INVITAE CORP, 10-Q filed on 8/4/2020
Quarterly Report
v3.20.2
Cover Page - shares
6 Months Ended
Jun. 30, 2020
Jul. 31, 2020
Cover [Abstract]    
Entity Registrant Name Invitae Corp  
Document Type 10-Q  
Document Period End Date Jun. 30, 2020  
Current Fiscal Year End Date --12-31  
Document Quarterly Report true  
Document Transition Report false  
Title of 12(b) Security Common Stock, $0.0001 par value per share  
Trading Symbol NVTA  
Security Exchange Name NYSE  
Entity Incorporation, State or Country Code DE  
Entity Central Index Key 0001501134  
Entity File Number 001-36847  
Amendment Flag false  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   131,785,131
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Entity Tax Identification Number 27-1701898  
Entity Address, Address Line One 1400 16th Street  
Entity Address, City or Town San Francisco  
Entity Address, State or Province CA  
Entity Address, Postal Zip Code 94103  
City Area Code 415  
Local Phone Number 374-7782  
v3.20.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2020
Dec. 31, 2019
Current assets:    
Cash and cash equivalents $ 168,203 $ 151,389
Marketable securities 253,933 240,436
Accounts receivable 27,905 32,541
Prepaid expenses and other current assets 21,081 18,032
Total current assets 471,122 442,398
Property and equipment, net 43,381 37,747
Operating lease assets 38,239 36,640
Restricted cash 6,343 6,183
Intangible assets, net 192,644 125,175
Goodwill 211,225 126,777
Other assets 6,921 6,681
Total assets 969,875 781,601
Current liabilities:    
Accounts payable 20,091 10,321
Accrued liabilities 99,490 64,814
Operating lease obligations 6,339 4,870
Finance lease obligations 977 1,855
Total current liabilities 126,897 81,860
Operating lease obligations, net of current portion 42,134 42,191
Finance lease obligations, net of current portion 879 1,155
Convertible senior notes, net 276,092 268,755
Deferred tax liability 10,250 0
Other long-term liabilities 49,428 8,000
Total liabilities 505,680 401,961
Commitments and contingencies (Note 8)
Stockholders’ equity:    
Common stock 13 10
Accumulated other comprehensive income (loss) 572 (9)
Additional paid-in capital 1,487,217 1,138,316
Accumulated deficit (1,023,607) (758,677)
Total stockholders’ equity 464,195 379,640
Total liabilities and stockholders’ equity $ 969,875 $ 781,601
v3.20.2
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Revenue:        
Total revenue $ 46,191 $ 53,475 $ 110,439 $ 94,028
Cost of revenue 42,952 28,006 83,374 49,260
Research and development 74,963 25,302 130,631 43,296
Selling and marketing 39,520 30,779 81,640 54,972
General and administrative 30,838 21,274 54,660 34,593
Loss from operations (142,082) (51,886) (239,866) (88,093)
Other income (expense), net (21,436) 1,381 (16,728) 2,019
Interest expense (5,485) (2,121) (10,936) (4,229)
Net loss before taxes (169,003) (52,626) (267,530) (90,303)
Income tax benefit (2,600) (3,950) (2,600) (3,950)
Net loss $ (166,403) $ (48,676) $ (264,930) $ (86,353)
Net loss per share, basic and diluted (in dollars per share) $ (1.29) $ (0.54) $ (2.35) $ (1.01)
Shares used in computing net loss per share, basic and diluted 129,023 90,863 112,765 85,148
Test revenue        
Revenue:        
Total revenue $ 45,099 $ 52,302 $ 108,177 $ 91,921
Other revenue        
Revenue:        
Total revenue $ 1,092 $ 1,173 $ 2,262 $ 2,107
v3.20.2
Condensed Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Statement of Comprehensive Income [Abstract]        
Net loss $ (166,403) $ (48,676) $ (264,930) $ (86,353)
Other comprehensive income:        
Unrealized income (loss) on available-for-sale marketable securities, net of tax (722) (8) 581 5
Comprehensive loss $ (167,125) $ (48,684) $ (264,349) $ (86,348)
v3.20.2
Condensed Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Common stock:
Accumulated other comprehensive income (loss):
Additional paid-in capital:
Accumulated deficit:
Restatement adjustment
Additional paid-in capital:
Balance, beginning of period at Dec. 31, 2018   $ 8 $ (5) $ 678,548 $ (516,712)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Common stock issued   1   184,490    
Unrealized income (loss) on available-for-sale marketable securities, net of tax $ 5   5      
Common stock issued on exercise of stock options, net       2,432    
Common stock issued pursuant to exercises of warrants       113    
Common stock issued pursuant to employee stock purchase plan       2,578    
Common stock issued or issuable pursuant to business combinations       59,442    
Stock-based compensation expense       16,956    
Net loss (86,353)          
Balance, end of period at Jun. 30, 2019 341,503 9 0 944,559 (603,065)  
Balance, beginning of period at Mar. 31, 2019   9 8 870,784 (554,389)  
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Unrealized income (loss) on available-for-sale marketable securities, net of tax (8)   (8)      
Common stock issued on exercise of stock options, net       413    
Common stock issued pursuant to exercises of warrants       25    
Common stock issued pursuant to employee stock purchase plan       2,578    
Common stock issued or issuable pursuant to business combinations       59,026    
Stock-based compensation expense       11,733    
Net loss (48,676)       (48,676)  
Balance, end of period at Jun. 30, 2019 341,503 9 0 944,559 (603,065)  
Balance, beginning of period at Dec. 31, 2019 379,640 10 (9) 1,138,316 (758,677)  
Balance, beginning of period (Immaterial error related to classification of Indemnification from acquisition) at Dec. 31, 2019           $ (10,387)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Common stock issued   3   217,486    
Unrealized income (loss) on available-for-sale marketable securities, net of tax 581   581      
Common stock issued on exercise of stock options, net       2,171    
Common stock issued pursuant to exercises of warrants       62    
