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Exact Sciences Corporation (together with its subsidiaries, “Exact,” or the “Company”) was incorporated in February 1995. Exact is a molecular diagnostics company currently focused on the early detection and prevention of some of the deadliest forms of cancer. The Company has developed an accurate, non-invasive, patient friendly screening test called Cologuard for the early detection of colorectal cancer and pre-cancer, and is currently working on the development of additional tests for other types of cancer, with the goal of becoming a leader in cancer diagnostics.
|
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company’s wholly‑owned subsidiaries, Exact Sciences Laboratories, LLC, Exact Sciences Finance Corporation, Exact Sciences Europe LTD, Beijing Exact Sciences Medical Technology Company Limited, and variable interest entities. See Note 11 for the discussion of financing arrangements involving certain entities that are variable interest entities that are included in our consolidated financial statements. All significant intercompany transactions and balances have been eliminated in consolidation.
References to “Exact”, “we”, “us”, “our”, or the “Company” refer to Exact Sciences Corporation and its wholly owned subsidiaries.
Use of Estimates
The preparation of 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. Actual results could differ from those estimates.
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. The Company had no restricted cash at December 31, 2016 and 2015.
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. Marketable equity securities and debt securities not classified as held‑to‑maturity are classified as available‑for‑sale. Available‑for‑sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive income. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity computed under the straight‑line method. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other‑than‑temporary on available‑for‑sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available‑for‑sale are included in investment income.
At December 31, 2016 and December 31, 2015 the Company’s investments were comprised of fixed income investments, and all were deemed available‑for‑sale. The objectives of the Company’s investment strategy are to provide liquidity and safety of principal while striving to achieve the highest rate of return consistent with these two objectives. 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. All of the Company’s investments are considered current. Realized gains were $24,132, $14,205, and $11,000, net of insignificant realized losses, for the years ended December 31, 2016, 2015, and 2014, respectively and are included in investment income.
The Company periodically reviews investments in unrealized loss positions for other-than-temporary impairments. This evaluation includes, but is not limited to, significant quantitative and qualitative assessments and estimates regarding credit ratings, collateralized support, the length of time and significance of a security’s loss position, the Company’s intent not to sell the security, and whether it is more likely than not that the Company will have to sell the security before recovery of its cost basis. For the year ended December 31, 2016, no investments were identified with other-than-temporary declines in value.
Available‑for‑sale securities at December 31, 2016 consist of the following:
|
|
December 31, 2016 |
|
||||||||||
|
|
|
|
|
Gains in Accumulated |
|
Losses in Accumulated |
|
|
|
|
||
|
|
|
|
|
Other Comprehensive |
|
Other Comprehensive |
|
Estimated Fair |
|
|||
(In thousands) |
|
Amortized Cost |
|
Income |
|
Income |
|
Value |
|
||||
Corporate bonds |
|
$ |
137,013 |
|
$ |
17 |
|
$ |
(93) |
|
$ |
136,937 |
|
Asset backed securities |
55,667 | 3 | (30) | 55,640 | |||||||||
U.S. government agency securities |
|
|
49,591 |
|
|
3 |
|
|
(120) |
|
|
49,474 |
|
Commercial paper |
|
|
19,069 |
|
|
8 |
|
|
(1) |
|
|
19,076 |
|
Certificates of deposit |
|
|
1,053 |
|
|
— |
|
|
(1) |
|
|
1,052 |
|
Total available-for-sale securities |
|
$ |
262,393 |
|
$ |
31 |
|
$ |
(245) |
|
$ |
262,179 |
|
Available‑for‑sale securities at December 31, 2015 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 |
|
||||||||||
|
|
|
|
|
Gains in Accumulated |
|
Losses in Accumulated |
|
|
|
|
||
|
|
|
|
|
Other Comprehensive |
|
Other Comprehensive |
|
Estimated Fair |
|
|||
(In thousands) |
|
Amortized Cost |
|
Income |
|
Income |
|
Value |
|
||||
Corporate bonds |
|
$ |
179,471 |
|
$ |
2 |
|
$ |
(262) |
|
$ |
179,211 |
|
Asset backed securities |
|
|
77,661 |
|
|
— |
|
|
(166) |
|
|
77,495 |
|
U.S. government agency securities |
|
|
7,057 |
|
|
— |
|
|
(18) |
|
|
7,039 |
|
Certificates of deposit |
|
|
1,999 |
|
|
— |
|
|
— |
|
|
1,999 |
|
Total available-for-sale securities |
|
$ |
266,188 |
|
$ |
2 |
|
$ |
(446) |
|
$ |
265,744 |
|
Changes in Accumulated Other Comprehensive Income (Loss)
The amount recognized in accumulated other comprehensive income (loss) (“AOCI”) for the years ended December 31, 2016, 2015 and 2014 were as follows:
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
Cumulative |
|
Unrealized |
|
Other |
|
|||
|
|
Translation |
|
Gain (Loss) |
|
Comprehensive |
|
|||
(In thousands) |
|
Adjustment |
|
on Securities |
|
Income (Loss) |
|
|||
Balance at January 1, 2014 |
|
$ |
— |
|
$ |
125 |
|
$ |
125 |
|
Other comprehensive (loss) income before reclassifications |
|
|
— |
|
|
(200) |
|
|
(200) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
(40) |
|
|
(40) |
|
Net current period change in accumulated other comprehensive income (loss) |
|
|
— |
|
|
(240) |
|
|
(240) |
|
Balance at December 31, 2014 |
|
$ |
— |
|
$ |
(115) |
|
$ |
(115) |
|
Other comprehensive (loss) income before reclassifications |
|
|
11 |
|
|
(361) |
|
|
(350) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
32 |
|
|
32 |
|
Net current period change in accumulated other comprehensive income (loss) |
|
|
11 |
|
|
(329) |
|
|
(318) |
|
Balance at December 31, 2015 |
|
$ |
11 |
|
$ |
(444) |
|
$ |
(433) |
|
Other comprehensive (loss) income before reclassifications |
|
|
(215) |
|
|
117 |
|
|
(98) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
113 |
|
|
113 |
|
Net current period change in accumulated other comprehensive income (loss) |
|
|
(215) |
|
|
230 |
|
|
15 |
|
Balance at December 31, 2016 |
|
$ |
(204) |
|
$ |
(214) |
|
$ |
(418) |
|
Amounts reclassified from accumulated other comprehensive income (loss) for the years ended December 31, 2016, 2015 and 2014 were as follows:
|
|
Affected Line Item in the |
|
Year Ended December 31, |
|||||||
Details about AOCI Components (In thousands) |
|
Statement of Operations |
|
2016 |
|
2015 |
|
2014 |
|||
Change in value of available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
Sales and maturities of available-for-sale investments |
|
Investment income |
|
$ |
113 |
|
$ |
32 |
|
$ |
(40) |
Total reclassifications |
|
|
|
$ |
113 |
|
$ |
32 |
|
$ |
(40) |
Allowance for Doubtful Accounts
The Company estimates an allowance for doubtful accounts against accounts receivable based on estimates of expected collections consistent with historical cash collection experience. 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. For the years ended December 31, 2016, 2015 and 2014, there was no bad debt expense written off against the allowance and charged to operating expense.
Inventory
Inventory is stated at the lower of cost or market value (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 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. In addition, the Company’s products are subject to strict quality control and monitoring which the Company performs throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, the Company records a charge to cost of sales to write down such unmarketable inventory to its estimated realizable value.
Inventory consists of the following:
|
|
December 31, |
|
||||
(In thousands) |
|
2016 |
|
2015 |
|
||
Raw materials |
|
$ |
2,408 |
|
$ |
1,772 |
|
Semi-finished and finished goods |
|
|
4,425 |
|
|
4,905 |
|
Total inventory |
|
$ |
6,833 |
|
$ |
6,677 |
|
Property and Equipment
Property and equipment are stated at cost and depreciated using the straight‑line method over the assets’ estimated useful lives. Maintenance and repairs are expensed when incurred; additions and improvements are capitalized. The estimated useful lives of fixed assets are as follows:
|
|
Estimated |
|
Asset Classification |
|
Useful Life |
|
Laboratory equipment |
|
3 - 5 years |
|
Computer equipment and computer software |
|
3 years |
|
Leasehold improvements |
|
Lesser of the remaining lease term or useful life |
|
Building Improvements |
|
Lesser of the remaining building life or useful life |
|
Furniture and fixtures |
|
3 years |
|
Buildings |
|
30 years |
|
Depreciation expense for the years ended December 31, 2016, 2015, and 2014 was $11.3 million, $7.6 million, and $3.7 million, respectively.
At December 31, 2016, the Company had $6.7 million of assets under construction which consisted of $0.1 million related to building and leasehold improvements, $1.7 million of capitalized costs related to software projects and $4.9 million of costs related to machinery and equipment. Depreciation will begin on these assets once they are placed into service. The Company expects to incur minimal costs to complete these projects and expects to be complete these projects in 2017. The Company assesses its long-lived assets, consisting primarily of property and equipment, for impairment when material events and changes in circumstances indicate that the carrying value may not be recoverable. There were no impairment losses for the years ended December 31, 2016, 2015 or 2014.
Software Capitalization Policy
Software development costs related to internal use software are incurred in three stages of development: 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.
Patent Costs and Intangible Assets
Patent costs, which have historically consisted of related legal fees, 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 year ended December 31, 2016, 2015 and 2014 should be expensed and not capitalized as the future economic benefit derived from the transactions cannot be determined.
Direct and indirect manufacturing costs incurred during process validation and for other research and development activities, which are not permitted to be sold, have been expensed to research and development.
Under a technology license and royalty agreement entered into with MDx Health, the Company is required to pay MDx Health milestones on sales of products or services covered by the licensed intellectual property. Once the achievement of a milestone has occurred or is considered probable, an intangible asset and corresponding liability is reported in other long-term assets and accrued expenses, respectively. The intangible asset is amortized over the estimated ten-year useful life of the licensed intellectual property, and such amortization is reported in cost of sales. The liability is relieved once the milestone has been achieved and payment has been made. As of December 31, 2016, an intangible asset of $1.6 million and a liability of $1.3 million are reported in other long-term assets and accrued expenses, respectively. Amortization expense for the years ended December 31, 2016 and 2015 was $0.2 million.
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) |
|
2016 |
|
2015 |
|
2014 |
|
Shares issuable upon exercise of stock options |
|
3,505 |
|
4,937 |
|
4,934 |
|
Shares issuable upon the release of restricted stock awards |
|
5,601 |
|
3,445 |
|
1,541 |
|
Shares issuable upon the vesting of restricted stock awards related to licensing agreement |
|
— |
|
— |
|
24 |
|
|
|
9,106 |
|
8,382 |
|
6,499 |
|
Accounting for Stock‑Based Compensation
The Company requires all share‑based payments to employees, including grants of employee stock options, restricted stock, restricted stock units and shares purchased under an ESPP (if certain parameters are not met), to be recognized in the financial statements based on their fair values.
Revenue Recognition
Laboratory service revenue. The Company’s laboratory service revenue is generated by performing diagnostic services using its Cologuard test, and the service is completed upon delivery of a test result to an ordering physician. The Company recognizes revenue in accordance with the provisions of ASC 954-605, Health Care Entities - Revenue Recognition. The Company recognizes revenue related to billings for Medicare and other payors on an accrual basis, net of contractual and other adjustments, when amounts that will ultimately be collected can be reasonably estimated. Contractual and other adjustments represent the difference between the list price (the billing rate) and the estimated reimbursement rate for each payor. Upon ultimate collection, the amount received from Medicare and other payors where reimbursement was estimated is compared to previous estimates and, if necessary, the prior allowance is adjusted.
The estimates of amounts that will ultimately be collected require significant judgment by management. Some patients have out-of-pocket costs for amounts not covered by their insurance carrier, and the Company bills the patient directly for these amounts in the form of co-payments, deductibles and co-insurance in accordance with their insurance carrier and health plans. In the absence of the ability to estimate the amount that will ultimately be collected for the Company’s services, revenue is recognized upon cash receipt.
The Company uses judgment in determining if it is able to make an estimate of what will ultimately be collected. The Company also uses judgment in estimating the amounts it expects to collect by payor. The Company’s judgments will continue to evolve in the future as it continues to gain payment experience with payors and patients.
The components of our laboratory service revenue, as recognized upon accrual or cash receipt, for the years ended December 31, 2016 and 2015 were as follows:
|
|
Year Ended December 31, |
|
|
|||||||
(In thousands) |
|
2016 |
|
2015 |
|
|
2014 |
|
|||
Revenue recognized on an accrual basis |
|
$ |
87,037 |
|
$ |
36,364 |
|
$ |
1,388 |
|
|
Revenue recognized when cash is received |
|
|
12,339 |
|
|
3,073 |
|
|
116 |
|
|
Total |
|
$ |
99,376 |
|
$ |
39,437 |
|
$ |
1,504 |
|
|
License fees. License fees for the licensing of product rights are recorded as deferred revenue upon receipt of cash and recognized as revenue on a straight‑line basis over the license period.
As more fully described in Note 3 below, in connection with the Company’s transaction with Genzyme Corporation, Genzyme agreed to pay the Company a total of $18.5 million, of which $16.65 million was paid on January 27, 2009 and $1.85 million was subject to a holdback by Genzyme to satisfy certain potential indemnification obligations in exchange for the assignment and licensing of certain intellectual property to Genzyme. The Company’s on‑going performance obligations to Genzyme under the Collaboration, License and Purchase Agreement (the “CLP Agreement”), as described below, including its obligation to deliver through licenses certain intellectual property improvements to Genzyme, if improvements are made during the initial five‑year collaboration period, were deemed to be undelivered elements of the CLP Agreement on the date of closing. Accordingly, the Company deferred the initial $16.65 million in cash received at closing and amortized that up‑front payment on a straight line basis into revenue over the initial five‑year collaboration period ending in January 2014. The Company received the first holdback amount of $962,000, which included accrued interest, due from Genzyme during the first quarter of 2010. The Company received the second holdback amount of $934,000 which included accrued interest due, from Genzyme during the third quarter of 2010. The amounts were deferred and were amortized on a straight‑line basis into revenue over the remaining term of the collaboration at the time of receipt.
In addition, Genzyme purchased 3,000,000 shares of common stock purchased from the Company on January 27, 2009 for $2.00 per share, representing a premium of $0.51 per share above the closing price of the Company’s common stock on that date of $1.49 per share. The aggregate premium paid by Genzyme over the closing price of the Company’s common stock on the date of the transaction of $1.53 million is deemed to be a part of the total consideration for the CLP Agreement. Accordingly, the Company deferred the aggregate $1.53 million premium and amortized that amount on a straight line basis into revenue over the initial five‑year collaboration period ending in January 2014.
The Company did not recognize license fee revenue for the years ended December 31, 2016 and 2015. The Company recognized approximately $0.3 million in license fee revenue for the year ended December 31, 2014 in connection with the amortization of the up-front payments from Genzyme.
Advertising Costs
The Company expenses the costs of media advertising at the time the advertising takes place. The Company expensed approximately $38.1 million, $10.8 million, and $5.3 million of media advertising during the years ended December 31, 2016, 2015, and 2014, respectively.
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.
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. |
Fixed‑income securities and mutual funds are valued using a third-party pricing agency. The valuation is based on observable inputs including pricing for similar assets and other observable market factors. There has been no material pricing change from period to period.
