, 2020 and through December 31, 2022. The Company adopted the guidance upon issuance on March 12, 2020. There was no impact on the Company's condensed consolidated financial statements.
v3.20.2
REVENUE
6 Months Ended
Jun. 30, 2020
Revenue from Contract with Customer [Abstract]  
REVENUE REVENUE ​
The Company’s revenue is primarily generated by its laboratory testing services utilizing its Cologuard, Oncotype DX, and COVID-19 tests. The services are completed upon release of a patient’s test result to the ordering healthcare provider.
The core principle of ASC 606 is that the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company recognizes revenues from its products in accordance with that core principle, and key aspects considered by the Company include the following:
Contracts​
The Company’s customer is primarily the patient, but the Company does not enter into a formal reimbursement contract with a patient. Accordingly, the Company establishes a contract with a patient in accordance with other customary business practices. However, under some Laboratory Service Agreements (“LSA”s) the Company contracts with a direct bill payer who then becomes the Company’s customer in these situations.
Approval of a contract is established via the order submitted by the patient’s healthcare provider and the receipt of a sample in the laboratory.
The Company is obligated to perform its laboratory services upon acceptance of a sample, and the patient and/or applicable payer are obligated to reimburse the Company for services rendered based on the patient’s insurance benefits.
Payment terms are a function of a patient’s existing insurance benefits, including the impact of coverage decisions with CMS and applicable reimbursement contracts established between the Company and payers. However, when an order is received for a patient with no active insurance or insurance that does not cover our testing services, the Company requires payment from the patient prior to the commencement of the Company’s performance obligations.
Once the Company releases a patient’s test result to the ordering healthcare provider, the Company is legally able to collect payment and bill an insurer, patient, direct bill payer, and/or health system, depending on payer contract status or patient insurance benefit status.
In the case of some of the Company’s LSAs with various organizations, testing services are billed and the direct bill payer is obligated to pay prior to a result. Each provider is contracted to buy an explicit number of testing kits that must be returned to the Company for processing by an established deadline with this deferred revenue being recognized at the point in time results are released to the patient’s healthcare provider. In addition, for these types of LSAs all breakage (tests that are not returned to the Company for processing by their contracted deadline) is recognized as revenue upon the expiration of the contracted deadline.
The Company’s consideration can be deemed variable or fixed depending on the structure of specific payer contracts, and the Company considers collection of such consideration to be probable to the extent that it is unconstrained.
Performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service (or a bundle of goods or services) to the customer. The Company’s contracts have a single performance obligation, which is satisfied upon rendering of services, which culminates in the release of a patient’s test result to the ordering healthcare provider. Or, in the context of some of the Company’s LSAs, the satisfaction of the performance obligation occurs at the end of the allotted testing window when a specimen sample is not received back for processing. The Company elects the practical expedient related to the disclosure of unsatisfied performance obligations, as the duration of time between providing testing supplies, the receipt of a specimen sample, and the release of a test result to the ordering healthcare provider is far less than one year.
Transaction price
The transaction price is the amount of consideration that the Company expects to collect in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration expected from a contract with a customer may include fixed amounts, variable amounts, or both.
The consideration derived from the Company’s contracts may consist of fixed amounts, variable amounts or both fixed and variable amounts. Fixed consideration is derived from contracts that exist between the Company and direct bill payers who assume the downstream patient billing. The contracted reimbursement rate is deemed to be fixed as the Company expects to fully collect all amounts billed under these relationships. Variable consideration is primarily derived from third party and patient billing and can result due to several factors such as the amount of contractual adjustments, any patient co-payments, deductibles or patient adherence incentives, the existence of secondary payers, and claim denials.
The Company estimates the amount of variable consideration using the expected value method, which represents the sum of probability-weighted amounts in a range of possible consideration amounts. When estimating the amount of variable consideration, the Company considers several factors, such as historical collections experience, patient insurance eligibility and payer reimbursement contracts.
