INVITAE CORP, 10-Q filed on 11/6/2019
Quarterly Report
v3.19.3
Cover Page - shares
9 Months Ended
Sep. 30, 2019
Nov. 01, 2019
Cover page.    
Entity Registrant Name Invitae Corp  
Document Type 10-Q  
Document Transition Report false  
Title of 12(b) Security Common Stock, $0.0001 par value per share  
Entity Incorporation, State or Country Code DE  
Document Quarterly Report true  
Entity Central Index Key 0001501134  
Document Period End Date Sep. 30, 2019  
Entity File Number 001-36847  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company true  
Entity Ex Transition Period true  
Entity Shell Company false  
Security Exchange Name NYSE  
Trading Symbol NVTA  
Entity Common Stock, Shares Outstanding   96,522,073
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q3  
Entity Tax Identification Number 27-1701898  
Entity Address, Address Line One 1400 16th Street  
Entity Address, City or Town San Francisco  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 94103  
City Area Code 415  
Local Phone Number 374-7782  
v3.19.3
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 467,012 $ 112,158
Marketable securities 300 13,727
Accounts receivable 26,740 26,296
Prepaid expenses and other current assets 14,477 13,258
Total current assets 508,529 165,439
Property and equipment, net 32,177 27,886
Operating lease assets 39,112  
Restricted cash 6,183 6,006
Intangible assets, net 99,740 30,469
Goodwill 99,851 50,095
Other assets 4,795 3,064
Total assets 790,387 282,959
Current liabilities:    
Accounts payable 8,863 7,812
Accrued liabilities 53,251 26,563
Operating lease obligations 5,186  
Finance lease obligations 1,636  
Finance lease obligations   1,937
Total current liabilities 68,936 36,312
Operating lease obligations, net of current portion 44,408  
Finance lease obligations, net of current portion 168  
Finance lease obligations, net of current portion   1,375
Debt 0 74,477
Convertible senior notes, net 265,194 0
Other long-term liabilities 7,800 8,956
Total liabilities 386,506 121,120
Commitments and contingencies (Note 8)
Stockholders’ equity:    
Common stock 10 8
Accumulated other comprehensive loss 0 (5)
Additional paid-in capital 1,085,643 678,548
Accumulated deficit (681,772) (516,712)
Total stockholders’ equity 403,881 161,839
Total liabilities and stockholders’ equity $ 790,387 $ 282,959
v3.19.3
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Revenue:        
Total revenue $ 56,511 $ 37,366 $ 150,539 $ 102,343
Cost of revenue 32,120 20,441 81,380 58,964
Research and development 46,951 15,776 90,247 46,926
Selling and marketing 32,690 17,591 87,662 55,222
General and administrative 21,733 13,668 56,326 37,884
Loss from operations (76,983) (30,110) (165,076) (96,653)
Other income (expense), net (7,591) 231 (5,572) 2,066
Interest expense (2,833) (1,844) (7,062) (4,927)
Net loss before taxes (87,407) (31,723) (177,710) (99,514)
Income tax benefit (8,700) 0 (12,650) 0
Net loss $ (78,707) $ (31,723) $ (165,060) $ (99,514)
Net loss per share, basic and diluted (in dollars per share) $ (0.82) $ (0.45) $ (1.86) $ (1.56)
Shares used in computing net loss per share, basic and diluted 95,577 70,153 88,663 63,935
Test revenue        
Revenue:        
Total revenue $ 55,502 $ 36,611 $ 147,423 $ 100,014
Other revenue        
Revenue:        
Total revenue 1,009 755 3,116 2,329
Accumulated deficit:        
Revenue:        
Net loss $ (78,707) $ (31,723) $ (165,060) $ (99,514)
Shares used in computing net loss per share, basic and diluted 95,577 70,153 88,663 63,935
v3.19.3
Condensed Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2019
Sep. 30, 2018
Statement of Comprehensive Income [Abstract]        
Net loss $ (78,707) $ (31,723) $ (165,060) $ (99,514)
Other comprehensive income:        
Unrealized income on available-for-sale marketable securities, net of tax 0 63 5 125
Comprehensive loss $ (78,707) $ (31,660) $ (165,055) $ (99,389)
v3.19.3
Condensed Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Common stock:
Accumulated other comprehensive income (loss):
Additional paid-in capital:
Accumulated deficit:
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Cumulative effect of accounting change         $ 11,241
Balance, beginning of period at Dec. 31, 2017   $ 5 $ (171) $ 520,558 (398,598)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Common stock issued   2   112,467  
Unrealized income on available-for-sale marketable securities, net of tax     125    
Common stock issued on exercise of stock options, net       2,570  
Common stock issued pursuant to exercises of warrants       6,461  
Common stock issued pursuant to employee stock purchase plan       1,633  
Common stock issued or issuable pursuant to business combinations       6,455  
Warrants issued pursuant to loan agreement       383  
Stock-based compensation expense       15,711  
Other       67  
Net loss $ (99,514)       (99,514)
Balance, end of period at Sep. 30, 2018 179,395 7 (46) 666,305 (486,871)
Balance, beginning of period at Jun. 30, 2018   6 (109) 593,898 (455,148)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Common stock issued   1   58,988  
Unrealized income on available-for-sale marketable securities, net of tax     63    
Common stock issued on exercise of stock options, net       2,522  
Common stock issued pursuant to exercises of warrants       3,209  
Common stock issued or issuable pursuant to business combinations       2,482  
Stock-based compensation expense       5,206  
Net loss (31,723)       (31,723)
Balance, end of period at Sep. 30, 2018 179,395 7 (46) 666,305 (486,871)
Balance, beginning of period at Dec. 31, 2018 161,839 8 (5) 678,548 (516,712)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Common stock issued   2   204,024  
Unrealized income on available-for-sale marketable securities, net of tax     5    
Common stock issued on exercise of stock options, net       2,985  
Common stock issued pursuant to exercises of warrants       171  
Common stock issued pursuant to employee stock purchase plan       2,578  
Common stock issued or issuable pursuant to business combinations       95,220  
Equity component of convertible senior notes, net       75,488  
Stock-based compensation expense       26,629  
Net loss (165,060)       (165,060)
Balance, end of period at Sep. 30, 2019 403,881 10 0 1,085,643 (681,772)
Balance, beginning of period at Jun. 30, 2019   9 0 944,559 (603,065)
Increase (Decrease) in Stockholders' Equity [Roll Forward]          
Common stock issued   1   19,534  