The following table presents the Company’s fair value measurements as of December 31, 2016 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.
|
|
|
|
|
Fair Value Measurement at December 31, 2016 Using: |
|
|||||||
|
|
|
|
|
Quoted Prices |
|
Significant |
|
|
|
|
||
|
|
|
|
|
in Active |
|
Other |
|
Significant |
|
|||
|
|
|
|
|
Markets for |
|
Observable |
|
Unobservable |
|
|||
|
|
Fair Value at |
|
Identical Assets |
|
Inputs |
|
Inputs |
|
||||
(In thousands) |
|
December 31, 2016 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and money market |
|
$ |
48,921 |
|
|
48,921 |
|
|
— |
|
|
— |
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
136,937 |
|
|
— |
|
|
136,937 |
|
|
— |
|
Asset backed securities |
|
|
55,640 |
|
|
— |
|
|
55,640 |
|
|
— |
|
U.S. government agency securities |
|
|
49,474 |
|
|
— |
|
|
49,474 |
|
|
— |
|
Commercial paper |
|
|
19,076 |
|
|
— |
|
|
19,076 |
|
|
— |
|
Certificates of deposit |
|
|
1,052 |
|
|
— |
|
|
1,052 |
|
|
— |
|
Total |
|
$ |
311,100 |
|
$ |
48,921 |
|
$ |
262,179 |
|
$ |
— |
|
The following table presents the Company’s fair value measurements as of December 31, 2015 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.
|
|
|
|
|
Fair Value Measurement at December 31, 2015 Using: |
|
|||||||
|
|
|
|
|
Quoted Prices |
|
Significant |
|
|
|
|||
|
|
|
|
|
in Active |
|
Other |
|
Significant |
|
|||
|
|
|
|
|
Markets for |
|
Observable |
|
Unobservable |
|
|||
|
|
Fair Value at |
|
Identical Assets |
|
Inputs |
|
Inputs |
|
||||
(In thousands) |
|
December 31, 2015 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and money market |
|
$ |
37,435 |
|
$ |
37,435 |
|
$ |
— |
|
$ |
— |
|
Commercial paper |
|
|
3,700 |
|
|
— |
|
|
3,700 |
|
|
— |
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
179,211 |
|
|
— |
|
|
179,211 |
|
|
— |
|
Asset backed securities |
|
|
77,495 |
|
|
— |
|
|
77,495 |
|
|
— |
|
U.S. government agency securities |
|
|
7,039 |
|
|
— |
|
|
7,039 |
|
|
— |
|
Certificates of deposit |
|
|
1,999 |
|
|
— |
|
|
1,999 |
|
|
— |
|
Total |
|
$ |
306,879 |
|
$ |
37,435 |
|
$ |
269,444 |
|
$ |
— |
|
The Company monitors investments for other-than-temporary impairment. It was determined that unrealized gains and losses at December 31, 2016 and 2015 are temporary in nature because the change in market value for those securities has resulted from fluctuating interest rates rather than a deterioration of the credit worthiness of the issuers. So long as the Company holds these securities to maturity, it is unlikely to experience gains or losses. In the event that the Company disposes of these securities before maturity, it is expected that realized gains or losses, if any, will be immaterial.
The following table summarizes the gross unrealized losses and fair values of investments in an unrealized loss position as of December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
|
|
|
December 31, 2016 |
|
|||||||||||||||
|
|
|
Less than 12 months |
|
12 months or greater |
|
Total |
|
|||||||||||
(In thousands) |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
94,999 |
|
$ |
(93) |
|
$ |
— |
|
$ |
— |
|
$ |
94,999 |
|
$ |
(93) |
|
Asset backed securities |
|
|
41,656 |
|
|
(27) |
|
|
3,506 |
|
|
(2) |
|
|
45,162 |
|
|
(29) |
|
U.S. government agency securities |
|
|
44,911 |
|
|
(120) |
|
|
— |
|
|
— |
|
|
44,911 |
|
|
(120) |
|
Commercial paper |
|
|
5,606 |
|
|
(2) |
|
|
— |
|
|
— |
|
|
5,606 |
|
|
(2) |
|
Certificates of deposit |
|
|
1,052 |
|
|
(1) |
|
|
— |
|
|
— |
|
|
1,052 |
|
|
(1) |
|
Total |
|
$ |
188,224 |
|
$ |
(243) |
|
$ |
3,506 |
|
$ |
(2) |
|
$ |
191,730 |
|
$ |
(245) |
|
The following table summarizes the gross unrealized losses and fair value of investments in an unrealized loss position as of December 31, 2015, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
|
|
|
December 31, 2015 |
|||||||||||||||
|
|
|
Less than 12 months |
|
12 months or greater |
|
Total |
|||||||||||
(In thousands) |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
Marketable Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
166,238 |
|
$ |
(262) |
|
$ |
— |
|
$ |
— |
|
$ |
166,238 |
|
$ |
(262) |
U.S. government agency securities |
|
|
7,039 |
|
|
(18) |
|
|
— |
|
|
— |
|
|
7,039 |
|
|
(18) |
Asset backed securities |
|
|
72,792 |
|
|
(164) |
|
|
3,887 |
|
|
(2) |
|
|
76,679 |
|
|
(166) |
Total |
|
$ |
246,069 |
|
$ |
(444) |
|
$ |
3,887 |
|
$ |
(2) |
|
$ |
249,956 |
|
$ |
(446) |
The following table summarizes contractual underlying maturities of the Company’s available‑for‑sale investments at December 31, 2016:
|
|
|
Due one year or less |
|
Due after one year through four years |
|||||||
(In thousands) |
|
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
128,443 |
|
$ |
128,389 |
|
$ |
8,570 |
|
$ |
8,548 |
Certificates of deposit |
|
|
— |
|
|
— |
|
|
1,053 |
|
|
1,052 |
Commercial paper |
|
|
19,069 |
|
|
19,076 |
|
|
— |
|
|
— |
U.S. government agency securities |
|
|
14,553 |
|
|
14,545 |
|
|
35,038 |
|
|
34,929 |
Asset backed securities |
|
|
— |
|
|
— |
|
|
55,667 |
|
|
55,640 |
Total |
|
$ |
162,065 |
|
$ |
162,010 |
|
$ |
100,328 |
|
$ |
100,169 |
Concentration of Credit Risk
In accordance with GAAP, the Company is required to disclose any significant off‑balance‑sheet risk and credit risk concentration. The Company has no significant off‑balance‑sheet risk, such as foreign exchange contracts or other hedging arrangements. Financial instruments that subject the Company to credit risk consist of cash, cash equivalents and marketable securities. As of December 31, 2016, 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 $47.9 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, 2016, all of the Company’s laboratory service revenues have been derived from the sale of Cologuard, and one payor, Centers for Medicare and Medicaid Services, has provided greater than 10% of revenue during the years ended December 31, 2016 and 2015. Medicare revenue as a percentage of total laboratory service revenue was 60% and 71% for the years ended December 31, 2016 and 2015, respectively. Medicare accounts receivable as a percentage of total accounts receivable were 63% and 64% at December 31, 2016 and 2015, respectively. As the number of payors reimbursing for Cologuard increases, the percentage of laboratory service revenue derived from Medicare will continue to change as a percentage of revenue and accounts receivable.
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 $277.9 million and $215.1 million valuation allowance at December 31, 2016 and 2015 is necessary to reduce the tax assets to the amount that is more likely than not to be realized. The change in valuation allowance for December 31, 2016 and 2015 was $62.8 million and $53.2 million, respectively. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate.
Subsequent Events
The Company evaluates events that occur through the filing date and discloses those events or transactions that provide additional evidence with respect to conditions that existed at the date of the balance sheet. In addition, the financial statements are adjusted for any changes in estimates resulting from the use of such evidence.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-9, Revenue from Contracts with Customers (Topic 606), (the “New Revenue Standard”) requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Additional disclosures will also be required to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The New Revenue Standard will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either the retrospective or modified retrospective method upon adoption. Adoption of the New Revenue Standard is permitted as early as the first quarter of 2017 and is required by the first quarter of 2018. The Company does not plan to early adopt this standard and has not yet selected a transition method. The Company has completed its preliminary evaluation of the potential financial statement impact of the New Revenue Standard on prior and future reporting periods. The Company does not expect material changes to the timing of when the Company recognizes revenue or the method by which the Company measures its single revenue stream, lab service revenue. Further, regarding the contract acquisition cost component of the New Revenue Standard, the Company’s analysis supports use of the practical expedient when recognizing expense related to incremental costs incurred to acquire a contract, as the recovery of such costs is completed in less than one year’s time. Additionally, incremental costs to obtain contracts have been immaterial to date. Accordingly, the Company does not expect any material changes to the timing of when it recognizes expenses related to contract acquisition costs. The Company will continue its evaluation of the New Revenue Standard through the date of adoption.
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02, “Leases (Topic 842),” (“Update 2016-02”) which requires recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of Update 2016-02 will have on the Company’s consolidated financial statements, and anticipate that the new guidance will impact the Company’s consolidated financial statements as it has several leases. As further described in Note 7. Commitments and Contingencies, as of December 31, 2016, we had future minimum operating lease payments of $6.9 million.
In March 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-09, “Compensation —Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“Update 2016-09”) as part of its Simplification Initiative. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, accounting for forfeitures, and classification in the statements of cash flows. The amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. With the adoption of Update 2016-09, forfeiture estimates are no longer required and the effects of actual forfeitures are recorded at the time they occur. The Company will adopt Update 2016-09 in the first quarter of 2017 and will no longer use a forfeiture rate. The adoption of this aspect of the guidance is not expected to have a material impact on the Company’s financial statements.
Additionally, if in the future, the Company is able to utilize its deferred tax assets to offset taxes payable, excess tax benefit stock option deductions will be reflected in the consolidated statements of operations as a component of the provision for income taxes, whereas they previously would have been recognized in equity on the consolidated balance sheet. As of December 31, 2016, the Company had $62.7 million in excess tax benefit stock option deductions which would be subject to this reclassification if the deferred tax assets are realized in the future. Upon adoption, all such deductions will be fully offset by the valuation allowance.
In August 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“Update 2016-15”). Current GAAP either is unclear or does not include specific guidance on the eight cash flow classification issues included in the amendments in Update 2016-15. The amendments are an improvement to GAAP because they provide guidance for each of the eight issues, thereby reducing the current and potential future diversity in practice. The amendments in Update 2016-15 are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The company has evaluated Update 2016-15 and we do not expect the adoption of this guidance to have a material impact on our statement of cash flows.
In October 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,” (“Update 2016-16”). This amendment improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Update 2016-16 is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted. The Company does not anticipate that the adoption of Update 2016-16 to have a significant impact on its consolidated financial statements.
In October 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That Are Under Common Control,” (“Update 2016-17”). The amendments in Update 2016-17 change how a reporting entity that is the single decision maker of a variable interest entity should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that variable interest entity. The amendment is effective for fiscal years and interim periods within those years beginning after December 15, 2016. The Company does not expect the adoption of Update 2017-17 to have a material impact on its consolidated financial statements.
In November 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-18, “Statement of Cash Flows: Restricted Cash,” (“Update 2016-18”). Update 2016-18 provides guidance on the classification of restricted cash in the statement of cash flows. The amendments are effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The amendments in the Update 2016-18 should be adopted on a retrospective basis. The Company does not expect that adoption of this amendment to have a material effect on its consolidated financial statements as the Company does not have restricted cash.
In January 2017, the Financial Accounting Standards Board issued Accounting Standards Update No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” (“Update 2017-01”). in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
Foreign Currency Translation
For the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into United States dollars at the period-end exchange rate or historical rates, as appropriate. Consolidated statements of operations amounts are translated at average exchange rates for the period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheet as a component of accumulated other comprehensive loss in total Exact Sciences Corporation’s shareholders’ equity. Transaction gains and losses are included in the consolidated statement of operations.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year
|
(3) GENZYME STRATEGIC TRANSACTION
Transaction summary
On January 27, 2009, the Company entered into a Collaboration, License and Purchase Agreement (the “CLP Agreement”) with Genzyme Corporation (“Genzyme”). Pursuant to the CLP Agreement, the Company (i) assigned to Genzyme all of its intellectual property applicable to the fields of prenatal and reproductive health (the “Transferred Intellectual Property”), (ii) granted Genzyme an irrevocable, perpetual, exclusive, worldwide, fully‑paid, royalty‑free license to use and sublicense all of the Company’s remaining intellectual property (the “Retained Intellectual Property”) in the fields of prenatal and reproductive health (the “Genzyme Core Field”), and (iii) granted Genzyme an irrevocable, perpetual, non‑exclusive, worldwide, fully‑paid, royalty‑free license to use and sublicense the Retained Intellectual Property in all fields other than the Genzyme Core Field and other than colorectal cancer detection and stool‑based disease detection (the “Company Field”). Following the transaction, the Company retained rights in its intellectual property to pursue only the fields of colorectal cancer detection and stool‑based detection of any disease or condition. The Company agreed to deliver to Genzyme certain intellectual property improvements, if improvements were made during the initial five year collaboration period.
Pursuant to the Genzyme Strategic Transaction, Genzyme agreed to pay an aggregate of $18.5 million to the Company, of which $16.65 million was paid at closing and $1.85 million (the “Holdback Amount”) was subject to a holdback by Genzyme to satisfy certain potential indemnification obligations of the Company. Genzyme also agreed to pay a double‑digit royalty to the Company on income received by Genzyme as a result of any licenses or sublicenses to third parties of the Transferred Intellectual Property or the Retained Intellectual Property in any field other than the Genzyme Core Field or the Company Field.
The Company’s on‑going performance obligations to Genzyme under the CLP were deemed to be undelivered elements of the CLP Agreement on the date of closing. Accordingly, the Company deferred the initial $16.65 million in cash received at closing and amortized that up‑front payment on a straight line basis into the License Fee Revenue line item in its statements of operations over the initial five year collaboration period. The Company received the first holdback amount of $962,000, which included accrued interest, due from Genzyme during the first quarter of 2010. The Company received the second holdback amount of $934,000 which included accrued interest due, from Genzyme during the third quarter of 2010. The amounts were deferred and were amortized on a straight‑line basis into revenue over the remaining term of the collaboration through January 2014.
In addition, the Company entered into a Common Stock Subscription Agreement with Genzyme on January 27, 2009, which provided for the private issuance and sale to Genzyme of 3,000,000 shares (the “Shares”) of the Company’s common stock, $0.01 par value per share, at a per share price of $2.00, for an aggregate purchase price of $6.0 million. The price paid by Genzyme for the Shares represented a premium of $0.51 per share above the closing price of the Company’s common stock on that date of $1.49 per share. The aggregate premium paid by Genzyme over the closing price of the Company’s common stock on the date of the transaction of $1.53 million is included as a part of the total consideration for the CLP. Accordingly, the Company deferred the aggregate $1.53 million premium and amortized that amount on a straight line basis into the License fees line item in the Company’s statements of operations over the initial five‑year collaboration period.
The Company did not recognize license fee revenue from the CLP Agreement during the years ended December 31, 2016 and 2015. The Company recognized approximately $0.3 million in license fee revenue in connection with the amortization of the up-front payments and holdback amounts from Genzyme during the year ended December 31, 2014.
|
(4) MAYO LICENSE AGREEMENT
On June 11, 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 amended and restated in February 2015 and further amended in January 2016. 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, as amended, 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‑of‑matter claims that relate to sample processing, analytical testing and data analysis associated with nucleic screening for cancers and other diseases. The jurisdictions covered by these patents and patent applications include the U.S., Canada, the European Union and Japan. In addition to granting the Company a license to the covered MAYO intellectual property, MAYO agreed to make available personnel to provide the Company product development and research and development assistance. 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.
MAYO has agreed to make available personnel through January 2020 to provide the Company product development and research and development assistance.
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 products using the licensed MAYO intellectual property, with minimum annual royalty fees of $25,000 each year through 2033, the year the last patent expires. 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 amendment, the royalty rate on the Company’s net sales of Cologuard increased and, if in the future, improvements are made to the Cologuard product, the royalty rate may further increase, but, pursuant to the terms of the January 2016 amendment, would remain a low-single-digit percentage of net sales.
In addition to royalties, the Company is required to issue stock or cash to MAYO upon achievement of several milestones. The Company is required to issue MAYO shares of the Company’s common stock with a value of $0.2 million upon commercial launch of its second and third products that use the licensed MAYO intellectual property. Additionally, for the second and third products that use licensed MAYO intellectual property, the Company is required to pay MAYO cash of $0.2 million upon commercialization and cash of $0.2 million, $0.8 million and $2.0 million upon such product reaching $5.0 million, $20.0 million and $50.0 million in cumulative net sales, respectively.
As part of the February 2015 amendment and restatement of the license agreement, the Company agreed to pay MAYO an additional $5.0 million, payable in five annual installments, through 2019. The Company paid MAYO the annual installment of $1.0 million in the first quarter of each of 2015 and 2016.
In addition, the Company is paying MAYO for research and development efforts. As part of the Company’s research collaboration with MAYO, the Company has incurred charges of $3.6 million and has made payments of $3.9 million for the year ended December 31, 2016. The Company has recorded an estimated liability in the amount of $1.0 million for research and development efforts as of December 31, 2016. The Company incurred charges of $2.6 million and made payments of $2.6 million for the year ended December 31, 2015. The Company recorded an estimated liability in the amount of $1.3 million for research and development efforts at December 31, 2015. The Company incurred charges of $2.3 million and made payments of $0.7 million for the year ended December 31, 2014.