The Company limits the amount of variable consideration included in the transaction price to the unconstrained portion of such consideration. In other words, the Company recognizes revenue up to the amount of variable consideration that is not subject to a significant reversal until additional information is obtained or the uncertainty associated with the additional payments or refunds is subsequently resolved. Differences between original estimates and subsequent revisions, including final settlements, represent changes in the estimate of variable consideration and are included in the period in which such revisions are made. Revenue recognized from changes in transaction prices was $3.2 million and $1.8 million for the three months ended June 30, 2020 and 2019, respectively. Revenue recognized from changes in transaction prices was $8.6 million and $3.4 million for the six months ended June 30, 2020 and 2019, respectively.
The Company monitors its estimates of transaction price to depict conditions that exist at each reporting date. If the Company subsequently determines that it will collect more or less consideration than it originally estimated for a contract with a patient, it will account for the change as an increase or decrease in the estimate of the transaction price (i.e., an upward or downward revenue adjustment) in the period identified.
When the Company does not have significant historical experience or that experience has limited predictive value, the constraint over estimates of variable consideration may result in no revenue being recognized upon release of the performance obligations associated with the Company’s tests, with recognition, generally occurring at the date of cash receipt.
Allocate transaction price
The transaction price is allocated entirely to the performance obligation contained within the contract with a patient.
Point in time recognition
The Company’s single performance obligation is satisfied at a point in time. That point in time is defined as the date a patient’s specimen is processed, an outcome is obtained and released to the patient’s ordering healthcare provider or, in the context of some of the Company’s LSAs, that point in time could be the date the allotted testing window ends if a specimen sample is not received back for processing. The point in time in which revenue is recognized by the Company signifies fulfillment of the performance obligation to the patient or direct bill payer.
Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated by revenue source:
Three Months Ended June 30,Six Months Ended June 30,
(In thousands)2020201920202019
Screening
Medicare Parts B & C$59,583  $103,569  $157,742  $186,486  
Commercial65,080  88,818  174,449  162,169  
Other6,670  7,483  18,593  13,258  
Total Screening131,333  199,870  350,784  361,913  
Precision Oncology
Medicare Parts B & C$33,994  $—  $81,028  $—  
Commercial45,420  —  99,810  —  
International19,018  —  39,980  —  
Other4,524  —  10,508  —  
Total Precision Oncology102,956  —  231,326  —  
COVID-19 Testing$34,579  $—  $34,579  $—  
Total$268,868  $199,870  $616,689  $361,913  
Screening revenue primarily includes laboratory service revenue from Cologuard while Precision Oncology revenue primarily includes laboratory service revenue from global Oncotype DX products.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable and deferred revenue on the condensed consolidated balance sheets. Generally, billing occurs subsequent to the release of a patient’s test result to the ordering healthcare provider, resulting in an account receivable. However, the Company sometimes receives advance payment from a patient or a direct bill payer before a test result is completed, resulting in deferred revenue. The deferred revenue balance is relieved upon release of the applicable patient’s test result to the ordering healthcare provider.
Deferred revenue balances are reported in other current liabilities in the Company’s condensed consolidated balance sheets and were $30.7 million and $0.6 million as of June 30, 2020 and December 31, 2019, respectively. As of June 30, 2020, $30.2 million of the Company’s deferred revenue balance is a result of the billing terms pursuant to the existing COVID-19 LSAs with customers.
Revenue recognized for the three months ended June 30, 2020 and 2019, which was included in the deferred revenue balance at the beginning of each period was $19 thousand and $0.2 million, respectively. Revenue recognized for the six months ended June 30, 2020 and 2019, which was included in the deferred revenue balance at the beginning of each period was $0.2 million and $0.3 million, respectively.
Practical Expedients
The Company does not adjust the transaction price for the effects of a significant financing component, as at contract inception, the Company expects the collection cycle to be one year or less.
The Company expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses in the Company’s condensed consolidated statements of operations.
