NOVOCURE LTD, 10-K filed on 2/27/2020
Annual Report
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Cover - USD ($)
12 Months Ended
Dec. 31, 2019
Feb. 19, 2020
Jun. 28, 2019
Cover page.      
Document Type 10-K    
Document Annual Report true    
Document Period End Date Dec. 31, 2019    
Document Transition Report false    
Entity File Number 001-37565    
Entity Registrant Name NovoCure Limited    
Entity Incorporation, State or Country Code Y9    
Entity Tax Identification Number 98-1057807    
Entity Address, Address Line One No. 4 The Forum    
Entity Address, Address Line Two Grenville Street    
Entity Address, City or Town St. Helier    
Entity Address, Country JE    
Entity Address, Postal Zip Code JE2 4UF    
Country Region +44    
City Area Code (0) 15    
Local Phone Number 3475 6700    
Title of 12(b) Security Ordinary shares, no par value per share    
Trading Symbol NVCR    
Security Exchange Name NASDAQ    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Interactive Data Current Yes    
Entity Filer Category Large Accelerated Filer    
Entity Small Business false    
Entity Emerging Growth Company false    
Entity Shell Company false    
Entity Public Float     $ 3,943,182,013
Entity Common Stock, Shares Outstanding   99,640,549  
Documents Incorporated by Reference Portions of the registrant’s definitive proxy statement for its 2020 annual meeting of shareholders are incorporated by reference into Items 10, 11, 12, 13, and 14 of Part III of this Form 10-K.  Such definitive proxy statement will be filed with the Securities and Exchange Commission within 120 days after the end of the registrant’s fiscal year ended December 31, 2019.    
Amendment Flag false    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Entity Central Index Key 0001645113    
Current Fiscal Year End Date --12-31    
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Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 177,321 $ 140,622
Short-term investments 148,769 105,256
Restricted cash 2,095 2,134
Trade receivables, net 58,859 36,523
Receivables and prepaid expenses 29,202 14,279
Inventories 23,701 22,555
Total current assets 439,947 321,369
Long-term assets:    
Property and equipment, net 9,342 8,442
Field equipment, net 7,684 6,924
Right-of-use assets, net 17,571  
Other long-term assets 4,904 3,058
Total long-term assets 39,501 18,424
Total assets 479,448 339,793
Current liabilities:    
Trade payables 36,925 26,708
Other payables and accrued expenses 49,386 37,852
Total current liabilities 86,311 64,560
Long-term liabilities:    
Long-term loan, net of discount and issuance costs 149,424 149,268
Deferred revenues 7,807 9,929
Long term leases 14,140  
Employee benefit liabilities 3,754 2,683
Other long-term liabilities 222 1,094
Total long-term liabilities 175,347 162,974
Total liabilities 261,658 227,534
Commitments and contingencies  
Shareholders’ equity:    
Ordinary shares - No par value, Unlimited shares authorized; Issued and outstanding: 99,528,435 shares and 93,254,185 shares at December 31, 2019 and December 31, 2018 respectively; 0 0
Additional paid-in capital 871,442 757,314
Accumulated other comprehensive loss (2,767) (1,400)
Accumulated deficit (650,885) (643,655)
Total shareholders’ equity 217,790 112,259
Total liabilities and shareholders’ equity $ 479,448 $ 339,793
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Consolidated Balance Sheets (Parenthetical) - shares
Dec. 31, 2019
Dec. 31, 2018
Statement of Financial Position [Abstract]    
Common stock issued (in shares) 99,528,435 93,254,185
Common stock outstanding (in shares) 99,528,435 93,254,185
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Consolidated Statements of Operations - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Income Statement [Abstract]      
Net revenues $ 351,318 $ 248,069 $ 177,026
Cost of revenues 88,606 80,048 55,610
Gross profit 262,712 168,021 121,417
Operating costs and expenses:      
Research, development and clinical trials 79,003 50,574 38,103
Sales and marketing 96,675 77,663 63,528
General and administrative 87,948 73,456 59,114
Total operating costs and expenses 263,626 201,693 160,745
Operating income (loss) (914) (33,672) (39,328)
Financial expenses (income), net 7,910 12,270 9,169
Income (loss) before income taxes (8,824) (45,942) (48,497)
Income tax (1,594) 17,617 13,165
Net income (loss) $ (7,230) $ (63,559) $ (61,662)
Basic and diluted net income (loss) per ordinary share (in usd per share) $ (0.07) $ (0.69) $ (0.70)
Weighted average number of ordinary shares used in computing basic and diluted net income (loss) per share (in shares) 97,237,549 91,828,043 88,546,719
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Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Comprehensive Income [Abstract]      
Net income (loss) $ (7,230) $ (63,559) $ (61,662)