Common stock issued on exercise of stock options, net       553  
Common stock issued pursuant to exercises of warrants       58  
Common stock issued or issuable pursuant to business combinations       35,778  
Equity component of convertible senior notes, net       75,488  
Stock-based compensation expense       9,673  
Net loss (78,707)       (78,707)
Balance, end of period at Sep. 30, 2019 $ 403,881 $ 10 $ 0 $ 1,085,643 $ (681,772)
v3.19.3
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Cash flows from operating activities:    
Net loss $ (165,060) $ (99,514)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 11,135 10,268
Stock-based compensation 47,826 15,711
Amortization of debt discount and issuance costs 855 681
Impairment losses 0 1,883
Benefit from income taxes (12,650) 0
Debt extinguishment costs 8,926 0
Other 901 626
Changes in operating assets and liabilities, net of businesses acquired:    
Accounts receivable (444) (4,483)
Prepaid expenses and other current assets (1,424) (1,060)
Other assets 2,369 (555)
Accounts payable 87 (1,226)
Accrued expenses and other liabilities 9,692 922
Net cash used in operating activities (97,787) (76,747)
Cash flows from investing activities:    
Purchases of marketable securities (20,781) (1,575)
Proceeds from sales of marketable securities 0 19,965
Proceeds from maturities of marketable securities 34,500 10,957
Acquisition of businesses, net of cash acquired (9,801) 0
Purchases of property and equipment (13,530) (4,258)
Other 0 (500)
Net cash provided by (used in) investing activities (9,612) 24,589
Cash flows from financing activities:    
Proceeds from public offerings of common stock, net 204,024 112,480
Proceeds from issuance of common stock, net 5,734 10,732
Proceeds from issuance of convertible senior notes, net 339,900 0
Proceeds from issuance of debt, net 0 19,544
Payments of debt extinguishment costs (10,638) 0
Loan payments (75,000) 0
Finance lease principal payments (1,590)  
Finance lease principal payments   (1,632)
Net cash provided by financing activities 462,430 141,124
Net increase in cash, cash equivalents and restricted cash 355,031 88,966
Cash, cash equivalents and restricted cash at beginning of period 118,164 17,459
Cash, cash equivalents and restricted cash at end of period 473,195 106,425
Supplemental cash flow information of non-cash investing and financing activities:    
Purchases of property and equipment in accounts payable and accrued liabilities 1,339 1,607
Amounts related to co-development agreement recognized in other assets 0 2,750
Amounts related to co-development agreement recognized in accrued liabilities 0 2,500
Warrants issued pursuant to loan and security agreement 0 383
Common stock issued for acquisition of businesses 104,801 $ 6,443
Lease assets obtained in exchange for lease obligations, net $ 5,615  
v3.19.3
Organization and description of business
9 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and description of business Organization and description of business
Invitae Corporation ("Invitae," “the Company," "we," "us," and "our") was incorporated in the State of Delaware on January 13, 2010, as Locus Development, Inc. and changed its name to Invitae Corporation in 2012. We utilize an integrated portfolio of laboratory processes, software tools and informatics capabilities to process DNA-containing samples, analyze information about patient-specific genetic variation and generate test reports for clinicians and patients. Our headquarters and main production facility is located in San Francisco, California. We currently have more than 20,000 genes in production and provide a variety of diagnostic tests that can be used in multiple indications. Our tests include genes associated with hereditary cancer, neurological disorders, cardiovascular disorders, pediatric disorders, metabolic disorders and other hereditary conditions. In addition, and as a result of the acquisitions of Good Start Genetics (“Good Start”) and CombiMatrix Corporation (“CombiMatrix”) in 2017, our services also include screening and testing in reproductive health, including preimplantation and carrier screening for inherited disorders, prenatal diagnosis, miscarriage analysis and pediatric developmental disorders. To complement these, in the first quarter of 2019, we introduced our Non-invasive Prenatal Screen ("NIPS") and to advance this offering, in June 2019, we acquired Singular Bio, Inc. ("Singular Bio") to lower costs associated with NIPS. In July 2019, we acquired Jungla Inc. ("Jungla") to further enhance our genetic variant interpretation. Invitae operates in one segment.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018. The results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results expected for the full fiscal year or any other periods.
v3.19.3
Summary of significant accounting policies
9 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Summary of significant accounting policies Summary of significant accounting policies
Principles of consolidation
Our unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base these estimates on historical and anticipated results, trends and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. Actual results could differ materially from those estimates and assumptions.
Significant estimates and assumptions made by management include the determination of:
revenue recognition (See Note 3, “Revenue, accounts receivable and deferred revenue” for further information);
the fair value of assets acquired and liabilities assumed for business combinations;
the fair value of goodwill and intangible assets;
valuation of the liability and equity components of our convertible notes issued in September 2019 ("Convertible Senior Notes");
the recoverability of long-lived assets;
our incremental borrowing rates used to calculate our lease obligations;
stock-based compensation expense and the fair value of awards issued; and
income tax uncertainties.
Concentrations of credit risk and other risks and uncertainties
Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, marketable securities and accounts receivable. Our cash and cash equivalents are held by financial institutions in the United States. Such deposits may exceed federally insured limits.
Significant customers are those that represent 10% or more of our total revenue presented on the consolidated statements of operations. Our revenue for significant customers as a percentage of our total revenue were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
Medicare
 