The MAYO license agreement required, among other things, a $0.5 million milestone payment upon FDA approval of the Company’s Cologuard test. The Company received this FDA approval, and paid the milestone payment, in August 2014.
Pursuant to the license agreement, the Company granted MAYO two common stock purchase warrants with an exercise price of $1.90 per share covering 1,000,000 and 250,000 shares of common stock, respectively. The warrant covering 1,000,000 shares was fully exercised as of September 2011. The warrant covering 250,000 shares was exercised at various dates in 2013 and 2014 and became fully exercised as of June 2014.
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 2033 (or later, if certain licensed patent applications are issued). However, if we are 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 we stop 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.
|
(5) ISSUANCES OF EQUITY
Underwritten Public Offerings
On April 2, 2014, the Company completed an underwritten public offering of 11.5 million shares of common stock at a price of $12.75 per share to the public. The Company received approximately $137.7 million of net proceeds from the offering, after deducting $8.9 million for the underwriting discount and commissions and other stock issuance costs paid by the Company.
On December 16, 2014, the Company completed an underwritten public offering of 4.0 million shares of common stock at a price of $25.75 per share to the public. The Company received approximately $100.9 million of net proceeds from the offering, after deducting $2.1 million for the underwriting discount and commissions and other stock issuance costs paid by the Company.
On July 24, 2015 the Company completed an underwritten public offering of 7.0 million shares of common stock at a price of $25.50 per share to the public. The Company received approximately $174.1 million of net proceeds from the offering, after deducting $4.4 million for the underwriting discount and commissions and other stock issuance costs paid by the Company.
On August 2, 2016 the Company completed an underwritten public offering of 9.8 million shares of common stock at a price of $15.50 per share to the public. The Company received approximately $144.2 million of net proceeds from the offering after deducting $7.3 million for the underwriting discount and commissions and other stock issuance costs paid by the Company.
Rights Agreement
In February 2011, the Company adopted a rights agreement and subsequently distributed to the Company’s stockholders preferred stock purchase rights. Under certain circumstances, each right can be exercised for one one‑thousandth of a share of Series A Junior Participating Preferred Stock. In general, the rights will become exercisable in the event of an announcement of an acquisition of 15% or more of the Company’s outstanding common stock or the commencement or announcement of an intention to make a tender offer or exchange offer for 15% or more of the Company’s outstanding common stock. If any person or group acquires 15% or more of the Company’s common stock, the Company’s stockholders, other than the acquiror, will have the right to purchase additional shares of the Company’s common stock (in lieu of the Series A Junior Participating Preferred Stock) at a substantial discount to the then prevailing market price. The rights agreement could significantly dilute such acquiror’s ownership position in the Company’s shares, thereby making a takeover prohibitively expensive and encouraging such acquiror to negotiate with the Company’s board of directors. The ability to exercise these rights is contingent on events that the Company has determined to be unlikely at this time, and therefore this provision has not been considered in the computation of equity or earnings per share.
|
(6) STOCK‑BASED COMPENSATION
Stock‑Based Compensation Plans
The Company maintains the 2010 Omnibus Long‑Term Incentive Plan, the 2010 Employee Stock Purchase Plan, the 2015 Inducement Award Plan, the 2016 Inducement Award Plan and the 2000 Stock Option and Incentive Plan (collectively, the “Stock Plans”).
2000 Stock Option and Incentive Plan The Company adopted the 2000 Stock Option and Incentive Plan (the “2000 Option Plan”) on October 17, 2000. The 2000 Option Plan expired October 17, 2010 and after such date no further awards could be granted under the plan. Under the terms of the 2000 Option Plan, the Company was authorized to grant incentive stock options, as defined under the Internal Revenue Code, non‑qualified options, restricted stock awards and other stock awards to employees, officers, directors, consultants and advisors. Options granted under the 2000 Option Plan expire ten years from the date of grant. Grants made from the 2000 Option Plan generally vest over a period of three to four years.
The 2000 Option Plan was administered by the compensation committee of the Company’s board of directors, which selected the individuals to whom equity‑based awards would be granted and determined the option exercise price and other terms of each award, subject to the provisions of the 2000 Option Plan. The 2000 Option Plan provides that upon an acquisition of the Company, all options to purchase common stock will accelerate by a period of one year. In addition, upon the termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all options then outstanding under the 2000 Option Plan held by that employee will immediately become exercisable. At December 31, 2016, options to purchase 1,063,476 shares were outstanding under the 2000 Option Plan. There were no shares of restricted stock outstanding under the 2000 Option Plan.
2010 Omnibus Long‑Term Incentive Plan The Company adopted the 2010 Omnibus Long‑Term Incentive Plan (the “2010 Stock Plan”) on July 16, 2010. The 2010 Stock Plan will expire on July 16, 2020 and after such date no further awards may be granted under the plan. Under the terms of the 2010 Stock Plan, the Company is authorized to grant incentive stock options, as defined under the Internal Revenue Code, non‑qualified options, restricted stock awards and other stock awards to employees, officers, directors, consultants and advisors. Options granted under the 2010 Stock Plan expire ten years from the date of grant. Grants made from the 2010 Stock Plan generally vest over a period of three to four years.
The 2010 Stock Plan is administered by the compensation committee of the Company’s board of directors, which selects the individuals to whom equity‑based awards will be granted and determines the option exercise price and other terms of each award, subject to the provisions of the 2010 Stock Plan. The 2010 Stock Plan provides that upon an acquisition of the Company, all equity will accelerate by a period of one year. In addition, upon the termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all equity awards then outstanding under the 2010 Stock Plan held by that employee will immediately vest. At December 31, 2016, options to purchase 2,442,005 shares were outstanding under the 2010 Stock Plan and 4,943,782 shares of restricted stock and restricted stock units were outstanding. On July 23, 2015 the Company’s stockholders approved an amendment and restatement of the 2010 Stock Plan which, among other items, increased the number of shares available for issuance thereunder by 8,360,000 shares. At December 31, 2016, there were 1,426,375 shares available for future grant under the 2010 Stock Plan.
2015 Inducement Award Plan The Company adopted the 2015 Inducement Award Plan (the “2015 Inducement Plan”) on February 9, 2015. The 2015 Inducement Plan expired on July 27, 2015 and after such date no further awards could be granted under the plan. Under the terms of the 2015 Inducement Plan, the Company is authorized to grant incentive stock options, as defined under the Internal Revenue Code, non-qualified options, restricted stock awards and other stock awards to employees who were not previously an employee of the Company or any of its Subsidiaries. Options granted under the 2015 Inducement Plan expire ten years from the date of grant. Grants made from the 2015 Inducement Plan generally vest over a period of three to four years.
The 2015 Inducement Plan is administered by the compensation committee of the Company’s board of directors, which selects the individuals to whom equity-based awards will be granted and determines the option exercise price and other terms of each award, subject to the provisions of the 2015 Inducement Plan. The 2015 Inducement Plan provides that upon an acquisition of the Company, all equity will accelerate by a period of one year. In addition, upon termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all equity awards then outstanding under the 2015 Inducement Plan held by that employee will immediately vest. At December 31, 2016, there were 132,550 shares of restricted stock and restricted stock units outstanding under the 2015 Inducement Award Plan. At December 31, 2016, there were no shares available for future grant under the 2015 Inducement Plan.
2016 Inducement Award Plan The Company adopted the 2016 Inducement Award Plan (the “2016 Inducement Plan”) on January 25, 2016. The 2016 Inducement Plan will expire on the date of the Company’s 2017 Annual Stockholder’s Meeting and after such date no further awards may be granted under the plan. Under the terms of the 2016 Inducement Plan, the Company is authorized to grant incentive stock options, as defined under the Internal Revenue Code, non-qualified options, restricted stock awards and other stock awards to employees who were not previously an employee of the Company or any of its Subsidiaries. Options granted under the 2016 Inducement Plan expire ten years from the date of grant. Grants made from the 2016 Inducement Plan generally vest over a period of three to four years.
The 2016 Inducement Plan is administered by the compensation committee of the Company’s board of directors, which selects the individuals to whom equity-based awards will be granted and determines the option exercise price and other terms of each award, subject to the provisions of the 2016 Inducement Plan. The 2016 Inducement Plan provides that upon an acquisition of the Company, all equity will accelerate by a period of one year. In addition, upon termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all equity awards then outstanding under the 2016 Inducement Plan held by that employee will immediately vest. At December 31, 2016, there were 524,984 shares of restricted stock and restricted stock units outstanding under the 2016 Inducement Award Plan. At December 31, 2016, there were 845,604 shares available for future grant under the 2016 Inducement Plan.
2010 Employee Stock Purchase Plan The 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”) was adopted by the Company on July 16, 2010. The 2010 Purchase Plan provides participating employees the right to purchase shares of common stock at a discount through a series of offering periods. The 2010 Purchase Plan will expire on October 31, 2020. On July 24, 2014, the Company’s stockholders approved an amendment to the 2010 Employee Stock Purchase Plan to increase the number of shares available for purchase thereunder by 500,000 shares. On July 28, 2016 the Company’s stockholders approved an amendment to the 2010 Employee Stock Purchase Plan to increase the number of shares available for purchase thereunder by 2,000,000 shares. At December 31, 2016, there were 2,006,569 shares of common stock available for purchase by participating employees under the 2010 Purchase Plan.
The compensation committee of the Company’s board of directors administers the 2010 Purchase Plan. Generally, all employees whose customary employment is more than 20 hours per week and more than five months in any calendar year are eligible to participate in the 2010 Purchase Plan. Participating employees authorize an amount, between 1% and 15% of the employee’s compensation, to be deducted from the employee’s pay during the offering period. On the last day of the offering period, the employee is deemed to have exercised the employee’s option to purchase shares of Company common stock, at the option exercise price, to the extent of accumulated payroll deductions. Under the terms of the 2010 Purchase Plan, the option exercise price is an amount equal to 85% of the fair market value, as defined under the 2010 Purchase Plan, and no employee can purchase more than $25,000 of Company common stock under the 2010 Purchase Plan in any calendar year. Rights granted under the 2010 Purchase Plan terminate upon an employee’s voluntary withdrawal from the 2010 Purchase Plan at any time or upon termination of employment. At December 31, 2016, there were 793,431 cumulative shares issued under the 2010 Purchase Plan, and 356,823 shares were issued in the year ended December 31, 2016, as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Offering period ended |
|
Number of Shares |
|
price per Share |
|
|
April 30, 2016 |
|
177,331 |
|
$ |
5.95 |
|
October 31, 2016 |
|
179,492 |
|
$ |
5.95 |
|
Stock‑Based Compensation Expense
The Company recorded approximately $23.7 million, $18.1 million, and $11.5 million in stock‑based compensation expense during the years ended December 31, 2016, 2015, and 2014, respectively, in connection with the amortization of restricted stock and restricted stock unit awards, stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees, non‑employee consultants and non‑employee directors. Non‑cash stock‑based compensation expense by expense category for the years ended December 31, 2016, 2015, and 2014 are as follows:
|
|
December 31, |
|
|||||||
(In thousands) |
|
2016 |
|
2015 |
|
2014 |
|
|||
Cost of sales |
|
$ |
1,064 |
|
$ |
876 |
|
$ |
279 |
|
Research and development |
|
|
4,014 |
|
|
3,744 |
|
|
4,149 |
|
General and administrative |
|
|
14,597 |
|
|
9,358 |
|
|
5,575 |
|
Sales and marketing |
|
|
4,057 |
|
|
4,072 |
|
|
1,517 |
|
Total stock-based compensation |
|
$ |
23,732 |
|
$ |
18,050 |
|
$ |
11,520 |
|
In connection with the November 8, 2016 retirement of the Company’s former Chief Financial Officer, the Company modified the vesting of 118,341 shares of his previously unvested restricted stock units whereby such restricted stock units vested on January 1, 2017. He forfeited all other unvested restricted stock units and stock option awards. In the fourth quarter of 2016, the Company recorded $1.5 million of non-cash stock-based compensation expense for the modified award.
Determining Fair Value
Valuation and Recognition—The fair value of each option award is estimated on the date of grant using the Black‑Scholes option‑pricing model. The fair value of each market measure-based award is estimated on the date of grant using a Monte Carlo simulation pricing model. 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 Black-Scholes and Monte Carlo pricing models utilize 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 option, which is based on historical experience with similar grants. Expected life of a market measure-based award is based on the applicable performance period.
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 used in the Black‑Scholes and Monte Carlo valuation models on the implied yield currently available on U.S. Treasury zero‑coupon issues with an equivalent expected term.
Forfeitures—The Company records stock‑based compensation expense only for those awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. The Company’s forfeiture used in the twelve months ended December 31, 2016, 2015 and 2014 was 3.48%, 4.99%, and 4.99%, respectively.
The fair value of each option and market measure-based award is based on the assumptions in the following table:
|
|
Year Ended |
|
||||
|
|
December 31, |
|
||||
|
|
2016 |
|
2015 |
|
2014 |
|
Option Plan Shares |
|
|
|
|
|
|
|
Risk-free interest rates |
|
1.48% - 1.69% |
|
1.5% - 1.92% |
|
1.96% - 2.01% |
|
Expected term (in years) |
|
6.25 - 6.74 |
|
6.25 - 6.6 |
|
6.25 |
|
Expected volatility |
|
58.9% - 59.4% |
|
67.1% - 73.2% |
|
77.6% - 80.8% |
|
Dividend yield |
|
0 % |
|
0 % |
|
0 % |
|
Weighted average fair value per share of options granted during the period |
|
$ 3.17 |
|
$ 15.81 |
|
$ 10.05 |
|
Market Measure-Based Shares |
|
|
|
|
|
|
|
Risk-free interest rates |
|
0.76% - 0.91% |
|
1.12 % |
|
(1) |
|
Expected term (in years) |
|
2.43 - 2.84 |
|
3.16 |
|
(1) |
|
Expected volatility |
|
68.3 - 79.6% |
|
64.3 % |
|
(1) |
|
Dividend yield |
|
0 % |
|
0 % |
|
(1) |
|
Weighted average fair value per share of stock purchase rights granted during the period |
|
$ 3.77 |
|
$ 5.91 |
|
(1) |
|
ESPP Shares |
|
|
|
|
|
|
|
Risk-free interest rates |
|
0.41% - 0.83% |
|
0.25% - 0.75% |
|
0.1% - 0.5% |
|
Expected term (in years) |
|
0.5 - 2 |
|
0.5 - 2 |
|
0.5 - 2 |
|
Expected volatility |
|
70.1% - 92.7% |
|
51.2% - 110% |
|
42.5% - 62.7% |
|
Dividend yield |
|
0 % |
|
0 % |
|
0 % |
|
Weighted average fair value per share of stock purchase rights granted during the period |
|
$ 3.30 |
|
$ 4.67 |
|
$ 6.30 |
|
(1) |
The Company did not issue market measure-based shares during the respective period. |
Stock Option, Restricted Stock, and Restricted Stock Unit Activity
A summary of stock option activity under the Stock Plans during the years ended 2016, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Weighted |
|
Average |
|
|
|
|
|
|
|
|
|
Average |
|
Remaining |
|
Aggregate |
|
||
|
|
|
|
Exercise |
|
Contractual |
|
Intrinsic |
|
||
Options |
|
Shares |
|
Price |
|
Term (Years) |
|
Value(1) |
|
||
(Aggregate intrinsic value in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2014 |
|
6,062,587 |
|
$ |
2.78 |
|
6.6 |
|
|
|
|
Granted |
|
266,477 |
|
|
14.28 |
|
|
|
|
|
|
Exercised |
|
(1,378,372) |
|
|
1.91 |
|
|
|
|
|
|
Forfeited |
|
(16,375) |
|
|
6.37 |
|
|
|
|
|
|
Outstanding, December 31, 2014 |
|
4,934,317 |
|
$ |
3.63 |
|
5.2 |
|
|
|
|
Granted |
|
340,978 |
|
|
23.51 |
|
|
|
|
|
|
Exercised |
|
(281,315) |
|
|
4.44 |
|
|
|
|
|
|
Forfeited |
|
(57,386) |
|
|
16.99 |
|
|
|
|
|
|
Outstanding, December 31, 2015 |
|
4,936,594 |
|
$ |
4.80 |
|
4.5 |
|
|
|
|
Granted |
|
883,889 |
|
|
5.48 |
|
|
|
|
|
|
Exercised |
|
(2,255,959) |
|
|
1.52 |
|
|
|
|
|
|
Forfeited |
|
(59,043) |
|
|
9.75 |
|
|
|
|
|
|
Outstanding, December 31, 2016 |
|
3,505,481 |
|
$ |
7.00 |
|
5.5 |
|
$ |
25,700 |
|
Exercisable, December 31, 2016 |
|
2,265,691 |
|
$ |
5.42 |
|
3.8 |
|
$ |
18,943 |
|
Vested and expected to vest, December 31, 2016 |
|
3,429,333 |
|
$ |
3.97 |
|
5.5 |
|
$ |
25,201 |
|
(1) |
The aggregate intrinsic value of options outstanding at December 31, 2016 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for the 3,505,481 options that had exercise prices that were lower than the $13.36 market price of our common stock at December 31, 2016. The aggregate intrinsic value of options exercisable at December 31, 2016 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for the 2,265,691 options that had exercise prices that were lower than the $13.36 market price of our common stock at December 31, 2016. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $30.5 million, $3.6 million, and $29.2 million, respectively, determined as of the date of exercise. |
Warrants to purchase 75,000 shares of common stock were issued in connection with a consulting agreement in 2009 to provide specific assistance to the Company in attaining FDA approval of Cologuard. The 75,000 warrants vested in the third quarter of 2014 upon successful approval for Cologuard. The Company recorded $1.3 million, the fair value of the warrant on the vesting date, as stock-based compensation expense during the third quarter of 2014 in connection with the vesting of this warrant.