Other comprehensive income (loss), net of tax :      
Change in foreign currency translation adjustments (304) 27 8
Pension benefit plan (1,063) (84) 532
Total comprehensive income (loss) $ (8,597) $ (63,616) $ (61,122)
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Statements of Changes in Shareholders' Equity - USD ($)
$ in Thousands
Total
Ordinary shares
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings (accumulated deficit)
Beginning balance at Dec. 31, 2016 $ 142,345   $ 664,154 $ (1,883) $ (519,926)
Beginning balance (in shares) at Dec. 31, 2016   87,066,446      
Share-based compensation to employees 27,116   27,116    
Exercise of options and warrants 3,685   3,685    
Exercise of options and warrants (in shares)   2,244,153      
Issuance of shares in connection with employee stock purchase plan 1,540   1,540    
Issuance of shares in connection with employee stock purchase plan (in shares)   167,433      
Tax benefit from share-based award activity 0   670   (670)
Other comprehensive income (loss), net of tax (benefit) expense 540     540  
Net income (loss) (61,662)       (61,662)
Ending balance at Dec. 31, 2017 113,564   697,165 (1,343) (582,258)
Ending balance (in shares) at Dec. 31, 2017   89,478,032      
Share-based compensation to employees 39,846   39,846    
Exercise of options and warrants 18,468   18,468    
Exercise of options and warrants (in shares)   3,688,781      
Issuance of shares in connection with employee stock purchase plan 1,835   1,835    
Issuance of shares in connection with employee stock purchase plan (in shares)   87,372      
Other comprehensive income (loss), net of tax (benefit) expense (57)     (57)  
Net income (loss) (63,559)       (63,559)
Ending balance at Dec. 31, 2018 112,259   757,314 (1,400) (643,655)
Ending balance (in shares) at Dec. 31, 2018   93,254,185      
Share-based compensation to employees 52,416   52,416    
Exercise of options and warrants 59,245   59,245    
Exercise of options and warrants (in shares)   6,206,884      
Proceeds from issuance of shares 2,467   2,467    
Proceeds from issuance of shares (in shares)   67,366      
Other comprehensive income (loss), net of tax (benefit) expense (1,367)     (1,367)  
Net income (loss) (7,230)       (7,230)
Ending balance at Dec. 31, 2019 $ 217,790   $ 871,442 $ (2,767) $ (650,885)
Ending balance (in shares) at Dec. 31, 2019   99,528,435      
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Statements of Changes in Shareholders' Equity (Parenthetical) - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Statement of Stockholders' Equity [Abstract]      
Other comprehensive income (loss), tax (benefit) expense $ 145 $ 10 $ (68)
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Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Dec. 31, 2017
Cash flows from operating activities:      
Net income (loss) $ (7,230) $ (63,559) $ (61,662)
Adjustments to reconcile net loss to net cash used in operating activities:      
Depreciation and amortization 8,460 9,006 7,677
Asset write-downs and impairment of field equipment 398 407 241
Share-based compensation 52,416 39,846 27,116
Foreign currency remeasurement loss (gain) (917) 0 0
Decrease (increase) in accounts receivables (36,496) (10,325) (21,249)
Amortization of discount (premium) (2,176) 1,022 252
Decrease (increase) in inventories (1,159) (529) 3,524
Decrease (increase) in other long-term assets 3,446 (949) (554)
Increase (decrease) in accounts payables and accrued expenses 16,883 13,713 13,310
Increase (decrease) in other long-term liabilities (7,006) 9,503 (1,789)
Net cash provided by (used in) operating activities 26,620 (1,865) (33,134)
Cash flows from investing activities:      
Purchase of property, equipment and field equipment (10,485) (6,711) (7,366)
Proceeds from maturity of short-term investments 420,661 255,000 120,000
Purchase of short-term investments (461,843) (253,782) (104,006)
Net cash provided by (used in) investing activities (51,667) (5,493) 8,628
Cash flows from financing activities:      
Proceeds from issuance of shares, net 2,467 1,835 1,540
Proceeds from long-term loan, net 0 149,150 19
Repayment of long-term loan (31) (100,084) (76)
Exercise of options and warrants 59,245 18,468 3,685
Net cash provided by financing activities 61,681 69,369 5,168
Effect of exchange rate changes on cash, cash equivalents and restricted cash 26 27 8
Increase (decrease) in cash, cash equivalents and restricted cash 36,660 62,038 (19,330)
Cash, cash equivalents and restricted cash at the beginning of the year 142,756 80,718 100,048
Cash, cash equivalents and restricted cash at the end of the year 179,416 142,756 80,718
Cash paid during the year for:      
Income taxes 11,241 20,350 10,286
Interest 13,699 $ 13,334 $ 10,162
Non-cash activities in accordance with ASC-842:      
