EXACT SCIENCES CORP, 10-Q filed on 5/6/2020
Quarterly Report
v3.20.1
Cover Page - shares
3 Months Ended
Mar. 31, 2020
May 04, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Mar. 31, 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 441 Charmany Drive  
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, $0.01 par value per share  
Trading Symbol EXAS  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Entity Central Index Key 0001124140  
Amendment Flag false  
Entity Common Stock, Shares Outstanding   149,746,169
v3.20.1
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Current Assets:    
Cash and cash equivalents $ 701,054 $ 177,254
Marketable securities 530,062 146,401
Accounts receivable, net 140,046 130,667
Inventory 69,424 61,724
Prepaid expenses and other current assets 43,732 40,913
Total current assets 1,484,318 556,959
Long-term Assets:    
Property, plant and equipment, net 465,476 455,325
Operating lease right-of-use assets 124,369 126,444
Goodwill 1,237,161 1,203,197
Intangible assets, net 1,128,261 1,143,550
Other long-term assets, net 21,540 20,293
Total assets 4,461,125 3,505,768
Current Liabilities:    
Accounts payable 38,048 25,973
Accrued liabilities 166,596 193,329
Operating lease liabilities, current portion 8,663 7,891
Debt, current portion 24,565 834
Other current liabilities 5,709 8,467
Total current liabilities 243,581 236,494
Long-term Liabilities:    
Convertible notes, net 1,514,306 803,605
Long-term debt, less current portion 0 24,032
Other long-term liabilities 47,252 34,911
Operating lease liabilities, less current portion 118,333 118,665
Total liabilities 1,923,472 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 March 31, 2020 and December 31, 2019 0 0
Common stock, $0.01 par value Authorized—200,000,000 shares issued and outstanding—149,446,864 and 147,625,696 shares at March 31, 2020 and December 31, 2019 1,495 1,477
Additional paid-in capital 3,763,328 3,406,440
Accumulated other comprehensive loss (1,717) (100)
Accumulated deficit (1,225,453) (1,119,756)
Total stockholders’ equity 2,537,653 2,288,061
Total liabilities and stockholders’ equity $ 4,461,125 $ 3,505,768
v3.20.1
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Mar. 31, 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) 149,446,864 147,625,696
Common stock, outstanding shares (in shares) 149,446,864 147,625,696
v3.20.1
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Revenue $ 347,821 $ 162,043
Operating expenses    
Cost of sales (exclusive of amortization of acquired intangible assets) 81,606 42,827
Research and development 43,509 31,785
Sales and marketing 167,749 90,939
General and administrative 113,991 63,806
Amortization of acquired intangible assets 23,339 760
Total operating expenses 430,194 230,117
Loss from operations (82,373) (68,074)
Other income (expense)    
Investment income, net 97 6,655
Interest expense (25,153) (21,990)
Total other income (expense) (25,056) (15,335)
Net loss before tax (107,429) (83,409)
Income tax benefit 1,732 470
Net loss $ (105,697) $ (82,939)
Net loss per share - basic and diluted (in usd per share) $ (0.71) $ (0.66)
Weighted average common shares outstanding - basic and diluted (in shares) 148,151 126,248
v3.20.1
Condensed Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]    
Net loss $ (105,697) $ (82,939)
Other comprehensive loss, before tax:    
Unrealized gain (loss) on available-for-sale investments (1,642) 2,176
Foreign currency translation gain (loss) 25 0
Comprehensive loss, before tax (107,314) (80,763)
Income tax benefit (expense) related to items of other comprehensive loss 0 (520)
Comprehensive loss, net of tax $ (107,314) $ (81,283)
v3.20.1
Condensed Consolidated Statements of Stockholders Equity - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid In Capital
Accumulated 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      
Issuance of common stock for business combinations 0        
Net loss (82,939)       (82,939)
Accumulated other comprehensive loss 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, 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    
Shares issued to settle convertible notes (in shares) 2,159,716        
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) 17,046,159 382,947      
Net loss $ (105,697)       (105,697)
Accumulated other comprehensive loss (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 149,446,864 149,446,864      
v3.20.1
Condensed Consolidated Statements of Stockholders Equity (Parenthetical) - $ / shares
Mar. 31, 2020
Dec. 31, 2019
Statement of Financial Position [Abstract]    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
v3.20.1
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities:    
Net loss $ (105,697) $ (82,939)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 16,006 6,375
Loss on disposal of property, plant and equipment 272 82
Unrealized loss on revaluation of marketable equity securities 669 0
Deferred tax benefit (1,918) (520)
Stock-based compensation 29,560 16,166
Loss on settlement of convertible notes 7,954 10,558
Amortization of convertible note debt discount and issuance costs 14,553 9,079
Amortization of deferred financing costs and other liabilities (1,073) (425)
Amortization of premium on short-term investments 53 (1,173)
Amortization of acquired intangible assets 23,339 760
Non-cash lease expense 10,190 877
Changes in assets and liabilities:    
Accounts receivable, net (6,322) (11,856)
