EXACT SCIENCES CORP, 10-K filed on 2/16/2021
Annual Report
v3.20.4
Cover Page - USD ($)
12 Months Ended
Dec. 31, 2020
Feb. 15, 2021
Jun. 30, 2020
Cover [Abstract]      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2020    
Document Transition Report false    
Entity File Number 001-35092    
Entity Registrant Name EXACT SCIENCES CORPORATION    
Entity Central Index Key 0001124140    
Entity Incorporation, State or Country Code DE    
Entity Address, Address Line One 5505 Endeavor Lane    
Entity Address, City or Town Madison    
Entity Address, State or Province WI    
Entity Tax Identification Number 02-0478229    
Entity Address, Postal Zip Code 53719    
City Area Code 608    
Local Phone Number 284‑5700    
Title of 12(b) Security Common Stock, $0.01 Par Value    
Trading Symbol EXAS    
Security Exchange Name NASDAQ    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Amendment Flag false    
Entity Filer Category Large Accelerated Filer    
Current Fiscal Year End Date --12-31    
Entity Small Business false    
Entity Emerging Growth Company false    
ICFR Auditor Attestation Flag true    
Entity Shell Company false    
Entity Public Float     $ 12,901,152,054
Entity Common Stock, Shares Outstanding   169,093,162  
Documents Incorporated by Reference The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days after the end of the fiscal year ended December 31, 2020. Portions of such proxy statement are incorporated by reference into Part III of this Form 10‑K.    
Document Fiscal Year Focus 2020    
Document Fiscal Period Focus FY    
v3.20.4
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2020
Dec. 31, 2019
Current Assets:    
Cash and cash equivalents $ 1,491,288 $ 177,254
Marketable securities 348,699 146,401
Accounts receivable, net 233,185 130,362
Inventory 92,265 61,724
Prepaid expenses and other current assets 33,157 38,195
Total current assets 2,198,594 553,936
Long-term Assets:    
Property, plant and equipment, net 450,683 455,325
Operating lease right-of-use assets 125,947 126,444
Goodwill 1,237,672 1,203,197
Intangible assets, net 848,426 1,143,550
Other long-term assets, net 63,770 23,316
Total assets 4,925,092 3,505,768
Current Liabilities:    
Accounts payable 35,709 25,973
Accrued liabilities 233,604 193,329
Operating lease liabilities, current portion 11,483 7,891
Convertible notes, net, current portion 255,464 0
Debt, current portion 1,319 834
Other current liabilities 38,265 8,467
Total current liabilities 575,844 236,494
Convertible notes, net, less current portion 1,320,760 803,605
Long-term debt, less current portion 22,342 24,032
Other long-term liabilities 61,582 34,911
Operating lease liabilities, less current portion 121,075 118,665
Total liabilities 2,101,603 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 December 31, 2020 and December 31, 2019 0 0
Common stock, $0.01 par value Authorized—400,000,000 shares issued and outstanding—159,423,410 and 147,625,696 shares at December 31, 2020 and December 31, 2019 1,595 1,477
Additional paid-in capital 4,789,657 3,406,440
Accumulated other comprehensive income (loss) 526 (100)
Accumulated deficit (1,968,289) (1,119,756)
Total stockholders’ equity 2,823,489 2,288,061
Total liabilities and stockholders’ equity $ 4,925,092 $ 3,505,768
v3.20.4
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Income Statement [Abstract]      
Revenue $ 1,491,391 $ 876,293 $ 454,462
Operating expenses:      
Cost of sales (exclusive of amortization of acquired intangible assets) 354,324 216,717 116,644
Research and development 554,052 139,694 67,285
Sales and marketing 589,919 385,176 249,448
General and administrative 481,716 352,453 178,016
Amortization of acquired intangibles 93,398 16,035 2,540
Intangible asset impairment charge 209,666 0 0
Total operating expenses 2,283,075 1,110,075 613,933
Other operating income 23,665 0 0
Loss from operations (768,019) (233,782) (159,471)
Other income (expense)      
Investment income, net 6,897 26,530 21,203
Interest expense (95,983) (61,599) (36,789)
Total other income (expense) (89,086) (35,069) (15,586)
Net loss before tax (857,105) (268,851) (175,057)
Income tax benefit (expense) 8,572 184,858 (92)
Net loss $ (848,533) $ (83,993) $ (175,149)
Net loss per share-basic and diluted (in dollars per share) $ (5.61) $ (0.64) $ (1.43)
Weighted average common shares outstanding-basic and diluted (in shares) 151,137 131,257 122,207
v3.20.4
Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Statement of Comprehensive Income [Abstract]      
Net loss $ (848,533) $ (83,993) $ (175,149)
Other comprehensive loss:      
Unrealized gain (loss) on available-for-sale investments 771 1,322 (708)
Foreign currency adjustment 25 0 36
Comprehensive loss, before tax (847,737) (82,671) (175,821)
Income tax expense related to items of other comprehensive income (170) 0 0
Comprehensive loss, net of tax $ (847,907) $ (82,671) $ (175,821)
v3.20.4
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, 2017 $ 520,418 $ 1,205 $ 1,380,577 $ (750) $ (860,614)
Beginning balance (in shares) at Dec. 31, 2017   120,497,426      
Increase (Decrease) in Stockholders' Equity          
Equity component of convertible debt, net of issuance costs 260,246   260,246    
Settlement of convertible notes, net of tax 0        
Exercise of common stock options 6,636 $ 10 6,626    
Exercise of common stock options (in shares)   1,033,012      
Issuance of common stock to fund the Company's 401(k) match 4,303 $ 1 4,302    
Issuance of common stock to fund the Company's 401(k) match (in shares)   86,882      
Compensation expense related to issuance of stock options and restricted stock awards 60,264 $ 13 60,251    
Compensation expense related to issuance of stock options and restricted stock awards (in shares)   1,228,611      
Purchase of employee stock purchase plan shares 4,895 $ 3 4,892    
Purchase of employee stock purchase plan shares (in shares)   346,609      
Issuance of common stock for business combinations 0        
Net loss (175,149)       (175,149)
Accumulated other comprehensive income (loss) (672)     (672)  
Ending balance at Dec. 31, 2018 680,941 $ 1,232 1,716,894 (1,422) (1,035,763)
Ending balance (in shares) at Dec. 31, 2018   123,192,540      
Increase (Decrease) in Stockholders' Equity          
Equity component of convertible debt, net of issuance costs 268,368   268,368    
Settlement of convertible notes, net of tax (300,768)   (300,768)    
Shares issued to settle convertible notes $ 182,477 $ 22 182,455    
Shares issued to settle convertible notes (in shares) 2,159,716 2,159,716      
Exercise of common stock options $ 8,787 $ 6 8,781    
Exercise of common stock options (in shares)   641,925      
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 108,483 $ 43 108,440    
Compensation expense related to issuance of stock options and restricted stock awards (in shares)   4,322,366      
Purchase of employee stock purchase plan shares 8,396 $ 2 8,394    
Purchase of employee stock purchase plan shares (in shares)   176,458      
Issuance of common stock for business combinations $ 1,407,080 $ 171 1,406,909    
Issuance of common stock to fund business combinations (in shares) 17,046,159 17,046,159      
Stock issuance costs $ (441)   (441)    
Net loss (83,993)       (83,993)
Accumulated other comprehensive income (loss) 1,322     1,322  
Ending balance at Dec. 31, 2019 $ 2,288,061 $ 1,477 3,406,440 (100) (1,119,756)
Ending balance (in shares) at Dec. 31, 2019 147,625,696 147,625,696      
Increase (Decrease) in Stockholders' Equity          
Equity component of convertible debt, net of issuance costs $ 346,641   346,641    
Settlement of convertible notes, net of tax (64,199)   (64,199)    
Exercise of common stock options $ 27,077 $ 7 27,070    
Exercise of common stock options (in shares) 707,013 702,907      
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 152,906 $ 17 152,889    
Compensation expense related to issuance of stock options and restricted stock awards (in shares)   1,665,408      
Purchase of employee stock purchase plan shares 18,355 $ 3 18,352    
Purchase of employee stock purchase plan shares (in shares)   301,064      
Issuance of common stock for business combinations $ 28,847 $ 4 28,843    
Issuance of common stock to fund business combinations (in shares) 386,293 386,293      
Issuance of common stock for registered direct offering $ 861,701 $ 86 861,615    
Issuance of common stock, net of issuance costs (in shares)   8,605,483      
Net loss (848,533)       (848,533)
Accumulated other comprehensive income (loss) 626     626  
Ending balance at Dec. 31, 2020 $ 2,823,489 $ 1,595 $ 4,789,657 $ 526 $ (1,968,289)
Ending balance (in shares) at Dec. 31, 2020 159,423,410 159,423,410      
v3.20.4
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Dec. 31, 2018
Cash flows from operating activities:      