The Company incurs certain other costs that are incurred regardless of whether a contract is obtained. Such costs are primarily related to legal services and patient communications (e.g. adherence reminder letters). These costs are expensed as incurred and recorded within general and administrative expenses in the Company’s condensed consolidated statements of operations.
v3.20.2
MARKETABLE SECURITIES
6 Months Ended
Jun. 30, 2020
Cash and Cash Equivalents [Abstract]  
MARKETABLE SECURITIES MARKETABLE SECURITIES
The following table sets forth the Company’s cash, cash equivalents, restricted cash, and marketable securities at June 30, 2020 and December 31, 2019:
(In thousands)June 30, 2020December 31, 2019
Cash, cash equivalents, and restricted cash
Cash and money market$457,019  $146,932  
Cash equivalents246,907  30,322  
Restricted cash (1)282  274  
Total cash, cash equivalents, and restricted cash704,208  177,528  
Marketable securities
Available-for-sale debt securities517,346  144,685  
Equity securities1,385  1,716  
Total marketable securities518,731  146,401  
Total cash and cash equivalents, restricted cash and marketable securities$1,222,939  $323,929  
______________
(1)Restricted cash is included in other long-term assets on the condensed consolidated balance sheets. There was no restricted cash at June 30, 2019.
Available-for-sale debt securities at June 30, 2020 consisted of the following:
June 30, 2020
(In thousands)Amortized CostGains in Accumulated
Other Comprehensive
Income (Loss)
Losses in Accumulated
Other Comprehensive
Income (Loss)
Estimated Fair
Value
Cash equivalents
U.S. government agency securities$246,905  $ $(2) $246,907  
Total cash equivalents246,905   (2) 246,907  
Marketable securities
Corporate bonds219,264  1,297  —  220,561  
U.S. government agency securities256,425  102  (1) 256,526  
Certificates of deposit10,000  —  —  10,000  
Asset backed securities22,174  85  —  22,259  
Commercial paper7,996   —  8,000  
Total marketable securities515,859  1,488  (1) 517,346  
Total available-for-sale securities$762,764  $1,492  $(3) $764,253  
Available-for-sale debt securities at December 31, 2019 consisted of the following:
December 31, 2019
(In thousands)Amortized CostGains in Accumulated
Other Comprehensive
Income (Loss)
Losses in Accumulated
Other Comprehensive
Income (Loss)
Estimated Fair Value
Cash equivalents
U.S. government agency securities$30,320  $ $—  $30,322  
Total cash equivalents30,320   —  30,322  
Marketable securities
U.S. government agency securities140,745  10  (73) 140,682  
Corporate bonds4,017  —  (14) 4,003  
Total marketable securities144,762  10  (87) 144,685  
Total available-for-sale securities$175,082  $12  $(87) $175,007  

The following table summarizes contractual underlying maturities of the Company’s available-for-sale debt securities at June 30, 2020:​
Due one year or lessDue after one year through four years
(In thousands)CostFair ValueCostFair Value
Cash equivalents
U.S. government agency securities$246,905  $246,907  $—  $—  
Total cash equivalents246,905  246,907  —  —  
Marketable securities
U.S. government agency securities249,239  249,295  7,186  7,231  
Corporate bonds162,241  162,992  57,023  57,569  
Certificates of deposit10,000  10,000  —  —  
Commercial paper7,996  8,000  —  —  
Asset backed securities2,390  2,393  19,784  19,866  
Total marketable securities431,866  432,680  83,993  84,666  
Total$678,771  $679,587  $83,993  $84,666  
The following table summarizes the gross unrealized losses and fair values of available-for-sale debt securities in an unrealized loss position as of June 30, 2020, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
Less than one yearOne year or greaterTotal
(In thousands)Fair ValueGross Unrealized LossFair ValueGross Unrealized LossFair ValueGross Unrealized Loss
Cash equivalents
U.S. government agency securities$81,934  $(2) $—  $—  $81,934  $(2) 
Total cash equivalents81,934  (2) —  —  81,934  (2) 
Marketable securities
U.S. government agency securities99,975  (1) —  —  99,975  (1) 
Total marketable securities99,975  (1) —  —  99,975  (1) 
Total available-for-sale securities$181,909  $(3) $—  $—  $181,909  $(3) 
The Company evaluates investments, including investments in privately-held companies, that are in an unrealized loss position for impairment as a result of credit loss. It was determined that no credit losses exist as of June 30, 2020 and December 31, 2019 because the change in market value for those securities in an unrealized loss position has resulted from fluctuating interest rates rather than a deterioration of the credit worthiness of the issuers. The Company recorded a realized gain on available-for-sale debt securities of $0.2 million and $0.2 million for the three months ended June 30, 2020 and 2019, respectively, net of insignificant realized losses. The Company recorded a realized gain on available-for-sale debt securities of $0.1 million and $0.3 million for the six months ended June 30, 2020 and 2019, respectively, net of insignificant realized losses.