A summary of restricted stock and restricted stock unit activity under the Stock Plans during the years ended December 31, 2016, 2015 and 2014 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Restricted |
|
Average Grant |
|
|
|
|
Shares |
|
Date Fair Value |
|
|
Outstanding, January 1, 2014 |
|
1,150,694 |
|
$ |
11.23 |
|
Granted |
|
926,171 |
|
|
15.61 |
|
Released |
|
(491,370) |
|
|
11.17 |
|
Forfeited |
|
(44,381) |
|
|
12.44 |
|
Outstanding, December 31, 2014 |
|
1,541,114 |
|
$ |
13.86 |
|
Granted |
|
2,895,818 |
|
|
15.23 |
|
Released |
|
(578,033) |
|
|
13.77 |
|
Forfeited |
|
(414,205) |
|
|
20.84 |
|
Outstanding, December 31, 2015 |
|
3,444,694 |
|
$ |
14.19 |
|
Granted |
|
3,960,583 |
|
|
6.90 |
|
Released |
|
(796,168) |
|
|
16.95 |
|
Forfeited |
|
(1,007,793) |
|
|
9.57 |
|
Outstanding, December 31, 2016 |
|
5,601,316 |
|
$ |
9.19 |
|
As of December 31, 2016, there was approximately $41.5 million of total unrecognized compensation cost related to non‑vested share‑based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in forfeitures. The Company expects to recognize that cost over a weighted average period of 2.4 years.
The Company received approximately $3.4 million, $1.2 million, and $2.6 million from stock option exercises during the years ended December 31, 2016, 2015 and 2014, respectively. During the years ended December 31, 2016, 2015 and 2014, 356,823, 176,785, and 88,166 shares of common stock, respectively, were issued under the Company’s 2010 Purchase Plan, resulting in proceeds to the Company of $2.1 million, $1.7 million, and $0.8 million, respectively.
The following table summarizes information relating to currently outstanding and exercisable stock options as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
Exercisable |
|
||||||||
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
Weighted |
|
||
|
|
|
|
Remaining |
|
Average |
|
|
|
Average |
|
||
|
|
Number of |
|
Contractual |
|
Exercise |
|
Number of |
|
Exercise |
|
||
Exercise Price |
|
Options |
|
Life (Years) |
|
Price |
|
Options |
|
Price |
|
||
$0.00 - $3.00 |
|
1,041,176 |
|
2.2 |
|
$ |
0.86 |
|
1,041,176 |
|
$ |
0.86 |
|
$3.01 - $6.00 |
|
1,121,647 |
|
7.2 |
|
|
5.08 |
|
361,447 |
|
|
4.40 |
|
$6.01 - $9.00 |
|
217,705 |
|
6.3 |
|
|
7.34 |
|
133,116 |
|
|
8.00 |
|
$9.01 - $12.00 |
|
571,202 |
|
5.5 |
|
|
9.71 |
|
524,840 |
|
|
9.61 |
|
$12.01 - $15.00 |
|
220,000 |
|
7.2 |
|
|
13.96 |
|
110,000 |
|
|
13.96 |
|
$15.01 - $18.00 |
|
18,477 |
|
7.6 |
|
|
16.52 |
|
12,318 |
|
|
16.52 |
|
$18.01 - $24.00 |
|
302,666 |
|
8.0 |
|
|
23.38 |
|
78,592 |
|
|
23.38 |
|
$24.01- $26.98 |
|
12,608 |
|
8.1 |
|
|
26.98 |
|
4,202 |
|
|
26.98 |
|
|
|
3,505,481 |
|
5.5 |
|
$ |
7.00 |
|
2,265,691 |
|
$ |
5.42 |
|
During the first quarter of 2015, the Company granted a total of 203,100 restricted stock units to certain executives that would have vested based upon the satisfaction of certain service and performance conditions. The Company performed an evaluation of internal and external factors, and determined the number of shares that were most likely to vest based on the probability of what performance conditions were met. The expense for the fair value of the awards that were expected to vest of $0.4 million was recognized during the year ended December 31, 2015. The service and performance conditions were not met and the expense of $0.4 million was reversed in the fourth quarter of the year ended December 31, 2015.
Shares Reserved for Issuance
The Company has reserved shares of its authorized common stock for issuance pursuant to its employee stock purchase and stock option plans, including all outstanding stock option grants noted above at December 31, 2016, as follows:
Shares reserved for issuance |
|
|
|
2010 Option Plan |
|
1,426,375 |
|
2010 Purchase Plan |
|
2,006,569 |
|
2016 Inducement Plan |
|
845,604 |
|
|
|
4,278,548 |
|
|
(7) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases a 35,000 square foot manufacturing and office facility in Madison, Wisconsin. This lease has been in effect since 2010. During October 2016, the Company entered into an amended lease agreement. The amended agreement extended the initial term of the lease and is subject to periodic rent escalation adjustments. The Company has two options to extend the term of the lease for one year each.
The Company leases a 48,845 square foot facility which houses its commercial lab operations in Madison, Wisconsin. This lease has been in effect since 2013. The lease has been amended numerous times with the most recent amendment taking place in February 2016. The amended agreement extended the initial term of the lease and is subject to periodic rent escalation adjustments. The Company has two options to extend the term of the lease for five years each. As part of the lease agreements, the landlord agreed to pay for a portion of leasehold improvements constructed. These payments are recorded as a lease incentive obligation and are amortized over the remaining term of the lease as a reduction of rent expense. As of December 31, 2016 and 2015, the lease incentive obligation was $1.3 million and $1.6 million, respectively.
The Company leases a 33,803 square foot facility in Madison, Wisconsin for administration purposes. This lease has been in effect since 2014. The lease has been amended several times with the most recent amendment taking place in November 2015. The amended agreement extended the initial term of the lease and is subject to periodic rent escalation adjustments. The Company has two options to extend the lease for up to five years each.
During July 2015, the Company entered into a lease for a 21,000 square foot warehouse facility in Madison, Wisconsin. The lease commenced in October 2015 and is effective until May 2025 and includes an option for a five-year extension. The lease contains periodic rent escalation adjustments.
Future minimum payments under operating leases as of December 31, 2016 are as follows. Amounts included in the table are in thousands.
|
|
|
|
|
Year Ending December 31, |
|
|
|
|
2017 |
|
$ |
2,226 |
|
2018 |
|
|
1,724 |
|
2019 |
|
|
1,172 |
|
2020 |
|
|
892 |
|
2021 |
|
|
587 |
|
Thereafter |
|
|
281 |
|
Total lease obligations |
|
$ |
6,882 |
|
Rent expense included in the accompanying consolidated statements of operations was approximately $2.1 million, $1.5 million, and $1.0 million for the years ended December 31, 2016, 2015 and 2014, respectively.
License Agreements
The Company licenses certain technologies that are, or may be, incorporated into its technology under several license 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
See Note 4 for information related to the MAYO license agreement.
Hologic
On October 14, 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 licensed patents and patent applications contain both method and composition‑of‑matter claims. The jurisdictions covered by these patents and patent applications include the U.S., Canada, the European Union, Australia and Japan. The license agreement also provided the Company with non‑exclusive, worldwide licenses to the Covered Hologic IP within the field of 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 received FDA approval for its Cologuard test in August 2014 and was required to make a milestone payment of $0.1 million to Hologic, which was expensed to research and development in August 2014. 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.
MDx Health
On July 26, 2010, the Company entered into a technology license and royalty agreement with MDx Health (formerly Oncomethylome Sciences, S.A.). Under the license agreement, MDx Health granted the Company a royalty bearing, exclusive, worldwide license to certain patents. Under the licensing agreement, the Company is obligated to make commercially reasonable efforts to bring products covered by the license agreement to market. The Company is required to pay MDx Health a minimum royalty fee of $0.1 million on each anniversary of the agreement for the life of the contract. The Company also agreed to pay $0.1 million upon the first commercial sale of a licensed product after the receipt of FDA approval and $0.2 million after the Company has reached net sales of $10 million of a licensed product after receipt of FDA approval. In 2016, we paid $0.8 million after the Company reached cumulative net sales of $50 million. Additionally, we will pay them $1.0 million after the Company has reached net sales of $50 million in a single calendar year. The Company is also required to pay MDx Health a low single digit royalty fee based on a certain percentage of the Company’s net sales of the licensed products.
Capital Lease
In 2012, the Company entered into a lease agreement which is accounted for as a capital lease and the final lease payment was made in September 2015. The leased equipment is recorded at $1.2 million and is included in the balance sheet as laboratory equipment. The cost of the leased equipment was depreciated over the three year lease term, and the expense was recorded as depreciation expense. The leased equipment was fully depreciated at December 31, 2015. The Company was required to make principal and interest payments of approximately $32,000 per month over the three year term of the lease agreement.
|
(8) ACCRUED LIABILITIES
Accrued liabilities at December 31, 2016 and 2015 consisted of the following:
|
|
December 31, |
|
||||
(In thousands) |
|
2016 |
|
2015 |
|
||
Compensation |
|
$ |
16,555 |
|
$ |
8,460 |
|
Licenses |
|
|
5,359 |
|
|
3,761 |
|
Professional fees |
|
|
3,375 |
|
|
5,834 |
|
Research and trial related expenses |
|
|
1,035 |
|
|
1,528 |
|
Other |
|
|
792 |
|
|
688 |
|
Assets under construction |
|
|
655 |
|
|
1,646 |
|
Occupancy costs |
|
|
208 |
|
|
47 |
|
Miscellaneous taxes |
|
|
127 |
|
|
289 |
|
|
|
$ |
28,106 |
|
$ |
22,253 |
|
|
(9) LONG TERM DEBT
Building Purchase Mortgage
During June 2015, the Company entered into a $5.1 million credit agreement with an unrelated third-party financial institution to finance the purchase of a facility located in Madison, Wisconsin. The credit agreement is collateralized by the acquired building.
Borrowings under the credit agreement bear interest at 4.15%. The Company made interest-only payments on the outstanding principal balance for the period between July 12, 2015 and September 12, 2015. Beginning on October 12, 2015 and continuing through May 12, 2019, the Company is required to make monthly principal and interest payments of $31,000. The final principal and interest payment due on the maturity date of June 12, 2019 is $4.4 million.
Additionally, the Company has recorded $73,000 in mortgage issuance costs, which are recorded as a direct deduction from the mortgage liability. The issuance costs are being amortized through June 12, 2019. For the year ended December 31, 2016, the Company has recorded $18,000 in amortization of mortgage issuance costs.
The table below represents the future principal obligations as of December 31, 2016. Amounts included in the table are in thousands:
|
|
|
|
|
Year ending December 31, |
|
|
|
|
2017 |
|
$ |
174 |
|
2018 |
|
|
182 |
|
2019 |
|
|
4,496 |
|
2020 |
|
|
— |
|
2021 |
|
|
— |
|
Thereafter |
|
|
— |
|
|
|
$ |
4,852 |
|
Wisconsin Department of Commerce Loan
During November 2009, the Company entered into a loan agreement with the Wisconsin Department of Commerce pursuant to which the Wisconsin Department of Commerce agreed to lend up to $1.0 million to the Company subject to the Company’s satisfaction of certain conditions. The Company received the $1.0 million in December 2009. The terms of the loan are such that portions of the loan become forgivable if the Company meets certain job creation requirements at a specified wage rate. The loan agreement provided that, after the Company created 100 full time positions, the principal will be reduced at the rate of $5,405 for each new position created thereafter during the measurement period. The loan bore an interest rate of 2%, which was subject to an increase to 4% if the Company did not meet certain job creation requirements. Both principal and interest payments under the loan agreement were deferred for five years. The loan’s terms also contained a milestone that if the Company created 185 new full-time positions as of June 30, 2015, the full amount of principal would be forgiven. The Company met this job creation milestone and the $1.0 million benefit associated with the loan forgiveness was recorded as an offset to the operating expenses during the year ended December 31, 2015.
|
(10) EMPLOYEE BENEFIT PLAN
The Company maintains a qualified 401(k) retirement savings plan (the “401(k) Plan”) covering all employees. Under the terms of the 401(k) Plan, participants may elect to defer a portion of their compensation into the 401(k) Plan, subject to certain limitations. Company matching contributions may be made at the discretion of the Board of Directors.
The Company’s Board of Directors approved 401(k) Plan matching contributions for the years ended December 31, 2016, 2015 and 2014 in the form of Company common stock equal to 100% up to 6% of the participant’s eligible compensation for that year. The Company recorded compensation expense of approximately $3.0 million, $2.1 million, and $0.8 million, respectively, in the statements of operations for the years ended December 31, 2016, 2015 and 2014 in connection with 401(k) Plan matching contributions.
|
(11) NEW MARKET TAX CREDIT
During the fourth quarter of 2014, the Company received approximately $2.4 million in net proceeds from financing agreements related to working capital and capital improvements at one of its Madison, Wisconsin facilities. This financing arrangement was structured with an unrelated third-party financial institution (the “Investor”), an investment fund, and its majority owned community development entity in connection with the Company’s participation in transactions qualified under the federal New Markets Tax Credit (“NMTC”) program, pursuant to Section 45D of the Internal Revenue Code of 1986, as amended. Through its participation in this program, the Company has secured low interest financing and the potential for future debt forgiveness related to the Madison, Wisconsin facility. Upon closing of this transaction, the Company provided an aggregate of approximately $5.1 million to the Investor, in the form of a loan receivable, with a term of seven years, bearing an interest rate of 2.74% per annum. This $5.1 million in proceeds plus $2.4 million of capital from the Investor was used to make an aggregate $7.5 million loan to a subsidiary of the Company. This financing arrangement is not secured by any assets of the Company. On December 1, 2021, the Company would receive a repayment of its approximately $5.1 million loan. The $5.1 million is eliminated in the consolidation of the financial statements. This transaction also includes a put/call feature that becomes enforceable at the end of the seven-year compliance period. The Investor may exercise its put option or the Company can exercise the call, both of which will serve to trigger forgiveness of the debt. The value attributable to the put/call is nominal. The $2.4 million was recorded in Other Long-Term Liabilities on the Company’s balance sheet. The benefit of this net $2.4 million contribution will be recognized as a decrease in expenses, included in cost of sales, as the Company amortizes the contribution liability over the seven-year compliance period as it is being earned through the Company’s on-going compliance with the conditions of the NMTC program. The Company recorded $0.3 million as a decrease of expenses for the year ended December 31, 2016. At December 31, 2016, the remaining balance of $1.7 million is included in Other Long-Term Liabilities. The Company incurred approximately $0.2 million of debt issuance costs related to the above transactions, which are being amortized over the life of the agreements.
The Investor is subject to 100% recapture of the NMTC it receives for a period of seven years as provided in the Internal Revenue Code and applicable U.S. Treasury regulations. The Company is required to be in compliance with various regulations and contractual provisions that apply to the NMTC arrangement. Noncompliance with applicable requirements could result in the Investor’s projected tax benefits not being realized and, therefore, require the Company to indemnify the Investor for any loss or recapture of NMTC related to the financing until such time as the recapture provisions have expired under the applicable statute of limitations. The Company does not anticipate any credit recapture will be required in connection with this financing arrangement.