Common stock issued pursuant to employee stock purchase plan       4,527    
Common stock issued or issuable pursuant to business combinations       102,506    
Stock-based compensation expense       32,536    
Net loss (264,930)          
Balance, end of period at Jun. 30, 2020 464,195 13 572 1,487,217 (1,023,607)  
Balance, beginning of period at Mar. 31, 2020   10 1,294 1,182,033 (857,204)  
Balance, beginning of period (Immaterial error related to classification of Indemnification from acquisition) at Mar. 31, 2020           $ (10,400)
Increase (Decrease) in Stockholders' Equity [Roll Forward]            
Common stock issued   3   217,486    
Unrealized income (loss) on available-for-sale marketable securities, net of tax (722)   (722)      
Common stock issued on exercise of stock options, net       1,026    
Common stock issued pursuant to exercises of warrants       35    
Common stock issued pursuant to employee stock purchase plan       4,527    
Common stock issued or issuable pursuant to business combinations       60,053    
Stock-based compensation expense       22,057    
Net loss (166,403)       (166,403)  
Balance, end of period at Jun. 30, 2020 $ 464,195 $ 13 $ 572 $ 1,487,217 $ (1,023,607)  
v3.20.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Cash flows from operating activities:    
Net loss $ (264,930) $ (86,353)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 14,500 6,725
Stock-based compensation 81,124 19,540
Amortization of debt discount and issuance costs 7,337 0
Remeasurements of liabilities associated with business combinations 26,749 (286)
Benefit from income taxes (2,600) (3,950)
Other (536) 1,182
Changes in operating assets and liabilities, net of businesses acquired:    
Accounts receivable 4,939 3,153
Prepaid expenses and other current assets (3,049) (3,825)
Other assets 942 2,410
Accounts payable 9,185 (3,954)
Accrued expenses and other liabilities 3,585 4,267
Net cash used in operating activities (122,754) (61,091)
Cash flows from investing activities:    
Purchases of marketable securities (115,350) (20,781)
Proceeds from sales of marketable securities 12,532 0
Proceeds from maturities of marketable securities 89,965 34,000
Acquisition of businesses, net of cash acquired (57,576) 3,193
Purchases of property and equipment (10,854) (8,824)
Other (1,334) 0
Net cash provided by (used in) investing activities (82,617) 7,588
Cash flows from financing activities:    
Proceeds from public offerings of common stock, net 217,489 184,490
Proceeds from issuance of common stock, net 6,760 5,123
Finance lease principal payments (1,154) (1,031)
Other (750) 0
Net cash provided by financing activities 222,345 188,582
Net increase in cash, cash equivalents and restricted cash 16,974 135,079
Cash, cash equivalents and restricted cash at beginning of period 157,572 118,164
Cash, cash equivalents and restricted cash at end of period 174,546 253,243
Supplemental cash flow information of non-cash investing and financing activities:    
Purchases of property and equipment in accounts payable and accrued liabilities 1,570 1,059
Common stock issued for acquisition of businesses 75,682 59,442
Consideration payable for acquisition of businesses 16,813 0
Operating lease assets obtained in exchange for lease obligations, net $ 4,046 $ 5,615
v3.20.2
Organization and description of business
6 Months Ended
Jun. 30, 2020
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 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. We offer genetic testing across multiple clinical areas, including hereditary cancer, cardiology, neurology, pediatrics, metabolic conditions and rare diseases. To augment our offering and realize our mission, we acquired multiple assets including four businesses in 2017, which expanded our suite of genome management offerings and expanded our offering in reproductive health. In the first quarter of 2019, we introduced our non-invasive prenatal screen ("NIPS"). In June 2019, we launched a direct channel to consumers to increase accessibility to our testing platform. To improve our technology stack and reduce costs associated with variant interpretation, we acquired Singular Bio, Inc. ("Singular Bio") in June 2019, Jungla Inc. ("Jungla") in July 2019, and Oracle BV operating under the name "Diploid" in March 2020. To further expand our ability to scale and improve customer experience with patient support telehealth solutions and the use of chatbots, we acquired Clear Genetics, Inc. ("Clear Genetics") in November 2019. In April 2020, we acquired YouScript Incorporated ("YouScript") and Genelex Solutions, LLC ("Genelex") to expand content and improve customer experience by bringing pharmacogenetic testing and integrated clinical decision support to Invitae. In order to expand content and increase access to personalized oncology, we entered into a definitive agreement to acquire ArcherDX, Inc. ("ArcherDX") in June 2020 which we expect to close in the next few months, with a view towards integrating Invitae's germline testing with ArcherDX's tumor profiling and liquid biopsy technology and services into a single platform to enable precision medicine approaches from diagnostic testing to therapy optimization and monitoring. 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, 2019. The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results expected for the full fiscal year or any other periods.
v3.20.2
Summary of significant accounting policies
6 Months Ended
Jun. 30, 2020
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 judgments, 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 current facts, 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 judgments, estimates and assumptions. We evaluate our estimates on an ongoing basis.
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 from significant customers as a percentage of our total revenue was as follows:
 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2020
 