Net loss $ (848,533) $ (83,993) $ (175,149)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:      
Depreciation and other amortization 69,964 34,212 20,544
Loss on disposal of property, plant and equipment 2,470 1,394 353
Unrealized net (gain) loss on revaluation of equity securities (1,179) 207 0
Loss on preferred stock investment 0 0 765
Deferred tax benefit (9,862) (185,109) 0
Stock-based compensation 152,906 108,483 60,264
Loss on settlement of convertible notes 7,954 10,558 0
Amortization of convertible note debt discount and issuance costs 76,479 42,256 28,564
Amortization of deferred financing costs and other liabilities (3,889) (4,467) (2,394)
Accretion (Amortization) of discount (premium) on short-term investments 1,549 (3,102) (3,516)
Amortization of acquired intangibles 93,398 16,035 2,540
Asset acquisition IPR&D expense 412,568 0 0
Intangible asset impairment charge 209,666 0 0
Non-cash lease expense 15,720 5,427 0
Changes in assets and liabilities, net of effects of acquisition:      
Accounts receivable, net (100,526) (27,633) (17,292)
Inventory, net (30,310) (19,041) (12,729)
Operating lease liabilities (8,784) (4,114) 0
Accounts payable and accrued liabilities 55,165 3,469 33,076
Other assets and liabilities 41,726 (6,237) (3,966)
Net cash provided by (used in) operating activities 136,482 (111,655) (68,940)
Cash flows from investing activities:      
Purchases of marketable securities (1,089,953) (634,117) (1,192,506)
Maturities of marketable securities 886,675 1,657,204 578,786
Purchases of property, plant and equipment (64,352) (171,802) (150,093)
Investment in privately held companies (15,947) (1,000) 0
Business combination, net of cash acquired (6,658) (973,861) (17,908)
Asset acquisition, net of cash acquired (411,421) 0 0
Other investing activities (381) (852) (578)
Net cash used in investing activities (702,037) (124,428) (782,299)
Cash flows from financing activities:      
Proceeds from issuance of convertible notes, net 1,125,547 729,477 896,430
Proceeds from exercise of common stock options 27,077 8,787 6,636
Proceeds from sale of common stock, net of issuance costs 861,701 0 0
Proceeds in connection with the Company's employee stock purchase plan 18,355 8,396 4,895
Payments on settlement of convertible notes (150,054) (493,356) 0
Proceeds from construction loan, net deferred financing costs 0 319 24,236
Other financing activities (3,005) (442) 1,945
Net cash provided by financing activities 1,879,621 253,181 934,142
Effects of exchange rate changes on cash and cash equivalents 0 0 36
Net increase in cash, cash equivalents and restricted cash 1,314,066 17,098 82,939
Cash, cash equivalents and restricted cash at the beginning of period 177,528 160,430 77,491
Cash, cash equivalents and restricted cash at the end of period 1,491,594 177,528 160,430
Supplemental disclosure of non-cash investing and financing activities:      
Property, plant and equipment acquired but not paid 2,685 10,265 33,452
Property acquired under build-to-suit lease 0 0 2,092
Unrealized loss on available-for-sale investments 771 1,322 (708)
Issuance of 136,559, 86,532, and 86,882 shares of common stock to fund the Company’s 401(k) matching contribution for 2019, 2018, and 2017, respectively 12,007 7,409 4,303
Issuance of 2,159,716 shares of common stock upon settlement of convertible notes 0 182,477 0
Retirement of equity component of convertible notes settled (64,199) (300,768) 0
Issuance of 386,293 and 17,046,159 shares of common stock in 2020 and 2019, respectively, for business combination (28,847) (1,407,080) 0
Business acquisition contingent consideration liability 0 0 3,060
Supplemental disclosure of cash flow information:      
Interest paid $ 9,384 $ 5,128 $ 4,638
v3.20.4
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 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) 400,000,000 400,000,000
Common stock, issued shares (in shares) 159,423,410 147,625,696
Common stock, outstanding shares (in shares) 159,423,410 147,625,696
v3.20.4
Consolidated Statements of Cash Flows (Parenthetical) - shares
12 Months Ended
Dec. 31, 2020
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 86,882
Shares issued to settle convertible notes (in shares)   2,159,716  
Issuance of common stock to fund business combinations (in shares) 386,293 17,046,159  
v3.20.4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Dec. 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 screening and 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, with the goal of bringing new innovative cancer tests to patients throughout the world.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Exact Sciences Corporation and those of its wholly-owned subsidiaries and variable interest entities. All intercompany transactions and balances have been eliminated upon consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States ("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 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. Even in areas where “stay-at-home” restrictions have been lifted and the number of cases of COVID-19 has declined, many individuals remain cautious about resuming activities such as preventive-care medical visits. Medical practices continue to be cautious about allowing individuals, such as sales representatives, into their offices. Many individuals continue to work from home rather from an office setting. The Company cannot forecast when the COVID-19 pandemic will end or the extent to which practices that have emerged during the pandemic will continue once it subsides.
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 December 31, 2020 and through the date of the filing of this Annual Report on Form 10-K. 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.
The pandemic and related precautionary measures began to materially disrupt the Company's operations in March 2020 and may continue to disrupt the business for an unknown period of time. As a result, the pandemic had a significant impact on the Company's 2020 revenues and operating results.
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 year ended December 31, 2020, due to lost revenue attributable to COVID-19, which is reflected in other operating income in the consolidated statement of operations. The Company cannot predict the extent to which it might receive any additional funds to be paid out under the Provider Relief Fund, and to what extent the financial impact of receiving such funds might 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 a 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 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 effective interest rate 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 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 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 December 31, 2020 and 2019, the allowance for doubtful accounts recorded was not material to the Company's consolidated balance sheets. For the years ended December 31, 2020, 2019 and 2018, 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 consolidated statements of operations.
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 to working conditions. Revalidation costs, including maintenance and repairs are expensed when incurred.
Software Development Costs
Costs related to internal use software, including hosted 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 investment income, net in the 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 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 consolidated statements of operations.
Business Combinations and Asset Acquisitions
Business Combinations are accounted for under the acquisition method in accordance with Accounting Standards Codification ("ASC") 805, Business Combinations. The acquisition method requires identifiable assets acquired and liabilities assumed and any non-controlling interest in the business acquired be recognized and measured at fair value on the acquisition date, which is the date that the acquirer obtains control of the acquired business. The amount by which the fair value of consideration transferred as the purchase price exceeds the net fair value of assets acquired and liabilities assumed is recorded as goodwill. Acquisitions that do not meet the definition of a business combination under the ASC are accounted for as asset acquisitions. Asset acquisitions are accounted for by allocating the cost of the acquisition to the individual assets acquired and liabilities assumed on a relative fair value basis. Goodwill is not recognized in an asset acquisition with any consideration in excess of net assets acquired allocated to acquired assets on a relative fair value basis. Transaction costs are expensed in a business combination and are considered a component of the cost of the acquisition in an asset acquisition.