27
%
 
25
%
 
23
%
 
20
%
United Healthcare
 
*

 
10
%
 
*

 
*

*  Balance represents less than 10% of total revenue
 
 
 
 
 
 
Accounts receivable for customers that represent 10% or more of our total accounts receivable presented on the consolidated balance sheets were as follows:
 
September 30, 2019
 
December 31, 2018
Medicare
12
%
 
21
%

Cash, cash equivalents and restricted cash
We consider all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market funds.
Restricted cash consists primarily of money market funds held in irrevocable standby letters of credit that serve as collateral for security deposits for our facility leases.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the statements of cash flows (in thousands):
 
September 30,
2019
 
December 31,
2018
Cash and cash equivalents
$
467,012

 
$
112,158

Restricted cash
6,183

 
6,006

Total cash, cash equivalents and restricted cash
$
473,195

 
$
118,164


Accounts receivable
We receive payment for our tests from partners, patients, institutional customers and third-party payers. See Note 3, “Revenue, accounts receivable and deferred revenue” for further information.
Inventory
We maintain test reagents and other consumables primarily used in sample collection kits which are valued at the lower of cost or net realizable value. Cost is determined using actual costs on a first-in, first-out basis. Our inventory was $6.0 million and $8.3 million as of September 30, 2019 and December 31, 2018, respectively, and was recorded in prepaid expenses and other current assets on our consolidated balance sheets.
Business combinations
The tangible and identifiable intangible assets acquired and liabilities assumed in a business combination are recorded based on their estimated fair values as of the business combination date, including identifiable intangible assets which either arise from a contractual or legal right or are separable from goodwill. We base the estimated fair value of identifiable intangible assets acquired in a business combination on independent valuations that use information and assumptions provided by our management, which consider our estimates of inputs and assumptions that a market participant would use. Any excess purchase price over the estimated fair value assigned to the net tangible and identifiable intangible assets acquired and liabilities assumed is recorded to goodwill. The use of alternative valuation assumptions, including estimated revenue projections, growth rates, cash flows, discount rates, estimated useful lives and probabilities surrounding the achievement of contingent milestones could result in different purchase price allocations and amortization expense in current and future periods.
In circumstances where an acquisition involves a contingent consideration arrangement that meets the definition of a liability under Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity, we recognize a liability equal to the fair value of the contingent payments we expect to make as of the acquisition date. We remeasure this liability each reporting period and record changes in the fair value as a component of operating expenses.
Transaction costs associated with acquisitions are expensed as incurred in general and administrative expenses. Results of operations and cash flows of acquired companies are included in our operating results from the date of acquisition.
Goodwill
In accordance with ASC 350, Intangibles-Goodwill and Other (“ASC 350”), our goodwill is not amortized but is tested for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Under ASC 350, we perform annual impairment reviews of our goodwill balance during the fourth fiscal quarter. In testing for impairment, we compare the fair value of our consolidated single reporting unit to its carrying value including the goodwill of that unit. If the carrying value, including goodwill, exceeds the reporting unit’s fair value, we will recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized cannot exceed the total amount of goodwill allocated to the reporting unit.
We have not incurred any goodwill impairment losses in any of the periods presented.
Indefinite-lived intangible assets
ASC 350 requires companies to test indefinite-lived intangible assets for impairment annually, and more frequently if indicators of impairment exist. ASC 350 includes an optional qualitative assessment for testing indefinite-lived intangible assets for impairment that permits companies to assess whether it is more likely than not (i.e., a likelihood of greater than 50%) that an indefinite-lived intangible asset is impaired. If a company concludes based on the qualitative assessment that it is not more likely than not that the fair value of an indefinite-lived intangible asset or, in the case of goodwill, that the fair value of the related reporting unit, is less than carrying value, it would not have to determine the asset’s or reporting unit’s fair value, as applicable.
In-process research and development
Intangible assets related to in-process research and development costs (“IPR&D”) are considered to be indefinite-lived until the completion or abandonment of the associated research and development efforts. If and when development is complete, the associated assets would be deemed finite-lived and would then be amortized based on their respective estimated useful lives at that point in time. Prior to completion of the research and development efforts, the assets are considered indefinite-lived. During this period, the assets will not be amortized but will be tested for impairment on an annual basis and between annual tests if we become aware of any events occurring or changes in circumstances that would indicate a reduction in the fair value of the IPR&D projects below their respective carrying amounts.
During the fourth quarter and if business factors indicate more frequently, we perform an assessment of the qualitative factors affecting the fair value of our IPR&D. Impairment losses on indefinite-lived intangible assets are recognized based solely on a comparison of the fair value of an asset to its carrying value, without consideration of any recoverability test. We have not identified any such impairment losses to date.
Fair value of financial instruments
Our financial instruments consist principally of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities, finance leases and contingent consideration. The carrying amounts of certain of these financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued and other current liabilities approximate their current fair value due to the relatively short-term nature of these accounts. Based on borrowing rates available to us, the carrying value of our finance leases and Convertible Senior Notes approximate their fair values.
Revenue recognition
We recognize revenue when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. All revenues are generated from contracts with customers.
Test revenue is generated primarily from the sale of tests that provide analysis and associated interpretation of the sequencing of parts of the genome.
Other revenue consists primarily of revenue from genome network subscription services which is recognized on a straight-line basis over the subscription term, and revenue from collaboration agreements.
Cost of revenue
Cost of revenue reflects the aggregate costs incurred in delivering the genetic testing results to clinicians and patients and includes expenses for personnel-related costs including stock-based compensation, materials and supplies, equipment and infrastructure expenses associated with testing and allocated overhead including rent, equipment depreciation, amortization of acquired intangibles and utilities.
Stock-based compensation
We measure stock-based payment awards made to employees and directors based on the estimated fair values of the awards and recognize the compensation expense over the requisite service period. We use the Black-Scholes option-pricing model to estimate the fair value of stock option awards and employee stock purchase plan (“ESPP”) purchases. The fair value of restricted stock unit (“RSU”) awards with time-based vesting terms is based on the grant date share price. We grant performance-based restricted stock unit (“PRSU”) awards to certain employees which vest upon the achievement of certain performance conditions, subject to the employees’ continued service relationship with us. The probability of vesting is assessed at each reporting period and compensation cost is adjusted based on this probability assessment. We recognize such compensation expense on an accelerated vesting method.
Stock-based compensation expense for awards without a performance condition is recognized using the straight-line method. Stock-based compensation expense is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. As such, our stock-based compensation is reduced for estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
We account for stock issued in connection with business combinations based on the fair value of our common stock on the date of issuance.
Net loss per share
Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common share equivalents outstanding for the period determined using the treasury stock method. Potentially dilutive securities, consisting of convertible preferred stock, options to purchase common stock, common stock warrants, Convertible Senior Notes, RSUs and PRSUs, are considered to be common stock equivalents and were excluded from the calculation of diluted net loss per share because their effect would be antidilutive for all periods presented.
Prior period reclassifications
Statement of cash flow amounts in prior periods have been reclassified to conform with current period presentation, which includes $0.6 million of remeasurement of liabilities associated with business combinations in other adjustments to reconcile net loss to cash used in operating activities during the nine months ended September 30, 2018.
Recent accounting pronouncements
We evaluate all Accounting Standards Updates (“ASUs”) issued by the FASB for consideration of their applicability. ASUs not included in the disclosures in this report were assessed and determined to be either not applicable or are not expected to have a material impact on our consolidated financial statements.
Recently issued accounting pronouncements not yet adopted
In June 2016, FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires measurement and recognition of expected credit losses for financial assets. This guidance will become effective for us beginning in the first quarter of 2020 and must be adopted using a modified retrospective approach, with certain exceptions. We are currently evaluating the effect that adoption of this ASU will have on our consolidated financial statements.
Recently adopted accounting pronouncements – Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and in July 2018 issued ASU 2018-10, Codification Improvements to Topic 842, Leases,l and ASU 2018-11, Leases (Topic 842): Targeted Improvements (the foregoing ASUs collectively referred to as “Topic 842”). Under this guidance, lessees are required to recognize a lease liability and a right-of-use asset for all leases at the commencement date and also make expanded disclosures about leasing arrangements.
On January 1, 2019, we adopted Topic 842 using the modified retrospective approach in accordance with Topic 842. Adoption of Topic 842 had a material impact on our consolidated balance sheets, but did not have an impact on our consolidated statements of operations. Prior period amounts were not adjusted and continue to be reported in accordance with our historic accounting under previous lease guidance, ASC 840: Leases. We elected the package of practical expedients permitted under the transition guidance which, among other things, allowed us to carry forward the historical classification of leases in place as of January 1, 2019.
The effect of the adoption of Topic 842 on our consolidated balance sheet as of January 1, 2019 was as follows (in thousands):
 
 
December 31, 2018
 
Adjustments Due to the Adoption of Topic 842
 
January 1, 2019
Property and equipment, net
 
$
27,886

 
$
(5,159
)
 
$
22,727

Operating lease assets
 
$

 
$
36,711

 
$
36,711

Other assets
 
$
3,064

 
$
5,159

 
$
8,223

Accrued liabilities
 
$
26,563

 
$
(490
)
 
$
26,073

Operating lease obligations
 
$

 
$
4,697

 
$
4,697

Operating lease obligations, net of current portion
 
$

 
$
41,279

 
$
41,279

Other long-term liabilities
 
$
8,956

 
$
(8,775
)
 
$
181


The adjustments due to the adoption of Topic 842 primarily relate to the recognition of operating and finance lease right-of-use assets and operating lease liabilities. Finance lease assets are recorded within other assets on our consolidated balance sheet and were $5.2 million as of implementation of Topic 842 on January 1, 2019 and $4.0 million as of September 30, 2019.
Under Topic 842, we determine if an arrangement is a lease at inception primarily based on the determination of the party responsible for directing the use of an underlying asset within a contract. Operating leases are included in operating lease assets and operating lease obligations in our consolidated balance sheets. Lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, we use our incremental borrowing rate based on the information
available at the lease commencement date which includes significant assumptions made by us including our estimated credit rating. Operating lease right-of-use assets also include any lease payments made prior to the lease commencement date and exclude any lease incentives paid or payable at the lease commencement date. Lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term.
As allowed under Topic 842, we elected to not apply the recognition requirements of Topic 842 to short-term leases, that is, leases with terms of 12 months or less which do not include an option to purchase the underlying asset that we are reasonably certain to exercise. For short-term leases, we recognize lease payments as operating expenses on a straight-line basis over the lease term.
As a result of our election of the package of practical expedients permitted under the Topic 842 transition guidance, for assets related to facilities leases we elected to account for lease and non-lease components, such as common area maintenance charges, as a single lease component.
We did not identify any material embedded leases with the adoption of Topic 842 and therefore the implementation of Topic 842 primarily focused on the treatment of our previously identified leases.
v3.19.3
Revenue, accounts receivable and deferred revenue
9 Months Ended
Sep. 30, 2019
Revenue from Contract with Customer [Abstract]  
Revenue, accounts receivable and deferred revenue Revenue, accounts receivable and deferred revenue
Test revenue is generated from sales of diagnostic tests to three groups of customers: institutions, such as hospitals, clinics and partners; patients who pay directly; and patients’ insurance carriers. Amounts billed and collected, and the timing of collections, vary based on whether the payer is an institution, an insurance carrier or a patient. Other revenue consists principally of revenue recognized under collaboration and genome network agreements.
The following table includes our revenues as disaggregated by payer category (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Test revenue:
 
 
 
 
 
 
 