Inventory (7,469) (5,121)
Operating lease liabilities (2,210) (4,721)
Accounts payable and accrued liabilities (18,296) (2,216)
Other assets and liabilities (9,438) (9,080)
Net cash used in operating activities (49,827) (74,154)
Cash flows from investing activities:    
Purchases of marketable securities (425,168) (262,887)
Maturities and sales of marketable securities 39,143 232,482
Purchases of property, plant and equipment (12,685) (10,657)
Business combination, net of cash acquired (6,807) 0
Other investing activities (330) (140)
Net cash used in investing activities (405,847) (41,202)
Cash flows from financing activities:    
Proceeds from issuance of convertible notes, net 1,125,547 729,536
Proceeds from exercise of common stock options 4,300 3,650
Payments on settlement of convertible notes (150,054) (493,355)
Proceeds from construction loan 0 295
Payments on mortgage payable (313) 0
Net cash provided by financing activities 979,480 240,126
Net increase in cash and cash equivalents 523,806 124,770
Cash and cash equivalents, beginning of period 177,528 160,430
Cash and cash equivalents, end of period 701,334 285,200
Supplemental disclosure of non-cash investing and financing activities:    
Property, plant and equipment acquired but not paid 13,631 42,119
Unrealized gain (loss) on available-for-sale investments, before tax (1,642) 2,176
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 Cash Flow Information [Abstract]    
Interest paid $ 3,725 $ 1,712
v3.20.1
Condensed Consolidated Statements of Cash Flows (Parenthetical) - shares
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
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
v3.20.1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Mar. 31, 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 issue “stay-at-home” or similar orders, and enact 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.
Due to social distancing, stay-at-home orders, and other actions taken in response to COVID-19, there has been a significant and widespread decline in standard wellness visits and preventive medical services. That decline has negatively impacted Cologuard test orders in the Company’s Screening business, notwithstanding the availability of alternative ordering channels such as telehealth. The Company expects that Cologuard orders and revenues will lag in the second quarter of 2020 and beyond.
The Precision Oncology business is also starting to see weakening underlying conditions because of COVID-19, more notably in the U.S. prostate business and in certain international geographies. The Company’s expects the widespread decrease in preventive services, such as mammograms and prostate cancer screenings, to negatively impact Precision Oncology test volumes in the coming months due to the typical lag between cancer screening and genomic test ordering.
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 March 31, 2020 and through the date of this report. 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.
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 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 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 March 31, 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 months ended March 31, 2020 and 2019, there was no 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)March 31,
2020
December 31,
2019
Raw materials$27,614  $24,958  
Semi-finished and finished goods41,810  36,766  
Total inventory$69,424  $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. As of March 31, 2020 and December 31, 2019, the Company had open foreign currency forward contracts with notional amounts of $14.3 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 March 31, 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. Other than the transactions discussed in Note 5 below, the Company determined that all patent costs incurred during the three months ended March 31, 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 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 March 31, 2020 and December 31, 2019.
Fair Value Measurements
The Financial Accounting Standards Board (“FASB”) has issued authoritative guidance that requires fair value should 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 debt instruments 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 under all 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 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:
March 31,
(In thousands)20202019
Shares issuable upon exercise of stock options2,841  2,482  
Shares issuable upon the release of restricted stock awards4,823  4,216  
Shares issuable upon conversion of convertible notes20,309  12,197  
27,973  18,895  
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, 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 Translation
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 updated 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 Company adopted the guidance early, which was effective January 1, 2020. Adoption of the guidance 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.
v3.20.1
REVENUE
3 Months Ended
Mar. 31, 2020
Revenue from Contract with Customer [Abstract]  
REVENUE REVENUE ​
The Company’s revenue is primarily generated by its laboratory testing services utilizing its Cologuard and Oncotype DX 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 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.