2019
 
2020
 
2019
Medicare
 
20
%
 
23
%
 
21
%
 
22
%
United Healthcare
 
*

 
10
%
 
*

 
10
%
*  Balance represents less than 10% of total revenue
 
 
 
 
 
 

Cash, cash equivalents and restricted cash
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):
 
June 30,
2020
 
December 31,
2019
Cash and cash equivalents
$
168,203

 
$
151,389

Restricted cash
6,343

 
6,183

Total cash, cash equivalents and restricted cash
$
174,546

 
$
157,572


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 $11.1 million and $6.6 million as of June 30, 2020 and December 31, 2019, respectively, and was recorded in prepaid expenses and other current assets on our consolidated balance sheets. While we have not experienced significant disruption in our supply chain and we do not yet know the full impact COVID-19 will have on our supply chain, we have increased our inventory on hand to respond to potential future disruptions that may occur.
Fair value of financial instruments
Our financial instruments consist principally of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities, finance leases and liabilities associated with business combinations. 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 approximate their fair values. Liabilities associated with business combinations are recorded at their estimated fair value.
Prior period reclassifications
We have reclassified certain amounts in prior periods to conform with current presentation.
Immaterial correction of an error
We determined the historical classification of certain acquisition-related obligations as equity and the subsequent measurement of such obligations was inappropriate and instead should have been classified as liabilities and subsequently measured at fair value with changes recognized in other income (expense), net during the three months ended March 31, 2020. We determined that the impact of the error to previously issued financial statements was not material and have corrected the immaterial error in the three months ended March 31, 2020. The impact of this correction was an increase to other long-term liabilities of $10.1 million, a corresponding decrease to additional paid-in capital of $10.4 million and an increase to other income, net of $0.3 million.
Recent accounting pronouncements
We evaluate all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board ("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 adopted accounting pronouncements
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 became effective for us beginning in the first quarter of 2020 and was adopted using a modified retrospective approach, with certain exceptions. The adoption of Topic 326 did not have a material impact on our consolidated financial statements as credit losses are not expected to be significant.
As part of our adoption of Topic 326, we assess our accounts receivables for expected credit losses at each reporting period by disaggregating by payer type and further by portfolios of customers with similar characteristics, such as customer type and geographic location. We then review each portfolio for expected credit losses based on historical payment trends as well as forward looking data and current economic trends. If a credit loss is determined, we record a reduction to our accounts receivable balance with a corresponding general and administrative expense.
In accordance with Topic 326, we no longer evaluate whether our available-for-sale debt securities in an unrealized loss position are other than temporarily impaired. Instead, we assess whether such unrealized loss positions are credit-related. Our expected loss allowance methodology for these securities is developed by reviewing the extent of the unrealized loss, the issuers’ credit ratings and any changes in those ratings, as well as reviewing current and future economic market conditions and the issuers’ current status and financial condition. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in interest income through an allowance account. Unrealized gains and losses that are not credit-related are included in accumulated other comprehensive income (loss).
v3.20.2
Revenue, accounts receivable and deferred revenue
6 Months Ended
Jun. 30, 2020
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, a patient or an insurance carrier. Other revenue consists principally of revenue recognized under collaboration and genome network agreements and is accounted for under the provisions provided in ASC 606, Revenue from Contracts with Customers.
The following table includes our revenues as disaggregated by payer category (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Test revenue:
 
 
 
 
 
 
 
Institutions
$
9,531

 
$
9,814

 
$
23,028

 
$
17,968

Patient - direct
4,298

 
4,056

 
10,089

 
7,797

Patient - insurance
31,270

 
38,432

 
75,060

 
66,156

Total test revenue
45,099

 
52,302

 
108,177

 
91,921

Other revenue
1,092

 
1,173

 
2,262

 
2,107

Total revenue
$
46,191

 
$
53,475

 
$
110,439

 
$
94,028


We recognize revenue related to billings based on estimates of the amount that will ultimately be realized. 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 June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Revenue
$
0.9

 
$
2.4

 
$
2.3

 
$
2.8

Loss from operations
$
(0.9
)
 
$
(2.4
)
 
$
(2.3
)
 
$
(2.8
)
Net loss per share, basic and diluted
$
(0.01
)
 
$
(0.03
)
 
$
(0.02
)
 
$
(0.03
)