Institutions
$
10,407

 
$
8,958

 
$
28,375

 
$
24,761

Patient - direct
4,567

 
3,280

 
12,364

 
9,705

Patient - insurance
40,528

 
24,373

 
106,684

 
65,548

Total test revenue
55,502

 
36,611

 
147,423

 
100,014

Other revenue
1,009

 
755

 
3,116

 
2,329

Total revenue
$
56,511

 
$
37,366

 
$
150,539

 
$
102,343


We recognize revenue related to billings based on estimates of the amount that will ultimately be realized. The estimate of the transaction price of test revenue is based on many factors such as length of payer relationship, historical payment patterns, and changes in contract provisions and insurance reimbursement policies. Cash collections for certain diagnostic tests delivered may differ from rates originally estimated. As a result of new information, we updated our estimate of the amounts to be recognized for previously delivered tests which resulted in the following increases to revenue and decreases to our loss from operations and basic and diluted net loss per share (in millions, except per share amounts):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue
$
1.2

 
$
1.5

 
$
4.0

 
$
3.8

Loss from operations
$
(1.2
)
 
$
(1.5
)
 
$
(4.0
)
 
$
(3.8
)
Net loss per share, basic and diluted
$
(0.01
)
 
$
(0.02
)
 
$
(0.05
)
 
$
(0.06
)

The changes in estimates in revenue recognized during the three and nine months ended September 30, 2019 were primarily related to adjustments to revenue recognized in 2018 from businesses acquired in 2017. We recorded revenue of $3.8 million in the nine months ended September 30, 2018 which includes the impact of a change in estimate related to deletion/duplication analysis for hereditary breast and ovarian cancer using Current Procedure Terminology (CPT) code 81433 in conjunction with CPT code 81432, for tests completed during the second half of 2017.
Accounts receivable
The majority of our accounts receivable represents amounts billed to institutions (e.g., hospitals, clinics, partners) and estimated amounts to be collected from third-party insurance payers for diagnostic test revenue recognized. Also included are amounts due under the terms of collaboration and genome network agreements for diagnostic testing and data aggregation reporting services provided and proprietary platform access rights transferred.
Deferred revenue
We record deferred revenue when cash payments are received or due in advance of our performance related to one or more performance obligations. The amounts deferred to date primarily consist of prepayments related to our consumer direct channel as well as consideration received pertaining to the estimated exercise of certain re-requisition rights. In order to comply with loss contract rules, our re-requisition rights revenue deferral is no less than the estimated cost of fulfilling related obligations. We recognize revenue related to re-requisition rights as the rights are exercised or expire unexercised, which is generally within 90 days of initial deferral.
v3.19.3
Business combinations
9 Months Ended
Sep. 30, 2019
Business Combinations [Abstract]  
Business combinations Business combinations
Singular Bio
In June 2019, we acquired 100% of the fully diluted equity of Singular Bio, a privately held company developing single molecule detection technology, for approximately $57.3 million, comprised of $53.9 million in the form of 2.5 million shares of our common stock and the remainder in cash. As of September 30, 2019, we had hold-back amounts payable within 12 months of the acquisition date of $1.8 million.
Prior to the acquisition, we entered into a co-development agreement with Singular Bio whereby we paid Singular Bio $3.0 million for a 12-month right of first refusal and an opportunity to conduct due diligence on its business. As of January 2019, we made all required payments under the terms of this agreement.
In connection with the acquisition, all of Singular Bio's equity awards that were outstanding and unvested prior to the acquisition became fully vested per the terms of the merger agreement. The acceleration of vesting required us to allocate the fair value of the equity attributable to pre-combination service to the purchase price and the remainder was considered our post-combination expense. We recognized post-combination expense related to the acceleration of unvested equity of $3.2 million and we also incurred transaction costs of $1.3 million related to the acquisition of Singular Bio; both of these charges were recorded as general and administrative expense during the nine months ended September 30, 2019. We included the financial results of Singular Bio in our consolidated financial statements from the acquisition date, which were not material for the three or nine months ended September 30, 2019.
Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by us. While we believe that our estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different valuations assigned to the individual assets acquired and liabilities assumed, and the resulting amount of goodwill. The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition (in thousands):
Cash
$
4,988

Property and equipment
303

In-process research and development
29,988

Total identifiable assets acquired
35,279

Current liabilities assumed
(479
)
Deferred tax liability
(3,950
)
Net identifiable assets acquired
30,850

Goodwill
26,461

Total purchase price
$
57,311


Based on the guidance provided in ASC 805, we accounted for the acquisition of Singular Bio as a business combination in which we determined that 1) Singular Bio was a business which combines inputs and processes to create outputs, and 2) substantially all of the fair value of gross assets acquired was not concentrated in a single identifiable asset or group of similar identifiable assets.
Our purchase price allocation for our acquisition of Singular Bio is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of Singular Bio resulted in the recognition of $26.5 million of goodwill which we believe consists primarily of technological expertise and capabilities within nucleic acid analysis and the ability to utilize the technology outside NIPS. Goodwill created as a result of the acquisition of Singular Bio is not deductible for tax purposes.
We recorded an income tax benefit of $4.0 million in June 2019 due to net deferred tax liabilities assumed in connection with our acquisition of Singular Bio which provided a future source of income to support the realization of our deferred tax assets and resulted in a partial release of our valuation allowance.
We granted approximately $90.0 million of RSUs under our 2015 Stock Incentive Plan as inducement awards to new employees who joined Invitae in connection with our acquisition of Singular Bio. $45.0 million of the RSUs are time-based and vest in three equal installments in December 2019, June 2020, and December 2020, subject to the employee's continued service with us ("Time-based RSUs") and $45.0 million of the RSUs are performance-based RSUs ("PRSUs") that vest upon the achievement of certain performance conditions over a period of approximately 12 months, subject to the employee's continued service with us. Since the number of awards granted is based on a 30-day volume weighted-average share price with a fixed dollar value, these Time-based RSUs and PRSUs are liability-classified and the fair value will be estimated at each reporting period based on the number of shares that are expected to be issued at each reporting date and our closing stock price, which combined are categorized as Level 3 inputs. Therefore, fair value of the RSUs and PRSUs and the number of shares to be issued will not be fixed until the RSUs vest.
During the three and nine months ended September 30, 2019, we recorded research and development stock-based compensation expense of $6.7 million and $7.6 million, respectively, related to the Time-based RSUs and $11.9 million and $13.6 million, respectively, related to the PRSUs based on our evaluations of the probability of achieving performance conditions. As of September 30, 2019, the Time-based RSUs and PRSUs had a total fair value of $41.2 million and $36.7 million, respectively, based on a total estimated issuance of 4.0 million shares and expectation of the achievement of the performance conditions. As of September 30, 2019, none of the Time-based RSUs or PRSUs granted to these employees had vested.     
Jungla
In July 2019, we acquired 100% of the equity interest of Jungla, a privately held company developing a platform for molecular evidence testing in genes, for approximately $59.0 million, comprised of $44.9 million in the form of shares of our common stock and the remainder in cash. We agreed to pay a portion of the cash and issue approximately 0.2 million shares of our common stock after a 12-month period, subject to a hold back to satisfy indemnification obligations that may arise. We incurred $0.6 million of transaction costs related to the acquisition of Jungla which were recorded as general and administrative expense during the three months ended September 30, 2019.
We may be required to pay contingent consideration based on achievement of post-closing development milestones. As of the acquisition date, the fair value of this contingent consideration was $10.7 million, $9.6 million of which would be in the form of shares of our common stock and the remainder in cash. The milestones are expected to be completed within two years. The material factors that may impact the fair value of the contingent consideration, and therefore, this liability, are the probabilities and timing of achieving the related milestones and the discount rate we used to estimate the fair value. Significant changes in any of the probabilities of success would result in a significant change in the fair value, which will be estimated at each reporting date with changes reflected as a general and administrative expense. As of September 30, 2019, the fair value of the contingent consideration was $11.0 million.
In connection with the acquisition, a portion of Jungla's equity awards that were outstanding and unvested prior to the acquisition became fully vested per the terms of the merger agreement. The acceleration of vesting required us to allocate the fair value of the equity attributable to pre-combination service to the purchase price and the remaining amount was considered our post-combination expense. In July 2019, we recognized post-combination expense related to the acceleration of unvested equity of $2.9 million, which was recorded as general and administrative expense. We included the financial results of Jungla in our consolidated financial statements from the acquisition date, which were not material for the three or nine months ended September 30, 2019.
The following table summarizes the purchase price and post-combination expense recorded as a part of the acquisition of Jungla in July 2019 (in thousands):
 