The Investor and its majority owned community development entity are considered Variable Interest Entities (“VIEs”) and the Company is the primary beneficiary of the VIEs. This conclusion was reached based on the following:
· |
the ongoing activities of the VIEs—collecting and remitting interest and fees and NMTC compliance—were all considered in the initial design and are not expected to significantly affect performance throughout the life of the VIE; |
· |
contractual arrangements obligate the Company to comply with NMTC rules and regulations and provide various other guarantees to the Investor and community development entity; |
· |
the Investor lacks a material interest in the underling economics of the project; and |
· |
the Company is obligated to absorb losses of the VIEs. |
Because the Company is the primary beneficiary of the VIEs, they have been included in the consolidated financial statements. There are no other assets, liabilities or transactions in these VIEs outside of the financing transactions executed as part of the NMTC arrangement.
Also in December 2014, in connection with the NMTC transaction, the Company entered into a land purchase option agreement with the owner of certain real property (land) adjacent to certain of the Company’s current Madison, Wisconsin facilities. The option is renewable annually in exchange for a fee. If the Company exercises its land purchase option, it will pay a fixed amount for the land. That fixed amount approximates the then-current fair value of the land. If the Company decides not to exercise its option, then on December 31, 2021 (which is after the seven year compliance period of the NMTC program), the Company must pay $1.2 million to the community development entity. As discussed below, the community development entity is a variable interest entity consolidated into the Company. The community development entity would then distribute this money to its members. The majority member of the community development entity is also the owner of the land subject to the land purchase option. The Company has recorded the obligation and the land purchase option asset for $1.2 million to reflect the Company’s assessment that it is probable that at least $1.2 million will be paid in the future based on resolution of the land purchase option. The asset is included in Other Long-Term Assets and the liability is included in Other Long-Term Liabilities on the consolidated balance sheet.
|
(12) WISCONSIN ECONOMIC DEVELOPMENT TAX CREDITS
During the first quarter of 2015, the Company entered into an agreement with the Wisconsin Economic Development Corporation (“WEDC”) to earn $9.0 million in refundable tax credits if the Company expends $26.3 million in capital investments and establishes and maintains 758 full-time positions over a seven-year period. The tax credits earned are first applied against the tax liability otherwise due, and if there is no such liability present, the claim for tax credits will be reimbursed in cash to the Company. The maximum amount of the refundable tax credit to be earned for each year is fixed, and the Company earns the credits by meeting certain capital investment and job creation thresholds over the seven-year period. Should the Company earn and receive the job creation tax credits but not maintain those full-time positions through the end of the agreement, the Company may be required to pay those credits back to the WEDC.
The Company records the earned tax credits as job creation and capital investments occur. The amount of tax credits earned is recorded as a liability and amortized as a reduction of operating expenses over the expected period of benefit. The tax credits earned from capital investment are recognized as an offset to depreciation expense over the expected life of the acquired capital assets. The tax credits earned related to job creation are recognized as an offset to operational expenses over the life of the agreement, as the Company is required to maintain the minimum level of full-time positions through the seven-year period.
As of December 31, 2016, the Company has earned $5.0 million of tax credits and has received payment of $0.8 million from the WEDC. The unpaid portion is $4.2 million, of which $1.6 million is reported in prepaid expenses and other current assets and $2.6 million is reported in other long-term assets, reflecting when collection of the refundable tax credits is expected to occur. As of December 31, 2016, the Company also has recorded a $1.1 million liability in other short-term liabilities and a $3.0 million liability in other long-term liabilities, reflecting when the expected benefit of the tax credit amortization will reduce future operating expenses.
During the year ended December 31, 2016, the Company amortized $0.7 million of the tax credits earned as a reduction of operating expenses.
|
(13) INCOME TAXES
The Company is subject to taxation in the U.S. and various state jurisdictions. All of the Company’s tax years are subject to examination by the U.S. and state tax authorities due to the carryforward of unutilized net operating losses.
Under financial accounting standards, deferred tax assets or liabilities are computed based on the differences between the financial statement and income tax bases of assets and liabilities using the enacted tax rates. Deferred income tax expense or benefit represents the change in the deferred tax assets or liabilities from period to period. At December 31, 2016, the Company had federal net operating loss, state net operating loss, and foreign net operating loss carryforwards of approximately $725.1 million, $291.9 million, and $1.4 million, respectively for financial reporting purposes, which may be used to offset future taxable income. The Company also had federal and state research tax credit carryforwards of $8.5 million and $16.4 million, respectively which may be used to offset future income tax liability. The federal and state carryforwards expire beginning 2017 through 2036 and are subject to review and possible adjustment by the Internal Revenue Service and state tax jurisdictions. In the event of a change of ownership, the federal and state net operating loss and research and development tax credit carryforwards may be subject to annual limitations provided by the Internal Revenue Code and similar state provisions.
As of December 31, 2016 and 2015, the Company had $62.7 million and $45.5 million, respectively, in excess tax benefit stock option deductions. Historically, the excess tax benefit arising from these deductions is credited to additional paid in capital as the benefit is realized. In March 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-09, “Compensation —Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” as part of its Simplification Initiative which among other things changed the accounting for excess tax benefit stock option deductions. If in the future, the Company is able to utilize its deferred tax assets to offset taxes payable, excess tax benefit stock option deductions or deficiencies will now be reflected in the consolidated statements of operations as a component of the provision for income taxes. The Company will adopt Update 2016-09 in the first quarter of 2017.
The components of the net deferred tax asset with the approximate income tax effect of each type of carryforward, credit and temporary differences are as follows:
|
|
December 31, |
|
||||
(In thousands) |
|
2016 |
|
2015 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
|
Operating loss carryforwards |
|
$ |
244,465 |
|
$ |
189,007 |
|
Tax credit carryforwards |
|
|
19,271 |
|
|
17,947 |
|
Other temporary differences |
|
|
14,176 |
|
|
8,146 |
|
Tax assets before valuation allowance |
|
|
277,912 |
|
|
215,100 |
|
Less—Valuation allowance |
|
|
(277,912) |
|
|
(215,100) |
|
Net deferred taxes |
|
$ |
— |
|
$ |
— |
|
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, management has determined that a valuation allowance of $277.9 million and $215.1 million at December 31, 2016 and 2015, respectively, is necessary to reduce the tax assets to the amount that is more likely than not to be realized. The change in valuation allowance for December 31, 2016 and 2015 was $62.8 million and $53.2 million, respectively. Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact the Company’s effective tax rate.
The effective tax rate differs from the statutory tax rate due to the following:
|
|
December 31, |
|
||||
|
|
2016 |
|
2015 |
|
2014 |
|
U.S. Federal statutory rate |
|
35.0 |
% |
35.0 |
% |
34.0 |
% |
State taxes |
|
2.4 |
|
2.1 |
|
5.5 |
|
Federal and state tax rate changes |
|
0.6 |
|
(1.7) |
|
— |
|
Foreign tax rate differential |
|
(0.4) |
|
— |
|
— |
|
Research and development tax credits |
|
0.9 |
|
0.9 |
|
(1.1) |
|
Stock-based compensation expense |
|
(0.6) |
|
(0.6) |
|
(0.5) |
|
Other adjustments |
|
(0.3) |
|
(0.9) |
|
(0.8) |
|
Valuation allowance |
|
(37.6) |
|
(34.8) |
|
(37.1) |
|
Effective tax rate |
|
0.0 |
% |
0.0 |
% |
0.0 |
% |
There are no unrecognized tax benefits as of December 2016, 2015 and 2014, nor are there any tax positions where it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the 12 months following December 31, 2016.
As of December 31, 2016, due to the carryforward of unutilized net operating losses and research and development credits, the Company is subject to U.S. Federal and state income tax examinations for the tax years 1996 through 2016, and to state income tax examinations for the tax years 1996 through 2016. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2016, 2015 and 2014.
|
(14) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth unaudited quarterly statement of operations data for each of the eight quarters ended December 31, 2016 and 2015. In the opinion of management, this information has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this Form 10‑K, and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly the unaudited quarterly results of operations. The quarterly data should be read in conjunction with our audited consolidated financial statements and the notes to the consolidated financial statements appearing elsewhere in this Form 10‑K.
|
|
Quarter Ended |
|
||||||||||
|
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
||||
|
|
(Amounts in thousands, except per share data) |
|
||||||||||
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Laboratory service revenue |
|
$ |
14,835 |
|
$ |
21,185 |
|
$ |
28,115 |
|
$ |
35,241 |
|
Cost of revenue |
|
|
9,059 |
|
|
10,097 |
|
|
12,174 |
|
|
13,865 |
|
Gross profit |
|
|
5,776 |
|
|
11,088 |
|
|
15,941 |
|
|
21,376 |
|
Research and development |
|
|
10,126 |
|
|
8,640 |
|
|
7,625 |
|
|
7,082 |
|
General and administrative |
|
|
17,824 |
|
|
17,284 |
|
|
20,292 |
|
|
21,498 |
|
Sales and marketing |
|
|
25,711 |
|
|
30,301 |
|
|
26,308 |
|
|
30,506 |
|
Loss from operations |
|
|
(47,885) |
|
|
(45,137) |
|
|
(38,284) |
|
|
(37,710) |
|
Investment income |
|
|
466 |
|
|
425 |
|
|
535 |
|
|
592 |
|
Interest income (expense) |
|
|
(54) |
|
|
(53) |
|
|
(54) |
|
|
(52) |
|
Net loss |
|
$ |
(47,473) |
|
$ |
(44,765) |
|
$ |
(37,803) |
|
$ |
(37,170) |
|
Net loss per share—basic and diluted |
|
$ |
(0.49) |
|
$ |
(0.46) |
|
$ |
(0.36) |
|
$ |
(0.34) |
|
Weighted average common shares outstanding—basic and diluted |
|
|
97,246 |
|
|
97,902 |
|
|
104,807 |
|
|
109,274 |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Laboratory service revenue |
|
$ |
4,266 |
|
$ |
8,119 |
|
$ |
12,632 |
|
$ |
14,420 |
|
Cost of revenue |
|
|
4,212 |
|
|
5,094 |
|
|
7,528 |
|
|
7,667 |
|
Gross profit |
|
|
54 |
|
|
3,025 |
|
|
5,104 |
|
|
6,753 |
|
Research and development |
|
|
6,571 |
|
|
8,115 |
|
|
9,863 |
|
|
9,365 |
|
General and administrative |
|
|
12,971 |
|
|
13,683 |
|
|
15,432 |
|
|
15,864 |
|
Sales and marketing |
|
|
16,524 |
|
|
20,593 |
|
|
23,079 |
|
|
21,944 |
|
Loss from operations |
|
|
(36,012) |
|
|
(39,366) |
|
|
(43,270) |
|
|
(40,420) |
|
Investment income |
|
|
222 |
|
|
193 |
|
|
365 |
|
|
491 |
|
Interest expense |
|
|
(11) |
|
|
107 |
|
|
(40) |
|
|
(62) |
|
Net loss |
|
$ |
(35,801) |
|
$ |
(39,066) |
|
$ |
(42,945) |
|
$ |
(39,991) |
|
Net loss per share—basic and diluted |
|
$ |
(0.40) |
|
$ |
(0.44) |
|
$ |
(0.45) |
|
$ |
(0.41) |
|
Weighted average common shares outstanding—basic and diluted |
|
|
88,662 |
|
|
88,919 |
|
|
94,444 |
|
|
96,404 |
|
|
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company’s wholly‑owned subsidiaries, Exact Sciences Laboratories, LLC, Exact Sciences Finance Corporation, Exact Sciences Europe LTD, Beijing Exact Sciences Medical Technology Company Limited, and variable interest entities. See Note 11 for the discussion of financing arrangements involving certain entities that are variable interest entities that are included in our consolidated financial statements. All significant intercompany transactions and balances have been eliminated in consolidation.
References to “Exact”, “we”, “us”, “our”, or the “Company” refer to Exact Sciences Corporation and its wholly owned subsidiaries.
Use of Estimates
The preparation of 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. Actual results could differ from those estimates.
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. The Company had no restricted cash at December 31, 2016 and 2015.
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. Marketable equity securities and debt securities not classified as held‑to‑maturity are classified as available‑for‑sale. Available‑for‑sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive income. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity computed under the straight‑line method. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other‑than‑temporary on available‑for‑sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available‑for‑sale are included in investment income.
At December 31, 2016 and December 31, 2015 the Company’s investments were comprised of fixed income investments, and all were deemed available‑for‑sale. The objectives of the Company’s investment strategy are to provide liquidity and safety of principal while striving to achieve the highest rate of return consistent with these two objectives. 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. All of the Company’s investments are considered current. Realized gains were $24,132, $14,205, and $11,000, net of insignificant realized losses, for the years ended December 31, 2016, 2015, and 2014, respectively and are included in investment income.
The Company periodically reviews investments in unrealized loss positions for other-than-temporary impairments. This evaluation includes, but is not limited to, significant quantitative and qualitative assessments and estimates regarding credit ratings, collateralized support, the length of time and significance of a security’s loss position, the Company’s intent not to sell the security, and whether it is more likely than not that the Company will have to sell the security before recovery of its cost basis. For the year ended December 31, 2016, no investments were identified with other-than-temporary declines in value.
Available‑for‑sale securities at December 31, 2016 consist of the following:
|
|
December 31, 2016 |
|
||||||||||
|
|
|
|
|
Gains in Accumulated |
|
Losses in Accumulated |
|
|
|
|
||
|
|
|
|
|
Other Comprehensive |
|
Other Comprehensive |
|
Estimated Fair |
|
|||
(In thousands) |
|
Amortized Cost |
|
Income |
|
Income |
|
Value |
|
||||
Corporate bonds |
|
$ |
137,013 |
|
$ |
17 |
|
$ |
(93) |
|
$ |
136,937 |
|
Asset backed securities |
55,667 | 3 | (30) | 55,640 | |||||||||
U.S. government agency securities |
|
|
49,591 |
|
|
3 |
|
|
(120) |
|
|
49,474 |
|
Commercial paper |
|
|
19,069 |
|
|
8 |
|
|
(1) |
|
|
19,076 |
|
Certificates of deposit |
|
|
1,053 |
|
|
— |
|
|
(1) |
|
|
1,052 |
|
Total available-for-sale securities |
|
$ |
262,393 |
|
$ |
31 |
|
$ |
(245) |
|
$ |
262,179 |
|
Available‑for‑sale securities at December 31, 2015 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 |
|
||||||||||
|
|
|
|
|
Gains in Accumulated |
|
Losses in Accumulated |
|
|
|
|
||
|
|
|
|
|
Other Comprehensive |
|
Other Comprehensive |
|
Estimated Fair |
|
|||
(In thousands) |
|
Amortized Cost |
|
Income |
|
Income |
|
Value |
|
||||
Corporate bonds |
|
$ |
179,471 |
|
$ |
2 |
|
$ |
(262) |
|
$ |
179,211 |
|
Asset backed securities |
|
|
77,661 |
|
|
— |
|
|
(166) |
|
|
77,495 |
|
U.S. government agency securities |
|
|
7,057 |
|
|
— |
|
|
(18) |
|
|
7,039 |
|
Certificates of deposit |
|
|
1,999 |
|
|
— |
|
|
— |
|
|
1,999 |
|
Total available-for-sale securities |
|
$ |
266,188 |
|
$ |
2 |
|
$ |
(446) |
|
$ |
265,744 |
|
Changes in Accumulated Other Comprehensive Income (Loss)
The amount recognized in accumulated other comprehensive income (loss) (“AOCI”) for the years ended December 31, 2016, 2015 and 2014 were as follows:
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
Cumulative |
|
Unrealized |
|
Other |
|
|||
|
|
Translation |
|
Gain (Loss) |
|
Comprehensive |
|
|||
(In thousands) |
|
Adjustment |
|
on Securities |
|
Income (Loss) |
|
|||
Balance at January 1, 2014 |
|
$ |
— |
|
$ |
125 |
|
$ |
125 |
|
Other comprehensive (loss) income before reclassifications |
|
|
— |
|
|
(200) |
|
|
(200) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
(40) |
|
|
(40) |
|
Net current period change in accumulated other comprehensive income (loss) |
|
|
— |
|
|
(240) |
|
|
(240) |
|
Balance at December 31, 2014 |
|
$ |
— |
|
$ |
(115) |
|
$ |
(115) |
|
Other comprehensive (loss) income before reclassifications |
|
|
11 |
|
|
(361) |
|
|
(350) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
32 |
|
|
32 |
|
Net current period change in accumulated other comprehensive income (loss) |
|
|
11 |
|
|
(329) |
|
|
(318) |
|
Balance at December 31, 2015 |
|
$ |
11 |
|
$ |
(444) |
|
$ |
(433) |
|
Other comprehensive (loss) income before reclassifications |
|
|
(215) |
|
|
117 |
|
|
(98) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
113 |
|
|
113 |
|
Net current period change in accumulated other comprehensive income (loss) |
|
|
(215) |
|
|
230 |
|
|
15 |
|
Balance at December 31, 2016 |
|
$ |
(204) |
|
$ |
(214) |
|
$ |
(418) |
|
Amounts reclassified from accumulated other comprehensive income (loss) for the years ended December 31, 2016, 2015 and 2014 were as follows:
|
|
Affected Line Item in the |
|
Year Ended December 31, |
|||||||
Details about AOCI Components (In thousands) |
|
Statement of Operations |
|
2016 |
|
2015 |
|
2014 |
|||
Change in value of available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
Sales and maturities of available-for-sale investments |
|
Investment income |
|
$ |
113 |
|
$ |
32 |
|
$ |
(40) |
Total reclassifications |
|
|
|
$ |
113 |
|
$ |
32 |
|
$ |
(40) |
Allowance for Doubtful Accounts
The Company estimates an allowance for doubtful accounts against accounts receivable based on estimates of expected collections consistent with historical cash collection experience. 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. For the years ended December 31, 2016, 2015 and 2014, there was no bad debt expense written off against the allowance and charged to operating expense.