Influence of COVID-19
Our test volumes decreased significantly in the second half of March 2020 as compared to the first few months of 2020 as a result of COVID-19 and related limitations and priorities across the healthcare system. While it is too early to predict the full impact COVID-19 will have on our business, our test volumes have increased in April, May and June 2020 from the low in March 2020, although we are currently still experiencing reduced test volumes and changes in product mix due to the impact of COVID-19. We expect COVID-19 to have a material impact on our financial results for at least the next quarter and for the foreseeable future. We have reviewed and adjusted for the impact of COVID-19 on our estimates related to revenue recognition and expected credit losses.
Approximately 8% of our workforce as of March 31, 2020 was impacted by a reduction in force in April 2020 in an initiative to manage costs and cash burn that resulted in one-time costs in the second quarter of 2020 of $3.8 million. In addition, effective May 2020, we have reduced the salaries of our named executive officers by approximately 20%.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law which was a stimulus bill intended to bolster the economy, among other things, and provide assistance to qualifying businesses and individuals. The CARES Act included an infusion of funds into the healthcare system, and in April 2020, we received $3.8 million as a part of this initiative. This payment was recognized as other income (expense), net in our consolidated statement of operations during the three months ended June 30, 2020. At this time, we are not certain of the availability, extent or impact of any future relief provided under the CARES Act.
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.
v3.20.2
Business combinations
6 Months Ended
Jun. 30, 2020
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.
We granted approximately $90.0 million of restricted stock units ("RSU") 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. 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 is 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 awards vest.
During the three and six months ended June 30, 2020, we recorded research and development stock-based compensation expense of $10.9 million and $18.5 million, respectively, related to the Time-based RSUs, and $18.9 million and $30.1 million, respectively, related to the PRSUs based on our evaluations of the probability of achieving performance conditions. As of June 30, 2020, the Time-based RSUs and PRSUs had a total fair value of $48.6 million and $54.4 million, respectively, based on a total estimated issuance of 4.4 million shares and expectation of the achievement of the performance conditions. During the three and six months ended June 30, 2020, 0.9 million of the Time-based RSUs and 0.6 million of the PRSUs vested with a total fair value of $26.8 million which was recorded in common stock issued or issuable pursuant to business combinations in the consolidated statements of stockholders' equity.
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 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 including cash and common stock. 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 June 30, 2020, we had a stock payable liability related to our acquisition of Jungla of $6.0 million which represents the hold-back obligation to issue 0.2 million shares subject to indemnification claims that may arise. This liability is adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input, with the change recorded in other income (expense), net. During July 2020, the hold-back shares were remitted in full to the former owners of Jungla.
Clear Genetics
In November 2019, we acquired 100% of the equity interest of Clear Genetics, a developer of software for providing genetic services at scale, for approximately $50.1 million. Of the cash and stock purchase price consideration issued, $0.2 million of cash and approximately 0.4 million shares of our common stock were subject to a 12-month hold back to satisfy indemnification obligations that may arise, 0.1 million of which were released during the three months ended June 30, 2020.
As of June 30, 2020, we had a stock payable liability related to our acquisition of Clear Genetics of $8.5 million which represents the hold-back obligation to issue 0.3 million shares subject to indemnification claims that may arise. This liability is adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input, with the change recorded in other income (expense), net.
Diploid
In March 2020, we acquired 100% of the equity interest of Diploid, a developer of artificial intelligence software capable of diagnosing genetic disorders using sequencing data and patient information, for approximately $82.3 million in cash and shares of our common stock. Of the stock purchase price consideration issued, approximately 0.4 million shares are subject to a hold-back to satisfy indemnification obligations that may arise. We included the financial results of Diploid in our consolidated financial statements from the acquisition date, which were not material for the six months ended June 30, 2020.
The following table summarizes the purchase price recorded as a part of the acquisition of Diploid (in thousands):
 
Purchase Price
Cash transferred
$
32,323

Hold-back consideration - common stock
7,538

Common stock transferred
42,453

Total
$
82,314


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 through our acquisition of Diploid at the date of acquisition (in thousands):
Cash
$
124

Accounts receivable
26

Developed technology
41,789

Total identifiable assets acquired
41,939

Accounts payable
(30
)
Deferred tax liability
(10,250
)
Net identifiable assets acquired
31,659

Goodwill
50,655

Total purchase price
$
82,314


Based on the guidance provided in ASC 805, Business Combinations, we accounted for the acquisition of Diploid as a business combination in which we determined that 1) Diploid 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 the acquisition is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to our deferred tax liability assumed in connection with the acquisition. 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 Diploid's artificial intelligence technology platform. The fair value of the developed technology was estimated using an income approach with an estimated useful life of nine years. As of the acquisition date, we recorded a stock payable liability of $7.5 million to represent the hold-back obligation to issue 0.4 million shares subject to indemnification claims that may arise. This liability is adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input. As of June 30, 2020, the value of this liability was $12.8 million with the change recorded in other income (expense), net.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of Diploid resulted in the recognition of $50.7 million of goodwill which we believe relates primarily to expansion of the acquired technology to apply to new areas of genetic testing. Goodwill created as a result of the acquisition of Diploid is not deductible for tax purposes.
In June 2020, we granted 0.2 million RSUs with a fair value of $3.6 million under our 2015 Stock Incentive Plan as inducement awards in connection with our acquisition of Diploid. These RSUs vest in two equal installments, in April 2021 and April 2022. The value of the awards was recognized as research and development stock-based compensation upon grant in June 2020 as there were no ongoing obligations required by the award recipients.
Genelex and YouScript
In April 2020, we acquired 100% of the equity interest of Genelex and YouScript to bring pharmacogenetic testing and integrated clinical decision support to Invitae. We acquired Genelex for approximately $13.2 million, primarily in shares of our common stock. Of the stock purchase price consideration issued, approximately 0.1 million shares are subject to a hold-back to satisfy indemnification obligations that may arise. We acquired YouScript for approximately $52.7 million, including cash consideration of $24.5 million and the remaining in shares of our common stock. Of the purchase price consideration for YouScript, approximately $1.4 million and 0.5 million shares of our common stock are subject to a hold-back to satisfy indemnification obligations that may arise. We included the financial results of Genelex and YouScript in our consolidated financial statements from the acquisition date, which were not material for the six months ended June 30, 2020. We recorded $0.9 million of transaction costs related to the acquisition of Genelex and YouScript as general and administrative expense during the six months ended June 30, 2020.
We may be required to pay contingent consideration in the form of additional shares of our common stock in connection with the acquisition of Genelex if, within a specified period following the closing, we achieve a certain product milestone, in which case we would issue shares of our common stock with a value equal to a portion of the gross revenues actually received by us for a pharmacogenetic product reimbursed through certain payers during an earn out period of up to four years. As of the acquisition date, the fair value of this contingent consideration was $2.0 million in the form of shares of our common stock. 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 milestone, the estimated revenues achieved for a pharmacogenetic product 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 is estimated at each reporting date with changes reflected as general and administrative expense. As of June 30, 2020, the fair value of the contingent consideration was $2.6 million.
The following table summarizes the purchase prices recorded as a part of the acquisition of Genelex and YouScript (in thousands):
 