Purchase Price
 
Post-combination Expense
Cash transferred
$
13,261

 
$
2,151

Hold-back consideration - cash
270

 
253

Hold-back consideration - common stock
4,574

 

Contingent consideration
10,158

 
542

Common stock transferred
30,753

 

Total
$
59,016

 
$
2,946


Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by us. While we believe that our estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different valuations assigned to the individual assets acquired and liabilities assumed, and the resulting amount of goodwill. The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition (in thousands):
Cash
$
289

Developed technology
44,140

Total identifiable assets acquired
44,429

Accounts payable
(8
)
Deferred tax liability
(8,700
)
Net identifiable assets acquired
35,721

Goodwill
23,295

Total purchase price
$
59,016


Based on the guidance provided in ASC 805, we accounted for the acquisition of Jungla as a business combination in which we determined that 1) Jungla was a business which combines inputs and processes to create outputs, and 2) substantially all of the fair value of gross assets acquired was not concentrated in a single identifiable asset or group of similar identifiable assets.
Our purchase price allocation for our acquisition of Jungla is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
We measured the identifiable assets and liabilities assumed at their acquisition date fair values separately from goodwill. The intangible asset acquired is developed technology related to Jungla's functional molecular platform. The fair value of the developed technology was estimated using an income approach for $44.1 million with an estimated useful life of ten years.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of Jungla resulted in the recognition of $23.3 million of goodwill which we believe consists primarily of technological expertise related to large-scale molecular and genomic technologies and the ability to expand the use of these into other areas of our business. Goodwill created as a result of the acquisition of Jungla is not deductible for tax purposes.
We recorded an income tax benefit of $8.7 million in July 2019 due to net deferred tax liabilities assumed in connection with our acquisition of Jungla which provided a future source of income to support the realization of our deferred tax assets and resulted in a partial release of our valuation allowance.
Pro forma financial information (unaudited)
The unaudited pro forma financial information in the table below summarizes the combined results of operations for Invitae, Singular Bio and Jungla as though the companies had been combined as of January 1, 2018. The pro forma amounts have been adjusted for:
transaction expenses incurred by Singular Bio, Jungla and us,
the impacts of the co-development agreement between Singular Bio and us,
the historical interest expense incurred by Singular Bio on its debt and debt-like items,
compensation expense recognized in relation to the equity awards granted in connection with the acquisition of Singular Bio,
amortization expense resulting from the developed technology acquired through the acquisition of Jungla,
post-combination expense,
income tax benefits resulting from the deferred tax liabilities acquired, and
the 2.5 million and 1.4 million shares of our common stock issued upon the closing of the Singular Bio and Jungla transactions, respectively.
The following unaudited pro forma financial information is for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved as if the acquisitions had taken place as of January 1, 2018 (in thousands, except per share data):
 
Three Months Ended September 30,
 
2019
 
2018
 
Invitae
 
Singular Bio
 
Jungla
 
Total
 
Invitae
 
Singular Bio
 
Jungla
 
Total
Revenue
$
56,511

 
$

 
$

 
$
56,511

 
$
37,366

 
$

 
$

 
$
37,366

Net loss
$
(78,707
)
 
$
18,613

 
$
(5,831
)
 
$
(65,925
)
 
$
(31,723
)
 
$
(139
)
 
$
(1,254
)
 
$
(33,116
)
Shares
95,577

 

 
225

 
95,802

 
70,153

 
2,499

 
1,366

 
74,018

Basic and diluted net loss per share
$
(0.82
)
 


 


 
$
(0.69
)
 
$
(0.45
)
 


 


 
$
(0.45
)
 
Nine Months Ended September 30,
 
2019
 
2018
 
Invitae
 
Singular Bio
 
Jungla
 
Total
 
Invitae
 
Singular Bio
 
Jungla
 
Total
Revenue
$
150,539

 
$

 
$

 
$
150,539

 
$
102,343

 
$

 
$

 
$
102,343

Net loss
$
(165,060
)
 
$
21,844

 
$
(8,381
)
 
$
(151,597
)
 
$
(99,514
)
 
$
(1,071
)
 
$
(3,762
)
 
$
(104,347
)
Shares
88,663

 
1,553

 
984

 
91,200

 
63,935

 
2,499

 
1,366

 
67,800

Basic and diluted net loss per share
$
(1.86
)
 


 


 
$
(1.66
)
 
$
(1.56
)
 


 


 
$
(1.54
)

v3.19.3
Goodwill and intangible assets
9 Months Ended
Sep. 30, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and intangible assets Goodwill and intangible assets
Goodwill
The changes in the carrying amounts of goodwill were as follows (in thousands):
Balance as of December 31, 2018
$
50,095

Goodwill acquired - Singular Bio
26,461

Goodwill acquired - Jungla
23,295

Balance as of September 30, 2019
$
99,851


Intangible assets
The following table presents details of our intangible assets (in thousands):
 
September 30, 2019
 
December 31, 2018
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Useful Life
(in Years)
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Useful Life
(in Years)
Customer relationships
$
23,763

 
$
(4,550
)
 
$
19,213

 
10.0
 
$
23,763

 
$
(2,783
)
 
$
20,980

 
10.0
Developed technology
56,103

 
(6,298
)
 
49,805

 
8.9
 
11,963

 
(3,482
)
 
8,481

 
4.8
Non-compete agreement
286

 
(157
)
 
129

 
5.0
 
286

 
(114
)
 
172

 
5.0
Trade name
576

 
(441
)
 
135

 
2.7
 
576

 
(329
)
 
247

 
2.7
Patent licensing agreement
496

 
(64
)
 
432

 
15.0
 
496

 
(37
)
 
459

 
15.0
Favorable leases
247

 
(209
)
 
38

 
2.2
 
247

 
(117
)
 
130

 
2.2
In-process research and development
29,988

 

 
29,988

 
n/a
 

 

 

 
n/a
 
$
111,459

 
$
(11,719
)
 
$
99,740

 
6.7
 
$
37,331

 
$
(6,862
)
 
$
30,469

 
8.2


Acquisition-related intangibles included in the above table are finite-lived, other than in-process research and development which has an indefinite life, and are carried at cost less accumulated amortization. Customer relationships are being amortized on an accelerated basis, in proportion to estimated cash flows. All other finite-lived acquisition-related intangibles are being amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are realized. Amortization expense was $2.2 million and $1.3 million for the three months ended September 30, 2019 and 2018, respectively, and $4.9 million and $3.8 million for the nine months ended September 30, 2019 and 2018, respectively. Amortization expense is recorded to cost of revenue, research and development, sales and marketing and general and administrative expense.
The following table summarizes our estimated future amortization expense of intangible assets with finite lives as of September 30, 2019 (in thousands):
2019 (remainder of year)
$
2,416

2020
9,939

2021
10,243

2022
8,538

2023
7,525

Thereafter
31,091

Total estimated future amortization expense
$
69,752


v3.19.3
Balance sheet components
9 Months Ended
Sep. 30, 2019
Balance Sheet Related Disclosures [Abstract]  
Balance sheet components Balance sheet components
Property and equipment, net
Property and equipment consisted of the following (in thousands):
 
September 30, 2019
 
December 31, 2018
Leasehold improvements
$
14,049

 
$
13,034

Laboratory equipment
26,136

 
22,149

Equipment under capital lease

 
7,129

Computer equipment
5,454

 
4,723

Software
2,659

 
2,594

Furniture and fixtures
941

 
784

Automobiles
58

 
20

Construction-in-progress
10,585

 
1,962

Total property and equipment, gross
59,882

 
52,395

Accumulated depreciation and amortization
(27,705
)
 
