Document and Entity Information - shares	6 Months Ended
Document and Entity Information - shares	Jun. 30, 2018	Jul. 31, 2018
Document and Entity Information
Entity Registrant Name	EXACT SCIENCES CORP
Entity Central Index Key	0001124140
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		122,753,839
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Current Assets:
Cash and cash equivalents	$ 225,662	$ 77,491
Marketable securities	996,500	347,224
Accounts receivable, net	36,268	26,419
Inventory, net	35,409	26,027
Prepaid expenses and other current assets	16,465	10,055
Total current assets	1,310,304	487,216
Long-term Assets:
Property, plant and equipment, net	140,467	79,986
Intangibles, net	23,108	24,205
Other long-term assets, net	8,773	7,153
Total assets	1,482,652	598,560
Current Liabilities:
Accounts payable	10,992	16,135
Accrued liabilities	60,046	49,126
Accrued interest	4,154
Debt, current portion	4,588	182
Other short-term liabilities	3,182	2,681
Total current liabilities	82,962	68,124
Convertible notes, net	647,923
Long-term debt, less current portion	878	4,269
Other long-term liabilities	6,501	5,749
Total liabilities	738,264	78,142
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—no shares at June 30, 2018 and December 31, 2017
Common stock, $0.01 par value Authorized—200,000,000 shares issued and outstanding—122,604,714 and 120,497,426 shares at June 30, 2018 and December 31, 2017	1,226	1,205
Additional paid-in capital	1,681,465	1,380,577
Accumulated other comprehensive loss	(1,878)	(750)
Accumulated deficit	(936,425)	(860,614)
Total stockholders' equity	744,388	520,418
Total liabilities and stockholders’ equity	$ 1,482,652	$ 598,560

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
Condensed Consolidated Balance Sheets
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, Authorized shares	5,000,000	5,000,000
Preferred stock, Issued shares	0	0
Preferred stock, outstanding shares	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, Authorized shares	200,000,000	200,000,000
Common stock, Issued shares	122,604,714	120,497,426
Common stock, outstanding shares	122,604,714	120,497,426

Condensed Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Condensed Consolidated Statements of Operations
Laboratory service revenue	$ 102,894	$ 57,646	$ 193,190	$ 106,009
Cost of sales	26,888	17,991	49,802	34,972
Gross margin	76,006	39,655	143,388	71,037
Operating expenses:
Research and development	14,712	9,737	29,647	17,739
General and administrative	39,565	24,609	75,132	44,679
Sales and marketing	54,431	36,728	107,839	75,529
Total operating expenses	108,708	71,074	212,618	137,947
Loss from operations	(32,702)	(31,419)	(69,230)	(66,910)
Other income (expense)
Investment income	4,917	683	8,590	1,278
Interest expense	(8,603)	(54)	(15,113)	(104)
Total other income (expense)	(3,686)	629	(6,523)	1,174
Net loss before tax	(36,388)	(30,790)	(75,753)	(65,736)
Income tax benefit (expense)	1		(58)
Net loss	$ (36,387)	$ (30,790)	$ (75,811)	$ (65,736)
Net loss per share-basic and diluted (in dollars per share)	$ (0.30)	$ (0.27)	$ (0.62)	$ (0.59)
Weighted average common shares outstanding-basic and diluted (in shares)	122,129	112,847	121,578	111,721

Condensed Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Condensed Consolidated Statements of Comprehensive Loss
Net loss	$ (36,387)	$ (30,790)	$ (75,811)	$ (65,736)
Other comprehensive loss, net of tax:
Unrealized gain (loss) on available-for-sale investments	476	(37)	(1,130)	(42)
Foreign currency translation gain (loss)	(18)	89	2	81
Comprehensive loss	$ (35,929)	$ (30,738)	$ (76,939)	$ (65,697)

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash flows from operating activities:
Net loss	$ (75,811)	$ (65,736)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of property and equipment	8,808	6,756
Loss on disposal of property and equipment	96	91
Stock-based compensation	28,056	12,224
Amortization of debt discount	10,822
Amortization of debt issuance costs	920
Amortization of other liabilities	(1,136)	(769)
Amortization of deferred financing costs	49	26
Amortization of premium on short-term investments	(1,392)	57
Amortization of intangible assets	1,228	290
Changes in assets and liabilities, net effects of acquisition:
Accrued interest	4,154
Accounts receivable, net	(9,849)	(14,065)
Inventory, net	(9,382)	(5,577)
Prepaid expenses and other current assets	(6,410)	242
Accounts payable	(5,143)	1,527
Accrued liabilities	(9,798)	(268)
Other short-term liabilities	69
Lease incentive obligation	683	(308)
Net cash used in operating activities	(64,036)	(65,510)
Cash flows from investing activities:
Purchases of marketable securities	(894,856)	(188,248)
Maturities of marketable securities	245,842	146,475
Purchases of property and equipment	(44,364)	(8,648)
Purchases of intangible assets		(8,442)
Internally developed software	(131)
Net cash used in investing activities	(693,509)	(58,863)
Cash flows from financing activities:
Proceeds from issuance of convertible notes, net	896,425
Proceeds from exercise of common stock options	5,645	772
Proceeds from sale of common stock, net of issuance costs		253,463
Proceeds in connection with the Company's employee stock purchase plan	2,661	1,629
Payments of deferred financing costs	(24)
Proceeds from construction loan	1,097
Payments on mortgage payable	(90)	(86)
Net cash provided by financing activities	905,714	255,778
Effects of exchange rate changes on cash and cash equivalents	2	81
Net increase in cash and cash equivalents	148,171	131,486
Cash and cash equivalents, beginning of period	77,491	48,921
Cash and cash equivalents, end of period	225,662	180,407
Supplemental disclosure of non-cash investing and financing activities:
Property and equipment acquired but not paid	25,021	2,105
Unrealized loss on available-for-sale investments	(1,130)	(42)
Issuance of 86,882 and 158,717 shares of common stock to fund the Company’s 401(k) matching contribution for 2017 and 2016, respectively	4,303	3,008
Interest paid	$ 97	$ 101

Condensed Consolidated Statements of Cash Flows (Parenthetical) - shares shares in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2016
Condensed Consolidated Statements of Cash Flows
Issuance of shares of common stock to fund the Company's 401(k) matching contribution	86,882	158,717

ORGANIZATION AND BASIS OF PRESENTATION	6 Months Ended
ORGANIZATION AND BASIS OF PRESENTATION	Jun. 30, 2018
ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION AND BASIS OF PRESENTATION	(1) ORGANIZATION AND BASIS OF PRESENTATION Organization Exact Sciences Corporation (“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 tests for other types of cancer, with the goal of becoming a leader in cancer diagnostics. Basis of Presentation The accompanying condensed consolidated financial statements, which include the accounts of Exact Sciences Corporation and those of its wholly owned subsidiaries, Exact Sciences Laboratories, LLC, Exact Sciences Finance Corporation, CG Growth, LLC, Exact Sciences Development Company, LLC, Sampleminded, Inc., Exact Sciences Europe LTD, Beijing Exact Sciences Medical Technology Company Limited, and variable interest entities are unaudited and have been prepared on a basis substantially consistent with the Company’s audited financial statements and notes as of and for the year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K (the “2017 Form 10-K”). These condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the results of operations have been included. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year. The statements should be read in conjunction with the audited financial statements and related notes included in the 2017 Form 10-K. Management has evaluated subsequent events for disclosure or recognition in the accompanying financial statements up to the filing of this report.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2018

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries, Exact Sciences Laboratories, LLC, Exact Sciences Finance Corporation, CG Growth, LLC, Exact Sciences Development Company, LLC, Sampleminded, Inc., Exact Sciences Europe LTD, Beijing Exact Sciences Medical Technology Company Limited, and variable interest entities. 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 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 bank, money market funds, and all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents.