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 years ended December 31, 2020, 2019 and 2018 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, current and future strategic initiatives 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") 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, finite-lived 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.
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:
December 31,
(In thousands)202020192018
Shares issuable in connection with acquisitions157 — — 
Shares issuable upon exercise of stock options2,231 2,700 2,532 
Shares issuable upon the release of restricted stock awards3,968 3,801 3,847 
Shares issuable upon the release of performance share units619 583 2,399 
Shares issuable upon conversion of convertible notes20,309 12,196 12,044 
27,284 19,280 20,822 
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, shares purchased under an employee stock purchase plan (if certain parameters are not met), and performance share units 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.
The fair values and recognition of the Company's share-based payment awards are determined as follows:
The fair value of each service-based option award is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes pricing model utilizes the following assumptions:
Expected Term—Expected life of an option award is the average length of time over which the Company expects employees will exercise their options, which is based on historical experience with similar grants.
Expected Volatility—Expected volatility is based on the Company’s historical stock volatility data over the expected term of the awards.
Risk-Free Interest Rate—The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent expected term.
The estimated fair value of these awards is recognized to expense using the straight-line method over the expected term.
The fair value of service-based awards for each restricted stock unit award is determined on the date of grant using the closing stock price on that day. The estimated fair value of these awards is recognized to expense using the straight-line method over the vesting period.
The fair value of performance-based equity awards is determined on the date of grant using the closing stock price on that day. The expense recognized each period is partially dependent on the probability of what performance conditions will be met which is determined by management's evaluation of internal and external factors. Determining the appropriate amount to expense based on the anticipated achievement of the stated goals requires judgment, including forecasting future financial results. The estimate of the timing of the expense recognition is revised periodically based on the probability of achieving the goals and adjustments are made as appropriate. The cumulative impact of any revision is reflected in the period of the change. If the financial performance targets and operational milestones are not achieved, the award would not vest, so no compensation cost would be recognized and any previously recognized stock-based compensation expense would be reversed.
Research and Development Costs
Research and development costs are expensed as incurred. These expenses include the costs of our proprietary research and development efforts, as well as costs of IPR&D projects acquired as part of an asset acquisition that have no alternative future use. Upfront and milestone payments due to third parties in connection with research and development collaborations prior to regulatory approval are expensed as incurred. Milestone payments due to third parties upon, or subsequent to, regulatory approval are capitalized and amortized into research and development costs over the shorter of the remaining license or product patent life, when there are no corresponding revenues related to the license or product. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received, rather than when the payment is made.
The Company incurred research and development expenses of $554.1 million, $139.7 million, and $67.3 million during the years ended December 31, 2020, 2019, and 2018, respectively, including IPR&D of $412.6 million that was acquired in an asset acquisition in 2020 and had no alternative future use. The value of the acquired IPR&D that was expensed was determined by identifying those acquired specific IPR&D projects that would be continued and which (a) were incomplete and (b) had no alternative future use. Acquired IPR&D assets that are acquired in an asset acquisition and which have no alternative future use are classified as an investing cash outflow in the consolidated statement of cash flows.
Advertising Costs
The Company expenses the costs of media advertising at the time the advertising takes place. The Company expensed approximately $93.2 million, $88.7 million, and $93.7 million of media advertising during the years ended December 31, 2020, 2019, and 2018, respectively, which is recorded in sales and marketing expenses on the Company's consolidated statements of operations.
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 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 debt instrument by using assumptions that market participants would use in pricing a debt instrument, including market interest rates, credit standing, yield curves, volatilities, and expected life of the instrument. 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.
The amount allocated to the equity component is the difference between the principal value of the instrument and the fair value of the liability component at issuance. The equity component, less any premium, is treated as a discount on the liability component. The debt discount is amortized to interest expense over the contractual term of the debt instrument using the effective interest rate method. In addition, debt issuance costs related to the debt instrument are allocated to the liability and equity components based on their relative values. The debt issuance costs allocated to the liability component are amortized over the contractual term of the debt instrument as additional non-cash interest expense. The transaction costs allocated to the equity component are netted with the equity component of the convertible debt instrument in stockholders equity.
Leases
The Company acts as lessee in its lease agreements, which include operating leases for corporate offices, laboratory space, warehouse space, vehicles and certain laboratory and office equipment, and finance leases for certain equipment and vehicles.
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 lease payments as right-of-use (“ROU”) assets and lease liabilities on the 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 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.
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. Operating lease expense and amortization of finance lease ROU assets are recognized on a straight-line basis over the lease term as an operating expense. Finance lease interest expense is recorded as interest expense on the Company’s consolidated statements of operations.
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 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.
Revenue Recognition
Revenues are recognized when the satisfaction of the performance obligation occurs, in an amount that reflects the consideration the Company expects to collect 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. 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 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 consolidated statements of operations. Net foreign currency transaction gains or losses were not material to the consolidated statements of operations for the periods presented.
Concentration of Credit Risk
Financial instruments that subject the Company to credit risk consist of cash, cash equivalents and marketable securities. As of December 31, 2020, the Company had cash and cash equivalents deposited in financial institutions in which the balances exceed the federal government agency insured limit of $250,000 by approximately $237.0 million. The Company has not experienced any losses in such accounts and management believes it is not exposed to any significant credit risk.
Through December 31, 2020, the Company’s revenues have been primarily derived from the sale of Cologuard, Oncotype DX, and COVID-19 tests. The following is a breakdown of revenue and accounts receivable from major payers:
% Revenue for the years ended December 31,% Accounts Receivable at December 31,
Major Payer202020192018202020192018
Centers for Medicare and Medicaid Services21%29%36%14%19%32%
UnitedHealthcare10%13%13%7%7%10%
State of Wisconsin12%—%—%22%—%—%
Tax Positions
A valuation allowance to reduce the deferred tax assets is reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has incurred significant losses since its inception and due to the uncertainty of the amount and timing of future taxable income, the Company has determined that a $157.6 million and $120.7 million valuation allowance at December 31, 2020 and 2019 is necessary to reduce the tax assets to the amount that is more likely than not to be realized. The change in valuation allowance as of December 31, 2020 and 2019 was an increase of $36.9 million and a decrease of $89.2 million, respectively. An income tax benefit of $8.6 million was recorded primarily as a result of future limitations on and expiration of certain Federal and State deferred tax assets. Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact our effective tax rate.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update ("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 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 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 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 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 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 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 consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2020, The Financial Accounting Standards Board issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This update simplifies the accounting for convertible debt instruments by removing the beneficial conversion and cash conversion separation models for convertible instruments. Under the update, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives or that do not result in substantial premiums accounted for as paid-in capital. The update also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the computation of diluted earnings per share. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
Guarantees and Indemnifications
The Company, as permitted under Delaware law and in accordance with its bylaws, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum amount of potential future indemnification is unlimited; however, the Company has a directors and officers insurance policy that limits its exposure and may enable it to recover a portion of any future amounts paid. The Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of December 31, 2020 and 2019.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation in the consolidated financial statements and accompanying notes to the consolidated financial statements.
v3.20.4
REVENUE
12 Months Ended
Dec. 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, Oncotype IQ®, 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 collect 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. The Company establishes a contract with a patient in accordance with other customary business practices, which is the point in time an order is received from a provider and a patient specimen has been returned to the laboratory for testing. Payment terms are a function of a patient’s existing insurance benefits, including the impact of coverage decisions with Center for Medicare & Medicaid Services (“CMS”) and applicable reimbursement contracts established between the Company and payers. However, when a patient is considered self-pay, the Company requires payment from the patient prior to the commencement of the Company’s performance obligations. 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.