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, 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 and/or health system, depending on payer contract status or patient insurance benefit status.
The Company’s consideration is deemed to be variable, 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. The Company elects the practical expedient related to disclosure of unsatisfied performance obligations, as the duration of time between sample receipt and the release of a valid 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 is deemed to be variable 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 $5.4 million and $1.5 million for the three months ended March 31, 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, and that point in time is defined as the date a patient’s successful test result is released to the patient’s ordering healthcare provider. The Company considers this date to be the time at which the patient obtains control of the promised test service.
Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated by revenue source:
Three Months Ended March 31,
(In thousands)20202019
Screening
Medicare Parts B & C$98,159  $82,917  
Commercial109,369  73,351  
Other11,924  5,775  
Total Screening219,452  162,043  
Precision Oncology
Medicare Parts B & C$47,034  $—  
Commercial59,605  —  
International20,936  —  
Other794  —  
Total Precision Oncology128,369  —  
Total$347,821  $162,043  
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 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. As of March 31, 2020 and December 31, 2019, the deferred revenue balance is not material to the Company’s condensed consolidated financial statements.
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.
v3.20.1
MARKETABLE SECURITIES
3 Months Ended
Mar. 31, 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 March 31, 2020 and December 31, 2019:
(In thousands)March 31, 2020December 31, 2019
Cash, cash equivalents, and restricted cash
Cash and money market$577,684  $146,932  
Cash equivalents123,370  30,322  
Restricted cash (1)280  274  
Total cash, cash equivalents, and restricted cash701,334  177,528  
Marketable securities
Available-for-sale debt securities529,037  144,685  
Equity securities1,025  1,716  
Total marketable securities530,062  146,401  
Total cash and cash equivalents, restricted cash and marketable securities$1,231,396  $323,929  
______________
(1)Restricted cash is included in other long-term assets on the condensed consolidated balance sheets. There was no restricted cash at March 31, 2019.
Available-for-sale debt securities at March 31, 2020 consisted of the following:
March 31, 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$55,299  $32  $—  $55,331  
Corporate bonds39,443   (48) 39,396  
Commercial paper19,955   (8) 19,950  
Asset backed securities8,695  —  (2) 8,693  
Total cash equivalents123,392  36  (58) 123,370  
Marketable securities
Corporate bonds260,218  71  (2,168) 258,121  
U.S. government agency securities202,628  622  —  203,250  
Certificates of deposit31,653  —  (134) 31,519  
Asset backed securities28,269  28  (102) 28,195  
Commercial paper7,964  —  (12) 7,952  
Total marketable securities530,732  721  (2,416) 529,037  
Total available-for-sale securities$654,124  $757  $(2,474) $652,407  
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 March 31, 2020:​
Due one year or lessDue after one year through four years
(In thousands)CostFair ValueCostFair Value
Cash equivalents
U.S. government agency securities$55,299  $55,331  $—  $—  
Corporate bonds39,443  39,396  —  —  
Commercial paper19,955  19,950  —  —  
Asset backed securities8,695  8,693  —  —  
Total cash equivalents123,392  123,370  —  —  
Marketable securities
U.S. government agency securities175,419  175,992  27,209  27,258  
Corporate bonds129,321  128,624  130,897  129,497  
Certificates of deposit20,000  19,973  11,653  11,546  
Commercial paper7,964  7,952  —  —  
Asset backed securities6,940  6,947  21,329  21,248  
Total marketable securities339,644  339,488  191,088  189,549  
Total$463,036  $462,858  $191,088  $189,549  
The following table summarizes the gross unrealized losses and fair values of available-for-sale debt securities in an unrealized loss position as of March 31, 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
Corporate bonds$36,944  $(48) $—  $—  $36,944  $(48) 
Commercial paper9,971  (8) —  —  9,971  (8) 
Asset backed securities8,693  (2) —  —  8,693  (2) 
Total cash equivalents55,608  (58) —  —  55,608  (58) 
Marketable securities
Corporate bonds245,886  (2,168) —  —  245,886  (2,168) 
Certificates of deposit31,519  (134) —  —  31,519  (134) 
Asset backed securities12,208  (102) —  —  12,208  (102) 
Commercial paper7,952  (12) —  —  7,952  (12) 
Total marketable securities297,565  (2,416) —  —  297,565  (2,416) 
Total available-for-sale securities$353,173  $(2,474) $—  $—  $353,173  $(2,474) 
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 March 31, 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 loss of $0.1 million for the three months ended March 31, 2020, and a gain of $0.1 million, net of insignificant realized losses, for the three months ended March 31, 2019, which are included in investment income, net in the Company’s condensed consolidated statements of operations. The Company recorded a loss of $0.7 million from its equity securities for the three months ended March 31, 2020, which is included in investment income, net in the Company’s condensed consolidated statements of operations, as compared to no gain or loss for the three months ended March 31, 2019.