Marketable Securities

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities carried at amortized cost are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. 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 loss. 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 June 30, 2018 and December 31, 2017, 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. There were no realized losses for the six months ended June 30, 2018 and 2017. Realized gains were $0.1 million and $10,000 for the six months ended June 30, 2018 and 2017, respectively.

We periodically review our 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, our intent not to sell the security, and whether it is more likely than not that we will have to sell the security before recovery of its cost basis. For the six months ended June 30, 2018, no investments were identified with other-than-temporary declines in value.

Available-for-sale securities at June 30, 2018 consisted of the following:


	June 30, 2018
			Gains in Accumulated		Losses in Accumulated
			Other Comprehensive		Other Comprehensive		Estimated Fair
(In thousands)	Amortized Cost		Income (Loss)		Income (Loss)		Value
Corporate bonds	$	408,569		53		(845)	$	407,777
Asset backed securities		284,134		10		(749)		283,395
U.S. government agency securities		248,730		10		(258)		248,482
Commercial paper		6,118		—		(3)		6,115
Certificates of deposit		50,768		5		(42)		50,731
Total available-for-sale securities	$	998,319	$	78	$	(1,897)	$	996,500

Available-for-sale securities at December 31, 2017 consisted of the following:


	December 31, 2017
			Gains in Accumulated		Losses in Accumulated
			Other Comprehensive		Other Comprehensive		Estimated Fair
(In thousands)	Amortized Cost		Income (Loss)		Income (Loss)		Value
Corporate bonds	$	181,639	$	10	$	(344)	$	181,305
Asset backed securities		94,700		—		(185)		94,515
U.S. government agency securities		54,974		—		(162)		54,812
Commercial paper		9,953		—		(7)		9,946
Certificates of deposit		6,647		1		(2)		6,646
Total available-for-sale securities	$	347,913	$	11	$	(700)	$	347,224

Changes in Accumulated Other Comprehensive Income (Loss)

The amounts recognized in accumulated other comprehensive income (loss) (“AOCI”) for the six months ended June 30, 2018 were as follows:


					Accumulated
	Cumulative		Unrealized		Other
	Translation		Gain (Loss)		Comprehensive
(In thousands)	Adjustment		on Securities		Income (Loss)
Balance at December 31, 2017	$	(61)	$	(689)	$	(750)
Other comprehensive loss before reclassifications		2		(1,244)		(1,242)
Amounts reclassified from accumulated other comprehensive loss		—		114		114
Net current period change in accumulated other comprehensive loss		2		(1,130)		(1,128)
Balance at June 30, 2018	$	(59)	$	(1,819)	$	(1,878)

The amounts recognized in AOCI for the six months ended June 30, 2017 were as follows:


					Accumulated
	Cumulative		Unrealized		Other
	Translation		Gain (Loss)		Comprehensive
(In thousands)	Adjustment		on Securities		Income (Loss)
Balance at December 31, 2016	$	(204)	$	(214)	$	(418)
Other comprehensive loss before reclassifications		81		(38)		43
Amounts reclassified from accumulated other comprehensive loss		—		(4)		(4)
Net current period change in accumulated other comprehensive loss		81		(42)		39
Balance at June 30, 2017	$	(123)	$	(256)	$	(379)

Amounts reclassified from AOCI for the six months ended June 30, 2018 and 2017 were as follows:


	Affected Line Item in the	Six Months Ended June 30,
Details about AOCI Components (In thousands)	Statement of Operations	2018		2017
Change in value of available-for-sale investments
Sales and maturities of available-for-sale investments	Investment income	$	114	$	(4)
Total reclassifications		$	114	$	(4)

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. Property and equipment consisted of the following as of June 30, 2018 and December 31, 2017:


	Estimated		June 30,		December 31,
(In thousands)	Useful Life		2018		2017
Property, plant and equipment
Land		(1)	$	4,466	$	4,466
Leasehold and building improvements		(2)		23,301		17,629
Land improvements		15 years		1,530		1,419
Buildings		30 - 40 years		7,928		7,928
Computer equipment and computer software		3 years		33,455		30,148
Laboratory equipment		3 - 5 years		30,345		23,296
Furniture and fixtures		3 years		5,693		4,531
Assets under construction		(3)		80,518		28,655
Property, plant and equipment, at cost				187,236		118,072
Accumulated depreciation				(46,769)		(38,086)
Property, plant and equipment, net			$	140,467	$	79,986

(1)

Not depreciated.

(2)

Lesser of the remaining lease term, building life, or useful life.

(3)

Not depreciated until placed into service.

At June 30, 2018, the Company had $80.5 million of assets under construction which consisted of $22.7 million related to laboratory equipment, $55.4 million related to leasehold and building improvements, and $2.4 million related to computer equipment and computer software projects. Depreciation will begin on these assets once they are placed into service. The Company expects to incur an additional $9.7 million to complete the laboratory equipment, $231.9 million to complete the building projects, and $1.6 million to complete the computer equipment and computer software projects. These projects are expected to be completed throughout 2018, 2019 and 2020. 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 periods ended June 30, 2018 and December 31, 2017.

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.

Intangible Assets

Intangible assets consisted of the following:


	June 30,		December 31,
(In thousands)	2018		2017
Finite-lived intangible assets
Finite-lived intangible assets	$	23,862	$	23,731
Less: Accumulated amortization		(2,733)		(1,505)
Finite-lived intangible assets, net		21,129		22,226
Indefinite-lived intangible assets
Goodwill		1,979		1,979
Net carrying value	$	23,108	$	24,205

Finite-Lived Intangible Assets

The following table summarizes the net-book-value and estimated remaining life of the Company’s finite-lived intangible assets as of June 30, 2018:


			Weighted
	Net Balance at		Average
	June 30,		Remaining
(In thousands)	2018		Life (Years)
Licensed intellectual property and patents	$	20,110		10.0
Developed technology		1,019		6.4
Total	$	21,129

The table below represents estimated future amortization expense associated with the Company’s finite-lived intangible assets as of June 30, 2018:


(In thousands)
2018	$	1,237
2019		2,474
2020		2,469
2021		2,383
2022		2,370
Thereafter		10,196
	$	21,129

The Company reviews long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. There were no impairment losses for periods ended June 30, 2018 and December 31, 2017.

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 to be derived from the transaction. A capitalized patent is amortized over its estimated useful life, beginning when such patent is approved. Capitalized patent costs are expensed upon disapproval, upon a decision by the Company to no longer pursue the patent or when the related intellectual property is either sold or deemed to be no longer of value to the Company. Other than the transactions discussed below, the Company determined that all patent costs incurred during the six months ended June 30, 2018 and 2017 should be expensed and not capitalized as the future economic benefit to be derived from the transactions cannot be determined.

Direct and indirect manufacturing costs incurred during the 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 MDxHealth (“MDx”), dated July 26, 2010 (as subsequently amended, the “MDx License Agreement”), the Company was required to pay MDx milestone-based royalties on sales of products or services covered by the licensed intellectual property. Once the achievement of a milestone occurred or was considered probable, an intangible asset and corresponding liability was reported in other long-term assets and accrued liabilities, respectively. The liability was relieved once the milestone was achieved and payment made. The intangible asset is being amortized over the estimated ten-year useful life of the licensed intellectual property through 2024, and such amortization is reported in cost of sales. Payment for all remaining milestones under the MDx License Agreement was made as part of the Royalty Buy-Out agreement outlined below.