Under the Company’s Laboratory Service Agreements (“LSA”) and Laboratory Reference Agreements (“LRA”) the Company contracts with a direct bill payer who is the customer for an agreed upon amount of laboratory testing services for a specified amount of time at a fixed reimbursement rate, and certain of the Company’s LSAs obligate the customer to pay for testing services prior to result.
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 when a specimen sample is not returned to the laboratory for processing before the end of the allotted testing window. 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 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 to be collected from a contract with a customer may include fixed amounts, variable amounts, or both.

Fixed consideration is derived from the Company’s LSA, LRA, and direct bill payer contracts that exist between the Company and the direct bill payers. 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 payer 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 $9.6 million, $9.9 million and $15.0 million for the years ended December 31, 2020, 2019 and 2018, 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 completion 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 customer.
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 the Company releases a result to the 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 returned to the laboratory 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:

Year Ended December 31,
(In thousands)202020192018
Screening
Medicare Parts B & C$365,471 $404,331 $254,431 
Commercial409,671 368,006 184,538 
Other39,925 37,783 15,493 
Total Screening815,067 810,120 454,462 
Precision Oncology
Medicare Parts B & C$157,166 $24,325 $— 
Commercial186,043 29,976 — 
International77,484 11,444 — 
Other19,800 428 — 
Total Precision Oncology440,493 66,173 — 
COVID-19 Testing$235,831 $— $— 
Total$1,491,391 $876,293 $454,462 
Screening revenue primarily includes laboratory service revenue from the Cologuard test while Precision Oncology revenue primarily includes laboratory service revenue from global Oncotype IQ products.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable and deferred revenue on the 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 recorded is recognized as revenue at the point in time results are released to the patient’s healthcare provider. Or, in the context of some of the Company’s LSAs, the satisfaction of the performance obligation occurs when a specimen sample is not returned to the laboratory for processing before the end of the allotted testing window.
Deferred revenue balances are reported in other current liabilities in the Company’s consolidated balance sheets and were $25.0 million and $0.6 million as of December 31, 2020 and 2019, respectively. As of December 31, 2020, $24.2 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 years ended December 31, 2020 and 2019, which was included in the deferred revenue balance at the beginning of each period was $0.2 million and $0.2 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 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 consolidated statements of operations.
v3.20.4
MARKETABLE SECURITIES
12 Months Ended
Dec. 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 December 31, 2020 and 2019:
December 31,
(In thousands)20202019
Cash, cash equivalents, and restricted cash
Cash and money market$901,294 $146,932 
Cash equivalents589,994 30,322 
Restricted cash (1)306 274 
Total cash, cash equivalents and restricted cash1,491,594 177,528 
Marketable securities
Available-for-sale debt securities347,178 144,685 
Equity securities1,521 1,716 
Total marketable securities348,699 146,401 
Total cash and cash equivalents, restricted cash and marketable securities$1,840,293 $323,929 
_________________________________
(1) Restricted cash is included in other long-term assets on the consolidated balance sheets. There was no restricted cash at December 31, 2018.
Available-for-sale debt securities at December 31, 2020 consisted of the following:
(In thousands)Amortized CostGains in Accumulated
Other Comprehensive
Income (Loss) (1)
Losses in Accumulated Other Comprehensive Income (Loss) (1)Estimated Fair
Value
Cash equivalents
U.S. government agency securities$589,986 $$— $589,994 
Total cash equivalents589,986 — 589,994 
Marketable securities
Corporate bonds132,301 612 — 132,913 
U.S. government agency securities207,119 52 — 207,171 
Asset backed securities7,070 24 — 7,094 
Total marketable securities346,490 688 — 347,178 
Total available-for-sale debt securities$936,476 $696 $— $937,172 
_________________________________
(1) Gains and losses in accumulated other comprehensive income (loss)("AOCI") are reported before tax impact.
Available-for-sale debt securities at December 31, 2019 consisted of the following:
(In thousands)Amortized CostGains in Accumulated
Other Comprehensive
Income (Loss) (1)
Losses in Accumulated
Other Comprehensive
Income (Loss) (1)
Estimated Fair
Value
Cash equivalents
U.S. government agency securities$30,320 $$— $30,322 
Total cash equivalents30,320 — 30,322 
Marketable securities
Corporate bonds4,017 — (14)4,003 
U.S. government agency securities140,745 10 (73)140,682 
Total marketable securities144,762 10 (87)144,685 
Total available-for-sale debt securities$175,082 $12 $(87)$175,007 
_________________________________
(1) There was no tax impact on the gains and losses in accumulated income (loss) at December 31, 2019.
The following table summarizes contractual underlying maturities of the Company’s available-for-sale debt securities at December 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$589,986 $589,994 $— $— 
Total cash equivalents589,986 589,994 — — 
Marketable securities
U.S. government agency securities199,988 199,994 7,131 7,177 
Corporate bonds100,837 101,122 31,464 31,791 
Asset backed securities— — 7,070 7,094 
Total marketable securities300,825 301,116 45,665 46,062 
Total available-for-sale securities$890,811 $891,110 $45,665 $46,062 
There were no available-for-sale debt securities in an unrealized loss position as of December 31, 2020.
The following table summarizes the gross unrealized losses and fair value of available-for-sale debt securities in an unrealized loss position as of December 31, 2019, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
Less than 12 months12 months or greaterTotal
(In thousands)Fair ValueGross Unrealized LossFair ValueGross Unrealized LossFair ValueGross Unrealized Loss
Marketable Securities
Corporate bonds$4,003 $(14)$— $— $4,003 $(14)
Asset backed securities140,682 (73)— 140,682 (73)
Total$144,685 $(87)$— $— $144,685 $(87)
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 December 31, 2020 and 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 $0.1 million, $3.4 million, and $0.4 million for the years ended December 31, 2020, 2019, and 2018, respectively, net of insignificant realized losses.
The Company recorded a loss of $0.2 million and $0.2 million, respectively, from its equity securities for the years ended December 31, 2020 and 2019. The Company held no equity securities during the year ended December 31, 2018, and recorded no gain or loss.
The gains and losses recorded are included in investment income, net in the Company’s consolidated statements of operations.
v3.20.4
INVENTORY
12 Months Ended
Dec. 31, 2020
Inventory Disclosure [Abstract]  
INVENTORY INVENTORY
Inventory consisted of the following:
December 31,
(In thousands)20202019
Raw materials$43,083 $24,958 
Semi-finished and finished goods49,182 36,766 
Total inventory$92,265 $61,724 
v3.20.4
PROPERTY, PLANT, AND EQUIPMENT
12 Months Ended
Dec. 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:
December 31,
(In thousands)Estimated
Useful Life
20202019
Property, plant and equipment
Landn/a$4,466 $4,466 
Leasehold and building improvements(1)117,865 80,352 
Land improvements15 years4,864 1,766 
Buildings
30 - 40 years
200,980 112,815 
Computer equipment and computer software3 years73,296 65,323 
Laboratory equipment
3 - 10 years
142,110 104,008 
Furniture and fixtures
3 - 10 years
24,968 14,539 
Assets under constructionn/a18,751 149,687 
Property, plant and equipment, at cost587,300 532,956 
Accumulated depreciation(136,617)(77,631)
Property, plant and equipment, net$450,683 $455,325 
_________________________________
(1) Lesser of remaining lease term, building life, or estimated useful life.
Depreciation expense for the years ended December 31, 2020, 2019, and 2018 was $69.4 million, $33.9 million, and $20.5 million, respectively.