Inventory
Inventory is stated at the lower of cost or market value (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 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. In addition, the Company’s products are subject to strict quality control and monitoring which the Company performs throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, the Company records a charge to cost of sales to write down such unmarketable inventory to its estimated realizable value.
Inventory consists of the following:
|
|
December 31, |
|
||||
(In thousands) |
|
2016 |
|
2015 |
|
||
Raw materials |
|
$ |
2,408 |
|
$ |
1,772 |
|
Semi-finished and finished goods |
|
|
4,425 |
|
|
4,905 |
|
Total inventory |
|
$ |
6,833 |
|
$ |
6,677 |
|
Property and Equipment
Property and equipment are stated at cost and depreciated using the straight‑line method over the assets’ estimated useful lives. Maintenance and repairs are expensed when incurred; additions and improvements are capitalized. The estimated useful lives of fixed assets are as follows:
|
|
Estimated |
|
Asset Classification |
|
Useful Life |
|
Laboratory equipment |
|
3 - 5 years |
|
Computer equipment and computer software |
|
3 years |
|
Leasehold improvements |
|
Lesser of the remaining lease term or useful life |
|
Building Improvements |
|
Lesser of the remaining building life or useful life |
|
Furniture and fixtures |
|
3 years |
|
Buildings |
|
30 years |
|
Depreciation expense for the years ended December 31, 2016, 2015, and 2014 was $11.3 million, $7.6 million, and $3.7 million, respectively.
At December 31, 2016, the Company had $6.7 million of assets under construction which consisted of $0.1 million related to building and leasehold improvements, $1.7 million of capitalized costs related to software projects and $4.9 million of costs related to machinery and equipment. Depreciation will begin on these assets once they are placed into service. The Company expects to incur minimal costs to complete these projects and expects to be complete these projects in 2017. The Company assesses its long-lived assets, consisting primarily of property and equipment, for impairment when material events and changes in circumstances indicate that the carrying value may not be recoverable. There were no impairment losses for the years ended December 31, 2016, 2015 or 2014.
Software Capitalization Policy
Software development costs related to internal use software are incurred in three stages of development: 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.
Patent Costs and Intangible Assets
Patent costs, which have historically consisted of related legal fees, 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 year ended December 31, 2016, 2015 and 2014 should be expensed and not capitalized as the future economic benefit derived from the transactions cannot be determined.
Direct and indirect manufacturing costs incurred during process validation and for other research and development activities, which are not permitted to be sold, have been expensed to research and development.
Under a technology license and royalty agreement entered into with MDx Health, the Company is required to pay MDx Health milestones on sales of products or services covered by the licensed intellectual property. Once the achievement of a milestone has occurred or is considered probable, an intangible asset and corresponding liability is reported in other long-term assets and accrued expenses, respectively. The intangible asset is amortized over the estimated ten-year useful life of the licensed intellectual property, and such amortization is reported in cost of sales. The liability is relieved once the milestone has been achieved and payment has been made. As of December 31, 2016, an intangible asset of $1.6 million and a liability of $1.3 million are reported in other long-term assets and accrued expenses, respectively. Amortization expense for the years ended December 31, 2016 and 2015 was $0.2 million.
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) |
|
2016 |
|
2015 |
|
2014 |
|
Shares issuable upon exercise of stock options |
|
3,505 |
|
4,937 |
|
4,934 |
|
Shares issuable upon the release of restricted stock awards |
|
5,601 |
|
3,445 |
|
1,541 |
|
Shares issuable upon the vesting of restricted stock awards related to licensing agreement |
|
— |
|
— |
|
24 |
|
|
|
9,106 |
|
8,382 |
|
6,499 |
|
Accounting for Stock‑Based Compensation
The Company requires all share‑based payments to employees, including grants of employee stock options, restricted stock, restricted stock units and shares purchased under an ESPP (if certain parameters are not met), to be recognized in the financial statements based on their fair values.
Revenue Recognition
Laboratory service revenue. The Company’s laboratory service revenue is generated by performing diagnostic services using its Cologuard test, and the service is completed upon delivery of a test result to an ordering physician. The Company recognizes revenue in accordance with the provisions of ASC 954-605, Health Care Entities - Revenue Recognition. The Company recognizes revenue related to billings for Medicare and other payors on an accrual basis, net of contractual and other adjustments, when amounts that will ultimately be collected can be reasonably estimated. Contractual and other adjustments represent the difference between the list price (the billing rate) and the estimated reimbursement rate for each payor. Upon ultimate collection, the amount received from Medicare and other payors where reimbursement was estimated is compared to previous estimates and, if necessary, the prior allowance is adjusted.
The estimates of amounts that will ultimately be collected require significant judgment by management. Some patients have out-of-pocket costs for amounts not covered by their insurance carrier, and the Company bills the patient directly for these amounts in the form of co-payments, deductibles and co-insurance in accordance with their insurance carrier and health plans. In the absence of the ability to estimate the amount that will ultimately be collected for the Company’s services, revenue is recognized upon cash receipt.
The Company uses judgment in determining if it is able to make an estimate of what will ultimately be collected. The Company also uses judgment in estimating the amounts it expects to collect by payor. The Company’s judgments will continue to evolve in the future as it continues to gain payment experience with payors and patients.
The components of our laboratory service revenue, as recognized upon accrual or cash receipt, for the years ended December 31, 2016 and 2015 were as follows:
|
|
Year Ended December 31, |
|
|
|||||||
(In thousands) |
|
2016 |
|
2015 |
|
|
2014 |
|
|||
Revenue recognized on an accrual basis |
|
$ |
87,037 |
|
$ |
36,364 |
|
$ |
1,388 |
|
|
Revenue recognized when cash is received |
|
|
12,339 |
|
|
3,073 |
|
|
116 |
|
|
Total |
|
$ |
99,376 |
|
$ |
39,437 |
|
$ |
1,504 |
|
|
License fees. License fees for the licensing of product rights are recorded as deferred revenue upon receipt of cash and recognized as revenue on a straight‑line basis over the license period.
As more fully described in Note 3 below, in connection with the Company’s transaction with Genzyme Corporation, Genzyme agreed to pay the Company a total of $18.5 million, of which $16.65 million was paid on January 27, 2009 and $1.85 million was subject to a holdback by Genzyme to satisfy certain potential indemnification obligations in exchange for the assignment and licensing of certain intellectual property to Genzyme. The Company’s on‑going performance obligations to Genzyme under the Collaboration, License and Purchase Agreement (the “CLP Agreement”), as described below, including its obligation to deliver through licenses certain intellectual property improvements to Genzyme, if improvements are made during the initial five‑year collaboration period, were deemed to be undelivered elements of the CLP Agreement on the date of closing. Accordingly, the Company deferred the initial $16.65 million in cash received at closing and amortized that up‑front payment on a straight line basis into revenue over the initial five‑year collaboration period ending in January 2014. The Company received the first holdback amount of $962,000, which included accrued interest, due from Genzyme during the first quarter of 2010. The Company received the second holdback amount of $934,000 which included accrued interest due, from Genzyme during the third quarter of 2010. The amounts were deferred and were amortized on a straight‑line basis into revenue over the remaining term of the collaboration at the time of receipt.
In addition, Genzyme purchased 3,000,000 shares of common stock purchased from the Company on January 27, 2009 for $2.00 per share, representing a premium of $0.51 per share above the closing price of the Company’s common stock on that date of $1.49 per share. The aggregate premium paid by Genzyme over the closing price of the Company’s common stock on the date of the transaction of $1.53 million is deemed to be a part of the total consideration for the CLP Agreement. Accordingly, the Company deferred the aggregate $1.53 million premium and amortized that amount on a straight line basis into revenue over the initial five‑year collaboration period ending in January 2014.
The Company did not recognize license fee revenue for the years ended December 31, 2016 and 2015. The Company recognized approximately $0.3 million in license fee revenue for the year ended December 31, 2014 in connection with the amortization of the up-front payments from Genzyme.
Advertising Costs
The Company expenses the costs of media advertising at the time the advertising takes place. The Company expensed approximately $38.1 million, $10.8 million, and $5.3 million of media advertising during the years ended December 31, 2016, 2015, and 2014, respectively.
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.
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. |
Fixed‑income securities and mutual funds are valued using a third-party pricing agency. The valuation is based on observable inputs including pricing for similar assets and other observable market factors. There has been no material pricing change from period to period.
The following table presents the Company’s fair value measurements as of December 31, 2016 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.
|
|
|
|
|
Fair Value Measurement at December 31, 2016 Using: |
|
|||||||
|
|
|
|
|
Quoted Prices |
|
Significant |
|
|
|
|
||
|
|
|
|
|
in Active |
|
Other |
|
Significant |
|
|||
|
|
|
|
|
Markets for |
|
Observable |
|
Unobservable |
|
|||
|
|
Fair Value at |
|
Identical Assets |
|
Inputs |
|
Inputs |
|
||||
(In thousands) |
|
December 31, 2016 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and money market |
|
$ |
48,921 |
|
|
48,921 |
|
|
— |
|
|
— |
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
136,937 |
|
|
— |
|
|
136,937 |
|
|
— |
|
Asset backed securities |
|
|
55,640 |
|
|
— |
|
|
55,640 |
|
|
— |
|
U.S. government agency securities |
|
|
49,474 |
|
|
— |
|
|
49,474 |
|
|
— |
|
Commercial paper |
|
|
19,076 |
|
|
— |
|
|
19,076 |
|
|
— |
|
Certificates of deposit |
|
|
1,052 |
|
|
— |
|
|
1,052 |
|
|
— |
|
Total |
|
$ |
311,100 |
|
$ |
48,921 |
|
$ |
262,179 |
|
$ |
— |
|
The following table presents the Company’s fair value measurements as of December 31, 2015 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.
|
|
|
|
|
Fair Value Measurement at December 31, 2015 Using: |
|
|||||||
|
|
|
|
|
Quoted Prices |
|
Significant |
|
|
|
|||
|
|
|
|
|
in Active |
|
Other |
|
Significant |
|
|||
|
|
|
|
|
Markets for |
|
Observable |
|
Unobservable |
|
|||
|
|
Fair Value at |
|
Identical Assets |
|
Inputs |
|
Inputs |
|
||||
(In thousands) |
|
December 31, 2015 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and money market |
|
$ |
37,435 |
|
$ |
37,435 |
|
$ |
— |
|
$ |
— |
|
Commercial paper |
|
|
3,700 |
|
|
— |
|
|
3,700 |
|
|
— |
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
179,211 |
|
|
— |
|
|
179,211 |
|
|
— |
|
Asset backed securities |
|
|
77,495 |
|
|
— |
|
|
77,495 |
|
|
— |
|
U.S. government agency securities |
|
|
7,039 |
|
|
— |
|
|
7,039 |
|
|
— |
|
Certificates of deposit |
|
|
1,999 |
|
|
— |
|
|
1,999 |
|
|
— |
|
Total |
|
$ |
306,879 |
|
$ |
37,435 |
|
$ |
269,444 |
|
$ |
— |
|
The Company monitors investments for other-than-temporary impairment. It was determined that unrealized gains and losses at December 31, 2016 and 2015 are temporary in nature because the change in market value for those securities has resulted from fluctuating interest rates rather than a deterioration of the credit worthiness of the issuers. So long as the Company holds these securities to maturity, it is unlikely to experience gains or losses. In the event that the Company disposes of these securities before maturity, it is expected that realized gains or losses, if any, will be immaterial.
The following table summarizes the gross unrealized losses and fair values of investments in an unrealized loss position as of December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
|
|
|
December 31, 2016 |
|
|||||||||||||||
|
|
|
Less than 12 months |
|
12 months or greater |
|
Total |
|
|||||||||||
(In thousands) |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
94,999 |
|
$ |
(93) |
|
$ |
— |
|
$ |
— |
|
$ |
94,999 |
|
$ |
(93) |
|
Asset backed securities |
|
|
41,656 |
|
|
(27) |
|
|
3,506 |
|
|
(2) |
|
|
45,162 |
|
|
(29) |
|
U.S. government agency securities |
|
|
44,911 |
|
|
(120) |
|
|
— |
|
|
— |
|
|
44,911 |
|
|
(120) |
|
Commercial paper |
|
|
5,606 |
|
|
(2) |
|
|
— |
|
|
— |
|
|
5,606 |
|
|
(2) |
|
Certificates of deposit |
|
|
1,052 |
|
|
(1) |
|
|
— |
|
|
— |
|
|
1,052 |
|
|
(1) |
|
Total |
|
$ |
188,224 |
|
$ |
(243) |
|
$ |
3,506 |
|
$ |
(2) |
|
$ |
191,730 |
|
$ |
(245) |
|
The following table summarizes the gross unrealized losses and fair value of investments in an unrealized loss position as of December 31, 2015, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
|
|
|
December 31, 2015 |
|||||||||||||||
|
|
|
Less than 12 months |
|
12 months or greater |
|
Total |
|||||||||||
(In thousands) |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
Marketable Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
166,238 |
|
$ |
(262) |
|
$ |
— |
|
$ |
— |
|
$ |
166,238 |
|
$ |
(262) |
U.S. government agency securities |
|
|
7,039 |
|
|
(18) |
|
|
— |
|
|
— |
|
|
7,039 |
|
|
(18) |
Asset backed securities |
|
|
72,792 |
|
|
(164) |
|
|
3,887 |
|
|
(2) |
|
|
76,679 |
|
|
(166) |
Total |
|
$ |
246,069 |
|
$ |
(444) |
|
$ |
3,887 |
|
$ |
(2) |
|
$ |
249,956 |
|
$ |
(446) |
The following table summarizes contractual underlying maturities of the Company’s available‑for‑sale investments at December 31, 2016:
|
|
|
Due one year or less |
|
Due after one year through four years |
|||||||
(In thousands) |
|
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
128,443 |
|
$ |
128,389 |
|
$ |
8,570 |
|
$ |
8,548 |
Certificates of deposit |
|
|
— |
|
|
— |
|
|
1,053 |
|
|
1,052 |
Commercial paper |
|
|
19,069 |
|
|
19,076 |
|
|
— |
|
|
— |
U.S. government agency securities |
|
|
14,553 |
|
|
14,545 |
|
|
35,038 |
|
|
34,929 |
Asset backed securities |
|
|
— |
|
|
— |
|
|
55,667 |
|
|
55,640 |
Total |
|
$ |
162,065 |
|
$ |
162,010 |
|
$ |
100,328 |
|
$ |
100,169 |
Concentration of Credit Risk
In accordance with GAAP, the Company is required to disclose any significant off‑balance‑sheet risk and credit risk concentration. The Company has no significant off‑balance‑sheet risk, such as foreign exchange contracts or other hedging arrangements. Financial instruments that subject the Company to credit risk consist of cash, cash equivalents and marketable securities. As of December 31, 2016, 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 $47.9 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, 2016, all of the Company’s laboratory service revenues have been derived from the sale of Cologuard, and one payor, Centers for Medicare and Medicaid Services, has provided greater than 10% of revenue during the years ended December 31, 2016 and 2015. Medicare revenue as a percentage of total laboratory service revenue was 60% and 71% for the years ended December 31, 2016 and 2015, respectively. Medicare accounts receivable as a percentage of total accounts receivable were 63% and 64% at December 31, 2016 and 2015, respectively. As the number of payors reimbursing for Cologuard increases, the percentage of laboratory service revenue derived from Medicare will continue to change as a percentage of revenue and accounts receivable.