Effective April 25, 2017, the Company and MDx entered into a Royalty Buy-Out Agreement (“Royalty Buy-Out Agreement”), which terminated the MDx License Agreement. Pursuant to the Royalty Buy-Out Agreement, the Company paid MDx a one-time fee of $8.0 million in exchange for an assignment of certain patents covered by the MDx License Agreement and the elimination of all ongoing royalties and other payments by the Company to MDx under the MDx License Agreement. Also included in the Royalty Buy-Out Agreement is a mutual release of liabilities, which includes all amounts previously accrued under the MDx License Agreement. Concurrently with entering into the Royalty Buy-Out Agreement, the Company entered into a Patent Purchase Agreement (“Patent Purchase Agreement”) with MDx under which it paid MDx an additional $7.0 million in exchange for the assignment of certain other patent rights that were not covered by the MDx License Agreement. The total $15.0 million paid by the Company pursuant to the Royalty Buy-Out Agreement and Patent Purchase Agreement, net of liabilities relieved of $6.6 million, was recorded as an intangible asset and is being amortized over the estimated useful life of the licensed intellectual property through 2024, and such amortization is reported in cost of sales. The $6.6 million of liabilities relieved were related to historical milestones and accrued royalties under the MDx License Agreement.

As of June 30, 2018, and December 31, 2017, an intangible asset of $8.4 million and $9.0 million, respectively, related to historical milestone payments made under the MDx License Agreement and intangible assets acquired as part of the Royalty Buy-Out Agreement and Patent Purchase Agreement is reported in intangible assets in the Company’s condensed consolidated balance sheets. Amortization expense was $0.3 million and $0.2 million for the three months ended June 30, 2018 and 2017, respectively. Amortization expense was $0.7 million and $0.3 million for the six months ended June 30, 2018 and 2017, respectively.

On December 15, 2017, the Company entered into an asset purchase agreement (the “Armune Purchase Agreement”) with Armune BioScience, Inc. (“Armune”), pursuant to which the Company acquired intellectual property and certain other assets underlying Armune’s APIFINY®, APIFINY® PRO and APIFINY® ACTIVE SURVEILLANCE prostate cancer diagnostic tests. The portfolio of Armune assets the Company acquired is expected to complement its product pipeline. The total consideration was comprised of an up-front cash payment of $12.0 million and $17.5 million in contingent payment obligations that will become payable upon the Company’s achievement of development and commercial milestones using the acquired intellectual property. The ability to meet these events is subject to many risks and is therefore uncertain. The Company will not record the contingent consideration until it is probable that the milestones will be met. There is no other consideration due to Armune beyond the milestone payments and the Company is not subject to future royalty obligations should a product be developed and commercialized. In connection with the Armune Purchase Agreement, Armune terminated a license agreement pursuant to which it licensed certain patent rights and know-how from the Regents of the University of Michigan (“University of Michigan”), and the Company entered into a license agreement with the University of Michigan with respect to such patent rights and know-how, as well as certain additional intellectual property rights. Pursuant to the Company’s agreement with the University of Michigan, it is required to pay the University of Michigan a low single-digit royalty on its net sales of products using the licensed intellectual property.

The Company accounted for the transaction as an asset acquisition under GAAP. The asset is comprised of a portfolio of biomarkers and related technology and know-how, which is a group of complementary assets concentrated in a single identifiable asset. The transaction costs directly related to the asset acquisition were added to the asset in accordance with GAAP. As such, the collective asset value from the acquisition resulted in an intangible asset of $12.2 million. The intellectual property asset, which includes related transaction costs, is being amortized on a straight-line basis over the period the Company expects to be benefited, which is in line with the legal life of the patents acquired. The Company capitalized these costs as there is a reasonable expectation that the assets acquired will be used in an alternative manner in the future, that is not contingent on future development subsequent to acquisition, and the Company anticipates there to be economic benefit from these alternative uses. For the three and six months ended June 30, 2018, the Company recorded amortization expense of $0.2 million and $0.5 million, respectively. At June 30, 2018 and December 31, 2017, the net balance of $11.7 million and $12.2 million, respectively, is reported in net intangible assets in the Company’s condensed consolidated balance sheets.

As a result of the Sampleminded acquisition during the third quarter of 2017, the Company recorded an intangible asset of $1.0 million, which was comprised of developed technology acquired of $0.9 million, customer relationships of $0.1 million, and non-compete agreements of $32,000. The intangible assets acquired are being amortized over the remaining useful life, which was determined to be eight years for developed technology acquired, three years for customer relationships, and five years for non-compete agreements. For the three months ended June 30, 2018 and 2017, the Company recorded amortization expense of $36,000 and $0, respectively. For the six months ended June 30, 2018, and 2017 the Company recorded amortization expense of $0.1 million and $0, respectively. At June 30, 2018 and December 31, 2017 the net balance of $0.8 million and $0.9 million, respectively, is reported in net intangible assets in the Company’s condensed consolidated balance sheets.

Goodwill

During the third quarter of 2017, the Company recognized goodwill of $2.0 million from the acquisition of Sampleminded, Inc. Goodwill is reported in net intangible assets in the Company’s condensed consolidated balance sheets. The Company evaluates goodwill impairment on an annual basis, or more frequently should an event or change in circumstance occur that indicate the carrying amount is in excess of the fair value. There were no impairment losses for the periods ended June 30, 2018 and December 31, 2017.

Investment in Privately-Held Company

On November 30, 2017, the Company made a 10 percent investment in a supplier. The investment does not constitute a variable interest entity, as the Company does not have control over the supplier’s business. Additionally, as the ownership percentage is below 20 percent, the equity method is not being used to account for the investment. The supplier is privately-held, and there are no quoted prices or observable pricing inputs available. Therefore, the Company has accounted for this investment at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment. The investment will be evaluated annually for impairment and adjusted to fair value whenever there is an observable price change in the identical or alike investment. There was no impairment recorded during the period ended June 30, 2018. The total cash paid related to the investment was $3.0 million, which agrees to the carrying value as of June 30, 2018 and is reported in other long-term assets in the Company’s condensed consolidated balance sheets. There were no adjustments to the carrying value, upward or downward, during the three and six months ended June 30, 2018.

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 are the same because all outstanding common stock equivalents have been excluded, as they are anti-dilutive due to the Company’s losses.

The following potentially issuable common shares were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses for each period:


	June 30,
(In thousands)	2018	2017
Shares issuable upon exercise of stock options	2,918	3,513
Shares issuable upon the release of restricted stock awards	6,312	5,424
Shares issuable upon conversion of convertible notes	12,044	—
	21,274	8,937

Revenue Recognition

The Company’s laboratory service revenues are generated by performing diagnostic services using its Cologuard test, and the service is completed upon delivery of a patient’s test result to the ordering physician. The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), which it adopted on January 1, 2018, using the modified retrospective method, which it elected to apply to all contracts. Application of the modified retrospective method did not impact amounts previously reported by the Company, nor did it require a cumulative effect adjustment upon adoption, as the Company’s method of recognizing revenue under ASC 606 was analogous to the method utilized immediately prior to adoption. Accordingly, there is no need for the Company to disclose the amount by which each financial statement line item was affected as a result of applying the new standard and an explanation of significant changes.