v3.20.1
PROPERTY, PLANT, AND EQUIPMENT
3 Months Ended
Mar. 31, 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
March 31,
2020
December 31,
2019
Property, plant and equipment
Landn/a$4,466  $4,466  
Leasehold and building improvements(1)109,737  80,352  
Land improvements15 years1,766  1,766  
Buildings30 years165,509  112,815  
Computer equipment and computer software3 years68,830  65,323  
Laboratory equipment
3 - 10 years
120,362  104,008  
Furniture and fixtures
3 - 10 years
20,886  14,539  
Assets under constructionn/a67,305  149,687  
Property, plant and equipment, at cost558,861  532,956  
Accumulated depreciation(93,385) (77,631) 
Property, plant and equipment, net$465,476  $455,325  
______________
(1)Lesser of remaining lease term, building life, or estimated useful life.
Depreciation expense for the three months ended March 31, 2020 and 2019 was $15.8 million and $6.3 million, respectively.
At March 31, 2020, the Company had $67.3 million of assets under construction which consisted of $17.0 million in laboratory equipment under construction, $44.3 million of building and leasehold improvements, $5.7 million in capitalized costs related to software projects, and $0.3 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 $4.8 million to complete the laboratory equipment, $7.3 million to complete the building projects and leasehold improvements, $5.2 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.
v3.20.1
INTANGIBLE ASSETS AND GOODWILL
3 Months Ended
Mar. 31, 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 March 31, 2020:​
(In thousands)Weighted Average
Remaining
Life (Years)
CostAccumulated AmortizationNet Balance at March 31, 2020
Finite-lived intangible assets
Trade name15.7$100,700  $(2,535) $98,165  
Customer relationships13.62,700  (269) 2,431  
Patents8.622,689  (6,539) 16,150  
Acquired developed technology9.7814,171  (32,510) 781,661  
Supply agreements7.330,000  (1,560) 28,440  
Internally developed technology2.41,508  (449) 1,059  
Total finite-lived intangible assets971,768  (43,862) 927,906  
In-process research and developmentn/a200,000  —  200,000  
Internally developed technology in processn/a355  —  355  
Total intangible assets$1,172,123  $(43,862) $1,128,261  
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 March 31, 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$70,667  
202194,121  
202293,915  
202393,692  
202493,345  
Thereafter482,166  
$927,906  
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
In March 2020, the Company recognized goodwill of $29.7 million from the acquisition of Paradigm Diagnostics, Inc. (“Paradigm”) and Viomics, Inc. (“Viomics”). Refer to the Company’s 2019 10-K for further discussion on goodwill recorded.
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 March 31, 2020. There were no impairment losses for the periods ended March 31, 2020 and December 31, 2019. During the three months ended March 31, 2020, the Company recognized a measurement period adjustment to goodwill of $4.3 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 March 31, 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 acquisition29,695  
Genomic Health acquisition adjustment4,269  
Balance, March 31, 2020$1,237,161  
v3.20.1
FAIR VALUE MEASUREMENTS
3 Months Ended
Mar. 31, 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 March 31, 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 March 31,
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$577,684  $577,684  $—  $—  
U.S. government agency securities55,331  —  55,331  —  
Corporate bonds39,396  —  39,396  —  
Commercial paper19,950  —  19,950  —  
Asset backed securities8,693  —  8,693  —  
Restricted cash280  280  —  —  
Marketable securities
Corporate bonds258,121  —  258,121  —  
U.S. government agency securities203,250  —  203,250  —  
Certificates of deposit31,519  —  31,519  —  
Asset backed securities28,195  —  28,195  —  
Commercial paper7,952  —  7,952  —  
Equity Securities1,025  1,025  —  —  
Liabilities
Contingent consideration(2,739) —  —  (2,739) 
Total$1,228,657  $578,989  $652,407  $(2,739) 
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