Right-of-use assets obtained in exchange for lease liabilities $ 22,943    
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Organization and Basis of Presentation
12 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization and Basis of Presentation Organization
NovoCure Limited (including its consolidated subsidiaries, the "Company") was incorporated in the Bailiwick of Jersey and is principally engaged in the development, manufacture and commercialization of Tumor Treating Fields delivery systems, including Optune and NovoTTF-100L (our "Products"), for the treatment of solid tumor cancers. The Company has received regulatory approval from the U.S. Food and Drug Administration ("FDA") under the Premarket Approval pathway and regulatory approvals and clearances in certain other countries for Optune to treat adult patients with glioblastoma.  The Company also has received FDA approval under the Humanitarian Device Exemption pathway to market NovoTTF-100L for unresectable, locally advanced or metastatic malignant pleural mesothelioma in combination with standard chemotherapies.
During the year ended December 31, 2019, the Company implemented changes to its corporate entity operating structure, including transferring certain intellectual property to its Swiss subsidiary, primarily to align corporate entities with the Company’s evolving operations and business model. See Note 13.
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Basis of Presentation and Significant Accounting Policies
12 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Basis of Presentation and Significant Accounting Policies Basis of presentation and significant accounting policies
The consolidated financial statements are prepared according to United States generally accepted accounting principles ("U.S. GAAP").
a. Use of estimates:
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company evaluates on an ongoing basis its assumptions, including those related to contingencies, deferred taxes, tax liabilities, useful-life of field equipment, right-of-use assets and lease liabilities, pension liabilities, revenue recognition, and share-based compensation costs. The Company’s management believes that the estimates, judgment and assumptions used are reasonable based upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of net revenue and expenses during the reporting period. Actual results could differ from those estimates.
b. Financial statements in U.S. dollars:
The accompanying financial statements have been prepared in U.S. dollars in thousands, except for share and per-share data.
The Company finances its operations in U.S. dollars and a substantial portion of its costs and revenues from its primary markets is incurred in U.S. dollars. As such, the Company’s management believes that the U.S. dollar is the currency of the primary economic environment in which NovoCure Limited and certain subsidiaries operate. The Company’s reporting currency is U.S. dollars.
Transactions and balances denominated in U.S. dollars are presented at their original amounts. Monetary accounts maintained in currencies other than the U.S. dollar are re-measured into dollars in accordance with Accounting Standards Codification (ASC) No. 830-10, "Foreign Currency Matters." All transaction gains and losses of the re-measurement of monetary balance sheet items are reflected in the consolidated statements of operations as financial income or expenses, as applicable.
For a subsidiary whose functional currency has been determined to be its local currency, assets and liabilities are translated at year-end exchange rates and statement of operations items are translated at average exchange rates prevailing during the year. Such translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in shareholders' equity.
c. Principles of consolidation:
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions and balances, including unrealized profits from intercompany sales, have been eliminated upon consolidation.
d. Cash equivalents:
Cash equivalents are short-term, highly liquid investments that are readily convertible into cash with a maturity of three months or less at the date acquired. 
e. Short-term investments and restricted cash:
1. Short-term investments:
The Company accounts for investments in debt securities in accordance with ASC 320, "Investments—Debt and Equity Securities." Management determines the appropriate classification of its investments in marketable debt securities at the time of purchase and reevaluates such determinations at each balance sheet date. For the years ended December 31, 2019 and 2018, all securities are classified as held-to-maturity since the Company has the intent and ability to hold the securities to maturity and, accordingly, debt securities are stated at amortized cost.