The core principle of ASC 606 is that the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company recognizes revenue in accordance with that core principle, and key aspects considered by the Company include the following:

Contracts

The Company’s customer is the patient. However, the Company does not enter into a formal reimbursement contract with a patient, as formal reimbursement contracts, including national coverage determination for Cologuard, are established with payers. Accordingly, the Company establishes a contract with a patient in accordance with other customary business practices.

·

Approval of a contract is established via the order submitted by the patient’s physician and the return of a sample by the patient.

·

The Company is obligated to perform its diagnostic services upon receipt of a sample from a patient, and the patient and/or applicable payer are obligated to reimburse the Company for services rendered based on the patient’s insurance benefits.

·

Payment terms are a function of a patient’s existing insurance benefits, including the impact of coverage decisions with CMS and applicable reimbursement contracts established between the Company and payers, unless the patient is a self-pay patient, whereby the Company requires payment from the patient prior to the Company shipping a collection kit to the patient.

·

Once the Company delivers a patient’s test result to the ordering physician the contract with a patient has commercial substance, as the Company is legally able to collect payment and bill an insurer and/or patient, depending on payer contract status or patient insurance benefit status.

·

The Company’s consideration is deemed to be variable, and the Company considers collection of such consideration to be probable to the extent that it is unconstrained.

Performance obligations

A performance obligation is a promise in a contract to transfer a distinct good or service (or a bundle of goods or services) to the customer. Our contracts have a single performance obligation, which is satisfied upon rendering of services, which culminates in the delivery of a patient’s Cologuard test result to the ordering physician. The duration of time between sample receipt and delivery of a valid test result to the ordering physician is typically less than two weeks. Accordingly, the Company elects the practical expedient and therefore, does not disclose the value of unsatisfied performance obligations.

Transaction price

The transaction price is the amount of consideration to which the Company expects to collect in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration expected from a contract with a customer may include fixed amounts, variable amounts, or both.

The consideration derived from the Company’s contracts is deemed to be variable, though the variability is not explicitly stated in any contract. Rather, the implied variability is due to several factors, such as the amount of contractual adjustments, any patient co-payments, deductibles or compliance incentives, the existence of secondary payers and claim denials.

The Company estimates the amount of variable consideration using the expected value method, which represents the sum of probability-weighted amounts in a range of possible consideration amounts. When estimating the amount of variable consideration, the Company considers several factors, such as historical collections experience, patient insurance eligibility and payer reimbursement contracts.

The Company limits the amount of variable consideration included in the transaction price to the unconstrained portion of such consideration. In other words, the Company recognizes revenue up to the amount of variable consideration that is not subject to a significant reversal until additional information is obtained or the uncertainty associated with the additional payments or refunds is subsequently resolved. Differences between original estimates and subsequent revisions, including final settlements, represent changes in the estimate of variable consideration and are included in the period in which such revisions are made. Revenue recognized from changes in transaction prices was $3.4 million and $11.9 million for the three and six months ended June 30, 2018.

The Company monitors its estimates of transaction price to depict conditions that exist at each reporting date. If the Company subsequently determines that it will collect more consideration than it originally estimated for a contract with a patient, it will account for the change as an increase in the estimate of the transaction price (i.e., an upward revenue adjustment) in the period identified. Similarly, if the Company subsequently determines that the amount it expects to collect from a patient is less than it originally estimated, it will generally account for the change as a decrease in the estimate of the transaction price (i.e., a downward revenue adjustment), provided that such downward adjustment does not result in a significant reversal of cumulative revenue recognized.

When the Company does not have significant historical experience or that experience has limited predictive value, the constraint over estimates of variable consideration may result in no revenue being recognized upon delivery of a patient’s Cologuard test result to the ordering physician, with recognition, generally occurring at the date of cash receipt. Since the first quarter of 2017, the Company has determined that its historical experience has sufficient predictive value, such that there are no longer any contracts for which no revenue is recognized upon delivery of a Cologuard test result to an ordering physician. Of the revenue recognized in the twelve months ended December 31, 2017, approximately $4.3 million relates to the one-time impact of certain payers meeting the Company’s revenue recognition criteria for accrual-basis revenue recognition beginning with the period ended March 31, 2017. Approximately $1.0 million of this one-time impact relates to tests completed in the prior year and for which the Company’s accrual revenue recognition criteria were not met until 2017.

Allocate transaction price

The entire transaction price is allocated to the single performance obligation contained in a contract with a patient.

Point in time recognition

The Company’s single performance obligation is satisfied at a point in time, and that point in time is defined as the date a patient’s successful test result is delivered to the patient’s ordering physician. The Company considers this date to be the time at which the patient obtains control of the promised Cologuard test service.

Disaggregation of Revenue

The following tables present our revenues disaggregated by revenue source for the three and six months ended June 30, 2018 and 2017, respectively:


	Three Months Ended June 30,
(In thousands)	2018		2017
Medicare Parts B & C	$	59,706	$	40,893
Commercial		39,589		14,713
Other		3,599		2,040
Total	$	102,894	$	57,646


	Six Months Ended June 30,
(In thousands)	2018		2017
Medicare Parts B & C	$	112,181	$	72,705
Commercial		74,423		29,849
Other		6,586		3,455
Total	$	193,190	$	106,009

Contract Balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable and deferred revenue on the condensed consolidated balance sheets. Generally, billing occurs subsequent to delivery of a patient’s test result to the ordering physician, resulting in an account receivable. However, the Company sometimes receives advance payment from a patient, particularly a self-pay patient, before a Cologuard test result is completed, resulting in deferred revenue. The deferred revenue balance is relieved upon delivery of the applicable patient’s test result to the ordering physician. Changes in accounts receivable and deferred revenue were not materially impacted by any other factors.

Deferred revenue balances are reported in other short-term liabilities in the Company’s condensed consolidated balance sheets and were $0.3 million and $0.2 million as of June 30, 2018 and December 31, 2017, respectively.

Revenue recognized for the three months ended June 30, 2018 and 2017, that was included in the deferred revenue balance at the beginning of each period was $0.1 million and $44,000, respectively. Revenue recognized for the six months ended June 30, 2018 and 2017, that was included in the deferred revenue balance at the beginning of each period was $0.1 million and $44,000, respectively.

Practical expedients

The Company does not adjust the transaction price for the effects of a significant financing component, as at contract inception, the Company expects the collection cycle to be one year or less.

The Company expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses in the Company’s condensed consolidated statements of operations.

The Company incurs certain other costs that are incurred regardless of whether a contract is obtained. Such costs are primarily related to legal services and patient communications (e.g. compliance reminder letters). These costs are expensed as incurred and recorded within general and administrative expenses in the Company’s condensed consolidated statements of operations.

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 net realizable value, and records a charge to cost of sales for such inventory, as appropriate. In addition, the materials used in performing Cologuard tests 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 net realizable value.

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 in the Company’s condensed consolidated statements of operations.

Inventory consisted of the following:


	June 30,		December 31,
(In thousands)	2018		2017
Raw materials	$	11,797	$	10,344
Semi-finished and finished goods		23,612		15,683
Total inventory	$	35,409	$	26,027

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. Condensed consolidated statements of operations are translated at average exchange rates for the period. The cumulative translation adjustments resulting from changes in exchange rates are included in the Company’s condensed consolidated balance sheet as a component of accumulated other comprehensive loss in total Exact Sciences Corporation’s stockholders’ equity. Transaction gains and losses are included in the Company’s condensed consolidated statement of operations.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation in the Company’s condensed consolidated financial statements and accompanying notes to the Company’s condensed consolidated financial statements.