(24,509
)
Total property and equipment, net
$
32,177

 
$
27,886


Depreciation expense was $1.8 million and $2.1 million for the three months ended September 30, 2019 and 2018, respectively, and $5.2 million and $6.5 million for the nine months ended September 30, 2019 and 2018, respectively.
Accrued liabilities
Accrued liabilities consisted of the following (in thousands):
 
September 30, 2019
 
December 31, 2018
Accrued compensation and related expenses
$
12,684

 
$
7,917

Liabilities associated with business combinations
26,771

 
6,460

Liability associated with co-development agreement

 
2,000

Deferred revenue
1,151

 
761

Other
12,645

 
9,425

Total accrued liabilities
$
53,251

 
$
26,563


Other long-term liabilities
Other long-term liabilities consisted of the following (in thousands):
 
September 30, 2019
 
December 31, 2018
Lease incentive obligation, non-current
$

 
$
3,280

Deferred rent, non-current

 
5,495

Liabilities associated with business combinations, non-current
7,800

 

Other non-current liabilities

 
181

Total other long-term liabilities
$
7,800

 
$
8,956

v3.19.3
Fair value measurements
9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Fair value measurements Fair value measurements
 
Financial assets and liabilities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The authoritative guidance establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity.
The three-level hierarchy for the inputs to valuation techniques is summarized as follows:
Level 1—Observable inputs such as quoted prices (unadjusted) for identical instruments in active markets.
Level 2—Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-derived valuations whose significant inputs are observable.
Level 3—Unobservable inputs that reflect the reporting entity’s own assumptions.
The following tables set forth the fair value of our consolidated financial instruments that were measured at fair value on a recurring basis (in thousands):
 
September 30, 2019
 
Amortized
Cost
 
Unrealized
 
Estimated
Fair Value
 
 
 
 
 
 
 
 
Gains
 
Losses
 
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 

 
 

 
 

Money market funds
$
452,306

 
$

 
$

 
$
452,306

 
$
452,306

 
$

 
$

Certificates of deposit
300

 

 

 
300

 

 
300

 

Total financial assets
$
452,606

 
$

 
$

 
$
452,606

 
$
452,306

 
$
300

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration
 
 
 
 
 
 
$
11,000

 

 

 
$
11,000

Total financial liabilities
 
 
 
 
 
 
$
11,000

 

 

 
$
11,000

 
September 30, 2019
Reported as:
 

Cash equivalents
$
446,123

Restricted cash
6,183

Marketable securities
300

Total cash equivalents, restricted cash, and marketable securities
$
452,606

 
 
Accrued liabilities
$
3,200

Other long-term liabilities
$
7,800


 
December 31, 2018
 
Amortized
Cost
 
Unrealized
 
Estimated
Fair Value
 
 
 
 
 
 
 
 
Gains
 
Losses
 
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 

 
 

 
 

Money market funds
$
93,934

 
$

 
$

 
$
93,934

 
$
93,934

 
$

 
$

Certificates of deposit
300

 

 

 
300

 

 
300

 

Commercial paper
10,908

 

 
(1
)
 
10,907

 

 
10,907

 

U.S. treasury notes
9,990

 

 

 
9,990

 
9,990

 

 

U.S. government agency securities
6,001

 

 
(4
)
 
5,997

 

 
5,997

 

Total financial assets
$
121,133

 
$

 
$
(5
)
 
$
121,128

 
$
103,924

 
$
17,204

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration
 
 
 
 
 
 
$
4,998

 

 

 
$
4,998

Total financial liabilities
 
 
 
 
 
 
$
4,998

 

 

 
$
4,998

 
December 31, 2018
Reported as:
 

Cash equivalents
$
101,395

Restricted cash
6,006

Marketable securities
13,727

Total cash equivalents, restricted cash, and marketable securities
$
121,128

 
 
Accrued liabilities
$
4,998


There were no transfers between Level 1, Level 2 and Level 3 during the periods presented. The total fair value of investments with unrealized losses at September 30, 2019 was nil. None of the available-for-sale securities held as of September 30, 2019 has been in a continuous unrealized loss position for more than one year. We have not identified any other-than-temporary declines in market value and thus have not recorded any impairment charges on our financial assets during the nine months ended September 30, 2019. 
 
 Our certificates of deposit, commercial paper, and debt securities of U.S. government agency entities are classified as Level 2 as they are valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to benchmark yields, interest rate curves, reported trades, broker/dealer quotes and reference data.
As of September 30, 2019, we had contingent obligations of $11.0 million of our common stock to the former owners of Jungla in conjunction with our acquisition of Jungla in July 2019. The amount of the contingent obligation is dependent upon achievement of certain post-close development milestones. We estimated the fair value of the contingent consideration as $10.7 million at the acquisition date in July 2019 using a discounted cash flow technique based on estimated achievement of the post-close milestones and discount rates which were Level 3 inputs not supported by market activity. These inputs can significantly affect the estimated fair value of the contingent consideration. The value of the liability is subsequently remeasured to fair value at each reporting date with changes recorded as general and administrative expense.
As of December 31, 2018, we had a contingent obligation of $5.0 million of our common stock calculated using a 30-day trailing average share price to the former owners of AltaVoice in conjunction with our acquisition of AltaVoice in January 2017. The amount of the contingent obligation was dependent upon 2017 and 2018 revenue attributable to AltaVoice. Since revenue attributable to AltaVoice for the combined period of 2017 and 2018 was greater than the $10.0 million contingent milestone, in April 2019 we issued 0.2 million shares of our common stock to the former owners of AltaVoice which had a fair value on the date of issuance of $5.2 million to settle this contingent obligation.
v3.19.3
Commitments and contingencies
9 Months Ended
Sep. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and contingencies Commitments and contingencies
Leases
Operating leases
In 2015, we entered into a lease agreement for our headquarters and main production facility in San Francisco, California which commenced in 2016. This lease expires in July 2026 and we may renew the lease for an additional ten years. This optional period was not considered reasonably certain to be exercised and therefore we determined the lease term to be a ten-year period expiring in 2026. In connection with the execution of the lease, we provided a security deposit of approximately $4.6 million which is included in restricted cash in our consolidated balance sheets. We also have other operating leases for office and laboratory space in California and Massachusetts. We expect to enter into new leases and modifying existing leases as we support continued growth of our operations.
As of September 30, 2019, the weighted-average remaining lease term for our operating leases was 6.1 years and the weighted-average discount rate used to determine our operating lease liability was 11.5%. Cash payments included in the measurement of our operating lease liabilities were $2.7 million for the three months ended September 30, 2019 and $7.6 million for the nine months ended September 30, 2019.
The components of lease costs, which were included in cost of revenue, research and development, selling and marketing and general and administrative expenses on our consolidated statements of operations were as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Operating lease costs
$
2,666

 
$
2,416

 
$
7,747

 
$
7,248

Sublease income
(43
)
 
(39
)
 
(129
)
 
(117
)
Total operating lease costs
2,623

 
2,377

 
7,618

 
7,131

Finance lease costs
386

 
410

 
1,197

 
1,365

Total lease costs
$
3,009

 
$
2,787

 
$
8,815

 
$
8,496


Future minimum payments under non-cancelable operating leases as of September 30, 2019 are as follows (in thousands):
2019 (remainder of year)
$
2,768

2020
10,637

2021
10,676

2022
10,636

2023
9,912

Thereafter
28,273

Future non-cancelable minimum operating lease payments
72,902

Less: minimum payments to be received from non-cancelable subleases
(44
)
Total future non-cancelable minimum operating lease payments, net
72,858

Less: imputed interest
(23,264
)
Total operating lease liabilities
49,594

Less: current portion
(5,186
)
Operating lease obligations, net of current portion
$
44,408