Genelex
 
YouScript
 
Total
Cash transferred
$
972

 
$
24,462

 
$
25,434

Hold-back consideration - cash

 
1,385

 
1,385

Hold-back consideration - common stock
781

 
5,392

 
6,173

Contingent consideration
1,994

 

 
1,994

Common stock transferred
9,463

 
21,464

 
30,927

Total
$
13,210

 
$
52,703

 
$
65,913


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 through our acquisitions of Genelex and YouScript at the date of acquisition (in thousands):
 
Genelex
 
YouScript
 
Total
Cash
$
33

 
$
24

 
$
57

Accounts receivable
221

 
56

 
277

Prepaid expenses and other current assets

 
70

 
70

Operating lease assets

 
355

 
355

Developed technology
9,209

 
25,716

 
34,925

Total identifiable assets acquired
9,463

 
26,221

 
35,684

Current liabilities
(320
)
 
(481
)
 
(801
)
Deferred tax liability

 
(2,600
)
 
(2,600
)
Other long-term liabilities

 
(163
)
 
(163
)
Net identifiable assets acquired
9,143

 
22,977

 
32,120

Goodwill
4,067

 
29,726

 
33,793

Total purchase price
$
13,210

 
$
52,703

 
$
65,913


Based on the guidance provided in ASC 805, Business Combinations, we accounted for the acquisitions of Genelex and YouScript as business combinations in which we determined that 1) Genelex and YouScript were businesses which combine inputs and processes to create outputs, and 2) substantially all of the fair value of gross assets acquired were not concentrated in a single identifiable asset or group of similar identifiable assets.
Our purchase price allocation for the acquisitions is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to our deferred tax liability assumed. 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 assets acquired are the developed technologies related to Genelex's and YouScript's technology platforms. The fair value of the developed technologies were estimated using an income approach with an estimated useful life of eight years. As of the acquisition date, we recorded stock payable liabilities of $6.2 million to represent the hold-back obligation to issue shares subject to indemnification claims that may arise. These liabilities are adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input. As of June 30, 2020, the value of this liability was $16.0 million with the change recorded in other income (expense), net.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisitions of Genelex and YouScript resulted in the recognition of $33.8 million of goodwill which we believe relates primarily to future functionality and expansion of the acquired technologies. Of the goodwill recognized, $29.7 million related to the YouScript acquisition is not deductible for tax purposes.
ArcherDX
In June 2020, we entered into a definitive agreement with ArcherDX, a genomics analysis company democratizing precision oncology. Under the terms of the agreement, we will acquire ArcherDX for upfront consideration consisting of 30.0 million shares of Invitae common stock and $325.0 million in cash, plus up to an additional 27.0 million shares of Invitae common stock payable in connection with the achievement of certain milestones. The transaction is expected to close in several months from the signing of the definitive agreement, subject to customary closing conditions including approval by the stockholders of Invitae.
In connection with the proposed transaction with ArcherDX, we have entered into a definitive agreement to sell $275.0 million in common stock in a private placement at a price of $16.85 per share. The private placement is expected to close concurrently with the proposed combination, subject to the satisfaction of customary closing conditions. The proceeds from the private placement are expected to be used to fund a portion of the cash
consideration payable in the proposed merger with ArcherDX. In addition, we have entered into a debt commitment letter for up to a $200.0 million senior secured term loan facility, subject to completion of certain customary closing conditions. In connection with the credit facility, we will issue warrants to purchase 1.0 million shares of our common stock with an exercise price of $16.85 per share subject to the funding of the credit facility. The term loan facility is available (i) to finance, in whole or in part, the proposed merger, (ii) to pay fees, costs and expenses related to the proposed merger, the debt financing and the other transactions related to the proposed merger and (iii) for other general working capital purposes. We will recognize these arrangements when the funding occurs which we expect to take place concurrently with the closing of the ArcherDX transaction.
v3.20.2
Goodwill and intangible assets
6 Months Ended
Jun. 30, 2020
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, 2019
 
$
126,777

Goodwill acquired - Diploid
 
50,655

Goodwill acquired - Genelex
 
4,067

Goodwill acquired - YouScript
 
29,726

Balance as of June 30, 2020
 
$
211,225


Intangible assets
The following table presents details of our intangible assets (in thousands):
 
June 30, 2020
 
December 31, 2019
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Useful Life
(in Years)
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted-Average
Useful Life
(in Years)
Customer relationships
$
23,763

 
$
(6,541
)
 
$
17,222

 
10.0
 
$
23,763

 
$
(5,141
)
 
$
18,622

 
10.0
Developed technology
161,110

 
(16,188
)
 
144,922

 
8.6
 
84,396

 
(8,476
)
 
75,920

 
8.6
Non-compete agreement
286

 
(200
)
 
86

 
5.0
 
286

 
(172
)
 
114

 
5.0
Trade name
576

 
(559
)
 
17

 
2.7
 
576

 
(480
)
 
96

 
2.7
Patent licensing agreement
496

 
(87
)
 
409

 
15.0
 
496

 
(70
)
 
426

 
15.0
Favorable leases
247

 
(247
)
 

 
2.2
 
247

 
(238
)
 
9

 
2.2
In-process research and development
29,988

 

 
29,988

 
n/a
 
29,988

 

 
29,988

 
n/a
 
$
216,466

 
$
(23,822
)
 
$
192,644

 
8.8
 
$
139,752

 
$
(14,577
)
 
$
125,175

 
8.9


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 $5.7 million and $1.3 million for the three months ended June 30, 2020 and 2019, respectively, and $9.2 million and $2.6 million for the six months ended June 30, 2020 and 2019, 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 June 30, 2020 (in thousands):
2020 (remainder of year)
$
11,207