The Company recorded a gain of $0.4 million and a loss of $0.3 million from its equity securities for the three and six months ended June 30, 2020 as compared to no gain or loss for the three and six months ended June 30, 2019.
The gains and losses recorded are included in investment income, net in the Company’s condensed consolidated statements of operations.
v3.20.2
PROPERTY, PLANT, AND EQUIPMENT
6 Months Ended
Jun. 30, 2020
Property, Plant and Equipment [Abstract]  
PROPERTY, PLANT, AND EQUIPMENT PROPERTY, PLANT AND EQUIPMENT
The estimated useful lives of property, plant and equipment are as follows:
(In thousands)Estimated
Useful Life
June 30,
2020
December 31,
2019
Property, plant and equipment
Landn/a$4,466  $4,466  
Leasehold and building improvements(1)111,778  80,352  
Land improvements15 years2,399  1,766  
Buildings
30 - 40 years
165,926  112,815  
Computer equipment and computer software3 years74,447  65,323  
Laboratory equipment
3 - 10 years
130,323  104,008  
Furniture and fixtures
3 - 10 years
22,698  14,539  
Assets under constructionn/a61,628  149,687  
Property, plant and equipment, at cost573,665  532,956  
Accumulated depreciation(110,228) (77,631) 
Property, plant and equipment, net$463,437  $455,325  
______________
(1)Lesser of remaining lease term, building life, or estimated useful life.
Depreciation expense for the three months ended June 30, 2020 and 2019 was $17.6 million and $7.1 million, respectively. Depreciation expense for the six months ended June 30, 2020 and 2019 was $33.4 million and $13.4 million, respectively.
At June 30, 2020, the Company had $61.6 million of assets under construction which consisted of $11.5 million in laboratory equipment, $43.9 million of building and leasehold improvements, $5.6 million in capitalized costs related to software projects, and $0.6 million related to furniture and fixtures. Depreciation will begin on these assets once they are placed into service. The Company expects to incur an additional $2.9 million to complete the laboratory equipment, $6.7 million to complete the building projects and leasehold improvements, $2.0 million to complete the software projects, and minimal costs to complete the furniture and fixtures. These projects are expected to be completed throughout 2020 and 2021.
v3.20.2
INTANGIBLE ASSETS AND GOODWILL
6 Months Ended
Jun. 30, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
INTANGIBLE ASSETS AND GOODWILL INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The following table summarizes the net-book-value and estimated remaining life of the Company’s intangible assets as of June 30, 2020:​
(In thousands)Weighted Average
Remaining
Life (Years)
CostAccumulated AmortizationNet Balance at June 30, 2020
Finite-lived intangible assets
Trade name15.4$100,700  $(4,109) $96,591  
Customer relationships13.32,700  (314) 2,386  
Patents8.422,689  (7,105) 15,584  
Acquired developed technology9.5814,171  (52,766) 761,405  
Supply agreements7.030,000  (2,549) 27,451  
Internally developed technology2.31,796  (590) 1,206  
Total finite-lived intangible assets972,056  (67,433) 904,623  
In-process research and developmentn/a200,000  —  200,000  
Internally developed technology in processn/a492  —  492  
Total intangible assets$1,172,548  $(67,433) $1,105,115  
The following table summarizes the net-book-value and estimated remaining life of the Company’s intangible assets as of December 31, 2019:​
(In thousands)Weighted Average
Remaining
Life (Years)
CostAccumulated AmortizationNet Balance at December 31, 2019
Finite-lived intangible assets
Trade name15.9$100,700  $(961) $99,739  
Customer relationships13.62,700  (224) 2,476  
Patents8.822,690  (5,974) 16,716  
Acquired developed technology9.9806,371  (12,345) 794,026  
Supply agreements7.530,000  (571) 29,429  
Internally developed technology2.51,229  (336) 893  
Total finite-lived intangible assets963,690  (20,411) 943,279  
In-process research and developmentn/a200,000  —  200,000  
Internally developed technology in processn/a271  —  271  
Total intangible assets$1,163,961  $(20,411) $1,143,550  
As of June 30, 2020, the estimated future amortization expense associated with the Company’s finite-lived intangible assets for each of the five succeeding fiscal years is as follows:​
(In thousands)
2020$47,158  
202194,217  
202294,012  
202393,724  
202493,345  
Thereafter482,167  
$904,623  
The Company’s acquired intangible assets are being amortized on a straight-line basis over the estimated useful life. The amortization expense recorded from these intangible assets is reported in amortization of acquired intangible assets on the condensed consolidated statements of operations.