At December 31, 2020, the Company had $18.8 million of assets under construction which consisted of $3.2 million related to building and leasehold improvements, $7.6 million of costs related to laboratory equipment under construction, $7.9 million of capitalized costs related to software projects, and $0.1 million of furniture and fixtures. Depreciation will begin on these assets once they are placed into service upon completion in 2021 and 2022.
v3.20.4
INTANGIBLE ASSETS AND GOODWILL
12 Months Ended
Dec. 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 December 31, 2020:
(In thousands)Weighted
Average
Remaining
Life (Years)
CostAccumulated AmortizationNet Balance at December 31, 2020
Finite-lived intangible assets
Trade name14.9$100,700 $(7,258)$93,442 
Customer relationships12.82,700 (404)2,296 
Patents3.710,441 (5,422)5,019 
Supply agreement6.530,000 (4,527)25,473 
Acquired developed technology9.0814,171 (93,278)720,893 
Internally developed technology2.22,121 (921)1,200 
Total finite-lived intangible assets960,133 (111,810)848,323 
Internally developed technology in processn/a103 — 103 
Total intangible assets$960,236 $(111,810)$848,426 
The following table summarizes the net-book-value and estimated remaining life of the Company’s finite-lived 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 relationships13.82,700 (224)2,476 
Patents8.822,690 (5,975)16,715 
Supply agreement7.530,000 (571)29,429 
Acquired developed technology9.9806,371 (12,344)794,027 
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 December 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)
2021$93,401 
202293,196 
202392,876 
202492,422 
202591,374 
Thereafter385,054 
$848,323 
The Company’s acquired intangible assets are being amortized on a straight-line basis over the estimated useful life.
During the third quarter of 2020, the Company began discussions with Biocartis regarding the termination of its agreements with Biocartis related to the development of an in vitro diagnostic (“IVD”) version of the Oncotype DX Breast Recurrence Score® test. As a result, and in connection with the preparation of the financial statements included in the Company's Form 10-Q for the period ended September 30, 2020, the Company recorded a non-cash, pre-tax impairment loss of $200.0 million related to the in-process research and development intangible asset that was initially recorded as part of the combination with Genomic Health. The impairment is recorded in intangible asset impairment charge in the consolidated statement of operations for the year ended December 31, 2020. The agreements with Biocartis were terminated in November 2020.
During the third quarter of 2020, the Company abandoned certain research and development assets acquired through an asset purchase agreement with Armune Biosciences, Inc. in 2017. These assets were expected to complement the Company’s product pipeline and were expected to have alternative future uses at the time of acquisition; however, due to changes in strategic priorities and efforts during the third quarter of 2020, these assets are no longer expected to be utilized to advance the Company’s product pipeline. As a result, the Company wrote-off the gross cost basis of the intangible asset of $12.2 million and accumulated amortization of $2.5 million. This write-off resulted in a non-cash, pre-tax impairment loss of $9.7 million, which is recorded in intangible asset impairment charge in the consolidated statement of operations for the year ended December 31, 2020.
There were no impairment losses for the years ended December 31, 2019 and 2018.
Goodwill
The change in the carrying amount of goodwill for the years ended December 31, 2020 and 2019 is as follows:
(In thousands)
Balance, January 1, 2019 (1)$17,279 
Genomic Health acquisition1,185,918 
Balance, December 31, 20191,203,197 
Paradigm & Viomics acquisition30,431 
Genomic Health acquisition adjustment (2)
4,044 
Balance, December 31, 2020$1,237,672 
_________________________________
(1) The beginning balance represents the goodwill acquired from the acquisitions of Sampleminded, Inc. in 2017 and Biomatrica, Inc. in 2018 totaling $2.0 million and $15.3 million, respectively.
(2) The Company recognized a measurement period adjustment to goodwill related to an increase in Genomic Health's pre-acquisition deferred tax liability due to finalization of certain income-tax related items.
There were no impairment losses for the years ended December 31, 2020, 2019, and 2018.
v3.20.4
FAIR VALUE MEASUREMENTS
12 Months Ended
Dec. 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 December 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 December 31, 2020Quoted 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$901,294 $901,294 $— $— 
U.S. government agency securities589,994 — 589,994 — 
Restricted cash306 306 — — 
Marketable securities
Corporate bonds132,913 — 132,913 — 
U.S. government agency securities207,171 — 207,171 — 
Asset backed securities7,094 — 7,094 — 
Equity securities1,521 1,521 — — 
Liabilities
Contingent consideration(2,477)— — (2,477)
Total$1,837,816 $903,121 $937,172 $(2,477)
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, 2019Quoted 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
Corporate bonds4,003 — 4,003 — 
U.S. government agency securities140,682 — 140,682 — 
Equity securities1,716 1,716 — — 
Liabilities
Contingent consideration(2,879)— — (2,879)
Total$321,050 $148,922 $175,007 $(2,879)
There have been no changes in valuation techniques or transfers between fair value measurement levels during the years ended December 31, 2020 and 2019. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities are valued using a third-party pricing agency where the valuation is based on observable inputs including pricing for similar assets and other observable market factors. The Company's marketable equity security investment in Biocartis is classified as a Level 1 instrument. See Note 11 for additional information on Biocartis.
Contingent Consideration
In connection with the Biomatrica acquisition, a contingent earn-out liability was created to account for an additional $20.0 million in contingent consideration that could be earned based upon certain revenue milestones being met. The following table provides a roll-forward of the fair values of the contingent consideration, which includes Level 3 measurements:
(In thousands)Contingent consideration
Balance, January 1, 2020$(2,879)
Changes in fair value325 
Payments77 
Balance, December 31, 2020$(2,477)
As of December 31, 2020, the fair value of the contingent earn-out liability is classified as a component of other long-term liabilities in the Company’s consolidated balance sheet.
This fair value measurement of contingent consideration related to the Biomatrica acquisition was categorized as a Level 3 liability, as the measurement amount is based primarily on significant inputs not observable in the market. The Company evaluates the fair value of expected contingent consideration and the corresponding liability each annual reporting period using the Monte Carlo Method, which is consistent with the initial measurement of the expected Biomatrica Acquisition earn-out liability. The Company estimates projections during the earn-out period utilizing various potential pay-out scenarios. Probabilities were applied to each potential scenario and the resulting values were discounted using a rate that considers weighted average cost of capital as well as a specific risk premium associated with the riskiness of the earn-out itself, the related projections, and the overall business.
Non-Marketable Equity Investments
The Company has non-marketable equity investments which are initially recorded at the estimated fair value based on observable transactions. The Company has concluded it is not a primary beneficiary with regards to these investments and does not have the ability to exercise significant influence over the investees and thus has not consolidated the investees pursuant to the requirements of ASC 810, Consolidation. The Company will continue to assess its investments and future commitments to the investees and to the extent its relationship with the investees change and whether such change may require consolidation of
the investees in future periods. The Company remeasures the fair value only when an observable transaction occurs during the period that would suggest a change in the carrying value of the investment. As of December 31, 2020 and 2019, the Company had non-marketable equity investments of $29.1 million and $11.8 million, respectively, which are classified as a component of other long-term assets in the Company’s consolidated balance sheets. As of December 31, 2020, the balance primarily consists of the Company’s preferred stock investments in 18,258,838 shares of Epic Sciences, Inc. ("Epic Sciences") and 5,025,764 shares of Thrive Earlier Detection Corp. (“Thrive”) of $10.8 million and $12.5 million, respectively. As of December 31, 2019, the balance consists of the Company’s preferred stock investments in Epic Sciences and Thrive Earlier Detection Corp. (“Thrive”) of $10.8 million and $1.0 million, respectively.
The Company purchased 4.0 million shares of Series B Preferred Stock of Thrive for $10.0 million in July 2020. The Company previously held a $1.0 million investment in the Series A Preferred Stock of Thrive, which does not have a readily determinable fair value and therefore, the Company elected the measurement alternative. The rights and obligations of the Series B Preferred Stock are generally the same as the Series A Preferred Stock previously held indicating that the transactions are identical or similar investments. As a result, the Company recorded an unrealized gain of $1.5 million during the year ended December 31, 2020 in investment income, net on the Company’s consolidated statement of operations to revalue the Company’s initial investment to the value of the Series B Preferred Stock, which was the most recent observable transaction. As discussed in Note 22 below, the Company acquired Thrive in January 2021.