MAYO LICENSE AGREEMENT	6 Months Ended
MAYO LICENSE AGREEMENT	Jun. 30, 2018
MAYO LICENSE AGREEMENT
MAYO LICENSE AGREEMENT	(3) MAYO LICENSE AGREEMENT Overview As more fully described in the 2017 Form 10-K, in June 2009 the Company entered into a patent 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 and October 2017. 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. As expanded by the January 2016 amendment to the license agreement, the scope of the license includes any screening, surveillance or diagnostic tests or tools for use in connection with any type of cancers, pre-cancers, diseases or conditions. 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. The October 2017 amendment further modified royalty rates. As part of these amendments, 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 would remain a low-single-digit percentage of net sales. In addition to royalties, the Company is required to pay MAYO cash of $0.2 million, $0.8 million and $2.0 million upon each product using the licensed MAYO intellectual property reaching $5.0 million, $20.0 million and $50.0 million in cumulative net sales, respectively. As part of the 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, 2016 and 2018. The Company paid MAYO the 2017 installment in December 2016. The Company records the $1.0 million installments to prepaid expenses and other current assets and amortizes each installment over a twelve-month period commencing on February 1 of each year. For the three and six months ended June 30, 2018 and 2017 the Company has recorded $0.3 million and $0.5 million in amortization of the installments, respectively. In addition, the Company is paying MAYO for research and development efforts. As part of the Company’s research collaboration with MAYO, the Company incurred charges of $1.4 million and $2.6 million for the three and six months ended June 30, 2018. The Company made payments of $0.8 million and $2.6 million for the three and six months ended June 30, 2018. The Company recorded an estimated liability of $1.8 million for research and development efforts as of June 30, 2018. The Company incurred charges of $1.1 million and $2.2 million for the three and six months ended June 30, 2017. The Company made payments of $0.5 million and $1.8 million for the three and six months ended June 30, 2017. The Company recorded an estimated liability of $1.2 million for research and development efforts as of June 30, 2017.

STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2018

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

(4) STOCK-BASED COMPENSATION

Stock-Based Compensation Plans

The Company maintains the 2010 Omnibus Long-Term Incentive Plan (As Amended and Restated Effective July 27, 2017), 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”).

Stock-Based Compensation Expense

The Company records stock-based compensation expense 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. The Company recorded $15.6 million and $28.1 million in stock-based compensation expense during the three and six months ended June 30, 2018. The Company recorded $6.1 million and $12.2 million in stock-based compensation expense during the three and six months ended June 30, 2017.

In connection with the April 25, 2018 transition of the Company’s Chief Operating Officer, the Company accelerated the vesting of 69,950 shares under his previously unvested stock options and 54,350 shares under his previously unvested restricted stock units whereby such unvested stock options and unvested restricted stock units vest on December 31, 2018. It was determined that the continuing service to be provided by the Company’s former Chief Operating Officer to the Company through December 31, 2018 is substantive and, as a result, the Company will recognize the additional non-cash stock-based compensation expense for the modified awards evenly over the transition term of April 25, 2018 through December 31, 2018. During the three and six months ended June 30, 2018, the Company recorded $1.0 million of non-cash stock-based compensation expense for the modified awards.

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 options, 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 – Beginning in 2017, the Company adopted Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“Update 2016-09”). 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 impact on the Company’s condensed consolidated balance sheet as of March 31, 2017 was a cumulative-effect adjustment of $0.4 million, increasing opening accumulated deficit and additional paid-in capital.

The fair value of each option and market measure-based award is based on the assumptions in the following table:


	Six Months Ended
	June 30,
	2018	2017
Option Plan Shares
Risk-free interest rates	2.73% - 2.79%	2.13%
Expected term (in years)	5.45 -6.44	6.59
Expected volatility	61.8% -66.2%	62.9%
Dividend yield	0%	0%
Weighted average fair value per share of options granted during the period	$24.55	$13.20
ESPP Shares
Risk-free interest rates	2.05% - 2.5%	0.98 - 1.28%
Expected term (in years)	0.5 - 2	0.5 - 2
Expected volatility	51.7% - 65.4%	66.4% - 85.5%
Dividend yield	0 %	0 %
Weighted average fair value per share of stock purchase rights granted during the period	$ 18.68	$ 13.05

Stock Option and Restricted Stock Activity

A summary of stock option activity under the Stock Plans during the six months ended June 30, 2018 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, 2018	3,360,461	$	11.89	6.4
Granted	343,566		44.37
Exercised	(785,695)		7.18
Forfeited	—		—
Outstanding, June 30, 2018	2,918,332	$	16.98	6.9	$	124,921
Exercisable, June 30, 2018	1,391,818	$	10.58	5.1	$	68,497

(1)

The aggregate intrinsic value of options outstanding, exercisable and vested and expected to vest is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for options that had exercise prices that were lower than the $59.79 market price of the Company’s common stock at June 30, 2018. The total intrinsic value of options exercised during the six months ended June 30, 2018 and 2017 was $36.3 million and $2.6 million, respectively.

As of June 30, 2018, there was $127.7 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all Stock Plans. Total unrecognized compensation cost will be adjusted for future forfeitures. The Company expects to recognize that cost over a weighted average period of 3.0 years.

A summary of restricted stock and restricted stock unit activity under the Stock Plans during the six months ended June 30, 2018 is as follows:


		Weighted
	Restricted	Average Grant
	Shares	Date Fair Value
Outstanding, January 1, 2018	6,148,778	$	15.76
Granted	1,221,130		43.86
Released	(943,948)		17.75
Forfeited	(113,924)		30.04
Outstanding, June 30, 2018	6,312,036	$	20.51

FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2018

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

(5) FAIR VALUE MEASUREMENTS

The Financial Accounting Standards Board has issued authoritative guidance which requires that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the 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 change from period to period. The estimated fair value of the Company’s long-term debt based on a market approach was approximately $0.9 million and $4.5 million as of June 30, 2018 and December 31, 2017, respectively, and represent Level 2 measurements. When determining the estimated fair value of the Company’s long-term debt, the Company used market-based risk measurements, such as credit risk.

The following table presents the Company’s fair value measurements as of June 30, 2018 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall.


			Fair Value Measurement at June 30, 2018 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Fair Value at		Identical Assets		Inputs		Inputs
(In thousands)	June 30, 2018		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents
Cash and money market	$	69,911	$	69,911	$	—	$	—
Certificates of deposit		3,900		—		3,900		—
Commercial paper		19,088		—		19,088		—
U.S. government agency securities		132,763		—		132,763		—
Available-for-sale
Marketable securities
Corporate bonds		407,777		—		407,777		—
Asset backed securities		283,395		—		283,395		—
U.S. government agency securities		248,482		—		248,482		—
Commercial paper		6,115		—		6,115		—
Certificates of deposit		50,731		—		50,731		—
Total	$	1,222,162	$	69,911	$	1,152,251	$	—

The following table presents the Company’s fair value measurements as of December 31, 2017 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, 2017 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Fair Value at		Identical Assets		Inputs		Inputs
(In thousands)	December 31, 2017		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents
Cash and money market	$	61,297	$	61,297	$	—	$	—
Commercial paper		10,995				10,995		—
Certificates of deposit		1,499				1,499		—
U.S. government agency securities		3,700				3,700		—
Available-for-sale
Marketable securities
Corporate bonds		181,305		—		181,305		—
Asset backed securities		94,515		—		94,515		—
U.S. government agency securities		54,812		—		54,812		—
Commercial paper		9,946		—		9,946		—
Certificates of deposit		6,646		—		6,646		—
Total	$	424,715	$	61,297	$	363,418	$	—

The Company monitors investments for other-than-temporary impairment. It was determined that unrealized gains and losses as of June 30, 2018 and December 31, 2017 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 gross unrealized losses and fair values of our investments in an unrealized loss position as of June 30, 2018, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:


		June 30, 2018
		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	$	351,069	$	(845)	$	—	$	—	$	351,069	$	(845)
Asset backed securities		248,598		(736)		3,454		(13)		252,052		(749)
U.S. government agency securities		179,202		(249)		9,990		(9)		189,192		(258)
Commercial paper		25,203		(3)		—		—		25,203		(3)
Certificates of deposit		20,331		(42)		—		—		20,331		(42)
Total	$	824,403	$	(1,875)	$	13,444	$	(22)	$	837,847	$	(1,897)

The following summarizes contractual underlying maturities of the Company’s available-for-sale investments in debt securities at June 30, 2018:


		Due one year or less			Due after one year through four years
(In thousands)		Cost		Fair Value		Cost		Fair Value
Marketable securities
Corporate bonds	$	274,864	$	274,238	$	133,705	$	133,539
U.S. government agency securities		199,377		199,119		49,353		49,363
Commercial paper		6,118		6,115		—		—
Certificates of deposit		45,329		45,307		5,439		5,424
Asset backed securities		42,855		42,749		241,279		240,646
Total	$	568,543	$	567,528	$	429,776	$	428,972

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

NEW MARKET TAX CREDIT	6 Months Ended
NEW MARKET TAX CREDIT	Jun. 30, 2018
NEW MARKET TAX CREDIT
NEW MARKET TAX CREDIT	(6) NEW MARKET TAX CREDIT As more fully described in the 2017 Form 10-K, 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, 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. The $2.4 million was recorded in Other Long-Term Liabilities on the condensed consolidated balance sheets. 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 has recorded $0.1 million and $0.2 million as a decrease of expenses for the three and six months ended June 30, 2018. At June 30, 2018, the remaining balance of $1.2 million is included in other long-term liabilities in the Company’s condensed consolidated balance sheets. The Company recorded $0.1 million and $0.2 million as a decrease of expenses for the three and six months ended June 30, 2017. At June 30, 2017, the remaining balance of $1.5 million was included in other long-term liabilities in the Company’s condensed consolidated balance sheets. The Company incurred approximately $0.2 million of debt issuance costs related to the above transactions, which are recorded as a direct deduction from the liability. The debt issuance costs are being amortized over the life of the agreements.

LONG-TERM DEBT	6 Months Ended
LONG-TERM DEBT	Jun. 30, 2018
LONG TERM DEBT
LONG-TERM DEBT	(7) 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. The Company has recorded $4,000 and $9,000 in amortization of mortgage issuance costs for each of the three and six months ended June 30, 2018 and 2017. Revolving Loan Agreement During December 2017, the Company entered into a revolving loan agreement with MB Financial Bank, N.A. (“MB Bank”). The revolving loan agreement provides the Company with a 24-month secured revolving credit facility of up to $15.0 million. The credit facility is collateralized by the Company’s accounts receivable and inventory. The credit facility is available for general working capital purposes and all other lawful corporate purposes, provided that the Company may not use the credit facility to purchase or carry margin stock. Borrowings under the revolving loan agreement accrue interest at one of the following per annum rates, as elected by the Company (i) the sum of the 1-month LIBOR rate plus 2.00 percent, (ii) the sum of the 3-month LIBOR rate plus 2.00 percent, or (iii) the MB Bank Reference Rate minus 0.5 percent. Loans under the credit facility may be prepaid at any time without penalty. The maturity date of the loan under the revolving credit agreement is December 10, 2019. The Company has agreed to various financial covenants including minimum liquidity and minimum tangible net worth. At June 30, 2018, the Company is in compliance with all covenants. As of June 30, 2018, the Company has not drawn any funds from the revolving credit agreement, and no amounts are outstanding under the loan agreement. Construction Loan Agreement During December 2017, the Company entered into a loan agreement with MB Bank, which provides the Company with a non-revolving construction loan of $25.6 million. The Company will use the loan proceeds to finance the construction of an additional clinical laboratory and related facilities in Madison, Wisconsin. The non-revolving construction loan is collateralized by the additional clinical laboratory and related facilities. Pursuant to the construction loan agreement, funds drawn will bear interest at a rate equal to the sum of the 1-month LIBOR rate plus 2.25 percent. Regular monthly payments are interest-only for the first 24 months, with further payments based on a 20-year amortization schedule. Amounts borrowed pursuant to this loan agreement may be prepaid at any time without penalty. The maturity date of this loan agreement is December 10, 2022. MB Bank, on behalf of the Company, previously issued an Irrevocable Standby Letter of Credit in the amount of $0.6 million in favor of the City of Madison, Wisconsin, which is deemed to have been issued pursuant to the construction loan agreement (the “City Letter of Credit”). The amount of the City Letter of Credit will reduce, dollar for dollar, the amount available for borrowing under the construction loan agreement. As a condition to MB Bank’s initial advance of loan proceeds under the loan agreement, the Company is required to first invest at least $16.4 million of its own cash into the construction project. The Company fulfilled its required initial investment and made its first draw on the non-revolving construction loan in June 2018. In accordance with the construction loan agreement, the Company will make monthly interest-only payments through November 2019. Starting in December 2019, the Company will make monthly payments toward the outstanding principal balance due plus accrued interest. As of June 30, 2018, the Company has invested $17.5 million into the construction project, and has drawn $1.1 million from the non-revolving construction loan. For the three and six months ended June 30, 2018, the Company incurred interest of $3,000. The Company capitalized the $3,000 to the construction project. Additionally, the Company has recorded deferred financing costs of $0.2 million. These deferred financing costs are recorded as a reduction to long-term debt in the Company’s condensed consolidated balance sheets. The deferred financing costs are being amortized through December 10, 2022. The Company has recorded $11,000 and $23,000 in amortization of deferred financing costs for the three and six months ended June 30, 2018. There was no amortization expense recorded for the three and six months ended June 30, 2017. The Company has agreed to various financial covenants including minimum liquidity and minimum tangible net worth. As of June 30, 2018, the Company is in compliance with all covenants.

WISCONSIN ECONOMIC DEVELOPMENT TAX CREDITS	6 Months Ended
WISCONSIN ECONOMIC DEVELOPMENT TAX CREDITS	Jun. 30, 2018
WISCONSIN ECONOMIC DEVELOPMENT TAX CREDITS.
WISCONSIN ECONOMIC DEVELOPMENT TAX CREDITS	(8) 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 in the state of Wisconsin 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 June 30, 2018, the Company has earned $8.8 million of tax credits and has received payment of $2.4 million from the WEDC. The unpaid portion is $6.4 million, of which $1.9 million is reported in prepaid expenses and other current assets and $4.5 million is reported in other long-term assets, reflecting when collection of the refundable tax credits is expected to occur. As of June 30, 2018, the Company also has recorded a $2.3 million liability in other short-term liabilities and a $3.3 million liability in other long-term liabilities, reflecting when the expected benefit of the tax credit amortization will reduce future operating expenses. During the three and six months ended June 30, 2018, the Company amortized $0.4 million and $1.0 million, respectively, of the tax credits earned as a reduction of operating expenses. During the three and six months ended June 30, 2017, the Company amortized $0.3 million and $0.6 million, respectively, of the tax credits earned as a reduction of operating expenses.

CONVERTIBLE NOTES

6 Months Ended

Jun. 30, 2018

CONVERTIBLE NOTES.

CONVERTIBLE NOTES

(9) CONVERTIBLE NOTES

On January 17, 2018, the Company issued and sold $690.0 million in aggregate principal amount of 1.0% Convertible Notes (the “Notes”) with a maturity date of January 15, 2025 (the “Maturity Date”). The Notes accrue interest at a fixed rate of 1.0% per year, payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The net proceeds from the issuance of the Notes were approximately $671.1 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.

Prior to July 15, 2024, the Notes are convertible only upon the occurrence of certain events and during certain periods, as set forth in the indenture governing the Notes (the “Indenture”), and thereafter, until the close of business on the second scheduled trading day immediately preceding the Maturity Date. The Notes will be convertible into cash, shares of the Company’s common stock (plus, if applicable, cash in lieu of any fractional share), or a combination of cash and shares of the Company’s common stock, at the Company’s election. On or after July 15, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time.

It is the Company’s intent and policy to settle all conversions through combination settlement. The initial conversion rate for the Notes is 13.2569 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $75.43 per share of the Company’s common stock. The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest. In addition, holders of the Notes who convert their Notes in connection with a “make-whole fundamental change” (as defined in the Indenture), will, under certain circumstances, be entitled to an increase in the conversion rate.

If the Company undergoes a “fundamental change” (as defined in the Indenture), holders of the Notes may require the Company to repurchase for cash all or part of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest.

The Notes are the Company’s senior unsecured obligations and (i) rank senior in right of payment to all of its future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to all of the Company’s future liabilities that are not so subordinated, unsecured indebtedness; (ii) are effectively junior to all of our existing and future secured indebtedness and other secured obligations, to the extent of the value of the assets securing that indebtedness and other secured obligations; and (iii) are structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries.

While the Notes are currently classified on the Company’s condensed consolidated balance sheets at June 30, 2018 as long-term, the future convertibility and resulting balance sheet classification of this liability will be monitored at each quarterly reporting date and will be analyzed dependent upon market prices of the Company’s common stock during the prescribed measurement periods. In the event that the holders of the Notes have the election to convert the Notes at any time during the prescribed measurement period, the Notes would then be considered a current obligation and classified as such.

Under current accounting guidance, an entity must separately account for the liability and equity components of convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The liability component of the instrument was valued in a manner that reflects the market interest rate for a similar nonconvertible instrument at the date of issuance. The initial carrying value of the liability component of $495.1 million was calculated using a 6.0% assumed borrowing rate. The equity component of $194.9 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the Notes and is recorded in additional paid-in capital on the Company’s condensed consolidated balance sheet at the issuance date. That equity component is treated as a discount on the liability component of the Notes, which is amortized over the seven-year term of the Notes using the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification.

The Company allocated the total transaction costs of approximately $18.8 million related to the issuance of the Notes to the liability and equity components of the Notes based on their relative values, with $13.1 million being allocated to the liability component of the Notes. Transaction costs attributable to the liability component are amortized to interest expense over the seven-year term of the Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity.

On June 12, 2018, the Company issued and sold an additional $218.5 million in aggregate principal amount of 1.0% Convertible Notes. These Convertible Notes were issued under the Indenture pursuant to which the Company previously issued $690.0 million of Notes in January 2018. The notes have identical terms and will be treated as a single series of securities. The net proceeds from the issuance of these Convertible Notes were approximately $225.3 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.

Following the same accounting guidance as above, the Company must separately account for the liability and equity components of convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The liability component of the instrument was valued in a manner that reflects the market interest rate for a similar nonconvertible instrument at the date of issuance. The initial carrying value of the liability component of $159.7 million was calculated using a 6.0% assumed borrowing rate. The equity component of $73.0 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the notes and adding in the premium which the notes were sold at. This is recorded in additional paid-in capital on the condensed consolidated balance sheet at the issuance date. That equity component, prior to adding in the premium, is treated as a discount on the liability component of the notes, which is amortized over the remaining term of six and a half years of the notes using the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification.

The Company allocated the total transaction costs of approximately $7.4 million related to the issuance of the notes to the liability and equity components of the notes based on their relative values, with $5.1 million being allocated to the liability component of the Notes. Transaction costs attributable to the liability component are amortized to interest expense over the remaining six-and-a-half year term of the notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity.

The Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by the Company.

Debt, net of discounts and deferred financing costs at June 30, 2018, consisted of the following:


(In thousands)
Principal	$	908,500
Debt discount, net		(242,872)
Deferred financing costs		(17,705)
Net carrying amount	$	647,923

RELATED PARTY TRANSACTIONS	6 Months Ended
RELATED PARTY TRANSACTIONS	Jun. 30, 2018
RELATED PARTY TRANSACTION
RELATED PARTY TRANSACTION	(10) RELATED PARTY TRANSACTION In May 2017, the Company entered into a professional services agreement for recruiting and related services with a firm whose principal is a non-employee director. In accordance with the agreement, the Company is expected to make cash payments totaling up to an aggregate of $0.4 million under the agreement during 2017 and 2018. The Company incurred charges of $50,000 and $0.2 million for the three and six months ended June 30, 2018. The Company made payments of $20,000 and $0.1 million for the three and six months ended June 30, 2018. The Company incurred charges of $50,000 for the three and six months ended June 30, 2017. The Company made payments of $50,000 for the three and six months ended June 30, 2017. In November 2017, the Company made a 10 percent investment in a supplier, as further described in Note 2. The Company incurred $0.1 million and $0.1 million in purchases from the supplier for the three and six months ended June 30, 2018. In June 2018, the Company entered into a short-term $1.0 million Senior Secured Promissory Note and Security Agreement with the same supplier, which is reported in prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets.

RECENT ACCOUNTING PRONOUNCEMENTS	6 Months Ended
RECENT ACCOUNTING PRONOUNCEMENTS	Jun. 30, 2018
RECENT ACCOUNTING PRONOUNCEMENTS.
RECENT ACCOUNTING PRONOUNCEMENTS	(11) RECENT ACCOUNTING PRONOUNCEMENTS In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The Company adopted this guidance on January 1, 2018. See Note 2 for additional discussion. In January 2016, the Financial Accounting Standards Board issued ASU No. 2016-01, “Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“Update 2016-01”). Update 2016-01 modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do not have readily determinable fair value and do not qualify for the practical expedient to estimate fair value under ASC 820, “Fair Value Measurements,” and as such these investments may be measured at cost. Update 2016-01 will be effective for the Company’s fiscal year beginning January 1, 2018, and subsequent interim periods. Update 2016-01 was further amended in February 2018 by ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, (“Update 2018-03”). Update 2018-03 clarifies certain aspects of the guidance issued in Update 2016-01. Public business entities with fiscal years beginning between December 15, 2017 and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018. Early adoption is allowed as long as Update 2016-01 has been adopted. The Company adopted Update 2016-01 on January 1, 2018, and it did not have an impact on the Company’s condensed consolidated financial statements. In February 2016, the Financial Accounting Standards Board issued ASU 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. The Company expects to adopt the guidance in 2019. The Company is currently evaluating the effects that the adoption of Update 2016-02 will have on the Company’s condensed consolidated financial statements; however, as the Company has several leases, assets and liabilities are expected to increase upon adoption for right-of-use assets and lease liabilities. In August 2016, the Financial Accounting Standards Board issued ASU 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 Company adopted this guidance January 1, 2018, and it did not have an impact on the Company’s condensed consolidated financial statements. In October 2016, the Financial Accounting Standards Board issued ASU 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. The Company adopted this guidance on January 1, 2018, and it did not have an impact on the Company’s condensed consolidated financial statements. In November 2016, the Financial Accounting Standards Board issued ASU 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 Company adopted this guidance on January 1, 2018, and it did not have an impact on the Company’s condensed consolidated financial statements, as the Company does not have restricted cash. In May 2017, the Financial Accounting Standards Board issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting, (“Update 2017-09”). Update 2017-09 provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The Company adopted this guidance on January 1, 2018, and it did not have an impact on the Company’s condensed consolidated financial statements. In June 2018, the Financial Accounting Standards Board issued ASU No. 2018-07 (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, (“Update 2018-07”). Update 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements to Topic 718 to nonemployee awards except for certain exemptions specified in the amendment. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption of Topic 606. The Company is currently evaluating the impact of the guidance on its condensed consolidated financial statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2018

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries, Exact Sciences Laboratories, LLC, Exact Sciences Finance Corporation, CG Growth, LLC, Exact Sciences Development Company, LLC, Sampleminded, Inc., Exact Sciences Europe LTD, Beijing Exact Sciences Medical Technology Company Limited, and variable interest entities. 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 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 bank, money market funds, and all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents.

Marketable Securities

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities carried at amortized cost are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. 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 loss. 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 June 30, 2018 and December 31, 2017, 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. There were no realized losses for the six months ended June 30, 2018 and 2017. Realized gains were $0.1 million and $10,000 for the six months ended June 30, 2018 and 2017, respectively.

We periodically review our 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, our intent not to sell the security, and whether it is more likely than not that we will have to sell the security before recovery of its cost basis. For the six months ended June 30, 2018, no investments were identified with other-than-temporary declines in value.

Available-for-sale securities at June 30, 2018 consisted of the following:


	June 30, 2018
			Gains in Accumulated		Losses in Accumulated
			Other Comprehensive		Other Comprehensive		Estimated Fair
(In thousands)	Amortized Cost		Income (Loss)		Income (Loss)		Value
Corporate bonds	$	408,569		53		(845)	$	407,777
Asset backed securities		284,134		10		(749)		283,395
U.S. government agency securities		248,730		10		(258)		248,482
Commercial paper		6,118		—		(3)		6,115
Certificates of deposit		50,768		5		(42)		50,731
Total available-for-sale securities	$	998,319	$	78	$	(1,897)	$	996,500

Available-for-sale securities at December 31, 2017 consisted of the following:


	December 31, 2017
			Gains in Accumulated		Losses in Accumulated
			Other Comprehensive		Other Comprehensive		Estimated Fair
(In thousands)	Amortized Cost		Income (Loss)		Income (Loss)		Value
Corporate bonds	$	181,639	$	10	$	(344)	$	181,305
Asset backed securities		94,700		—		(185)		94,515
U.S. government agency securities		54,974		—		(162)		54,812
Commercial paper		9,953		—		(7)		9,946
Certificates of deposit		6,647		1		(2)		6,646
Total available-for-sale securities	$	347,913	$	11	$	(700)	$	347,224

Changes in Accumulated Other Comprehensive Income (Loss)

The amounts recognized in accumulated other comprehensive income (loss) (“AOCI”) for the six months ended June 30, 2018 were as follows:


					Accumulated
	Cumulative		Unrealized		Other
	Translation		Gain (Loss)		Comprehensive
(In thousands)	Adjustment		on Securities		Income (Loss)
Balance at December 31, 2017	$	(61)	$	(689)	$	(750)
Other comprehensive loss before reclassifications		2		(1,244)		(1,242)
Amounts reclassified from accumulated other comprehensive loss		—		114		114
Net current period change in accumulated other comprehensive loss		2		(1,130)		(1,128)
Balance at June 30, 2018	$	(59)	$	(1,819)	$	(1,878)

The amounts recognized in AOCI for the six months ended June 30, 2017 were as follows:


					Accumulated
	Cumulative		Unrealized		Other
	Translation		Gain (Loss)		Comprehensive
(In thousands)	Adjustment		on Securities		Income (Loss)
Balance at December 31, 2016	$	(204)	$	(214)	$	(418)
Other comprehensive loss before reclassifications		81		(38)		43
Amounts reclassified from accumulated other comprehensive loss		—		(4)		(4)
Net current period change in accumulated other comprehensive loss		81		(42)		39
Balance at June 30, 2017	$	(123)	$	(256)	$	(379)

Amounts reclassified from AOCI for the six months ended June 30, 2018 and 2017 were as follows:


	Affected Line Item in the	Six Months Ended June 30,
Details about AOCI Components (In thousands)	Statement of Operations	2018		2017
Change in value of available-for-sale investments
Sales and maturities of available-for-sale investments	Investment income	$	114	$	(4)
Total reclassifications		$	114	$	(4)

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. Property and equipment consisted of the following as of June 30, 2018 and December 31, 2017:


	Estimated		June 30,		December 31,
(In thousands)	Useful Life		2018		2017
Property, plant and equipment
Land		(1)	$	4,466	$	4,466
Leasehold and building improvements		(2)		23,301		17,629
Land improvements		15 years		1,530		1,419
Buildings		30 - 40 years		7,928		7,928
Computer equipment and computer software		3 years		33,455		30,148
Laboratory equipment		3 - 5 years		30,345		23,296
Furniture and fixtures		3 years		5,693		4,531
Assets under construction		(3)		80,518		28,655
Property, plant and equipment, at cost				187,236		118,072
Accumulated depreciation				(46,769)		(38,086)
Property, plant and equipment, net			$	140,467	$	79,986

(1)

Not depreciated.

(2)

Lesser of the remaining lease term, building life, or useful life.

(3)

Not depreciated until placed into service.

At June 30, 2018, the Company had $80.5 million of assets under construction which consisted of $22.7 million related to laboratory equipment, $55.4 million related to leasehold and building improvements, and $2.4 million related to computer equipment and computer software projects. Depreciation will begin on these assets once they are placed into service. The Company expects to incur an additional $9.7 million to complete the laboratory equipment, $231.9 million to complete the building projects, and $1.6 million to complete the computer equipment and computer software projects. These projects are expected to be completed throughout 2018, 2019 and 2020. 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 periods ended June 30, 2018 and December 31, 2017.

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.

Intangible Assets and Goodwill

Intangible Assets

Intangible assets consisted of the following:


	June 30,		December 31,
(In thousands)	2018		2017
Finite-lived intangible assets
Finite-lived intangible assets	$	23,862	$	23,731
Less: Accumulated amortization		(2,733)		(1,505)
Finite-lived intangible assets, net		21,129		22,226
Indefinite-lived intangible assets
Goodwill		1,979		1,979
Net carrying value	$	23,108	$	24,205

Finite-Lived Intangible Assets

The following table summarizes the net-book-value and estimated remaining life of the Company’s finite-lived intangible assets as of June 30, 2018:


			Weighted
	Net Balance at		Average
	June 30,		Remaining
(In thousands)	2018		Life (Years)
Licensed intellectual property and patents	$	20,110		10.0
Developed technology		1,019		6.4
Total	$	21,129

The table below represents estimated future amortization expense associated with the Company’s finite-lived intangible assets as of June 30, 2018:


(In thousands)
2018	$	1,237
2019		2,474
2020		2,469
2021		2,383
2022		2,370
Thereafter		10,196
	$	21,129