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 $277.9 million and $215.1 million valuation allowance at December 31, 2016 and 2015 is necessary to reduce the tax assets to the amount that is more likely than not to be realized. The change in valuation allowance for December 31, 2016 and 2015 was $62.8 million and $53.2 million, respectively. Due to the existence of the valuation allowance, future changes in the Company’s unrecognized tax benefits will not impact the Company’s effective tax rate.
Subsequent Events
The Company evaluates events that occur through the filing date and discloses those events or transactions that provide additional evidence with respect to conditions that existed at the date of the balance sheet. In addition, the financial statements are adjusted for any changes in estimates resulting from the use of such evidence.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-9, Revenue from Contracts with Customers (Topic 606), (the “New Revenue Standard”) requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Additional disclosures will also be required to enable users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The New Revenue Standard will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either the retrospective or modified retrospective method upon adoption. Adoption of the New Revenue Standard is permitted as early as the first quarter of 2017 and is required by the first quarter of 2018. The Company does not plan to early adopt this standard and has not yet selected a transition method. The Company has completed its preliminary evaluation of the potential financial statement impact of the New Revenue Standard on prior and future reporting periods. The Company does not expect material changes to the timing of when the Company recognizes revenue or the method by which the Company measures its single revenue stream, lab service revenue. Further, regarding the contract acquisition cost component of the New Revenue Standard, the Company’s analysis supports use of the practical expedient when recognizing expense related to incremental costs incurred to acquire a contract, as the recovery of such costs is completed in less than one year’s time. Additionally, incremental costs to obtain contracts have been immaterial to date. Accordingly, the Company does not expect any material changes to the timing of when it recognizes expenses related to contract acquisition costs. The Company will continue its evaluation of the New Revenue Standard through the date of adoption.
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-02, “Leases (Topic 842),” (“Update 2016-02”) which requires recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Early adoption is permitted. The Company is currently evaluating the effects that the adoption of Update 2016-02 will have on the Company’s consolidated financial statements, and anticipate that the new guidance will impact the Company’s consolidated financial statements as it has several leases. As further described in Note 7. Commitments and Contingencies, as of December 31, 2016, we had future minimum operating lease payments of $6.9 million.
In March 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-09, “Compensation —Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“Update 2016-09”) as part of its Simplification Initiative. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, accounting for forfeitures, and classification in the statements of cash flows. The amendments in this update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. With the adoption of Update 2016-09, forfeiture estimates are no longer required and the effects of actual forfeitures are recorded at the time they occur. The Company will adopt Update 2016-09 in the first quarter of 2017 and will no longer use a forfeiture rate. The adoption of this aspect of the guidance is not expected to have a material impact on the Company’s financial statements.
Additionally, if in the future, the Company is able to utilize its deferred tax assets to offset taxes payable, excess tax benefit stock option deductions will be reflected in the consolidated statements of operations as a component of the provision for income taxes, whereas they previously would have been recognized in equity on the consolidated balance sheet. As of December 31, 2016, the Company had $62.7 million in excess tax benefit stock option deductions which would be subject to this reclassification if the deferred tax assets are realized in the future. Upon adoption, all such deductions will be fully offset by the valuation allowance.
In August 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“Update 2016-15”). Current GAAP either is unclear or does not include specific guidance on the eight cash flow classification issues included in the amendments in Update 2016-15. The amendments are an improvement to GAAP because they provide guidance for each of the eight issues, thereby reducing the current and potential future diversity in practice. The amendments in Update 2016-15 are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The company has evaluated Update 2016-15 and we do not expect the adoption of this guidance to have a material impact on our statement of cash flows.
In October 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,” (“Update 2016-16”). This amendment improves the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Update 2016-16 is effective for fiscal years and interim periods within those years beginning after December 15, 2017. Early adoption is permitted. The Company does not anticipate that the adoption of Update 2016-16 to have a significant impact on its consolidated financial statements.
In October 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-17, “Consolidation (Topic 810): Interests Held through Related Parties That Are Under Common Control,” (“Update 2016-17”). The amendments in Update 2016-17 change how a reporting entity that is the single decision maker of a variable interest entity should treat indirect interests in the entity held through related parties that are under common control with the reporting entity when determining whether it is the primary beneficiary of that variable interest entity. The amendment is effective for fiscal years and interim periods within those years beginning after December 15, 2016. The Company does not expect the adoption of Update 2017-17 to have a material impact on its consolidated financial statements.
In November 2016, the Financial Accounting Standards Board issued Accounting Standards Update No. 2016-18, “Statement of Cash Flows: Restricted Cash,” (“Update 2016-18”). Update 2016-18 provides guidance on the classification of restricted cash in the statement of cash flows. The amendments are effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted. The amendments in the Update 2016-18 should be adopted on a retrospective basis. The Company does not expect that adoption of this amendment to have a material effect on its consolidated financial statements as the Company does not have restricted cash.
In January 2017, the Financial Accounting Standards Board issued Accounting Standards Update No. 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business,” (“Update 2017-01”). in an effort to clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments of this ASU are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.
Foreign Currency Translation
For the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilities of these subsidiaries are translated into United States dollars at the period-end exchange rate or historical rates, as appropriate. Consolidated statements of operations amounts are translated at average exchange rates for the period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheet as a component of accumulated other comprehensive loss in total Exact Sciences Corporation’s shareholders’ equity. Transaction gains and losses are included in the consolidated statement of operations.
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.
|
Available‑for‑sale securities at December 31, 2016 consist of the following:
|
|
December 31, 2016 |
|
||||||||||
|
|
|
|
|
Gains in Accumulated |
|
Losses in Accumulated |
|
|
|
|
||
|
|
|
|
|
Other Comprehensive |
|
Other Comprehensive |
|
Estimated Fair |
|
|||
(In thousands) |
|
Amortized Cost |
|
Income |
|
Income |
|
Value |
|
||||
Corporate bonds |
|
$ |
137,013 |
|
$ |
17 |
|
$ |
(93) |
|
$ |
136,937 |
|
Asset backed securities |
55,667 | 3 | (30) | 55,640 | |||||||||
U.S. government agency securities |
|
|
49,591 |
|
|
3 |
|
|
(120) |
|
|
49,474 |
|
Commercial paper |
|
|
19,069 |
|
|
8 |
|
|
(1) |
|
|
19,076 |
|
Certificates of deposit |
|
|
1,053 |
|
|
— |
|
|
(1) |
|
|
1,052 |
|
Total available-for-sale securities |
|
$ |
262,393 |
|
$ |
31 |
|
$ |
(245) |
|
$ |
262,179 |
|
Available‑for‑sale securities at December 31, 2015 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015 |
|
||||||||||
|
|
|
|
|
Gains in Accumulated |
|
Losses in Accumulated |
|
|
|
|
||
|
|
|
|
|
Other Comprehensive |
|
Other Comprehensive |
|
Estimated Fair |
|
|||
(In thousands) |
|
Amortized Cost |
|
Income |
|
Income |
|
Value |
|
||||
Corporate bonds |
|
$ |
179,471 |
|
$ |
2 |
|
$ |
(262) |
|
$ |
179,211 |
|
Asset backed securities |
|
|
77,661 |
|
|
— |
|
|
(166) |
|
|
77,495 |
|
U.S. government agency securities |
|
|
7,057 |
|
|
— |
|
|
(18) |
|
|
7,039 |
|
Certificates of deposit |
|
|
1,999 |
|
|
— |
|
|
— |
|
|
1,999 |
|
Total available-for-sale securities |
|
$ |
266,188 |
|
$ |
2 |
|
$ |
(446) |
|
$ |
265,744 |
|
The amount recognized in accumulated other comprehensive income (loss) (“AOCI”) for the years ended December 31, 2016, 2015 and 2014 were as follows:
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
Cumulative |
|
Unrealized |
|
Other |
|
|||
|
|
Translation |
|
Gain (Loss) |
|
Comprehensive |
|
|||
(In thousands) |
|
Adjustment |
|
on Securities |
|
Income (Loss) |
|
|||
Balance at January 1, 2014 |
|
$ |
— |
|
$ |
125 |
|
$ |
125 |
|
Other comprehensive (loss) income before reclassifications |
|
|
— |
|
|
(200) |
|
|
(200) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
(40) |
|
|
(40) |
|
Net current period change in accumulated other comprehensive income (loss) |
|
|
— |
|
|
(240) |
|
|
(240) |
|
Balance at December 31, 2014 |
|
$ |
— |
|
$ |
(115) |
|
$ |
(115) |
|
Other comprehensive (loss) income before reclassifications |
|
|
11 |
|
|
(361) |
|
|
(350) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
32 |
|
|
32 |
|
Net current period change in accumulated other comprehensive income (loss) |
|
|
11 |
|
|
(329) |
|
|
(318) |
|
Balance at December 31, 2015 |
|
$ |
11 |
|
$ |
(444) |
|
$ |
(433) |
|
Other comprehensive (loss) income before reclassifications |
|
|
(215) |
|
|
117 |
|
|
(98) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
— |
|
|
113 |
|
|
113 |
|
Net current period change in accumulated other comprehensive income (loss) |
|
|
(215) |
|
|
230 |
|
|
15 |
|
Balance at December 31, 2016 |
|
$ |
(204) |
|
$ |
(214) |
|
$ |
(418) |
|
Amounts reclassified from accumulated other comprehensive income (loss) for the years ended December 31, 2016, 2015 and 2014 were as follows:
|
|
Affected Line Item in the |
|
Year Ended December 31, |
|||||||
Details about AOCI Components (In thousands) |
|
Statement of Operations |
|
2016 |
|
2015 |
|
2014 |
|||
Change in value of available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
Sales and maturities of available-for-sale investments |
|
Investment income |
|
$ |
113 |
|
$ |
32 |
|
$ |
(40) |
Total reclassifications |
|
|
|
$ |
113 |
|
$ |
32 |
|
$ |
(40) |
Inventory consists of the following:
|
|
December 31, |
|
||||
(In thousands) |
|
2016 |
|
2015 |
|
||
Raw materials |
|
$ |
2,408 |
|
$ |
1,772 |
|
Semi-finished and finished goods |
|
|
4,425 |
|
|
4,905 |
|
Total inventory |
|
$ |
6,833 |
|
$ |
6,677 |
|
|
|
Estimated |
|
Asset Classification |
|
Useful Life |
|
Laboratory equipment |
|
3 - 5 years |
|
Computer equipment and computer software |
|
3 years |
|
Leasehold improvements |
|
Lesser of the remaining lease term or useful life |
|
Building Improvements |
|
Lesser of the remaining building life or useful life |
|
Furniture and fixtures |
|
3 years |
|
Buildings |
|
30 years |
|
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) |
|
2016 |
|
2015 |
|
2014 |
|
Shares issuable upon exercise of stock options |
|
3,505 |
|
4,937 |
|
4,934 |
|
Shares issuable upon the release of restricted stock awards |
|
5,601 |
|
3,445 |
|
1,541 |
|
Shares issuable upon the vesting of restricted stock awards related to licensing agreement |
|
— |
|
— |
|
24 |
|
|
|
9,106 |
|
8,382 |
|
6,499 |
|
|
|
Year Ended December 31, |
|
|
|||||||
(In thousands) |
|
2016 |
|
2015 |
|
|
2014 |
|
|||
Revenue recognized on an accrual basis |
|
$ |
87,037 |
|
$ |
36,364 |
|
$ |
1,388 |
|
|
Revenue recognized when cash is received |
|
|
12,339 |
|
|
3,073 |
|
|
116 |
|
|
Total |
|
$ |
99,376 |
|
$ |
39,437 |
|
$ |
1,504 |
|
|
The following table presents the Company’s fair value measurements as of December 31, 2016 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.
|
|
|
|
|
Fair Value Measurement at December 31, 2016 Using: |
|
|||||||
|
|
|
|
|
Quoted Prices |
|
Significant |
|
|
|
|
||
|
|
|
|
|
in Active |
|
Other |
|
Significant |
|
|||
|
|
|
|
|
Markets for |
|
Observable |
|
Unobservable |
|
|||
|
|
Fair Value at |
|
Identical Assets |
|
Inputs |
|
Inputs |
|
||||
(In thousands) |
|
December 31, 2016 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and money market |
|
$ |
48,921 |
|
|
48,921 |
|
|
— |
|
|
— |
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
136,937 |
|
|
— |
|
|
136,937 |
|
|
— |
|
Asset backed securities |
|
|
55,640 |
|
|
— |
|
|
55,640 |
|
|
— |
|
U.S. government agency securities |
|
|
49,474 |
|
|
— |
|
|
49,474 |
|
|
— |
|
Commercial paper |
|
|
19,076 |
|
|
— |
|
|
19,076 |
|
|
— |
|
Certificates of deposit |
|
|
1,052 |
|
|
— |
|
|
1,052 |
|
|
— |
|
Total |
|
$ |
311,100 |
|
$ |
48,921 |
|
$ |
262,179 |
|
$ |
— |
|
The following table presents the Company’s fair value measurements as of December 31, 2015 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.