2021
22,793

2022
21,087

2023
20,074

2024
19,796

Thereafter
67,699

Total estimated future amortization expense
$
162,656


v3.20.2
Balance sheet components
6 Months Ended
Jun. 30, 2020
Balance Sheet Related Disclosures [Abstract]  
Balance sheet components Balance sheet components
Property and equipment, net
Property and equipment consisted of the following (in thousands):
 
June 30, 2020
 
December 31, 2019
Leasehold improvements
$
23,251

 
$
18,352

Laboratory equipment
30,668

 
24,873

Computer equipment
6,760

 
5,995

Software
2,611

 
2,611

Furniture and fixtures
1,277

 
1,198

Automobiles
58

 
58

Construction-in-progress
9,070

 
10,795

Total property and equipment, gross
73,695

 
63,882

Accumulated depreciation and amortization
(30,314
)
 
(26,135
)
Total property and equipment, net
$
43,381

 
$
37,747


Depreciation expense was $2.3 million and $1.8 million for the three months ended June 30, 2020 and 2019, respectively, and $4.4 million and $3.4 million for the six months ended June 30, 2020 and 2019, respectively.
Accrued liabilities
Accrued liabilities consisted of the following (in thousands):
 
June 30, 2020
 
December 31, 2019
Accrued compensation and related expenses
$
20,144

 
$
16,440

Compensation and other liabilities associated with business combinations
64,976

 
30,560

Deferred revenue
1,726

 
1,429

Other
12,644

 
16,385

Total accrued liabilities
$
99,490

 
$
64,814


v3.20.2
Fair value measurements
6 Months Ended
Jun. 30, 2020
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):
 
June 30, 2020
 
Amortized
Cost
 
Unrealized
 
Estimated
Fair Value
 
 
 
 
 
 
 
 
Gains
 
Losses
 
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 

 
 

 
 

Money market funds
$
132,990

 
$

 
$

 
$
132,990

 
$
132,990

 
$

 
$

Certificates of deposit
300

 

 

 
300

 

 
300

 

U.S. treasury notes
197,721

 
570

 

 
198,291

 
198,291

 

 

U.S. government agency securities
55,340

 
2

 

 
55,342

 

 
55,342

 

Total financial assets
$
386,351

 
$
572

 
$

 
$
386,923

 
$
331,281

 
$
55,642

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock payable liability
 
 
 
 
 
 
$
43,625

 
$

 
$

 
$
43,625

Contingent consideration
 
 
 
 
 
 
18,018

 

 

 
18,018

Total financial liabilities
 
 
 
 
 
 
$
61,643

 
$

 
$

 
$
61,643

 
June 30, 2020
Reported as:
 

Cash equivalents
$
126,647

Restricted cash
6,343

Marketable securities
253,933

Total cash equivalents, restricted cash, and marketable securities
$
386,923

 
 
Accrued liabilities
$
15,441

Other long-term liabilities
$
46,202


 
December 31, 2019
 
Amortized
Cost
 
Unrealized
 
Estimated
Fair Value
 
 
 
 
 
 
 
 
Gains
 
Losses
 
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 

 
 

 
 

Money market funds
$
39,396

 
$

 
$

 
$
39,396

 
$
39,396

 
$

 
$

Certificates of deposit
300

 

 

 
300

 

 
300

 

U.S. treasury notes
150,627

 

 
(15
)
 
150,612

 
150,612

 

 

U.S. government agency securities
193,302

 
6

 

 
193,308

 

 
193,308

 

Total financial assets
$
383,625

 
$
6

 
$
(15
)
 
$
383,616

 
$
190,008

 
$
193,608

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration
 
 
 
 
 
 
$
11,300

 

 

 
$
11,300

Total financial liabilities
 
 
 
 
 
 
$
11,300

 

 

 
$
11,300

 
December 31, 2019
Reported as:
 

Cash equivalents
$
136,997

Restricted cash
6,183

Marketable securities
240,436

Total cash equivalents, restricted cash, and marketable securities
$
383,616

 
 
Accrued liabilities
$
3,300

Other long-term liabilities
$
8,000


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 June 30, 2020 was $80.2 million. None of the available-for-sale securities held as of June 30, 2020 have been in a continuous unrealized loss position for more than one year.
 
Our certificates of deposit 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.
Stock payable liabilities relate to certain indemnification hold-backs resulting from business combinations that are settled in shares of our common stock. We elected to account for these liabilities using the fair value option due to the inherent nature of the liabilities and the changes in value of the underlying shares that will ultimately be issued to settle the liabilities. The estimated fair value of these liabilities is classified as Level 3 and determined based upon the number of shares that are issuable to the sellers and the quoted closing price of our common stock as of the reporting date. The number of shares that will ultimately be issued is subject to adjustment for indemnified claims that existed as of the closing date for each acquisition. Changes in the number of shares issued and share price can significantly affect the estimated fair value of the liabilities. During the three and six months ended June 30, 2020, the change in fair value related to stock payable liabilities recorded to other income (expense), net was expense of $25.4 million and $21.7 million, respectively.
As of June 30, 2020, we had contingent obligations of $15.4 million of our common stock to the former owners of Jungla in connection 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 June 30, 2020, we had contingent obligations of $2.6 million of our common stock to the former owners of Genelex in connection with our acquisition of Genelex in April 2020. The amount of the contingent obligation is dependent upon achievement of a certain post-close milestone and the gross revenues actually received by us for a pharmacogenetic product reimbursed through certain payers during an earn out period of up to four years. We estimated the fair value of the contingent consideration as $2.0 million at the acquisition date in April 2020 using a discounted cash flow technique based on estimated achievement of the post-close milestone, our estimate of amounts to ultimately be paid, 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.
v3.20.2
Commitments and contingencies
6 Months Ended
Jun. 30, 2020
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 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, Massachusetts, New York and Washington. We expect to enter into new leases and modifying existing leases as we support continued growth of our operations.
As of June 30, 2020, the weighted-average remaining lease term for our operating leases was 5.9 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 and $2.5 million for the three months ended June 30, 2020 and 2019, respectively, and $5.4 million and $4.9 million for the six months ended June 30, 2020 and 2019, respectively.
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 June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Operating lease costs
$
2,653

 
$
2,564

 
$
5,268

 
$
5,081

Sublease income

 
(43
)
 

 
(86
)
Total operating lease costs
2,653

 
2,521

 
5,268

 
4,995

Finance lease costs
475

 
391

 
959

 
811

Total lease costs
$
3,128

 
$
2,912

 
$
6,227

 
$
5,806


Future minimum payments under non-cancelable operating leases as of June 30, 2020 are as follows (in thousands):
2020 (remainder of year)
$
5,749

2021
11,693

2022
10,922

2023
10,424

2024
10,560

Thereafter
18,459

Future non-cancelable minimum operating lease payments
67,807

Less: imputed interest
(19,334
)
Total operating lease liabilities
48,473

Less: current portion
(6,339
)
Operating lease obligations, net of current portion
$
42,134


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 2.0 years as of June 30, 2020 and are typically secured by the underlying equipment. The weighted-average discount rate used to determine our finance lease liability was 5.6%. The portion of the future payments designated as principal repayment was classified as a finance lease obligation on our consolidated balance sheets. Finance lease assets are recorded within other assets on our consolidated balance sheet and were $4.7 million and $5.6 million as of June 30, 2020 and December 31, 2019, respectively. Cash payments included in the measurement of our finance lease liabilities were $0.6 million for each of the three months periods ended June 30, 2020 and 2019, and $1.3 million and $1.1 million for the six months ended June 30, 2020 and 2019, respectively.
Future payments under finance leases at June 30, 2020 are as follows (in thousands):
2020 (remainder of year)
$
741

2021
611

2022
612

Total finance lease obligations
1,964

Less: interest
(108
)
Present value of net minimum finance lease payments
1,856

Less: current portion
(977
)
Finance lease obligations, net of current portion
$
879


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.
In 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), net 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 (defined below), was nil and $2.0 million for the three months ended June 30, 2020 and 2019, respectively, and nil and $3.9 million for the six months ended June 30, 2020 and 2019, respectively.
Convertible Senior Notes
In September 2019, we issued, at par value, $350.0 million aggregate principal amount of 2.00% Convertible Senior Notes due 2024 ("Convertible Senior Notes") 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.
Upon conversion, the Convertible Senior Notes will be convertible into cash, 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).
If we undergo a fundamental change (as defined in the indenture governing the Convertible Senior 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 price 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 holders 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 June 30, 2020, 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 June 30, 2020 consisted of the following (in thousands):
Outstanding principal
$
350,000

Unamortized debt discount and issuance costs
(73,908
)
Net carrying amount, liability component
$
276,092


As of June 30, 2020, the fair value of the Convertible Senior Notes was $406.9 million. The estimated fair value of the Convertible Senior Notes, which are classified as Level 2 financial instruments, was determined based on the estimated or actual bid prices of the Convertible Senior Notes in an over-the-counter market. We recognized $5.5 million and $10.9 million of interest expense related to the Convertible Senior Notes during the three and six months ended June 30, 2020, respectively.
Other commitments
In the normal course of business, we enter into various purchase commitments primarily related to service agreements and laboratory supplies. At June 30, 2020, our total future payments under noncancelable unconditional purchase commitments having a remaining term of over one year were $6.0 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 June 30, 2020 or December 31, 2019.
Contingencies
We were not a party to any material legal proceedings at June 30, 2020, or at the date of this report. We are and may from time to time become involved in various legal proceedings and claims arising in the ordinary course of business. While we believe any such claims are unsubstantiated, and we believe we are in compliance with applicable laws and regulations applicable to our business, the resolution of any such claims could be material.
v3.20.2
Stockholders' equity
6 Months Ended
Jun. 30, 2020
Equity [Abstract]  
Stockholders' equity Stockholders’ equity
Shares outstanding
Shares of convertible preferred and common stock were as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Convertible preferred stock:
 
 
 
 
 
 
 
Shares outstanding, beginning of period
125

 
125

 
125

 
3,459

Conversion into common stock

 

 

 
(3,334
)
Shares outstanding, end of period
125

 
125

 
125

 
125

 
 
 
 
 
 
 
 
Common stock:
 
 
 
 
 
 
 
Shares outstanding, beginning of period
101,920

 
89,601

 
98,796

 
75,481

Common stock issued in connection with public offering
23,058

 

 
23,058

 
10,350

Common stock issued on exercise of stock options, net
130

 
80

 
308

 
340

Common stock issued pursuant to vesting of RSUs
3,055

 
1,124

 
3,481

 
1,245

Common stock issued pursuant to exercises of warrants
6

 
4

 
148

 
19

Common stock issued pursuant to employee stock purchase plan
342

 
235

 
342

 
235

Common stock issued pursuant to business combinations
2,778

 
2,719

 
5,156

 
2,759

Common stock issued upon conversion of preferred stock

 

 