There have been no other observable transactions during the years ended December 31, 2020 and 2019.
Derivative Financial Instruments
As of December 31, 2020 and 2019, the Company had open foreign currency forward contracts with notional amounts of $22.4 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 December 31, 2020 and 2019, and there were no gains or losses recorded for the years ended December 31, 2020 and 2019.
Fair Value of Long-Term Debt and Convertible Notes
The Company measures the fair value of its convertible notes and long-term debt for disclosure purposes. The following table summarizes the Company’s outstanding convertible notes and long-term debt:

December 31, 2020December 31, 2019
(In thousands)Carrying Amount (1)Fair ValueCarrying Amount (1)Fair Value
2028 Convertible notes (2)$806,587 $1,526,625 $— $— 
2027 Convertible notes (2)514,173 992,306 483,909 843,741 
2025 Convertible notes (2)255,464 601,744 319,696 592,482 
Construction loan (3)23,661 23,661 24,866 24,866 
_________________________________
(1) The carrying amounts presented are net of debt discounts and debt issuance costs. See Note 9 and Note 10 of the consolidated financial statements for further information.
(2) The fair values are based on observable market prices for this debt, which is traded in active markets and therefore is classified as a Level 2 fair value measurement. A portion of the 2025 convertible notes were settled in 2019 resulting in a decrease in the liability.
(3) The carrying amount of the construction loan approximates fair value due to the short-term nature of this instrument. The construction loan is privately held with no public market for this debt and therefore is classified as a Level 3 fair value measurement. The change in the fair value was due to payments made on the loan resulting in a decrease in the liability.
v3.20.4
ACCRUED LIABILITIES
12 Months Ended
Dec. 31, 2020
Payables and Accruals [Abstract]  
ACCRUED LIABILITIES ACCRUED LIABILITIES
Accrued liabilities at December 31, 2020 and 2019 consisted of the following:
December 31,
(In thousands)20202019
Compensation$117,273 $95,166 
Pfizer Promotion Agreement related costs46,937 33,230 
Professional fees36,113 29,108 
Other20,735 13,976 
Assets under construction2,118 10,720 
Research and trial related expenses5,911 8,368 
Licenses4,517 2,761 
$233,604 $193,329 
v3.20.4
LONG-TERM DEBT
12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
LONG-TERM DEBT LONG-TERM DEBT
Construction Loan Agreement
During December 2017, the Company entered into a loan agreement with Fifth Third Bank (formerly MB Financial Bank, N.A.) (the “Construction Loan Agreement”), which provides the Company with a non-revolving construction loan (the “Construction Loan”) of $25.6 million. The Company is using the Construction Loan proceeds to finance the construction of an additional clinical laboratory and related facilities in Madison, Wisconsin. The Construction Loan is collateralized by the additional clinical laboratory and related facilities.
Pursuant to the Construction Loan Agreement, funds drawn will bear interest at a rate equal to the sum of the 1-month LIBOR rate plus 2.25 percent. Regular monthly payments are interest-only for the first 24 months, with further payments based on a 20-year amortization schedule. Amounts borrowed pursuant to the Construction Loan Agreement may be prepaid at any time without penalty. The maturity date of the Construction Loan Agreement is December 10, 2022.
In November 2017, Fifth Third Bank, on behalf of the Company, issued an Irrevocable Standby Letter of Credit in the amount of $0.6 million in favor of the City of Madison, Wisconsin (the “City Letter of Credit”). The City Letter of Credit is deemed to have been issued pursuant to the Construction Loan Agreement. The amount of the City Letter of Credit will reduce, dollar for dollar, the amount available for borrowing under the Construction Loan Agreement.
As a condition to Fifth Third’s initial advance of loan proceeds under the Construction Loan Agreement, the Company was required to first invest at least $16.4 million of its own cash into the construction project. The Company fulfilled its required initial investment and made its first draw on the Construction Loan in June 2018. In December 2019, the Company began making monthly payments towards the outstanding principal balance plus accrued interest. As of December 31, 2020 and 2019, the outstanding balance was $23.8 million and $25.0 million, respectively, from the Construction Loan, including $0.7 million of interest incurred, which is accrued for as an interest reserve and represents a portion of the loan balance. The Company capitalized the $0.7 million of interest to the construction project. The Company incurred approximately $0.2 million of debt issuance costs related to the Construction Loan, which are recorded as a direct deduction from the liability. The debt issuance costs are being amortized over the life of the Construction Loan.
The Construction Loan Agreement was amended effective June 30, 2020 to include a financial covenant to maintain a minimum liquidity of $250.0 million and remove the minimum tangible net worth covenant. As of December 31, 2020, the Company is in compliance with the covenant included in the amended agreement.
The table below represents the future principal obligations as of December 31, 2020. Amounts included in the table are in thousands:
Year ending December 31
2021$1,319 
202222,431 
Total$23,750 
Tax Increment Financing Loan Agreements
The Company entered into two separate Tax Increment Financing Loan Agreements (“TIFs”) in February 2019 and June 2019 with the City of Madison, Wisconsin. The TIFs provide for $4.6 million of financing in the aggregate. In return for the loans, the Company is obligated to create and maintain 500 full-time jobs over a five-year period, starting on the date of occupancy of the buildings constructed. In the event that the job creation goals are not met, the Company would be required to pay a penalty.
The Company records the earned financial incentives as the full-time equivalent positions are filled. The amount earned is recorded as a liability and amortized as a reduction of operating expenses over a two-year period, which is the timeframe when the TIFs will be repaid through property taxes.
As of December 31, 2019, the Company had earned and received payment of $4.6 million from the City of Madison. As of December 31, 2020, the corresponding liability, which reflected when the expected benefit of the tax credit amortization would reduce future operating expenses, has been fully amortized and has a balance of zero. As of December 31, 2019, the Company had recorded a liability of $2.7 million in other current liabilities on the Company's balance sheet.
v3.20.4
CONVERTIBLE DEBT
12 Months Ended
Dec. 31, 2020
CONVERTIBLE DEBT  
CONVERTIBLE DEBT CONVERTIBLE NOTES
Convertible note obligations included in the consolidated balance sheets consisted of the following:
December 31,
(In thousands) Coupon Interest Rate  Effective Interest Rate  Fair Value of Liability Component at Issuance (1) 20202019
2028 Convertible notes0.375 %5.2 %$790,608 $1,150,000 $— 
2027 Convertible notes0.375 %6.3 %472,501 747,500 747,500 
2025 Convertible notes1.000 %6.0 %227,103 315,049 415,049 
Total Convertible notes2,212,549 1,162,549 
Less: Debt discount (2)(608,685)(342,463)
Less: Debt issuance costs (3)(27,640)(16,481)
Net convertible debt including current maturities1,576,224 803,605 
Less: Current maturities (4)(255,464)— 
Net long-term convertible debt$1,320,760 $803,605 
_________________________________
(1) As each of the convertible instruments may be settled in cash upon conversion, for accounting purposes, they were separated into a liability component and an equity component. The amount allocated to the equity component is the difference between the principal value of the instrument and the fair value of the liability component at issuance. The resulting debt discount is being amortized to interest expense at the respective effective interest rate over the contractual term of the debt. A portion of the 2025 Convertible Notes have been extinguished or converted. The fair value of the liability component at issuance reflected above represents the liability value at issuance for the applicable portion of the 2025 Notes which remain outstanding at December 31, 2020. The fair value of the liability component of the 2025 Notes at issuance was $654.8 million with the equity component being $267.9 million.