Finance leases
We have entered into various finance lease agreements to obtain laboratory equipment. The terms of our finance leases are generally three years with a weighted-average remaining lease term of 0.9 years as of September 30, 2019 and are typically secured by the underlying equipment. The weighted-average discount rate used to determine our finance lease liability was 6.2%. The portion of the future payments designated as principal repayment was classified as a finance lease obligation on our consolidated balance sheets. Cash payments
included in the measurement of our finance lease liabilities were $0.5 million for the three months ended September 30, 2019 and $1.6 million for the nine months ended September 30, 2019.
Future payments under finance leases at September 30, 2019 are as follows (in thousands):
2019 (remainder of year)
$
509

2020
1,355

Total finance lease obligations
1,864

Less: interest
(60
)
Present value of net minimum finance lease payments
1,804

Less: current portion
(1,636
)
Finance lease obligations, net of current portion
$
168


Debt financing
In November 2018, we entered into a Note Purchase Agreement (the "2018 Note Purchase Agreement") pursuant to which we were eligible to borrow an aggregate principal amount up to $200.0 million over a seven year maturity term which included an initial borrowing of $75.0 million in November 2018. We received net proceeds of $10.3 million after terminating and repaying the balance of our obligations of approximately $64.7 million with our previous lender.
During September 2019, we settled our obligations under the 2018 Note Purchase Agreement in full for $85.7 million, which included repayment of principal of $75.0 million, accrued interest of $2.4 million, and prepayment fees of $8.9 million which were recorded as debt extinguishment costs in other income (expense) in our statement of operations during the three months ended September 30, 2019.
Interest expense related to our debt financings, excluding the impact of our Convertible Senior Notes, was $1.6 million and $1.8 million for the three months ended September 30, 2019 and 2018, respectively, and $5.5 million and $4.7 million for the nine months ended September 30, 2019 and 2018, respectively.
Convertible Senior Notes
In September 2019, we issued, at par value, $350.0 million aggregate principal amount of 2.0% Convertible Senior Notes due 2024 in a private offering. The Convertible Senior Notes are our senior unsecured obligations and will mature on September 1, 2024, unless earlier converted, redeemed or repurchased. The Convertible Senior Notes bear cash interest at a rate of 2.0% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020.
In accounting for the issuance of the Convertible Senior Notes, we separated the notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature using the effective interest method. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, is amortized to interest expense over the five-year term of the Convertible Senior Notes. The equity component of $75.5 million, net of issuance costs, was recorded in additional paid-in capital on our consolidated balance sheet and will not be re-measured as long as it continues to meet the conditions for equity classification.
We received net proceeds of $339.9 million from the sale of the Convertible Senior Notes after deducting commissions and offering expenses. These transaction costs were allocated to the liability and equity components based on their relative fair values. The transaction costs attributable to the liability component are amortized to interest expense over the term of the Convertible Senior Notes under the effective interest method, and the transaction costs attributable to the equity component were netted with the equity component in stockholder's equity.
Upon conversion, the Convertible Senior Notes will be convertible into cash, common shares of our common stock or a combination of cash and shares of our common stock, at our election. Our current intent is to settle the principal amount of the Convertible Senior Notes in cash upon conversion, with any remaining conversion value being delivered in shares of our common stock.
The initial conversion rate for the Convertible Senior Notes is 33.6293 shares of our common stock per $1,000 principal amount of the Convertible Senior Notes (equivalent to an initial conversion price of approximately $29.74 per share of common stock). The conversion rate is subject to adjustment upon the occurrence of certain specified events but will not be adjusted for any accrued and unpaid interest. In addition, upon the occurrence of
certain corporate events that occur prior to the maturity date or if we deliver a notice of redemption, we will, in certain circumstances, increase the conversion rate for a holder that elects to convert its Convertible Senior Notes in connection with such a corporate event or notice of redemption.
If we undergo a fundamental change (as defined in the indenture governing the notes), the holders of the Convertible Senior Notes may require us to repurchase all or any portion of their Convertible Senior Notes for cash at a repurchase equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased plus accrued and unpaid interest to, but excluding, the redemption date.
The Convertible Senior Notes will be convertible at the option of the noteholders at any time prior to the close of business on the business day immediately preceding March 1, 2024, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the Convertible Senior Notes on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call any or all of the Convertible Senior Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after March 1, 2024 until the close of business on the business day immediately preceding the maturity date, holders may convert their Convertible Senior Notes at any time, regardless of the foregoing circumstances. As of September 30, 2019, none of the above circumstances had occurred and therefore the Convertible Senior Notes could not have been converted.
We may not redeem the Convertible Senior Notes prior to September 6, 2022. We may redeem for cash all or any portion of the Convertible Senior Notes, at our option, on or after September 6, 2022 and on or before the 30th scheduled trading day immediately before the maturity date if the last reported sale price of the Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
The Convertible Senior Notes as of September 30, 2019 consisted of the following (in thousands):
Outstanding principal
$
350,000

Unamortized debt discount and issuance costs
(84,806
)
Net carrying amount, liability component
$
265,194


We recorded $1.1 million of interest expense related to the Convertible Senior Notes during the three and nine months ended September 30, 2019.
Other commitments
In the normal course of business, we enter into various purchase commitments primarily related to service agreements and laboratory supplies. At September 30, 2019, our total future payments under noncancelable unconditional purchase commitments having a remaining term of over one year were $4.7 million.
Guarantees and indemnifications
As permitted under Delaware law and in accordance with our bylaws, we indemnify our directors and officers for certain events or occurrences while the officer or director is or was serving in such capacity. The maximum amount of potential future indemnification is unlimited; however, we maintain director and officer liability insurance. This insurance allows the transfer of the risk associated with our exposure and may enable us to recover a portion of any future amounts paid. We believe the fair value of these indemnification agreements is minimal. Accordingly, we did not record any liabilities associated with these indemnification agreements at September 30, 2019 or December 31, 2018.
Contingencies
We were not a party to any material legal proceedings at September 30, 2019, or at the date of this report. We may from time to time become involved in various legal proceedings and claims arising in the ordinary course of business, and the resolution of any such claims could be material.
v3.19.3
Stockholders' equity
9 Months Ended
Sep. 30, 2019
Equity [Abstract]  
Stockholders' equity Stockholders’ equity
Shares outstanding
Shares of convertible preferred and common stock were as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Convertible preferred stock:
 
 
 
 
 
 
 
Shares outstanding, beginning of period
125

 
3,459

 
3,459

 
3,459

Conversion into common stock

 

 
(3,334
)
 

Shares outstanding, end of period
125

 
3,459

 
125

 
3,459

 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
Shares outstanding, beginning of period
93,763

 
68,976

 
75,481

 
53,597

Common stock issued in connection with public offering
786

 
4,325

 
11,136

 
17,103

Common stock issued on exercise of stock options, net
71

 
306

 
411

 
326

Common stock issued pursuant to vesting of RSUs
476

 
213

 
1,721

 
1,181

Common stock issued pursuant to exercises of warrants
10

 
552

 
29

 
1,098

Common stock issued pursuant to employee stock purchase plan

 

 
235

 
276

Common stock issued pursuant to business combinations
1,409

 
240

 
4,168

 
1,023

Common stock issued upon conversion of preferred stock

 

 
3,334

 

Other

 

 