Goodwill
As a result of the the acquisition of Paradigm Diagnostics, Inc. (“Paradigm”) and Viomics, Inc. (“Viomics”) in March 2020, the Company recognized goodwill of $30.4 million, which includes an immaterial post-acquisition adjustment to goodwill in the second quarter of 2020. Refer to the Company’s 2019 10-K for further discussion on goodwill recorded from previous business combinations.
The Company evaluates goodwill for possible impairment in accordance with ASC 350 on an annual basis during the fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors affecting the Company's business. Based on the qualitative assessment, if it is determined that the fair value of goodwill is more likely than not to be less than its carrying amount, the fair value of a reporting unit will be calculated and compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value. Due to the impact of COVID-19 on the Company’s operations, the Company performed a qualitative assessment of goodwill to determine if an event indicating impairment was present. No such indicators were identified as of June 30, 2020. There were no impairment losses for the periods ended June 30, 2020 and December 31, 2019. During the six months ended June 30, 2020, the Company recognized a measurement period adjustment to goodwill of $4.0 million related to an increase in Genomic Health’s pre-acquisition deferred tax liability due to finalization of certain income-tax related items.
The change in the carrying amount of goodwill for the periods ended June 30, 2020 and December 31, 2019 is as follows:
(In thousands)
Balance, January 1, 2019$17,279  
Genomic Health acquisition1,185,918  
Balance, December 31, 20191,203,197  
Paradigm & Viomics acquisition30,431  
Genomic Health acquisition adjustment4,044  
Balance, June 30, 2020$1,237,672  
v3.20.2
FAIR VALUE MEASUREMENTS
6 Months Ended
Jun. 30, 2020
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS
The three levels of the fair value hierarchy established are as follows:
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2 Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3 Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.
The following table presents the Company’s fair value measurements as of June 30, 2020 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall.
(In thousands)Fair Value at June 30,
2020
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash, cash equivalents, and restricted cash
Cash and money market$457,019  $457,019  $—  $—  
U.S. government agency securities246,907  —  246,907  —  
Restricted cash282  282  —  —  
Marketable securities
Corporate bonds220,561  —  220,561  —  
U.S. government agency securities256,526  —  256,526  —  
Certificates of deposit10,000  —  10,000  —  
Asset backed securities22,259  —  22,259  —  
Commercial paper8,000  —  8,000  —  
Equity Securities1,385  1,385  —  —  
Liabilities
Contingent consideration(2,551) —  —  (2,551) 
Total$1,220,388  $458,686  $764,253  $(2,551) 
The following table presents the Company’s fair value measurements as of December 31, 2019 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall.​
(In thousands)Fair Value at December 31,
2019
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
Cash and money market$146,932  $146,932  $—  $—  
U.S. government agency securities30,322  —  30,322  —  
Restricted cash274  274  —  —  
Marketable securities
U.S. government agency securities140,682  —  140,682  —  
Corporate bonds4,003  —  4,003  —  
Equity securities1,716  1,716  —  —  
Liabilities
Contingent consideration(2,879) —  —  (2,879) 
Total$321,050  $148,922  $175,007