 
3,334

Shares outstanding, end of period
131,289

 
93,763

 
131,289

 
93,763


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 the second quarter of 2020, we sold a total of 2.6 million shares of common stock under the 2018 Sales Agreement at an average price of $17.60 per share for aggregate gross proceeds of $46.0 million and net proceeds of $44.5 million. Pursuant to the Securities Purchase Agreement in connection with the private placement, we have agreed not to use the 2018 Sales Agreement unless certain conditions are met.
Public offering
In April 2020, we sold, in an underwritten public offering, an aggregate of 20.4 million shares of our common stock at a price of $9.00 per share, for gross proceeds of $184.0 million and net proceeds of $173.0 million after deducting underwriting discounts and commissions and offering expenses.
v3.20.2
Stock incentive plans
6 Months Ended
Jun. 30, 2020
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 the fair market value of our common stock. 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 our 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. 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, with certain awards that include a portion that vests immediately upon grant. 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. One-third of the 0.8 million shares that were ultimately awarded under this plan vested during the six months ended June 30, 2020 and the remaining awards will continue to vest over a period of two years. In June 2020, we granted 0.3 million PRSUs under this plan which are based on the level of achievement of a specified 2020 cash burn goal. These PRSUs will vest beginning in 2021 over a period of one year and may range from 0% to 100% of the target amount of shares, depending on eligibility and performance. As of June 30, 2020, these PRSUs had a fair value of $3.6 million based on an estimated issuance of 0.2 million shares and expectation of the performance condition.
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, 2019
5,444

 
3,542

 
$
9.49

 
6.1
 
$
24,966

Additional shares reserved
5,027

 

 
 
 
 
 
 
Options granted
(282
)
 
282

 
16.28

 
 
 
 
Options exercised

 
(308
)
 
7.04

 
 
 
 
RSUs and PRSUs granted(1)
(3,150
)
 

 
 
 
 
 
 
RSUs and PRSUs cancelled
337

 

 
 
 
 
 
 
Balances at June 30, 2020
7,376

 
3,516

 
$
10.26

 
6.1
 
$
70,414

Options exercisable at June 30, 2020
 
 
2,940

 
$
9.30

 
5.5
 
$
61,695

Options vested and expected to vest at June 30, 2020
 
 
3,414

 
$
10.08

 
6.0
 
$
68,992


(1)
Includes the changes in the Time-based RSUs and PRSUs granted as a part of the Singular Bio acquisition in June 2019 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 per share of options to purchase common stock granted was $10.10 and $14.52 in the six months ended June 30, 2020 and 2019, respectively. The total grant-date fair value of options to purchase common stock vested was $1.8 million and $2.5 million in the six months ended June 30, 2020 and 2019, respectively. The intrinsic value of options to purchase common stock exercised was $3.7 million and $4.5 million in the six months ended June 30, 2020 and 2019, respectively.
The following table summarizes RSU activity, which includes the changes in Time-based RSUs and PRSUs granted in connection with our acquisition of Singular Bio (in thousands, except per share data):
 
Number of Shares
 
Weighted- Average Grant Date Fair Value Per Share
Balance at December 31, 2019
8,885

 
$
15.17

RSUs granted
3,739

 
$
15.35

Time-based RSUs and PRSUs granted - Singular Bio (1)
(863
)
 
$
23.58

PRSUs granted
274

 
$
16.17

RSUs vested
(3,481
)
 
$
15.32

RSUs cancelled
(337
)
 
$
18.83

Balance at June 30, 2020
8,217

 
$
14.19


 (1)
Includes the changes in the Time-based RSUs and PRSUs granted as a part of the Singular Bio acquisition in June 2019 which are based on a fixed dollar value. The number of shares issued will be variable until the awards vest which are adjusted above. The weighted-average grant date fair value per share reflects the fair value pricing of the full award. 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 June 30, 2020, cash received from payroll deductions pursuant to the ESPP was $1.0 million. At June 30, 2020, a total of 1.2 million shares of common stock were reserved for issuance under the ESPP.
 Stock-based compensation
The following table summarizes stock-based compensation expense included in the consolidated statements of operations (in thousands): 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Cost of revenue
$
2,356

 
$
2,205

 
$
3,217

 
$
2,856

Research and development
41,565

 
6,767

 
63,769

 
8,572

Selling and marketing
3,298

 
2,914

 
5,120

 
4,157

General and administrative
4,627

 
2,431

 
9,018

 
3,955

Total stock-based compensation expense
$
51,846

 
$
14,317

 
$
81,124

 
$
19,540


v3.20.2
Net loss per share
6 Months Ended
Jun. 30, 2020
Earnings Per Share [Abstract]  
Net loss per share Net loss per share
The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share amounts):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Net loss
$
(166,403
)
 
$
(48,676
)
 
$
(264,930
)
 
$
(86,353
)
Shares used in computing net loss per share, basic and diluted
129,023

 
90,863

 
112,765

 
85,148

Net loss per share, basic and diluted
$
(1.29
)
 
$
(0.54
)
 
$
(2.35
)
 
$
(1.01
)

 
The following common stock equivalents have been excluded from diluted net loss per share because their inclusion would be anti-dilutive (in thousands): 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2020
 
2019
 
2020
 
2019
Shares of common stock subject to outstanding options
3,416

 
3,669

 
3,447

 
3,714

Shares of common stock subject to outstanding warrants
369

 
593

 
429

 
601

Shares of common stock subject to outstanding RSUs
6,403

 
4,569

 
5,716

 
4,350

Shares of common stock subject to outstanding PRSUs
2,379

 

 
2,586

 

Shares of common stock pursuant to ESPP
313

 
46

 
318

 
55

Shares of common stock underlying Series A convertible preferred stock
125

 
125

 
125

 
1,288

Shares of common stock subject to convertible senior notes exercise
11,555

 

 
11,555

 

Total shares of common stock equivalents
24,560

 
9,002

 
24,176