 
8

Shares outstanding, end of period
96,515

 
74,612

 
96,515

 
74,612


2018 Sales Agreement
In August 2018, we entered into a Common Stock Sales Agreement (the “2018 Sales Agreement”) with Cowen and Company, LLC (“Cowen”), under which we may offer and sell from time to time at our sole discretion shares of our common stock through Cowen as our sales agent, in an aggregate amount not to exceed $75.0 million. Cowen may sell the shares by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act of 1933, including without limitation sales made directly on The New York Stock Exchange, and also may sell the shares in privately negotiated transactions, subject to our prior approval. Per the terms of the agreement, Cowen receives a commission equal to 3% of the gross proceeds of the sales price of all shares sold through it as sales agent under the 2018 Sales Agreement. In March 2019, we amended the 2018 Sales Agreement to increase the aggregate amount of our common stock to be sold under this agreement not to exceed $175.0 million. During 2018, we sold a total of 4.3 million shares of common stock under the 2018 Sales Agreement for aggregate gross proceeds of $61.1 million and net proceeds of $58.9 million. During the three and nine months ended September 30, 2019, we sold a total of 0.8 million shares of common stock under the 2018 Sales Agreement at an average price of $25.71 per share, for gross proceeds of $20.2 million and net proceeds of $19.5 million.
Public offerings
In March 2019, we sold, in an underwritten public offering, an aggregate of 10.4 million shares of our common stock at a price of $19.00 per share, for gross proceeds of $196.7 million and net proceeds of $184.5 million.
In April 2018, we sold, in an underwritten public offering, an aggregate of 12.8 million shares of our common stock at a price of $4.50 per share, for gross proceeds of $57.5 million and net proceeds of $53.5 million.
Private placement
In August 2017, in a private placement to certain accredited investors, we issued 5.2 million shares of common stock at a price of $8.50 per share, and 3.5 million shares of our Series A convertible preferred stock at a price of $8.50 per share, for gross proceeds of approximately $73.5 million and net proceeds of $68.9 million. The Series A preferred stock is convertible into common stock on a one-for-one basis, subject to adjustment for events such as stock splits, combinations and the like. During the nine months ended September 30, 2019, 3.3 million shares of Series A convertible preferred stock were converted to 3.3 million shares of common stock.
v3.19.3
Stock incentive plans
9 Months Ended
Sep. 30, 2019
Share-based Payment Arrangement [Abstract]  
Stock incentive plans Stock incentive plans
Stock incentive plans
In 2010, we adopted the 2010 Incentive Plan (the “2010 Plan”). The 2010 Plan provides for the granting of stock-based awards to employees, directors and consultants under terms and provisions established by our Board of Directors. Under the terms of the 2010 Plan, options may be granted at an exercise price not less than fair market value. For employees holding more than 10% of the voting rights of all classes of stock, the exercise prices for incentive and nonstatutory stock options must be at least 110% of fair market of the common stock on the grant date, as determined by our Board of Directors. The terms of options granted under the 2010 Plan may not exceed ten years.
In January 2015, we adopted the 2015 Stock Incentive Plan (the “2015 Plan”), which became effective upon the closing of our initial public offering (“IPO”). Shares outstanding under the 2010 Plan were transferred to the 2015 Plan upon effectiveness of the 2015 Plan. The 2015 Plan provides for automatic annual increases in shares available for grant, beginning on January 1, 2016 through January 1, 2025. In addition, shares subject to awards under the 2010 Plan that are forfeited or terminated will be added to the 2015 Plan. The 2015 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, stock units, stock appreciation rights and other forms of equity compensation, all of which may be granted to employees, including officers, non-employee directors and consultants. Additionally, the 2015 Plan provides for the grant of cash-based awards. In June 2019, we amended and restated the 2015 Plan to create a pool of shares to be awarded solely as a material inducement to employees.
Options granted generally vest over a period of four years. Typically, the vesting schedule for options granted to newly hired employees provides that 1/4 of the award vests upon the first anniversary of the employee’s date of hire, with the remainder of the award vesting monthly thereafter at a rate of 1/48 of the total shares subject to the option. All other options typically vest in equal monthly installments over the four-year vesting schedule.
RSUs generally vest over a period of three years. Typically, the vesting schedule for RSUs provides that 1/3 of the award vests upon each anniversary of the grant date. In June 2019, we granted Time-based RSUs in connection with the acquisition of Singular Bio which vest in three equal installments over a period of 18 months and PRSUs that vest based on the achievement of performance conditions; see further details in Note 4, "Business combinations."
Under our management incentive compensation plan, in July 2019 we granted PRSUs to our executive officers as well as other specified senior level employees based on the level of achievement of a specified 2019 revenue goal. These PRSUs will vest beginning in 2020 over a period of two years and may range from 0% to 115% of the target amount of 1.0 million shares. As of September 30, 2019, these PRSUs had a fair value of $18.3 million based on an estimated issuance of 0.8 million shares and expectation of achievement of the performance conditions.
Activity under the 2010 Plan and the 2015 Plan is set forth below (in thousands, except per share amounts and years):
 
Shares Available For Grant
 
Stock Options Outstanding
 
Weighted-Average Exercise Price Per Share
 
Weighted-Average Remaining Contractual Life (Years)
 
Aggregate Intrinsic Value
Balances at December 31, 2018
118

 
3,855

 
$
8.54

 
6.8
 
$
9,927

Additional shares reserved
13,019

 

 
 
 
 
 
 
Options granted
(193
)
 
193

 
24.16

 
 
 
 
Options cancelled
33

 
(33
)
 
12.65

 
 
 
 
Options exercised

 
(411
)
 
7.25

 
 
 
 
RSUs and PRSUs granted(1)
(6,671
)
 

 
 
 
 
 
 
RSUs and PRSUs cancelled
190

 

 
 
 
 
 
 
Balances at September 30, 2019
6,496

 
3,604

 
$
9.49

 
6.3
 
$
36,158

Options exercisable at September 30, 2019
 
 
2,948

 
$
8.71

 
5.9
 
$
31,207

Options vested and expected to vest at September 30, 2019
 
 
3,516

 
$
9.35

 
6.3
 
$
35,603


(1)
Includes the Time-based RSUs and PRSUs granted as a part of the Singular Bio acquisition which are based on a fixed dollar value. The number of shares issued will be variable until the awards vest. See further details in Note 4, "Business combinations."

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of our common stock for stock options that were in-the-money.
The weighted-average fair value of options to purchase common stock granted was $14.52 and $4.87 in the nine months ended September 30, 2019 and 2018, respectively.  The total grant-date fair value of options to purchase common stock vested was $3.6 million and $15.9 million in the nine months ended September 30, 2019 and 2018, respectively. The intrinsic value of options to purchase common stock exercised was $5.8 million and $1.5 million in the nine months ended September 30, 2019 and 2018, respectively.
The following table summarizes RSU activity, which includes the Time-based RSUs and PRSUs granted in connection with our acquisition of Singular Bio and PRSUs granted related to our management incentive compensation plan (in thousands, except per share data):
 
Number of Shares
 
Weighted- Average Grant Date Fair Value Per Share
Balance at December 31, 2018
4,031

 
$
8.35

RSUs granted
1,436

 
$
21.40

Time-based RSUs and PRSUs granted - Singular Bio (1)
4,280

 
$
19.27

PRSUs granted
955

 
$
22.62

RSUs vested
(1,721
)
 
$
10.53

RSUs cancelled
(190
)
 
$
11.17

Balance at September 30, 2019
8,791

 
$
16.86


 (1)
The Time-based RSUs and PRSUs granted as a part of the Singular Bio acquisition in June 2019 are based on a fixed dollar value. The number of shares issued and weighted-average grant date fair value per share will be variable until the awards vest. See further details in Note 4, "Business combinations."

 2015 employee stock purchase plan
In January 2015, we adopted the 2015 Employee Stock Purchase Plan (the “ESPP”), which became effective upon the closing of the IPO. Employees participating in the ESPP may purchase common stock at 85% of the lesser of the fair market value of common stock on the purchase date or last trading day preceding the offering date. At September 30, 2019, cash received from payroll deductions pursuant to the ESPP was $2.8 million. At September 30, 2019, a total of 0.8 million shares of common stock were reserved for issuance under the ESPP.
 Stock-based compensation
We use the grant date fair value of our common stock to value options when granted. The fair value of share-based payments for options granted to employees and directors was estimated on the date of grant using the Black-Scholes option-pricing model which requires input of various assumptions. Changes in assumptions can materially affect the fair value and ultimately how much stock-based compensation is recognized. The assumptions used to estimate the fair value of stock options granted are as follows: