INVITAE CORP, 10-K filed on 2/28/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
$ in Millions
12 Months Ended
Dec. 31, 2018
Feb. 22, 2019
Jun. 29, 2018
Document And Entity Information [Abstract]      
Entity Registrant Name Invitae Corp    
Entity Central Index Key 0001501134    
Document Type 10-K    
Document Period End Date Dec. 31, 2018    
Amendment Flag false    
Current Fiscal Year End Date --12-31    
Entity Current Reporting Status Yes    
Entity Filer Category Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company true    
Entity Ex Transition Period true    
Entity Shell Company false    
Trading Symbol NVTA    
Entity Voluntary Filers No    
Entity Well-known Seasoned Issuer Yes    
Entity Common Stock, Shares Outstanding   76,811,562  
Entity Public Float     $ 477.8
Document Fiscal Year Focus 43465    
Document Fiscal Period Focus FY    
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Current assets:    
Cash and cash equivalents $ 112,158 $ 12,053
Marketable securities 13,727 52,607
Accounts receivable 26,296 10,422
Prepaid expenses and other current assets 13,258 11,599
Total current assets 165,439 86,681
Property and equipment, net 27,886 30,341
Restricted cash 6,006 5,406
Marketable securities, non-current 0 5,983
Intangible assets, net 30,469 35,516
Goodwill 50,095 46,575
Other assets 3,064 576
Total assets 282,959 211,078
Current liabilities:    
Accounts payable 7,812 8,606
Accrued liabilities 26,563 22,742
Capital lease obligation, current portion 1,937 2,039
Total current liabilities 36,312 33,387
Capital lease obligation, net of current portion 1,375 3,373
Debt 74,477 39,084
Other long-term liabilities 8,956 13,440
Total liabilities 121,120 89,284
Commitments and contingencies (Note 9)
Stockholders’ equity:    
Preferred stock, $0.0001 par value: 20,000 shares authorized; 3,459 shares issued and outstanding as of December 31, 2018 and 2017 0 0
Common stock, $0.0001 par value: 400,000 shares authorized; 75,481 and 53,597 shares issued and outstanding as of December 31, 2018 and 2017, respectively 8 5
Accumulated other comprehensive loss (5) (171)
Additional paid-in capital 678,548 520,558
Accumulated deficit (516,712) (398,598)
Total stockholders’ equity 161,839 121,794
Total liabilities and stockholders’ equity $ 282,959 $ 211,078
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Preferred stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Preferred stock, authorized (in shares) 20,000,000 20,000,000
Preferred stock, issued (in shares) 3,459,000 3,459,000
Preferred stock, outstanding (in shares) 3,459,000 3,459,000
Common stock, par value (in dollars per share) $ 0.0001 $ 0.0001
Common stock, authorized (in shares) 400,000,000 400,000,000
Common stock, issued (in shares) 75,481,000 53,597,000
Common stock, outstanding (in shares) 75,481,000 53,597,000
v3.10.0.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Revenue:      
Total revenue $ 147,699 $ 68,221 $ 25,048
Costs and operating expenses:      
Cost of revenue 80,105 50,142 27,878
Research and development 63,496 46,469 44,630
Selling and marketing 74,428 53,417 28,638
General and administrative 52,227 39,472 24,085
Total costs and operating expenses 270,256 189,500 125,231
Loss from operations (122,557) (121,279) (100,183)
Other income (expense), net (2,568) (303) 348
Interest expense (7,030) (3,654) (421)
Net loss before taxes (132,155) (125,236) (100,256)
Income tax benefit (2,800) (1,856) 0
Net loss $ (129,355) $ (123,380) $ (100,256)
Net loss per share, basic and diluted (in dollars per share) $ (1.94) $ (2.65) $ (3.02)
Shares used in computing net loss per share, basic and diluted (in shares) 66,747 46,512 33,176
Test revenue      
Revenue:      
Total revenue $ 144,560 $ 65,169 $ 24,840
Other revenue      
Revenue:      
Total revenue $ 3,139 $ 3,052 $ 208
v3.10.0.1
Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Comprehensive Income [Abstract]      
Net loss $ (129,355) $ (123,380) $ (100,256)
Other comprehensive income (loss):      
Unrealized income (loss) on available-for-sale marketable securities, net of tax 166 (171) 15
Comprehensive loss $ (129,189) $ (123,551) $ (100,241)
v3.10.0.1
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Preferred Stock
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit
Balance at the beginning of the period at Dec. 31, 2015 $ 138,376   $ 4 $ 313,349 $ (15) $ (174,962)
Balance at the beginning of the period (in shares) at Dec. 31, 2015   0 31,935      
Increase (Decrease) in Stockholders' Deficit            
Common stock issued on exercise of stock options 744     744    
Options exercised (in shares)     244      
Common stock issued pursuant to vesting of restricted stock units (1)   $ (1)      
Common stock issued pursuant to vesting of restricted stock units (in shares)     157      
Common stock issued pursuant to employee stock purchase plan 2,391     2,391    
Common stock issued pursuant to employee stock purchase plan (in shares)     370      
Common stock issued in connection with initial public offering, net of offering costs 47,102   $ 1 47,101    
Common stock issued in connection with initial public offering, net of offering costs (in shares)     8,433      
Vesting of common stock related to early exercise of options 4     4    
Vesting of common stock related to early exercise of options (in shares)     5      
Stock-based compensation expense 10,699     10,699    
Unrealized income (loss) on available-for-sale marketable securities, net of tax 15       15  
Net loss (100,256)         (100,256)
Balance at the end of the period at Dec. 31, 2016 99,074   $ 4 374,288   (275,218)
Balance at the end of the period (in shares) at Dec. 31, 2016   0 41,144      
Increase (Decrease) in Stockholders' Deficit            
Options exercised (in shares)     387      
Common stock issued pursuant to vesting of restricted stock units (in shares)     925      
Common stock issued pursuant to employee stock purchase plan 2,635     2,635    
Common stock issued pursuant to employee stock purchase plan (in shares)     379      
Stock-based compensation expense 18,832     18,832    
Unrealized income (loss) on available-for-sale marketable securities, net of tax (171)       (171)  
Net loss (123,380)         (123,380)
Common and convertible preferred stock issued in private placement, net of offering costs 68,897   $ 1 68,896    
Common and convertible preferred stock issued in private placement, net of offering costs (in shares)   3,459 5,188      
Common stock issued on exercise of stock options, net 1,706     1,706    
Common stock issued pursuant to acquisition-related transaction bonus (in shares)     4      
Common stock issued pursuant to exercises of warrants 1,381     1,381    
Common stock issued pursuant to exercises of warrants (in shares)     232      
Common stock issued pursuant to business combinations 50,808     50,808    
Common stock issued pursuant to business combinations (in shares)     5,176      
Common stock issued to settle assumed liabilities 1,272     1,272    
Common stock issued to settle assumed liabilities (in shares)     162      
Warrants issued pursuant to the 2017 Loan Agreement 740     740    
Balance at the end of the period at Dec. 31, 2017 121,794   $ 5 520,558 (171) (398,598)
Balance at the end of the period (in shares) at Dec. 31, 2017   3,459 53,597      
Increase (Decrease) in Stockholders' Deficit            
Options exercised (in shares)     351      
Common stock issued pursuant to vesting of restricted stock units (in shares)     1,369      
Common stock issued pursuant to employee stock purchase plan 3,231     3,231    
Common stock issued pursuant to employee stock purchase plan (in shares)     566      
Common stock issued in connection with initial public offering, net of offering costs 112,441   $ 3 112,438    
Common stock issued in connection with initial public offering, net of offering costs (in shares)     17,103      
Stock-based compensation expense 20,850     20,850    
Unrealized income (loss) on available-for-sale marketable securities, net of tax 166       166  
Net loss (129,355)         (129,355)
Common stock issued on exercise of stock options, net 2,741     2,741    
Common stock issued pursuant to exercises of warrants 6,539     6,539    
Common stock issued pursuant to exercises of warrants (in shares)     1,099      
Common stock issued pursuant to business combinations 6,455     6,455    
Common stock issued pursuant to business combinations (in shares)     1,022      
Warrants issued pursuant to the 2017 Loan Agreement 383     383    
Common stock issued pursuant to Securities Purchase Agreement (see Note 9) 5,353     5,353    
Common stock issued pursuant to debt financing (in shares)     374      
Balance at the end of the period at Dec. 31, 2018 $ 161,839   $ 8 $ 678,548 $ (5) $ (516,712)
Balance at the end of the period (in shares) at Dec. 31, 2018   3,459 75,481      
v3.10.0.1
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Stockholders' Equity [Abstract]      
Offering costs $ 6,183 $ 4,599 $ 3,498
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Cash flows from operating activities:      
Net loss $ (129,355,000) $ (123,380,000) $ (100,256,000)
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation and amortization 13,540,000 9,181,000 6,553,000
Stock-based compensation 20,850,000 19,221,000 10,699,000
Impairment losses 2,925,000 0 0
Remeasurements of liabilities associated with business combinations 362,000 1,810,000 0
Benefit from income taxes (2,862,000) (1,856,000) 0
Debt extinguishment costs (5,266,000) 0 0
Other 806,000 404,000 1,341,000
Changes in operating assets and liabilities, net of effects of business combination:      
Accounts receivable (5,291,000) (1,963,000) (843,000)
Prepaid expenses and other current assets (1,445,000) (641,000) (1,149,000)
Other assets (163,000) (185,000) 1,465,000
Accounts payable (417,000) (535,000) (111,000)
Accrued expenses and other liabilities 3,564,000 (37,000) 5,984,000
Net cash used in operating activities (92,220,000) (97,981,000) (76,317,000)
Cash flows from investing activities:      
Purchases of marketable securities (9,680,000) (101,867,000) (90,236,000)
Proceeds from sales of marketable securities 19,965,000 0 0
Proceeds from maturities of marketable securities 32,458,000 68,768,000 117,922,000
Acquisition of businesses, acquired cash 0 2,821,000 0
Purchases of property and equipment (5,970,000) (6,675,000) (11,625,000)
Other (1,000,000) 0 0
Net cash provided by (used in) investing activities 35,773,000 (36,953,000) 16,061,000
Cash flows from financing activities:      
Proceeds from public offering of common stock, net of issuance costs 112,441,000 0 47,102,000
Proceeds from issuance of common stock 17,511,000 74,619,000 3,134,000
Net proceeds from issuance of debt 93,909,000 39,661,000 7,500,000
Payments for debt extinguishment costs (4,609,000) 0 0
Loan payments (60,000,000) (30,457,000) (2,438,000)
Capital lease principal payments (2,100,000) (2,952,000) (1,589,000)
Net cash provided by financing activities 157,152,000 80,871,000 53,709,000
Net increase (decrease) in cash, cash equivalents and restricted cash 100,705,000 (54,063,000) (6,547,000)
Cash, cash equivalents and restricted cash at beginning of period 17,459,000 71,522,000 78,069,000
Cash, cash equivalents and restricted cash at end of period 118,164,000 17,459,000 71,522,000
Supplemental cash flow information:      
Interest paid 6,231,000 2,852,000 421,000
Supplemental cash flow information of non-cash investing and financing activities:      
Equipment acquired through capital leases 0 6,789,000 0
Purchases of property and equipment in accounts payable and accrued liabilities 510,000 200,000 1,644,000
Amounts related to co-development agreement in other assets and accrued liabilities 2,000,000 0 0
Warrants issued pursuant to 2017 Loan Agreement 383,000 740,000 0
Common stock issued for acquisition of businesses 6,445,000 50,808,000 0
Consideration payable for acquisition of businesses 0 13,276,000 0
Common stock issued to settle assumed liabilities $ 0 $ 1,272,000 $ 0
v3.10.0.1
Organization and description of business
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and description of business Organization and description of businessInvitae Corporation (the “Company”) was incorporated in the State of Delaware on January 13, 2010, as Locus Development, Inc. and changed its name to Invitae Corporation in 2012. The Company utilizes 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 their patients. The Company’s headquarters and main production facility is located in San Francisco, California. The Company currently has more than 20,000 genes in production and provides a variety of diagnostic tests that can be used in multiple indications. The Company’s 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") in August 2017 and CombiMatrix Corporation ("CombiMatrix") in November 2017, the Company’s 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. The Company operates in one segment.
v3.10.0.1
Summary of significant accounting policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Summary of significant accounting policies Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements include the accounts of the Company and its 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. The Company bases these estimates on historical and anticipated results, trends and various other assumptions that the Company believes 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;
the recoverability of long-lived assets;
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 the Company to a concentration of credit risk consist of cash, cash equivalents, marketable securities and accounts receivable. The Company’s 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 the Company’s total revenue for each year presented on the statements of operations. For the significant customer, revenue as a percentage of total revenue were as follows:
 
December 31,
Customers
2018
 
2017
 
2016
Medicare
22
%
 
13
%
 
11
%

Medicare represented 21% and 13% of accounts receivable as of December 31, 2018 and 2017.
Cash, cash equivalents, and restricted cash
The Company considers 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 and U.S. government agency securities.
Restricted cash consists of money market funds that serve as collateral for security deposits for the Company’s facility lease and sublease agreements and collateral for a credit card agreement at one of the Company’s financial institutions.
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):
 
December 31, 2018
 
December 31, 2017
Cash and cash equivalents
$
112,158

 
$
12,053

Restricted cash
6,006

 
5,406

Total cash, cash equivalents and restricted cash
$
118,164

 
$
17,459


Marketable securities
All marketable securities have been classified as “available-for-sale” and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its marketable debt securities at the time of purchase and reevaluates such designation at each balance sheet date. Short-term marketable securities have maturities less than 365 days at the balance sheet date. Unrealized gains and losses are excluded from earnings and are reported as a component of other comprehensive loss. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in interest and other income (expense), net. The cost of securities sold is based on the specific-identification method. Interest on marketable securities is included in interest and other income (expense), net.
Accounts receivable
The Company receives payment for its tests from partners, patients, institutional customers and third-party payers. See Note 3, "Revenue, accounts receivable and deferred revenue" for further information.
Inventory
The Company maintains test reagents and other consumables primarily used in sample collection kits which are valued at the lower of cost or market value. Cost is determined using actual costs on a first-in, first-out basis. The Company's inventory was $8.3 million and $5.4 million as of December 31, 2018 and 2017, respectively, and was recorded in prepaid expenses and other current assets in the Company's 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. The Company bases the estimated fair value of identifiable intangible assets acquired in a business combination on independent valuations that use information and assumptions provided by management, which consider management’s 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, the Company recognizes a liability equal to the fair value of the contingent payments the Company expects to make as of the acquisition date. The Company remeasures this liability each reporting period and records 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 the Company’s operating results from the date of acquisition.
Intangible assets
Amortizable intangible assets include trade names, non-compete agreements, developed technology and customer relationships acquired as part of business combinations. Customer relationships are amortized on an accelerated basis, utilizing free cash flows, over periods ranging from five to 11 years. All other intangible assets subject to amortization are amortized using the straight-line method over their estimated useful lives ranging from two to 15 years. All intangible assets subject to amortization are reviewed for impairment in accordance with ASC 360, Property, Plant and Equipment.
Goodwill
In accordance with ASC 350, Intangibles-Goodwill and Other (“ASC 350”), the Company’s 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, the Company performs annual impairment reviews of its goodwill balance during the fourth fiscal quarter. In testing for impairment, the Company compares the fair value of its 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, the Company 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 that reporting unit. The Company did not incur any goodwill impairment losses in any of the periods presented.
Leases
The Company rents its facilities under operating lease agreements and recognizes related rent expense on a straight-line basis over the term of the applicable lease agreement. Some of the lease agreements contain rent holidays, scheduled rent increases, lease incentives, and renewal options. Rent holidays and scheduled rent increases are included in the determination of rent expense to be recorded over the lease term. Lease incentives are recognized as a reduction of rent expense on a straight-line basis over the term of the lease. Renewals are not assumed in the determination of the lease term unless they are deemed to be reasonably assured at the inception of the lease. The Company recognizes rent expense beginning on the date it obtains the legal right to use and control the leased space.
Property and equipment, net
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight‑line method over the estimated useful lives of the assets, generally between three and seven years. Leasehold improvements are amortized using the straight‑line method over the shorter of the estimated useful life of the asset or the term of the lease. Amortization expense of assets acquired through capital leases is included in depreciation and amortization expense in the consolidated statements of operations. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in the statements of operations in the period realized.
The estimated useful lives of property and equipment are as follows:
Furniture and fixtures
7 years
Automobiles
7 years
Laboratory equipment
5 years
Computer equipment
3 years
Software
3 years
Leasehold improvements
Shorter of lease term or estimated useful life

Long‑lived assets
The Company reviews long‑lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss is recognized when the total estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, is assessed using discounted cash flows or other appropriate measures of fair value. Other than impairment losses of $1.0 million in 2016 relating to leasehold improvements and to the shutdown of the Company’s Chilean operations, there were no long-lived asset impairment losses recorded for any period presented. All impairment losses were charged to general and administrative expense.
Variable interest entity
The Company had a variable interest in a variable interest entity (“VIE”) through an investment in convertible notes issued by the VIE. The convertible notes do not provide the Company with voting rights in the VIE or with power to direct the activities of the VIE which most significantly affect its economic performance. The Company is not the VIE’s primary beneficiary and it does not consolidate the VIE.
Fair value of financial instruments
The Company’s financial instruments consist principally of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities, capital leases and debt. 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 the Company, the carrying value of capital leases and debt approximate their fair values.
Revenue recognition
The Company recognizes revenue when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration it expects 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 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 and utilities.
Income taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Stock-based compensation
The Company measures its stock-based payment awards made to employees and directors based on the estimated fair values of the awards and recognizes the compensation expense over the requisite service period. The Company uses the Black-Scholes option-pricing model to estimate the fair value of its 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. The Company grants 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 the Company. The probability of vesting is assessed at each reporting period and compensation cost is adjusted based on this probability assessment. The Company recognizes 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, the Company’s 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.
The Company accounts for compensation expense related to stock options granted to non-employees based on fair values estimated using the Black-Scholes option-pricing model. Stock options granted to non-employees are re-measured at each reporting date until the award is vested.
The Company accounts for stock issued as compensation in connection with business combinations based on the fair value of the Company’s common stock on the date of issuance.
Advertising
Advertising expenses are expensed as incurred. The Company incurred advertising expenses of $0.6 million, $0.6 million and $0.5 million during the years ended December 31, 2018, 2017 and 2016, respectively.
Comprehensive loss
Comprehensive loss is composed of two components: net loss and other comprehensive income (loss). Other comprehensive income (loss) refers to gains and losses that under U.S. GAAP are recorded as an element of stockholders’ equity, but are excluded from net loss. The Company’s other comprehensive income (loss) consists of unrealized gains or losses on investments in available-for-sale securities.
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 preferred stock, options to purchase common stock, common stock warrants, 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.
Recent accounting pronouncements
The Company evaluates 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 the Company’s consolidated financial statements.
Recently issued accounting pronouncements not yet adopted
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under Accounting Standards Codification ("ASC") 606 when the counterparty is a customer. In addition, Topic 808 precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. This guidance will be effective for the Company beginning January 1, 2020. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326), which replaces the incurred loss impairment methodology in current U.S. GAAP with a methodology that reflects expected credit losses. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
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 and ASU 2018-11, Leases (Topic 842): Targeted Improvements (the foregoing ASUs collectively referred to as “Topic 842”). Under the new guidance, lessees are required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date and also requires expanded disclosures about leasing arrangements. Topic 842 is effective for annual and interim periods beginning on or after December 15, 2018 and early adoption is permitted. Entities may initially apply the new leases standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
The Company is evaluating the final effect that Topic 842 and related standards will have on its consolidated financial statements, related disclosures and ongoing financial reporting, but expects implementation of Topic 842 to result in the recognition of material right of use assets and corresponding lease liabilities in its consolidated balance sheets as of the implementation of Topic 842 on January 1, 2019, principally relating to facilities leases. The Company does not have any material embedded leases and the implementation of Topic 842 is primarily focused on the treatment of the Company's previously identified leases. As of December 31, 2018, the Company's total future undiscounted capital lease payments were $3.5 million and future undiscounted non-cancelable minimum operating lease payments, net of subleases were $78.4 million
Recently adopted accounting pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), designed to enable users of financial statements to better understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. On January 1, 2018, the Company adopted the provisions of Topic 606 using the modified retrospective method. From adoption to date, the Company has recognized all its revenue from contracts with customers within the scope of Topic 606. In connection with the adoption, the Company recognized the cumulative effect of initially applying this standard as an adjustment to retained earnings on the date of adoption. Comparative information prior to the date of adoption has not been restated and continues to be reported under the accounting standards in effect for those periods.
In connection with the adoption of Topic 606, the Company amended its revenue recognition policy to provide for the recognition of certain variable consideration related to diagnostic tests that was previously deferred pending cash collection. Under Topic 606, the Company records variable consideration based on an estimate of the consideration to which it will be entitled.
The Company recognizes revenue when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. All revenues are generated from contracts with customers.
Diagnostic tests
The majority of the Company’s revenue is generated from genetic testing services that provide analysis and associated interpretation of the sequencing of parts of the genome. Test orders are placed under signed requisitions, and the Company often enters into contracts with institutions (e.g., hospitals and clinics) and insurance companies that include pricing provisions under which such tests are billed. Billing terms are generally net thirty days.
While the transaction price of diagnostic tests is originally established either via contract or pursuant to the Company’s standard list price, the Company often provides concessions for tests billed to insurance carriers, and therefore the transaction price for patient insurance-billed tests is considered to be variable and revenue is recognized based on an estimate of the consideration to which the Company will be entitled at an amount for which it is probable that a reversal of cumulative consideration will not occur. Making these estimates requires significant judgments based upon such factors as length of payer relationship, historical payment patterns, changes in contract provisions and insurance reimbursement policies. These judgments are reviewed quarterly and revenue recognized is updated, as necessary, until the Company’s obligations are fully settled.
In connection with some diagnostic test orders, the Company offers limited re-requisition rights (“Re-Requisition Rights”) that are considered distinct at contract inception, and therefore certain diagnostic test orders contain two performance obligations, the performance of the original test and the Re-Requisition Rights. When Re-Requisition Rights are granted, the Company allocates the transaction price to each performance obligation based on the relative estimated standalone selling prices. In order to comply with loss contract rules, the allocations are adjusted, if necessary, to ensure the amount deferred for Re-Requisition Rights is no less than the estimated cost of fulfilling the Company’s related obligations.
The Company looks to transfer of control in assessing timing of recognition of revenue in connection with each performance obligation. In general, revenue in connection with diagnostic tests is recognized upon delivery of the underlying clinical report or when the report is made available on the Company’s web portal. Outstanding performance obligations pertaining to orders received but for which the underlying report has not been issued are generally satisfied within a thirty-day period. Revenue in connection with Re-Requisition Rights is recognized as the rights are exercised or expire unexercised, which is generally within ninety days of initial deferral.
Other contracts
The Company also enters into collaboration and genome network contracts. Collaboration agreements provide customers with diagnostic testing and related data aggregation reporting services that are provided over the contract term. Collaboration revenue is recognized as the testing and reporting services are delivered to the customer. Genome network offerings consist of subscription services related to a proprietary software platform designed to connect patients, clinicians, advocacy organizations, researchers and therapeutic developers to accelerate the understanding, diagnosis and treatment of hereditary disease. Such services are recognized on a straight-line basis over the subscription periods.
Amounts due under collaboration and genome network agreements are typically billable on net thirty-day terms.
v3.10.0.1
Revenue, accounts receivable and deferred revenue
12 Months Ended
Dec. 31, 2018
Revenue from Contract with Customer [Abstract]  
Revenue, accounts receivable and deferred revenue Revenue, accounts receivable and deferred revenue
As described in Note 2, "Summary of significant accounting policies," the Company adopted Topic 606 effective January 1, 2018. In connection with the adoption the Company utilized the following practical expedients and exemptions:
Certain information about remaining performance obligations is not disclosed because the underlying contracts have an original expected duration of one year or less.
Costs to obtain or fulfill a contract are expensed when incurred because the amortization period would have been one year or less.
No adjustments to promised consideration were made for financing as the Company expects, at contract inception, that the period between the transfer of a promised good or service and when the customer pays for that good or service will be one year or less.
The adoption of Topic 606 resulted in a cumulative-effect adjustment to accounts receivable and accumulated deficit of $11.2 million as of January 1, 2018 primarily related to the recognition of uncollected
diagnostic test variable consideration as of the date of adoption. Test revenue without adoption of Topic 606 for the year ended December 31, 2018 includes cash collections related to accounts receivable recorded as of January 1, 2018 in connection with the Topic 606 cumulative-effect adjustment.
The effect of the adoption of Topic 606 on financial statement line items in the Company’s consolidated statement of operations for the year ended December 31, 2018, and the Company’s consolidated balance sheet as of December 31, 2018 was as follows (in thousands, except per share amounts):

 
 
Year Ended December 31, 2018
 
 
 
 
Without
 
Effect of
 
 
 
 
Adoption of
 
Adoption
 
 
As Reported
 
Topic 606
 
Higher/(Lower)
Test revenue
 
$
144,560

 
$
144,222

 
$
338

Net loss
 
$
(129,355
)
 
$
(129,693
)
 
$
338

Net loss per share, basic and diluted
 
$
(1.94
)
 
$
(1.94
)
 
$


 
 
As of December 31, 2018
 
 
 
 
Without
 
Effect of
 
 
 
 
Adoption of
 
Adoption
 
 
As Reported
 
Topic 606
 
Higher/(Lower)
Accounts receivable
 
$
26,296

 
$
14,150

 
$
12,146

Accumulated deficit
 
$
(516,712
)
 
$
(528,291
)
 
$
11,579

Stockholders' equity
 
$
161,839

 
$
150,260

 
$
11,579


Disaggregation of 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 the Company’s revenues as disaggregated by payer category (in thousands):
 
 
Year Ended December 31,
 
 
2018
 
2017 (1)
Test revenue:
 
 
 
 
Institutions
 
$
34,618

 
$
17,238

Patient - direct
 
13,589

 
5,638

Patient - insurance
 
96,353

 
42,293

 Total test revenue
 
144,560

 
65,169

Other revenue
 
3,139

 
3,052

Total revenue
 
$
147,699

 
$
68,221

___________________________________________________________________ 
(1)
As noted above, prior period amounts are presented as originally reported based upon the accounting standards in effect for those periods.
Included in revenue in the Company’s consolidated statements of operations for the year ended December 31, 2018 was $0.3 million that was included in deferred revenue at January 1, 2018.
The Company recognizes 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, changes in contract provisions and insurance reimbursement policies. Cash collections for certain tests delivered may differ from rates originally estimated. As a result of new information, the Company updated its estimate of the amounts to be recognized for previously delivered tests which resulted in
an additional $4.5 million of test revenue for the year ended December 31, 2018. These changes in estimates decreased the Company’s loss from operations by $4.5 million and decreased basic and diluted net loss per share by approximately $0.07 for the year ended December 31, 2018.
Accounts receivable
The majority of the Company’s accounts receivable represents amounts billed to institutions (e.g., hospitals, clinics) and estimated amounts to be collected from third-party insurance payers for test revenue recognized. Also included is 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 revenues
The Company records deferred revenues when cash payments are received or due in advance of its performance related to one or more performance obligations. The amounts deferred to date primarily consist of consideration received pertaining to the estimated exercise of certain Re-Requisition Rights. The Company defers revenue related to Re-Requisition Rights in amounts no less than the estimated cost of fulfilling its related obligations. The Company recognizes revenue related to Re-Requisition Rights as the rights are exercised or expire unexercised, which is generally within 90 days of initial deferral.
v3.10.0.1
Business combinations
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Business combinations Business combinations
AltaVoice
On January 6, 2017, the Company acquired AltaVoice (formerly PatientCrossroads, Inc.), a privately-owned patient-centered data company with a global platform for collecting, curating, coordinating and delivering safeguarded data from patients and clinicians. The acquisition, complemented by several other strategic partnerships, expanded the Company's genome network, designed to connect patients, clinicians, advocacy organizations, researchers and therapeutic developers to accelerate the understanding, diagnosis, and treatment of hereditary disease. Pursuant to the terms of the Stock Purchase Agreement, the Company acquired all of the outstanding shares of AltaVoice for total purchase consideration of $12.4 million, payable in the Company’s common stock, as follows:
(a)
payment of $5.5 million through the issuance of 641,126 shares of the Company’s common stock;
(b)
payment of $5.0 million in the Company’s common stock, payable on March 31, 2018, with the common shares deliverable equal to $5.0 million divided by the trailing average share price of the Company’s common stock for the 30 days preceding March 31, 2018. This payment was made in April 2018 through the issuance of 716,332 shares of the Company's common stock;
(c)
payment of $5.0 million in the Company’s common stock, which was contingently payable on March 31, 2018 if a milestone based on a certain threshold of revenue was achieved during 2017, with the shares deliverable equal to $5.0 million divided by the trailing average share price of the Company’s common stock for the 30 days preceding March 31, 2018. As the foregoing milestone was not achieved, there was a new contingent milestone based on achieving a revenue target during 2017 and 2018. Since this new contingent milestone was achieved, on March 31, 2019, a payment of $5.0 million in the Company’s common stock will be payable. The actual payout is dependent upon meeting the 2017 and 2018 revenue targets (capped at $14.0 million) times 75% less $5.5 million. This formula in effect caps the possible payout amount at $5.0 million in the Company’s common shares. The number of shares to be issued will be equal to the payout amount divided by the trailing average share price of the Company’s common stock for the 30 days preceding March 31, 2019.
The first payment of $5.5 million was classified as equity. The second payment was discounted to $4.7 million as of the acquisition date, recorded as a liability, and was accreted to fair value at each reporting date until the extinguishment of the liability in April 2018. The third payment, representing contingent consideration, was determined to have a fair value of $2.2 million as of the acquisition date and was recorded as a liability. In accordance with ASC Topic 805, Business Combinations, the contingent consideration of $2.2 million was remeasured to fair value at each reporting date until the contingency was resolved, with changes in fair value recognized in earnings.
For the second payment, the acquisition-date fair value was $4.7 million, and the Company recorded accretion gains (losses) of $1.6 million and $(0.2) million in other income (expense), net, for the years ended December 31, 2018 and 2017, respectively. The accretion gains in 2018 resulted from an adjustment to the value of
the second payment as of March 31, 2018, and principally reflected the difference between the value of the common shares deliverable, based upon the closing price of the Company’s stock on March 29, 2018, and the value per share used to calculate the number of common shares deliverable. The accretion losses in 2017 resulted from adjustments to the discounted value of the second payment, reflecting the passage of time.
For the third payment, the acquisition-date fair value was $2.2 million, and the Company recorded remeasurement losses of $1.2 million and $1.6 million in general and administrative expense for the years ended December 31, 2018 and 2017, respectively. The remeasurement losses in 2018 reflect updated estimations of fair value of the third payment, based upon achieving a revenue target during 2017 and 2018, as the milestone based on a certain threshold of revenue to be achieved during 2017 was not met. The principal inputs affecting those estimations have been updates to the Company’s revenue forecasts and the passage of time.
Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. While the Company believes that its 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
$
54

Accounts receivable
274

Prepaid expense and other assets
52

Non-compete agreement
286

Developed technology
570

Customer relationships
3,389

Total identifiable assets acquired
4,625

Accounts payable
(28
)
Deferred revenue
(202
)
Accrued expenses
(21
)
Deferred tax liability
(1,422
)
Total liabilities assumed
(1,673
)
Net identifiable assets acquired
2,952

Goodwill
9,432

Net assets acquired
$
12,384


Acquisition-related intangibles included in the above table are finite-lived. Customer relationships are being amortized on an accelerated basis, utilizing free cash flows, over a period of ten years. All other 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 expected to be realized, as follows (in thousands):
 
Gross
Purchased
Intangible
Assets
 
Estimated
Useful
Life
(in Years)
Non-compete agreement
$
286

 
5
Developed technology
570

 
6
Customer relationships
3,389

 
10
 
$
4,245

 
 

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of AltaVoice resulted in $9.4 million of goodwill which the Company believes consists principally of expected synergies to be realized by combining capabilities, technology and data to accelerate the use of genetic information for the diagnosis and treatment of hereditary diseases. In accordance with ASC 350, goodwill will not be amortized but will be tested for impairment at least annually. Goodwill created as a result of the acquisition is not deductible for tax purposes. The Company has finalized its assessment of fair value of the assets and liabilities assumed at the acquisition date.
Ommdom
On June 11, 2017, the Company acquired Ommdom, Inc. (“Ommdom”), a privately held company that develops, commercializes and sells hereditary risk assessment and management software, including CancerGene Connect, a cancer genetic counseling platform. The acquisition expanded Invitae’s suite of genome management offerings designed to help patients and clinicians use genetic information as part of mainstream medical care. CancerGene Connect is a platform for collecting and managing genetic family histories.
Pursuant to the terms of a Stock Exchange Agreement, the Company acquired all of the outstanding shares of Ommdom for consideration of $6.1 million, payable entirely in the Company’s common stock. There was no cash consideration nor any contingent payments associated with the acquisition, other than a hold-back amount of $0.6 million. Per the terms of the agreement, the Company was obligated to issue shares of its common stock as follows:
(a)
payment of $5.5 million through the issuance of 600,108 shares of the Company’s common stock on the acquisition date; and
(b)
payment of $0.6 million through the issuance of 66,582 shares of the Company’s common stock, representing a hold-back amount, and payable on the twelve-month anniversary of the acquisition date.
The first payment of $5.5 million was classified as equity. The second payment of $0.6 million was recorded as a stock payable liability on the acquisition date and was reclassified to equity upon the issuance of 66,582 shares of the Company’s common stock in June 2018.
Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. While the Company believes that its 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
$
53

Accounts receivable
10

Prepaid expense and other assets
4

Trade name
13

Developed technology
2,335

Customer relationships
147

Total identifiable assets acquired
2,562

Accounts payable
(16
)
Accrued expenses
(17
)
Deferred tax liability
(434
)
Total liabilities assumed
(467
)
Net identifiable assets acquired
2,095

Goodwill
4,045

Net assets acquired
$
6,140


Finite-lived intangibles included in the above table 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 expected to be realized, as follows (in thousands):
 
Gross
Purchased
Intangible
Assets
 
Estimated
Useful
Life
(in Years)
Trade name
$
13

 
5
Developed technology
2,335

 
5
Customer relationships
147

 
5
 
$
2,495

 
 

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of Ommdom resulted in the recognition of $4.0 million of goodwill which the Company believes consists principally of expected synergies to be realized by expanding the Company’s suite of genome management offerings. In accordance with ASC 350, goodwill will not be amortized but rather will be tested for impairment at least annually. Goodwill created as a result of the acquisition is not deductible for tax purposes. The Company has finalized its assessment of fair value of the assets and liabilities assumed at the acquisition date.
Good Start Genetics
On August 4, 2017, the Company acquired 100% of the fully diluted equity of Good Start, a privately held molecular diagnostics company focused on preimplantation and carrier screening for inherited disorders. The acquisition of Good Start was intended to further Invitae’s plan to create a comprehensive genetic information platform providing high-quality, affordable genetic information coupled with world-class clinical expertise to inform healthcare decisions throughout every stage of an individual’s life. The purchase consideration for the Good Start acquisition consisted of the assumption of the net liabilities of Good Start of $24.4 million at the acquisition date.
Immediately subsequent to the acquisition of Good Start, the Company paid $18.4 million in cash to settle outstanding notes payable, accrued interest and related costs. In addition, and immediately subsequent to the acquisition, the Company settled outstanding convertible promissory notes payable through:
(a)
payment of $11.9 million through the issuance of 1,148,283 shares of the Company’s common stock; and
(b)
payment of $3.6 million through the issuance of 343,986 shares of the Company’s common stock, representing a hold-back amount payable on the one-year anniversary of the acquisition date. In September 2018, the Company issued 212,260 shares in partial payment of the hold-back amount payable. The remainder of the hold-back amount payable, approximately $1.3 million as of December 31, 2018, will be settled upon resolution of outstanding claims from Good Start customers, of which $0.6 million was settled in January 2019.
Also in connection with the acquisition of Good Start and immediately subsequent to the acquisition, the Company paid bonuses to certain members of Good Start’s management team through:
(a)
payment of $0.9 million through the issuance of 83,025 shares of the Company’s common stock; and
(b)
payment of $0.4 million through the issuance of 37,406 shares of the Company’s common stock, representing a hold-back amount payable on the one-year anniversary of the acquisition date. In September 2018, the Company issued 27,784 shares in partial payment of the hold-back amount payable to settle bonuses to Good Start's management team. The remainder of the hold-back amount payable, approximately $0.2 million as of December 31, 2018, will be settled upon resolution of outstanding claims from Good Start customers, of which $0.1 million was settled in January 2019.
These bonus payments were recorded as general and administrative expense.
Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. While the Company believes that its 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.
At acquisition date, the Company also recorded $4.8 million as a provisional amount for a deferred tax liability because certain information and analysis related to Good Start’s historical net operating losses that could have affected the Company’s initial valuation was still being obtained or reviewed at that time. This provisional amount for the deferred tax liability was subsequently reversed during the fourth quarter of 2017 based on the results of further analysis of Good Start’s historical net operating losses.
The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition (in thousands):
Cash and restricted cash
$
1,381

Accounts receivable
2,246

Prepaid expense and other assets
1,579

Property and equipment
1,320

Trade name
460

Developed technology
5,896

Customer relationships
7,830

Total identifiable assets acquired
20,712

Accounts payable
(5,418
)
Accrued expenses
(6,802
)
Notes payable
(17,904
)
Convertible promissory notes payable
(15,430
)
Other liabilities
(222
)
Total liabilities assumed
(45,776
)
Net identifiable assets acquired
(25,064
)
Goodwill
25,064

Net assets acquired
$


During the year ended December 31, 2018, the Company recorded adjustments to its accounting for the amount recorded as accounts receivable at acquisition. Accordingly, the fair value of accounts receivable was decreased by $0.7 million during the year ended December 31, 2018, with corresponding increases to goodwill.

Customer relationships are being amortized on an accelerated basis, utilizing free cash flows, over a period of eight years. All other finite-lived intangibles included in the above table 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 expected to be realized, as follows (in thousands):
 
Gross
Purchased
Intangible
Assets
 
Estimated
Useful
Life
(in Years)
Trade name
$
460

 
3
Developed technology
5,896

 
5
Customer relationships
7,830

 
8
 
$
14,186

 
 

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of Good Start resulted in the recognition of $25.1 million of goodwill which the Company believes consists principally of expected synergies to be realized by expanding the Company’s suite of genome management offerings. In accordance with ASC 350, goodwill will not be amortized but rather will be tested for impairment at least annually. Goodwill created as a result of the acquisition is not deductible for tax purposes. The Company has finalized its assessment of fair value of the assets and liabilities assumed at the acquisition date.
CombiMatrix
On November 14, 2017, the Company completed its acquisition of CombiMatrix in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of July 31, 2017 (the “Merger Agreement”), by and among the Company, Coronado Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), and CombiMatrix, pursuant to which Merger Sub merged with and into CombiMatrix, with CombiMatrix surviving as a wholly owned subsidiary of the Company (the “Merger”).
At the closing of the Merger, the Company issued shares of its common stock to (i) CombiMatrix’s common stockholders, at an exchange ratio of 0.8692 of a share of the Company’s common stock (the “Merger Exchange
Ratio”) for each share of CombiMatrix common stock outstanding immediately prior to the Merger, (ii) CombiMatrix’s Series F preferred stockholders, at the Merger Exchange Ratio for each share of CombiMatrix common stock underlying Series F preferred stock outstanding immediately prior to the Merger, (iii) holders of outstanding and unexercised in-the-money CombiMatrix stock options, which were fully accelerated to the extent of any applicable vesting period and converted into the right to receive the number of shares of the Company’s common stock equal to the Merger Exchange Ratio multiplied by the number of shares of CombiMatrix common stock issuable upon exercise of such option, minus the number of shares of the Company’s common stock determined by dividing the aggregate exercise price for such option by $9.491, and (iv) holders of outstanding and unsettled CombiMatrix restricted stock units, which were fully accelerated to the extent of any applicable vesting period and converted into the right to receive a number of shares of the Company’s common stock determined by multiplying the number of shares of CombiMatrix common stock that were subject to such restricted stock unit by the Merger Exchange Ratio.
In addition, at the closing of the Merger, (a) all outstanding and unexercised out-of-the money CombiMatrix stock options were cancelled and terminated without the right to receive any consideration, (b) all CombiMatrix Series D Warrants and Series F Warrants outstanding and unexercised immediately prior to the closing of the Merger were assumed by the Company and converted into warrants to purchase the number of shares of the Company’s common stock determined by multiplying the number of shares of CombiMatrix common stock subject to such warrants by the Merger Exchange Ratio, and with the exercise price adjusted by dividing the per share exercise price of the CombiMatrix common stock subject to such warrants by the Merger Exchange Ratio, and (c) certain entitlements under CombiMatrix’s executive compensation transaction bonus plan (the “Transaction Bonus Plan”) were paid in shares of the Company’s common stock or RSUs to be settled in shares of the Company’s common stock. All outstanding and unexercised CombiMatrix Series A, Series B, Series C, Series E, and PIPE warrants were repurchased by CombiMatrix prior to closing pursuant to that certain CombiMatrix Common Stock Purchase Warrants Repurchase Agreement dated July 11, 2016.
Pursuant to the Merger Agreement, the Company issued an aggregate of 2,703,389 shares of its common stock as follows:
(a)
payment of $20.5 million through the issuance of 2,611,703 shares of the Company’s common stock to holders of CombiMatrix common stock outstanding;
(b)
payment of $0.7 million through the issuance of 85,219 shares of the Company’s RSUs to holders of outstanding and unsettled CombiMatrix restricted stock units;
(c)
payment of $0.1 million through the issuance of 3,323 shares of the Company’s common stock to holders of outstanding and unexercised in-the-money CombiMatrix stock options; and
(d)
payment of $0.1 million through the issuance of 3,144 shares of the Company’s common stock to holders of CombiMatrix Series F preferred stock.
In addition, and pursuant to the Merger Agreement, the Company issued warrants to purchase an aggregate of 2,077,273 shares of its common stock as follows:
(a)
payment of $7.4 million through the issuance of warrants to purchase a total of 1,739,689 shares of the Company’s common stock in exchange for all outstanding CombiMatrix Series F warrants; and
(b)
payment of $1,000 through the issuance of warrants to purchase a total of 337,584 shares of the Company’s common stock in exchange for all outstanding CombiMatrix Series D warrants.
In connection with the acquisition of CombiMatrix, the Company paid bonuses to certain members of CombiMatrix’s management team through:
(a)
payment of $1.7 million through the issuance of common stock and RSUs totaling 214,976 shares of the Company’s common stock to settle payments pursuant to CombiMatrix’s executive compensation transaction bonus plan (the “Transaction Bonus Plan”), recorded as post-combination compensation expense and included in general and administrative expense; and
(b)
payment of $0.2 million through the issuance of 22,966 shares of the Company’s common stock to settle payments pursuant to the Transaction Bonus Plan, recorded as an assumed liability at the acquisition date.
Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. While the Company believes that its 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 and restricted cash
$
1,333

Accounts receivable
4,118

Prepaid expense and other assets
1,299

Property and equipment
437

Other assets - non current
30

Favorable leases
247

Trade name
103

Patent licensing agreement
496

Developed technology
3,162

Customer relationships
12,397

Total identifiable assets acquired
23,622

 
 
Accounts payable
(276
)
Accrued expenses
(3,925
)
Deferred tax liability
(2,862
)
Other liabilities
(180
)
Total liabilities assumed
(7,243
)
 
 
Net identifiable assets acquired
16,379

Goodwill
11,554

Net assets acquired
$
27,933


During the year ended December 31, 2018, upon the completion of the Company's analysis of CombiMatrix's historical net operating losses, the Company recorded a deferred tax liability of $2.9 million with corresponding increases to goodwill. The $2.9 million net deferred tax liability represents the excess of the financial reporting over tax basis in acquired intangibles over the amount of CombiMatrix’s historical net operating loss carryovers that were determined to be available to offset future income due to change in ownership operating loss carryover limitation rules under Internal Revenue Code section 382.
Customer relationships are being amortized on an accelerated basis, utilizing free cash flows, over a period of eleven years. All other finite-lived intangibles included in the above table 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 expected to be realized, as follows (in thousands):
 
Gross
Purchased
Intangible
Assets
 
Estimated
Useful
Life
(in Years)
Favorable leases
$
247

 
2
Trade name
103

 
1
Patent licensing agreement
496

 
15
Developed technology
3,162

 
4
Customer relationships
12,397

 
11
 
$
16,405

 
 

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of CombiMatrix resulted in the recognition of $11.6 million of goodwill which the Company believes consists principally of expected synergies to be realized by expanding the Company’s suite of genome management offerings. In accordance with ASC 350, goodwill will not be amortized but rather will be tested for impairment at least annually. Goodwill created as a result of the acquisition is not deductible for tax purposes. The Company has finalized its assessment of fair value of the assets and liabilities assumed at the acquisition date.
v3.10.0.1
Goodwill and intangible assets
12 Months Ended
Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and intangible assets Goodwill and intangible assets
Goodwill
Details of the Company’s goodwill for the year ended December 31, 2018 are as follows (in thousands):
 
AltaVoice
 
Ommdom
 
Good Start
 
CombiMatrix
 
Total
Balance as of December 31, 2017
$
9,432

 
$
4,045

 
$
24,406

 
$
8,692

 
$
46,575

Goodwill adjustment

 

 
658

 
2,862

 
3,520

Balance as of December 31, 2018
$
9,432

 
$
4,045

 
$
25,064

 
$
11,554

 
$
50,095


The goodwill adjustments were principally due to changes in the fair value of accounts receivable for Good Start as well as the recognition of a $2.9 million deferred tax liability for CombiMatrix resulting from the completion of the Company’s analysis of historical net operating losses.
Intangible assets
The following table presents details of the Company’s finite-lived intangible assets as of December 31, 2018 (in thousands):
 
Cost
 
Accumulated
Amortization
 
Net
 
Weighted Average
Useful Life
(in Years)
 
Weighted Average
Estimated Remaining
Useful Life
(in Years)
Customer relationships
$
23,763

 
$
(2,783
)
 
$
20,980

 
10.0
 
8.6
Developed technology
11,963

 
(3,482
)
 
8,481

 
4.8
 
3.4
Non-compete agreement
286

 
(114
)
 
172

 
5.0
 
3.0
Trade name
576

 
(329
)
 
247

 
2.7
 
1.4
Patent licensing agreement
496

 
(37
)
 
459

 
15.0
 
13.9
Favorable leases
247

 
(117
)
 
130

 
2.2
 
1.1
 
$
37,331

 
$
(6,862
)
 
$
30,469

 
8.2
 
6.8

Acquisition-related intangibles included in the above table are finite-lived. Customer relationships are being amortized on an accelerated basis, in proportion to estimated cash flows, over periods ranging from five to eleven years. All other 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 $5.0 million, $1.8 million, and nil for the years ended December 31, 2018, 2017, and 2016, respectively. Intangible assets are carried at cost less accumulated amortization. Amortization expense is recorded to research and development, sales and marketing and general and administrative expense.
The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of December 31, 2018 (in thousands):
 
Amount
2019
$
5,250

2020
5,525

2021
5,829

2022
4,124

2023
3,111

Thereafter
6,630

Total estimated future amortization expense
$
30,469

v3.10.0.1
Balance sheet components
12 Months Ended
Dec. 31, 2018
Balance Sheet Related Disclosures [Abstract]  
Balance sheet components Balance sheet components
Property and equipment, net
Property and equipment consisted of the following (in thousands):
 
December 31, 2018
 
December 31, 2017
Leasehold improvements
$
13,034

 
$
12,623

Laboratory equipment
22,149

 
17,705

Equipment under capital lease
7,129

 
11,446

Computer equipment
4,723

 
4,023

Software
2,594

 
2,520

Furniture and fixtures
784

 
569

Automobiles
20

 
20

Construction-in-progress
1,962

 
965

Total property and equipment, gross
52,395

 
49,871

Accumulated depreciation and amortization
(24,509
)
 
(19,530
)
Total property and equipment, net
$
27,886

 
$
30,341


Depreciation expense was $8.5 million, $7.2 million and $6.6 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Accrued liabilities
Accrued liabilities consisted of the following (in thousands):
 
December 31, 2018
 
December 31, 2017
Accrued compensation and related expenses
$
7,917

 
$
7,406

Deferred revenue
761

 
307

Liabilities associated with business combinations
6,460

 
9,497

Liability associated with co-development agreement
2,000

 

Other
9,425

 
5,532

Total accrued liabilities
$
26,563

 
$
22,742


Other long-term liabilities
Other long-term liabilities consisted of the following (in thousands):
 
December 31, 2018
 
December 31, 2017
Lease incentive obligation, non-current
$
3,280

 
$
3,831

Deferred rent, non-current
5,495

 
5,153

Liabilities associated with business combinations

 
3,779

Other non-current liabilities
181

 
677

Total other long-term liabilities
$
8,956

 
$
13,440

v3.10.0.1
Fair value measurements
12 Months Ended
Dec. 31, 2018
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 the Company’s consolidated financial instruments that were measured at fair value on a recurring basis (in thousands):
 
 
December 31, 2018
 
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
 
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
 
 
 
December 31, 2017
 
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair Value
 
Level 1
 
Level 2
 
Level 3
Financial assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
5,998

 
$

 
$

 
$
5,998

 
$
5,998

 
$

 
$

Certificates of deposit
 
300

 

 

 
300

 
300

 

 

U.S. treasury notes
 
12,010

 

 
(19
)
 
11,991

 
11,991

 

 

U.S. government agency securities
 
46,451

 

 
(152
)
 
46,299

 

 
46,299

 

Total financial assets
 
$
64,759

 
$

 
$
(171
)
 
$
64,588

 
$
18,289

 
$
46,299

 
$

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent consideration
 
 
 
 
 
 
 
$
3,779

 
$

 
$

 
$
3,779

Total financial liabilities
 
 
 
 
 
 
 
$
3,779

 
$

 
$

 
$
3,779

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
Reported as:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents
 
 
 
 
 
 
 
 
 
 
 
$
592
 
Restricted cash
 
 
 
 
 
 
 
 
 
 
 
5,406
 
Marketable securities
 
 
 
 
 
 
 
 
 
 
 
58,590
 
Total cash equivalents, restricted cash, and marketable securities
 
 
 
$
64,588
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accrued liabilities
 
 
 
 
 
 
 
 
 
 
 
$
3,779
 

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 December 31, 2018 was $13.4 million. None of the available-for-sale securities held as of December 31, 2018 has been in a material continuous unrealized loss position for more than one year. At December 31, 2018, unrealized losses on available-for-sale investments are not attributed to credit risk and are considered to be temporary. The Company believes it is more likely than not that investments in an unrealized loss position will be held until maturity or the recovery of the cost basis of the investment. To date, the Company has not identified any other-than-temporary declines in market value and thus has not recorded any impairment charges on its financial assets other than on the convertible notes which are described in Note 8, “Investment in privately held company.”
At December 31, 2018, the remaining contractual maturities of available-for-sale securities ranged from less than one to 4 months. For the years ended December 31, 2018, 2017 and 2016, there were no realized gains or losses on available-for-sale securities.
The Company’s 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.
The following table presents the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis (in thousands):
 
Level 3
 
Contingent Consideration Liability
Balance as of December 31, 2017
$
3,779

Change in estimate of fair value
1,219

Balance as of December 31, 2018
$
4,998


As of December 31, 2018, the Company had a contingent obligation of up to $5.0 million payable in the Company’s common stock to the former owners of AltaVoice in conjunction with the Company’s acquisition of AltaVoice in January 2017. The contingency was dependent upon future revenues attributable to AltaVoice. If the revenue attributable to AltaVoice for the combined period of 2017 and 2018 was at least $10 million, the Company would make a payment of up to $5.0 million in the Company’s common stock in March 2019. The Company estimated the fair value of the contingent consideration at $2.2 million at the acquisition date in January 2017, based on a Monte Carlo simulation, as well as estimates of the 30-day trailing price of its stock at certain dates, its volatility assumptions and its revenue forecasts, all of which were significant inputs in the Level 3 measurement not supported by market activity. The value of the liability was subsequently remeasured to fair value at each reporting date. Changes in estimated fair value are recorded as general and administrative expense until the contingency is paid or expires. The change in the fair value of the contingent consideration between the acquisition date and December 31, 2018 was an increase of $2.8 million.
The fair value of the Company’s outstanding debt is estimated using the net present value of future debt payments, discounted at an interest rate that is consistent with market interest rates, which is a Level 2 input. The carrying amount of the Company’s outstanding debt at December 31, 2018 approximated its fair value and as of December 31, 2017, the Company's debt carrying amount and fair value were as follows (in thousands):
 
December 31, 2017
 
Carrying Amount
 
Fair Value
Debt
$
39,084

 
$
40,526

v3.10.0.1
Investment in privately held company Investment in privately held company
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Investment in privately held company Investment in privately held company
 
On March 15, 2018, the Company entered into a collaboration agreement with KEW, Inc. (“KEW”), a privately held comprehensive genomic profiling company. The Company determined it had a variable interest in a VIE through its investment in a convertible note issued by KEW. During the year ended December 31, 2018, the Company incurred losses relating to this collaboration agreement with KEW of $2.9 million which were recognized in general and administrative expenses in the Company’s consolidated statements of operations. As of December 31, 2018, the Company fulfilled its obligations with respect to the collaboration agreement and there are no balances recorded in the Company's consolidated balance sheets pertaining to this arrangement.
v3.10.0.1
Commitments and contingencies
12 Months Ended
Dec. 31, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments and contingencies Commitments and contingencies
Operating leases
In September 2015, the Company entered into a lease agreement for its headquarters and main production facility in San Francisco, California. This lease expires in July 2026 and the Company may renew the lease for an additional ten years. The Company has determined the lease term to be a ten-year period expiring in 2026. The lease term commenced when the Company took occupancy of the facility in February 2016. In connection with the execution of the lease, the Company provided a security deposit of approximately $4.6 million which is included in restricted cash in the Company’s consolidated balance sheets. Minimum annual rent under the lease is subject to increases based on stated rental adjustment terms. In addition, per the terms of the lease, the Company received a $5.2 million lease incentive in the form of reimbursement from the landlord for a portion of the costs of leasehold improvements the Company has made to the facility. The assets purchased with the lease incentive are included in property and equipment, net, in the Company’s consolidated balance sheets and the lease incentive is recognized as a reduction of rental expense on a straight-line basis over the term of the lease. At December 31, 2018, all of the lease incentive had been utilized by the Company and all related reimbursements had been received from the landlord. Aggregate future minimum lease payments for this facility at December 31, 2018 were approximately $57.8 million.
Future minimum payments under non-cancelable operating leases and future minimum payments to be received from non-cancelable subleases as of December 31, 2018 are as follows (in thousands):
 
Amounts
2019
$
10,948

2020
10,860

2021
11,109

2022
11,067

2023
8,898

Thereafter
25,715

Future non-cancelable minimum operating lease payments
78,597

Less: minimum payments to be received from non-cancelable subleases
(174
)
Total future non-cancelable minimum operating lease payments, net
$
78,423


The following table summarizes rent expense related to non-cancelable operating leases (in thousands):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Rent expense
$
9,720

 
$
8,950

 
$
8,901

Sublease income
227

 
398

 
257

Rent expense, net of sublease income
$
9,493

 
$
8,552

 
$
8,644


Debt financing
In March 2017, the Company entered into a Loan and Security Agreement (the “2017 Loan Agreement”) with a lender pursuant to which the Company borrowed an initial term loan of $40.0 million, and received net proceeds of approximately $39.7 million. Subject to certain conditions, the Company was eligible to borrow a second term loan pursuant to the 2017 Loan Agreement of $20.0 million in the first quarter of 2018 and did so in March 2018, receiving net proceeds of approximately $19.8 million.
In February 2018 and June 2018, the Company entered into amendments to the 2017 Loan Agreement (the “2018 Amendments”) pursuant to which the Company, subject to certain conditions, was eligible to borrow a third term loan of $20.0 million during the period from April 2, 2018 to December 31, 2018. Pursuant to the 2018 Amendments, since the third term loan became available and the Company did not draw upon the third term loan, a fee of 1% was applied to the difference between $20.0 million and the amount drawn, or $0.2 million.

Term loans under the amended 2017 Loan Agreement bore interest at a floating rate equal to an index rate plus 7.73%, where the index rate was the greater of 0.77% or the 30-day U.S. Dollar London Interbank Offered Rate (“LIBOR”) as reported in The Wall Street Journal, with the floating rate resetting monthly subject to a floor of 8.5%.
The Company could make monthly interest-only payments until May 1, 2019 (or, subject to certain conditions, May 1, 2020), and thereafter monthly payments of principal and interest were required to fully amortize the borrowed amount by a final maturity date of March 1, 2022. A fee of 5% of each funded draw was due at the earlier of prepayment or loan maturity, a facility fee of 0.5% was due upon funding for each draw, and a prepayment fee of between 1% and 3% of the outstanding balance applied in the event of a prepayment. Concurrent with each term loan, the Company granted to the lender a warrant to acquire shares of the Company’s common stock equal to the quotient of 3% of the funded amount divided by a per share exercise price equal to the lower of the average closing price for the previous ten days of trading (calculated on the day prior to funding) or the closing price on the day prior to funding. In connection with the initial term loan, in 2017, the Company issued the lender warrants to purchase 116,845 shares of common stock at an exercise price of $10.27 per share. The Company classified these warrants as equity with a fair value of $0.7 million. In connection with the second term loan, in 2018, the Company issued the lender warrants to purchase 85,482 shares of common stock at an exercise price of $7.02 per share. The Company classified these warrants as equity with a fair value of $0.4 million. All warrants issued pursuant to the amended 2017 Loan Agreement have a term of ten years from the date of issuance and include a cashless exercise provision.
In November 2018, the Company entered into a Note Purchase Agreement (the "2018 Note Purchase Agreement") pursuant to which the Company was 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. The Company received net proceeds of $10.3 million after terminating and repaying the balance of its obligations of approximately $64.7 million under the 2017 Loan Agreement and associated amendments with its previous lender. The Company incurred $5.3 million of debt extinguishment costs upon terminating its previous debt facility which the Company recorded as other income (expense), net in its consolidated statements of operations during the year ended December 31, 2018.
At December 31, 2018, obligations under the 2018 Note Purchase Agreement were $75.0 million which are required to be repaid to the lender in a balloon payment no later than 2025. If the Company repays prior to the three year anniversary following the initial borrowing, the amount due will be: 117.5% of the principal amount if payment is made within 12 months after the borrowing; 132.5% of the principal amount if payment is made between 12 and 24 months after the borrowing; and 145.0% of the principal amount if payment is made between 24 and 36 months after the borrowing.
The outstanding principal amount under the 2018 Note Purchase Agreement bears interest at a rate of 8.75% annually. In addition, beginning on January 1, 2020 and continuing until repayment or maturity of any outstanding principal, the Company will make quarterly payments of 0.5% of the Company's annual net revenues subject to a maximum annual amount of such payments of $1.6 million which will be recognized as interest expense. Through the fixed interest charges and the quarterly revenue payments, the Company is required to pay total amounts to generate an 11% internal rate of return to the lender on any outstanding principal balances due in a lump-sum upon the repayment or maturity of any outstanding principal. During the year ended December 31, 2018, the 2018 Note Purchase Agreement bore interest at an average interest rate of 10.6%.
The 2018 Note Purchase Agreement contains quarterly covenants to achieve certain revenue levels as well as additional covenants, including limits on the Company’s ability to dispose of assets, undergo a change of control, merge with or acquire other entities, incur debt, incur liens, pay dividends or other distributions to holders of its capital stock, repurchase stock and make investments, in each case subject to certain exceptions. The Company’s obligations under the 2018 Note Purchase Agreement are secured by a security interest on substantially all of its and certain of its subsidiaries’ assets.
In connection with the 2018 Note Purchase Agreement, in November 2018, the Company entered into a Securities Purchase Agreement with the lender pursuant to which the Company issued 373,524 shares of its common stock at a price of $13.39 per share for an aggregate amount of $5.0 million. The share price paid by the lender was calculated based on the 15-day average closing share price prior to the issuance. The relative fair value method was used to allocate the proceeds between the common stock issued and the note proceeds; the fair value of the common stock issued to the lender was determined to be $5.4 million.
Debt discounts, including debt issuance costs, related to the 2018 Note Purchase Agreement of $0.7 million were recorded as a direct deduction from the debt liability and are being amortized to interest expense over the term of the 2018 Note Purchase Agreement. Future estimated payments under the 2018 Note Purchase Agreement as of December 31, 2018 are as follows (in thousands):
 
Amounts
2019
$
6,654

2020
8,297

2021
8,279

2022
8,279

2023
8,279

Thereafter
89,998

Total remaining payments
129,786

Less: amount representing debt discount
(721
)
Less: amount representing interest
(54,588
)
Total non-current debt obligation
$
74,477


Interest expense related to the Company's debt financings was $6.7 million, $3.5 million and $0.3 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Capital leases
The Company has entered into various capital lease agreements to obtain laboratory equipment. The terms of the Company's capital leases are typically three years and are secured by the underlying equipment. The portion of the future payments designated as principal repayment was classified as a capital lease obligation on the consolidated balance sheets.
Future payments under capital leases at December 31, 2018 were as follows (in thousands):
 
Amounts
2019
$
2,087

2020
1,392

2021
21

Total capital lease obligations
3,500

Less: amount representing interest
(188
)
Present value of net minimum capital lease payments
3,312

Less: current portion
(1,937
)
Total non-current capital lease obligations
$
1,375


Interest expense related to capital leases was $0.3 million, $0.2 million and $0.1 million for the years ended December 31, 2018, 2017 and 2016, respectively.
Property and equipment under capital leases was $7.1 million and $11.4 million as of December 31, 2018 and 2017, respectively. Accumulated depreciation, collectively, on these assets was $2.0 million and $3.0 million at December 31, 2018 and 2017, respectively.
Guarantees and indemnifications
As permitted under Delaware law and in accordance with the Company’s bylaws, the Company indemnifies its 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, the Company maintains director and officer liability insurance. This insurance allows the transfer of the risk associated with the Company’s exposure and may enable it to recover a portion of any future amounts paid. The Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company did not record any liabilities associated with these indemnification agreements at December 31, 2018 or December 31, 2017.
Other commitments
In the normal course of business, the Company enters into various purchase commitments primarily related to service agreements, laboratory supplies, and a co-development agreement. At December 31, 2018, the Company’s total future payments under noncancelable unconditional purchase commitments having a remaining term of over one year were as follows (in thousands):
 
Amount
2019
$
3,040

2020
3,040

2021
1,440

Total
$
7,520


In addition, in September 2018, the Company entered into a co-development agreement with a privately held genetics testing company. The co-development agreement grants the Company the right of first refusal to enter into an agreement for an acquisition of the entity in return for total fees of $3.0 million over the term of the 12-month agreement, of which $1.0 million has been paid by the Company as of December 31, 2018. The unpaid fees of $2.0 million were paid in January 2019, and as of December 31, 2018, were recorded as an accrued liability in the Company’s consolidated balance sheets.
Contingencies
The Company was not a party to any material legal proceedings at December 31, 2018, or at the date of this report. The Company may from time to time become involved in various legal proceedings arising in the ordinary course of business, and the resolution of any such claims could be material.
v3.10.0.1
Stockholders' Equity
12 Months Ended
Dec. 31, 2018