(2) The unamortized discount consists of the following:
December 31,
(In thousands)20202019
2028 Convertible notes$328,372 $— 
2027 Convertible notes224,517 253,340 
2025 Convertible notes55,796 89,123 
Total unamortized discount$608,685 $342,463 
(3) Debt issuance costs consist of the following:
December 31,
(In thousands)20202019
2028 Convertible notes$15,041 $— 
2027 Convertible notes8,810 10,251 
2025 Convertible notes3,789 6,230 
Total debt issuance costs$27,640 $16,481 
(4) Based on the share price on trading days leading up to December 31, 2020, holders of the 2025 Convertible Notes will have the right to convert their debentures beginning on January 1, 2021. As a result, the 2025 Convertible Notes are included within convertible notes, net, current portion on the consolidated balance sheet. As of December 31, 2019, the 2025 Convertible Notes were not convertible and included within long-term convertible notes, net on the consolidated balance sheet.
Issuances and Settlements
In January 2018, the Company issued and sold $690.0 million in aggregate principal amount of 1.0% Convertible Notes (the “January 2025 Notes”) with a maturity date of January 15, 2025. The January 2025 Notes accrue interest at a fixed rate of 1.0% per year, payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The net proceeds from the issuance of the January 2025 Notes were approximately $671.1 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.
In June 2018, the Company issued and sold an additional $218.5 million in aggregate principal amount of 1.0% Convertible Notes (the “June 2025 Notes”). The June 2025 Notes were issued under the same indenture pursuant to which the Company previously issued the January 2025 Notes (the “Indenture”). The January 2025 Notes and the June 2025 Notes (collectively, the “2025 Notes”) have identical terms (including the same January 15, 2025 maturity date) and will be treated as a single series of securities. The net proceeds from the issuance of the June 2025 Notes were approximately $225.3 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.
In March 2019, the Company issued and sold $747.5 million in aggregate principal amount of 0.375% Convertible Notes (the “2027 Notes”) with a maturity date of March 15, 2027. The 2027 Notes accrue interest at a fixed rate of 0.375% per year, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2019. The net proceeds from the issuance of the 2027 Notes were approximately $729.5 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.
The Company utilized a portion of the proceeds from the issuance of the 2027 Notes to settle a portion of the 2025 Notes in privately negotiated transactions. In March 2019, the Company used cash of $494.1 million and an aggregate of 2.2 million shares of the Company’s common stock valued at $182.4 million for total consideration of $676.5 million to settle $493.4 million of the 2025 Notes, of which $375.0 million was allocated to the liability component, $300.8 million was allocated to the equity component, and $0.7 million was used to pay off interest accrued on the 2025 Notes. The consideration transferred was allocated to the liability and equity components of the 2025 Notes using the equivalent rate that reflected the borrowing rate for a similar non-convertible debt instrument immediately prior to settlement. The transaction resulted in a loss on settlement of convertible notes of $10.6 million, which is recorded in interest expense in the Company’s consolidated statement of operations. The loss represents the difference between (i) the fair value of the liability component and (ii) the sum of the carrying value of the debt component and any unamortized debt issuance costs at the time of repurchase.
In February 2020, the Company issued and sold $1.15 billion in aggregate principal amount of 0.375% Convertible Notes (the “2028 Notes” and, collectively with the 2025 Notes and the 2027 Notes, the “Notes”) with a maturity date of March 1, 2028. The 2028 Notes accrue interest at a fixed rate of 0.375% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2020. The net proceeds from the issuance of the 2028 Notes were approximately $1.13 billion, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.
In February 2020, the Company used $150.1 million of the proceeds from the issuance of the 2028 Notes to settle $100.0 million of the 2025 Notes, of which $85.5 million was allocated to the liability component, $64.2 million, net of a tax impact of $0.3 million, was allocated to the equity component, and $0.1 million was used to pay off interest accrued on the 2025 Notes. The consideration transferred was allocated to the liability and equity components of the 2025 Notes using the equivalent rate that reflected the borrowing rate for a similar non-convertible debt instrument immediately prior to settlement. The transaction resulted in a loss on settlement of convertible notes of $8.0 million, which is recorded in interest expense in the Company’s consolidated statement of operations. The loss represents the difference between (i) the fair value of the liability component and (ii) the sum of the carrying value of the debt component and any unamortized debt issuance costs at the time of repurchase.
Summary of Conversion Features
Until the six-months immediately preceding the maturity date of the applicable series of Notes, each series of Notes is convertible only upon the occurrence of certain events and during certain periods, as set forth in the Indenture. The Notes will be convertible into cash, shares of the Company’s common stock (plus, if applicable, cash in lieu of any fractional share), or a combination of cash and shares of the Company’s common stock, at the Company’s election. On or after the date that is six-months immediately preceding the maturity date of the applicable series of Notes until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert such Notes at any time.
It is the Company’s intent and policy to settle all conversions through combination settlement. The initial conversion rate is 13.26, 8.96, and 8.21 shares of common stock per $1,000 principal amount for the 2025 Notes,2027 Notes, and 2028 Notes, respectively, which is equivalent to an initial conversion price of approximately $75.43, $111.66, and $121.84 per share of the Company’s common stock for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest. In addition, holders of the Notes who convert their Notes in connection with a “make-whole fundamental change” (as defined in the Indenture), will, under certain circumstances, be entitled to an increase in the conversion rate.
If the Company undergoes a “fundamental change” (as defined in the Indenture), holders of the Notes may require the Company to repurchase for cash all or part of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest.
As of December 31, 2020, the 2025 Notes are classified as current on the Company's consolidated balance sheet. The holders of the 2025 Notes will have the right to convert their debentures beginning on January 1, 2021 based on the share price on trading days leading up to December 31, 2020. As of December 31, 2020, the 2027 and 2028 Notes are classified as long-term on the Company's consolidated balance sheet as the holders do not have the right to convert. During 2019, the holders of the 2025 Notes had the right to convert their debentures between July 1, 2019 and December 31, 2019, and 55 notes were converted during the period, which were settled through the issuance of common shares equivalent to the conversion rate with any fractional shares settled in cash. The 2025 Notes no longer met any of the conversion features as of December 31, 2019. The future convertibility and resulting balance sheet classification of this liability will be monitored at each quarterly reporting date and will be analyzed dependent upon market prices of the Company’s common stock during the prescribed measurement periods. In the event that the holders of the Notes have the election to convert the Notes at any time during the prescribed measurement period, the Notes would then be considered a current obligation and classified as such.
Based on the closing price of our common stock of $132.49 on December 31, 2020, the if-converted values on our 2025, 2027, and 2028 Notes exceed the principal amount by $238.3 million, $139.4 million, and $100.5 million, respectively.
Ranking of Convertible Notes
The Notes are the Company’s senior unsecured obligations and (i) rank senior in right of payment to all of its future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to all of the Company’s future liabilities that are not so subordinated, unsecured indebtedness; (ii) are effectively junior to all of our existing and future secured indebtedness and other secured obligations, to the extent of the value of the assets securing that indebtedness and other secured obligations; and (iii) are structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries.
The Company allocates total transaction costs of the Notes to the liability and equity components based on their relative values. Transaction costs attributable to the liability component are amortized to interest expense over the term of the Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity. The following table summarizes the original transaction costs at the time of issuance for each set of Notes and the respective allocation to the liability and equity components:
(In thousands)January 2025 NotesJune 2025 Notes2027 Notes2028 Notes
Transaction costs allocated to liability component$13,569 $5,052 $11,395 $16,811 
Transaction costs allocated to equity component5,3402,311 6,632 7,642 
Total transaction costs$18,909 $7,363 $18,027 $24,453 
The Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by the Company.