|
|
|
|
|
Fair Value Measurement at December 31, 2015 Using: |
|
|||||||
|
|
|
|
|
Quoted Prices |
|
Significant |
|
|
|
|||
|
|
|
|
|
in Active |
|
Other |
|
Significant |
|
|||
|
|
|
|
|
Markets for |
|
Observable |
|
Unobservable |
|
|||
|
|
Fair Value at |
|
Identical Assets |
|
Inputs |
|
Inputs |
|
||||
(In thousands) |
|
December 31, 2015 |
|
(Level 1) |
|
(Level 2) |
|
(Level 3) |
|
||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and money market |
|
$ |
37,435 |
|
$ |
37,435 |
|
$ |
— |
|
$ |
— |
|
Commercial paper |
|
|
3,700 |
|
|
— |
|
|
3,700 |
|
|
— |
|
Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
|
179,211 |
|
|
— |
|
|
179,211 |
|
|
— |
|
Asset backed securities |
|
|
77,495 |
|
|
— |
|
|
77,495 |
|
|
— |
|
U.S. government agency securities |
|
|
7,039 |
|
|
— |
|
|
7,039 |
|
|
— |
|
Certificates of deposit |
|
|
1,999 |
|
|
— |
|
|
1,999 |
|
|
— |
|
Total |
|
$ |
306,879 |
|
$ |
37,435 |
|
$ |
269,444 |
|
$ |
— |
|
The following table summarizes the gross unrealized losses and fair values of investments in an unrealized loss position as of December 31, 2016, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
|
|
|
December 31, 2016 |
|
|||||||||||||||
|
|
|
Less than 12 months |
|
12 months or greater |
|
Total |
|
|||||||||||
(In thousands) |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
94,999 |
|
$ |
(93) |
|
$ |
— |
|
$ |
— |
|
$ |
94,999 |
|
$ |
(93) |
|
Asset backed securities |
|
|
41,656 |
|
|
(27) |
|
|
3,506 |
|
|
(2) |
|
|
45,162 |
|
|
(29) |
|
U.S. government agency securities |
|
|
44,911 |
|
|
(120) |
|
|
— |
|
|
— |
|
|
44,911 |
|
|
(120) |
|
Commercial paper |
|
|
5,606 |
|
|
(2) |
|
|
— |
|
|
— |
|
|
5,606 |
|
|
(2) |
|
Certificates of deposit |
|
|
1,052 |
|
|
(1) |
|
|
— |
|
|
— |
|
|
1,052 |
|
|
(1) |
|
Total |
|
$ |
188,224 |
|
$ |
(243) |
|
$ |
3,506 |
|
$ |
(2) |
|
$ |
191,730 |
|
$ |
(245) |
|
The following table summarizes the gross unrealized losses and fair value of investments in an unrealized loss position as of December 31, 2015, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
|
|
|
December 31, 2015 |
|||||||||||||||
|
|
|
Less than 12 months |
|
12 months or greater |
|
Total |
|||||||||||
(In thousands) |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
|
|
Fair Value |
|
|
Gross Unrealized Loss |
Marketable Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
166,238 |
|
$ |
(262) |
|
$ |
— |
|
$ |
— |
|
$ |
166,238 |
|
$ |
(262) |
U.S. government agency securities |
|
|
7,039 |
|
|
(18) |
|
|
— |
|
|
— |
|
|
7,039 |
|
|
(18) |
Asset backed securities |
|
|
72,792 |
|
|
(164) |
|
|
3,887 |
|
|
(2) |
|
|
76,679 |
|
|
(166) |
Total |
|
$ |
246,069 |
|
$ |
(444) |
|
$ |
3,887 |
|
$ |
(2) |
|
$ |
249,956 |
|
$ |
(446) |
The following table summarizes contractual underlying maturities of the Company’s available‑for‑sale investments at December 31, 2016:
|
|
|
Due one year or less |
|
Due after one year through four years |
|||||||
(In thousands) |
|
|
Cost |
|
|
Fair Value |
|
|
Cost |
|
|
Fair Value |
Marketable securities |
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
128,443 |
|
$ |
128,389 |
|
$ |
8,570 |
|
$ |
8,548 |
Certificates of deposit |
|
|
— |
|
|
— |
|
|
1,053 |
|
|
1,052 |
Commercial paper |
|
|
19,069 |
|
|
19,076 |
|
|
— |
|
|
— |
U.S. government agency securities |
|
|
14,553 |
|
|
14,545 |
|
|
35,038 |
|
|
34,929 |
Asset backed securities |
|
|
— |
|
|
— |
|
|
55,667 |
|
|
55,640 |
Total |
|
$ |
162,065 |
|
$ |
162,010 |
|
$ |
100,328 |
|
$ |
100,169 |
|
|
|
December 31, |
|
|||||||
(In thousands) |
|
2016 |
|
2015 |
|
2014 |
|
|||
Cost of sales |
|
$ |
1,064 |
|
$ |
876 |
|
$ |
279 |
|
Research and development |
|
|
4,014 |
|
|
3,744 |
|
|
4,149 |
|
General and administrative |
|
|
14,597 |
|
|
9,358 |
|
|
5,575 |
|
Sales and marketing |
|
|
4,057 |
|
|
4,072 |
|
|
1,517 |
|
Total stock-based compensation |
|
$ |
23,732 |
|
$ |
18,050 |
|
$ |
11,520 |
|
|
|
Year Ended |
|
||||
|
|
December 31, |
|
||||
|
|
2016 |
|
2015 |
|
2014 |
|
Option Plan Shares |
|
|
|
|
|
|
|
Risk-free interest rates |
|
1.48% - 1.69% |
|
1.5% - 1.92% |
|
1.96% - 2.01% |
|
Expected term (in years) |
|
6.25 - 6.74 |
|
6.25 - 6.6 |
|
6.25 |
|
Expected volatility |
|
58.9% - 59.4% |
|
67.1% - 73.2% |
|
77.6% - 80.8% |
|
Dividend yield |
|
0 % |
|
0 % |
|
0 % |
|
Weighted average fair value per share of options granted during the period |
|
$ 3.17 |
|
$ 15.81 |
|
$ 10.05 |
|
Market Measure-Based Shares |
|
|
|
|
|
|
|
Risk-free interest rates |
|
0.76% - 0.91% |
|
1.12 % |
|
(1) |
|
Expected term (in years) |
|
2.43 - 2.84 |
|
3.16 |
|
(1) |
|
Expected volatility |
|
68.3 - 79.6% |
|
64.3 % |
|
(1) |
|
Dividend yield |
|
0 % |
|
0 % |
|
(1) |
|
Weighted average fair value per share of stock purchase rights granted during the period |
|
$ 3.77 |
|
$ 5.91 |
|
(1) |
|
ESPP Shares |
|
|
|
|
|
|
|
Risk-free interest rates |
|
0.41% - 0.83% |
|
0.25% - 0.75% |
|
0.1% - 0.5% |
|
Expected term (in years) |
|
0.5 - 2 |
|
0.5 - 2 |
|
0.5 - 2 |
|
Expected volatility |
|
70.1% - 92.7% |
|
51.2% - 110% |
|
42.5% - 62.7% |
|
Dividend yield |
|
0 % |
|
0 % |
|
0 % |
|
Weighted average fair value per share of stock purchase rights granted during the period |
|
$ 3.30 |
|
$ 4.67 |
|
$ 6.30 |
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Weighted |
|
Average |
|
|
|
|
|
|
|
|
|
Average |
|
Remaining |
|
Aggregate |
|
||
|
|
|
|
Exercise |
|
Contractual |
|
Intrinsic |
|
||
Options |
|
Shares |
|
Price |
|
Term (Years) |
|
Value(1) |
|
||
(Aggregate intrinsic value in thousands) |
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 1, 2014 |
|
6,062,587 |
|
$ |
2.78 |
|
6.6 |
|
|
|
|
Granted |
|
266,477 |
|
|
14.28 |
|
|
|
|
|
|
Exercised |
|
(1,378,372) |
|
|
1.91 |
|
|
|
|
|
|
Forfeited |
|
(16,375) |
|
|
6.37 |
|
|
|
|
|
|
Outstanding, December 31, 2014 |
|
4,934,317 |
|
$ |
3.63 |
|
5.2 |
|
|
|
|
Granted |
|
340,978 |
|
|
23.51 |
|
|
|
|
|
|
Exercised |
|
(281,315) |
|
|
4.44 |
|
|
|
|
|
|
Forfeited |
|
(57,386) |
|
|
16.99 |
|
|
|
|
|
|
Outstanding, December 31, 2015 |
|
4,936,594 |
|
$ |
4.80 |
|
4.5 |
|
|
|
|
Granted |
|
883,889 |
|
|
5.48 |
|
|
|
|
|
|
Exercised |
|
(2,255,959) |
|
|
1.52 |
|
|
|
|
|
|
Forfeited |
|
(59,043) |
|
|
9.75 |
|
|
|
|
|
|
Outstanding, December 31, 2016 |
|
3,505,481 |
|
$ |
7.00 |
|
5.5 |
|
$ |
25,700 |
|
Exercisable, December 31, 2016 |
|
2,265,691 |
|
$ |
5.42 |
|
3.8 |
|
$ |
18,943 |
|
Vested and expected to vest, December 31, 2016 |
|
3,429,333 |
|
$ |
3.97 |
|
5.5 |
|
$ |
25,201 |
|
(1) |
The aggregate intrinsic value of options outstanding at December 31, 2016 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for the 3,505,481 options that had exercise prices that were lower than the $13.36 market price of our common stock at December 31, 2016. The aggregate intrinsic value of options exercisable at December 31, 2016 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for the 2,265,691 options that had exercise prices that were lower than the $13.36 market price of our common stock at December 31, 2016. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $30.5 million, $3.6 million, and $29.2 million, respectively, determined as of the date of exercise. |
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
Restricted |
|
Average Grant |
|
|
|
|
Shares |
|
Date Fair Value |
|
|
Outstanding, January 1, 2014 |
|
1,150,694 |
|
$ |
11.23 |
|
Granted |
|
926,171 |
|
|
15.61 |
|
Released |
|
(491,370) |
|
|
11.17 |
|
Forfeited |
|
(44,381) |
|
|
12.44 |
|
Outstanding, December 31, 2014 |
|
1,541,114 |
|
$ |
13.86 |
|
Granted |
|
2,895,818 |
|
|
15.23 |
|
Released |
|
(578,033) |
|
|
13.77 |
|
Forfeited |
|
(414,205) |
|
|
20.84 |
|
Outstanding, December 31, 2015 |
|
3,444,694 |
|
$ |
14.19 |
|
Granted |
|
3,960,583 |
|
|
6.90 |
|
Released |
|
(796,168) |
|
|
16.95 |
|
Forfeited |
|
(1,007,793) |
|
|
9.57 |
|
Outstanding, December 31, 2016 |
|
5,601,316 |
|
$ |
9.19 |
|
The following table summarizes information relating to currently outstanding and exercisable stock options as of December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding |
|
Exercisable |
|
||||||||
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
Weighted |
|
||
|
|
|
|
Remaining |
|
Average |
|
|
|
Average |
|
||
|
|
Number of |
|
Contractual |
|
Exercise |
|
Number of |
|
Exercise |
|
||
Exercise Price |
|
Options |
|
Life (Years) |
|
Price |
|
Options |
|
Price |
|
||
$0.00 - $3.00 |
|
1,041,176 |
|
2.2 |
|
$ |
0.86 |
|
1,041,176 |
|
$ |
0.86 |
|
$3.01 - $6.00 |
|
1,121,647 |
|
7.2 |
|
|
5.08 |
|
361,447 |
|
|
4.40 |
|
$6.01 - $9.00 |
|
217,705 |
|
6.3 |
|
|
7.34 |
|
133,116 |
|
|
8.00 |
|
$9.01 - $12.00 |
|
571,202 |
|
5.5 |
|
|
9.71 |
|
524,840 |
|
|
9.61 |
|
$12.01 - $15.00 |
|
220,000 |
|
7.2 |
|
|
13.96 |
|
110,000 |
|
|
13.96 |
|
$15.01 - $18.00 |
|
18,477 |
|
7.6 |
|
|
16.52 |
|
12,318 |
|
|
16.52 |
|
$18.01 - $24.00 |
|
302,666 |
|
8.0 |
|
|
23.38 |
|
78,592 |
|
|
23.38 |
|
$24.01- $26.98 |
|
12,608 |
|
8.1 |
|
|
26.98 |
|
4,202 |
|
|
26.98 |
|
|
|
3,505,481 |
|
5.5 |
|
$ |
7.00 |
|
2,265,691 |
|
$ |
5.42 |
|
Shares reserved for issuance |
|
|
|
2010 Option Plan |
|
1,426,375 |
|
2010 Purchase Plan |
|
2,006,569 |
|
2016 Inducement Plan |
|
845,604 |
|
|
|
4,278,548 |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
Offering period ended |
|
Number of Shares |
|
price per Share |
|
|
April 30, 2016 |
|
177,331 |
|
$ |
5.95 |
|
October 31, 2016 |
|
179,492 |
|
$ |
5.95 |
|
|
Future minimum payments under operating leases as of December 31, 2016 are as follows. Amounts included in the table are in thousands.
|
|
|
|
|
Year Ending December 31, |
|
|
|
|
2017 |
|
$ |
2,226 |
|
2018 |
|
|
1,724 |
|
2019 |
|
|
1,172 |
|
2020 |
|
|
892 |
|
2021 |
|
|
587 |
|
Thereafter |
|
|
281 |
|
Total lease obligations |
|
$ |
6,882 |
|
|
Accrued liabilities at December 31, 2016 and 2015 consisted of the following:
|
|
December 31, |
|
||||
(In thousands) |
|
2016 |
|
2015 |
|
||
Compensation |
|
$ |
16,555 |
|
$ |
8,460 |
|
Licenses |
|
|
5,359 |
|
|
3,761 |
|
Professional fees |
|
|
3,375 |
|
|
5,834 |
|
Research and trial related expenses |
|
|
1,035 |
|
|
1,528 |
|
Other |
|
|
792 |
|
|
688 |
|
Assets under construction |
|
|
655 |
|
|
1,646 |
|
Occupancy costs |
|
|
208 |
|
|
47 |
|
Miscellaneous taxes |
|
|
127 |
|
|
289 |
|
|
|
$ |
28,106 |
|
$ |
22,253 |
|
|
|
|
|
|
|
Year ending December 31, |
|
|
|
|
2017 |
|
$ |
174 |
|
2018 |
|
|
182 |
|
2019 |
|
|
4,496 |
|
2020 |
|
|
— |
|
2021 |
|
|
— |
|
Thereafter |
|
|
— |
|
|
|
$ |
4,852 |
|
|
The components of the net deferred tax asset with the approximate income tax effect of each type of carryforward, credit and temporary differences are as follows:
|
|
December 31, |
|
||||
(In thousands) |
|
2016 |
|
2015 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
|
Operating loss carryforwards |
|
$ |
244,465 |
|
$ |
189,007 |
|
Tax credit carryforwards |
|
|
19,271 |
|
|
17,947 |
|
Other temporary differences |
|
|
14,176 |
|
|
8,146 |
|
Tax assets before valuation allowance |
|
|
277,912 |
|
|
215,100 |
|
Less—Valuation allowance |
|
|
(277,912) |
|
|
(215,100) |
|
Net deferred taxes |
|
$ |
— |
|
$ |
— |
|
|
|
December 31, |
|
||||
|
|
2016 |
|
2015 |
|
2014 |
|
U.S. Federal statutory rate |
|
35.0 |
% |
35.0 |
% |
34.0 |
% |
State taxes |
|
2.4 |
|
2.1 |
|
5.5 |
|
Federal and state tax rate changes |
|
0.6 |
|
(1.7) |
|
— |
|
Foreign tax rate differential |
|
(0.4) |
|
— |
|
— |
|
Research and development tax credits |
|
0.9 |
|
0.9 |
|
(1.1) |
|
Stock-based compensation expense |
|
(0.6) |
|
(0.6) |
|
(0.5) |
|
Other adjustments |
|
(0.3) |
|
(0.9) |
|
(0.8) |
|
Valuation allowance |
|
(37.6) |
|
(34.8) |
|
(37.1) |
|
Effective tax rate |
|
0.0 |
% |
0.0 |
% |
0.0 |
% |
|
|
|
Quarter Ended |
|
||||||||||
|
|
March 31, |
|
June 30, |
|
September 30, |
|
December 31, |
|
||||
|
|
(Amounts in thousands, except per share data) |
|
||||||||||
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Laboratory service revenue |
|
$ |
14,835 |
|
$ |
21,185 |
|
$ |
28,115 |
|
$ |
35,241 |
|
Cost of revenue |
|
|
9,059 |
|
|
10,097 |
|
|
12,174 |
|
|
13,865 |
|
Gross profit |
|
|
5,776 |
|
|
11,088 |
|
|
15,941 |
|
|
21,376 |
|
Research and development |
|
|
10,126 |
|
|
8,640 |
|
|
7,625 |
|
|
7,082 |
|
General and administrative |
|
|
17,824 |
|
|
17,284 |
|
|
20,292 |
|
|
21,498 |
|
Sales and marketing |
|
|
25,711 |
|
|
30,301 |
|
|
26,308 |
|
|
30,506 |
|
Loss from operations |
|
|
(47,885) |
|
|
(45,137) |
|
|
(38,284) |
|
|
(37,710) |
|
Investment income |
|
|
466 |
|
|
425 |
|
|
535 |
|
|
592 |
|
Interest income (expense) |
|
|
(54) |
|
|
(53) |
|
|
(54) |
|
|
(52) |
|
Net loss |
|
$ |
(47,473) |
|
$ |
(44,765) |
|
$ |
(37,803) |
|
$ |
(37,170) |
|
Net loss per share—basic and diluted |
|
$ |
(0.49) |
|
$ |
(0.46) |
|
$ |
(0.36) |
|
$ |
(0.34) |
|
Weighted average common shares outstanding—basic and diluted |
|
|
97,246 |
|
|
97,902 |
|
|
104,807 |
|
|
109,274 |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Laboratory service revenue |
|
$ |
4,266 |
|
$ |
8,119 |
|
$ |
12,632 |
|
$ |
14,420 |
|
Cost of revenue |
|
|
4,212 |
|
|
5,094 |
|
|
7,528 |
|
|
7,667 |
|
Gross profit |
|
|
54 |
|
|
3,025 |
|
|
5,104 |
|
|
6,753 |
|
Research and development |
|
|
6,571 |
|
|
8,115 |
|
|
9,863 |
|
|
9,365 |
|
General and administrative |
|
|
12,971 |
|
|
13,683 |
|
|
15,432 |
|
|
15,864 |
|
Sales and marketing |
|
|
16,524 |
|
|
20,593 |
|
|
23,079 |
|
|
21,944 |
|
Loss from operations |
|
|
(36,012) |
|
|
(39,366) |
|
|
(43,270) |
|
|
(40,420) |
|
Investment income |
|
|
222 |
|
|
193 |
|
|
365 |
|
|
491 |
|
Interest expense |
|
|
(11) |
|
|
107 |
|
|
(40) |
|
|
(62) |
|
Net loss |
|
$ |
(35,801) |
|
$ |
(39,066) |
|
$ |
(42,945) |
|
$ |
(39,991) |
|
Net loss per share—basic and diluted |
|
$ |
(0.40) |
|
$ |
(0.44) |
|
$ |
(0.45) |
|
$ |
(0.41) |
|
Weighted average common shares outstanding—basic and diluted |
|
|
88,662 |
|
|
88,919 |
|
|
94,444 |
|
|
96,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|