Interest expense includes the following:
Year Ended December 31,
(In thousands)202020192018
Debt issuance costs amortization$4,207 $2,661 $2,273 
Debt discount amortization72,272 39,595 26,291 
Loss on settlement of convertible notes7,954 10,558 — 
Coupon interest expense9,631 7,325 7,823 
Total interest expense on convertible notes94,064 60,139 36,387 
Other interest expense1,919 1,460 402 
Total interest expense$95,983 $61,599 $36,789 
The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 4.04 years, 6.21 years, and 7.17 years for the 2025 Notes, 2027 Notes and 2028 Notes, respectively.
v3.20.4
LICENSE AND COLLABORATION AGREEMENTS
12 Months Ended
Dec. 31, 2020
LICENSE AGREEMENTS [Abstract]  
LICENSE AND COLLABORATION AGREEMENTS LICENSE AND COLLABORATION AGREEMENTS 
The Company licenses certain technologies that are, or may be, incorporated into its technology under several license agreements, as well as the rights to commercialize certain diagnostic tests through collaboration agreements. Generally, the license agreements require the Company to pay royalties based on net revenues received using the technologies and may require minimum royalty amounts or maintenance fees.
Mayo
In June 2009, the Company entered into a license agreement with Mayo Foundation for Medical Education and Research (“Mayo”). The Company’s license agreement with Mayo was most recently amended in September 2020. Under the license agreement, Mayo granted the Company an exclusive, worldwide license to certain Mayo patents and patent applications, as well as a non-exclusive, worldwide license with regard to certain Mayo know-how. The scope of the license covers any screening, surveillance or diagnostic test or tool for use in connection with any type of cancer, pre-cancer, disease or condition. 
The licensed Mayo patents and patent applications contain both method and composition claims that relate to sample processing, analytical testing and data analysis associated with nucleic acid screening for cancers and other diseases. The jurisdictions covered by these patents and patent applications include the U.S., Australia, Canada, the European Union, China, Japan and Korea. Under the license agreement, the Company assumed the obligation and expense of prosecuting and maintaining the licensed Mayo patents and is obligated to make commercially reasonable efforts to bring to market products using the licensed Mayo intellectual property.
Pursuant to the Company’s agreement with Mayo, the Company is required to pay Mayo a low single-digit royalty on the Company’s net sales of current and future products using the licensed Mayo intellectual property each year during the term of the Mayo agreement. The January 2016 amendment to the Mayo license agreement established various low-single-digit royalty rates on net sales of current and future products and clarified how net sales will be calculated. As part of the January 2016 and October 2017 amendments, the royalty rate on the Company's net sales of the Cologuard test increased but the rate remains a low-single-digit percentage of net sales.
In addition to the royalties described above, the Company is required to pay Mayo cash of $0.2 million, $0.8 million and $2.0 million upon each product using the licensed Mayo intellectual property reaching $5.0 million, $20.0 million and $50.0 million in cumulative net sales, respectively.
As part of the most recent amendment, the Company agreed to pay Mayo an additional $6.3 million, payable in five annual installments, through 2024. The Company paid Mayo the first annual installment of $1.3 million in the third quarter of 2020 and will make subsequent annual payments in the first quarter of the year beginning in January 2021.
The license agreement will remain in effect, unless earlier terminated by the parties in accordance with the agreement, until the last of the licensed patents expires in 2038 (or later, if certain licensed patent applications are issued). However, if the Company is still using the licensed Mayo know-how or certain Mayo-provided biological specimens or their derivatives on such expiration date, the term shall continue until the earlier of the date the Company stops using such know-how and materials and the date that is five years after the last licensed patent expires. The license agreement contains customary termination provisions and permits Mayo to terminate the license agreement if the Company sues Mayo or its affiliates, other than any such suit claiming an uncured material breach by Mayo of the license agreement.
In addition to granting the Company a license to the covered Mayo intellectual property, Mayo provides the Company with product development and research and development assistance pursuant to the license agreement and other collaborative arrangements. In September 2020, Mayo also agreed to make available certain personnel to provide such assistance through January 2025. In connection with this collaboration, the Company incurred charges of $3.9 million, $4.8 million, and $4.5 million for the years ended December 31, 2020, 2019, and 2018, respectively. The charges incurred in connection with this collaboration are recorded in research and development expenses in the Company's consolidated statements of operations.
Hologic
In October 2009, the Company entered into a technology license agreement with Hologic, Inc. (“Hologic”). Under the license agreement, Hologic granted the Company an exclusive, worldwide license within the field of human stool based colorectal cancer and pre-cancer detection or identification with regard to certain Hologic patents, patent applications and improvements, including Hologic’s Invader detection chemistry (the “Covered Hologic IP”). The license agreement also provided the Company with non-exclusive, worldwide licenses to the Covered Hologic IP within a field covering clinical diagnostic purposes relating to colorectal cancer (including cancer diagnosis, treatment, monitoring or staging) and the field of detection or identification of colorectal cancer and pre-cancers through means other than human stool samples. In December 2012, the Company entered into an amendment to this license agreement with Hologic pursuant to which Hologic granted the Company a non-exclusive worldwide license to the Covered Hologic IP within the field of any disease or condition within, related to or affecting the gastrointestinal tract and/or appended mucosal surfaces. The Company is required to pay Hologic a low single-digit royalty on the Company’s net sales of products using the Covered Hologic IP.
Epic Sciences
In June 2016, Genomic Health (now a wholly-owned subsidiary of the Company) entered into a collaboration agreement with Epic Sciences, which was superseded and replaced in March 2019 by a license agreement and laboratory services agreement with Epic Sciences, under which Genomic Health was granted exclusive distribution rights to commercialize Epic Sciences’ AR-V7 Nucleus Detect® test in the United States, which is marketed as Oncotype DX AR-V7 Nucleus Detect®. The Company has primary responsibility, in accordance with applicable laws and regulations, for marketing and promoting the test, order fulfillment, billing and collections of receivables, claims appeals, customer support, and providing and maintaining order management systems for the test. Epic Sciences is responsible for performing all tests, performing studies including analytic and clinical validation studies, and seeking Medicare coverage and a Medicare payment rate from the CMS for the test. The license and laboratory service agreement has a term of 10 years from June 2016, unless terminated earlier under certain circumstances. The Oncotype DX AR-V7 Nucleus Detect test became commercially available in February 2018. The Company recognizes revenues for the test performed under this arrangement and Epic Sciences receives a fee per test performed that represents the fair market value for the testing services they perform.
Biocartis
In September 2017, Genomic Health entered into an exclusive license and development agreement with Biocartis, a molecular diagnostics company based in Belgium, to develop and commercialize an IVD version of the Oncotype DX Breast Recurrence Score test on the Biocartis Idylla platform. Under the terms of the license and development agreement, the Company had an exclusive, worldwide, royalty-bearing license to develop and commercialize an IVD version of the Oncotype DX Breast Recurrence Score test on the Biocartis Idylla platform, and certain options to expand the collaboration .
Pursuant to the license and development agreement, Genomic Health recorded a one-time upfront license and option fee of $3.2 million. In December 2017, Genomic Health purchased 270,000 ordinary shares of Biocartis, a public company listed on the Euronext exchange, for a total cost of $4.0 million. This investment was subject to a lock-up agreement that expired in December 2018. The investment has been recognized at fair value, which the Company estimated to be $1.5 million as of December 31, 2020 and is included in marketable securities on the Company's consolidated balance sheet.
In October 2020, the Company and Biocartis agreed to terminate all agreements between them with a mutual release. As part of the termination, the Company made a payment of $12.0 million and returned certain equipment to Biocartis. The remaining net book value of the equipment was previously written off when it was determined that the agreement with Biocartis would be terminated. The termination payment and equipment write-off are both recorded in general and administrative expenses on the Company's consolidated statement of operations.
Ludwig Institute for Cancer Research Ltd ("Ludwig")
Through the acquisition of Base Genomics Limited ("Base"), the Company acquired a worldwide exclusive license agreement with Ludwig for use of patents and know-how. The license is designed to leverage technology related to DNA methylation detection and bisulfite sequencing for product research, development and commercialization. The agreement terms include low single-digit sales-based royalties on the Company’s net sales of products using the technology. The license agreement will remain in effect, unless earlier terminated by the parties in accordance with the agreement, until the tenth anniversary of the first commercial sale.