The amortized cost of held-to-maturity securities is adjusted for amortization of premiums and accretion of discounts to maturity and any other than temporary impairment losses. Such amortization and interest are included in the consolidated statement of operations as financial income or expenses, as appropriate.
For the three years ended December 31, 2019, no impairment losses have been identified.
2. Restricted cash:
The Company has restricted cash used as security for the use of Company credit cards, presented in short-term assets. Additionally, the Company has pledged bank deposits to cover bank guarantees related to facility rental agreements, fleet lease agreements and customs payments presented in other long-term assets (see Note 12).
f. Trade receivables:
The Company’s trade receivables balance contains billed and unbilled commercial activities. As needed, the Company records an allowance for doubtful accounts by reserving for specifically identified doubtful accounts. The Company periodically reviews its customers’ credit risk and payment history. To date, the Company has not experienced any material credit losses related to counter-party risk.
g. Inventories:
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the weighted average method. The Company regularly evaluates its ability to realize the value of inventory. If the inventories are deemed damaged, if actual demand for the Company’s delivery systems deteriorates, or if market conditions are less favorable than those projected, inventory write-offs may be required.
Inventory write-offs of $310, $684, and $489, respectively, were recorded for the years ended December 31, 2019, 2018 and 2017.
h. Property and equipment:
Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets at the following rates:
 %
Computers and laboratory equipment
15 - 33
Office furniture
6 - 33
Production equipment
20
Leasehold improvementsOver the shorter of the term of the lease or its useful life
i. Field equipment:
Field equipment is stated at cost, net of accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful life of the field equipment, which was determined to be 18 to 36 months. Field equipment is equipment being utilized under service agreements, and accounted for in accordance with ASC 842 on a monthly basis as an operating lease (see Note 2(w)). The Company records a write-off provision for any excess, lost or damaged equipment when warranted based on an assessment of the equipment. Write-offs for equipment are included in cost of revenues. During the years ended December 31, 2019, 2018 and 2017, write-offs for $327, $350, and $195, respectively, were recorded (see Note 7).
j. Impairment of long-lived assets:
The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360-10, "Property, Plant and Equipment," whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. During the three years ended December 31, 2019, no impairment losses have been identified.
k. Other long-term assets:
Restricted deposits and long-term lease deposits associated with office rent and vehicles under operating leases are presented in other long-term assets.
l. Revenue recognition:
Our Products are comprised of two main components: (1) an electric field generator and (2) transducer arrays and related accessories. We retain title to the electric field generator, and the patient is provided replacement transducer arrays and technical support for the device during the term of treatment. The electric field generator and transducer arrays are always supplied and function together and are not sold on a standalone basis.
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-9, Revenue from Contracts with Customers (Topic 606) (ASU 2014-9), an updated standard on revenue recognition and issued subsequent amendments to the initial guidance in March 2016, April 2016, May 2016 and December 2016 within ASU 2016-8, 2016-10, 2016-12 and 2016-20, respectively (collectively, "ASC 606"). The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods and services to patients in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods and services. In addition, the new standard requires expanded disclosures. The Company has adopted the standard effective January 1, 2018 using the modified retrospective method for all contracts. The reported results for 2018 and 2019 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition (ASC 605). The amount of revenue recognized in 2018 and 2019 reflects the consideration to which the Company expects to be entitled to receive in exchange for our Products.
The Company uses the portfolio approach to apply the standard to portfolios of contracts with similar characteristics.
To recognize revenue under ASC 606, the Company applies the following five steps:  
1.Identify the contract with a patient. A contract with a patient exists when (i) the Company enters into an enforceable contract with a patient that defines each party’s rights regarding delivery of and payment for a Product, (ii) the contract has commercial substance and (iii) the Company determines that collection of
substantially all consideration for such Product is probable based on the payer’s intent and ability to pay the promised consideration. The evidence of a contract generally consists of a prescription, a patient service agreement and the verification of the assigned payer for the contract and intention to collect.
2.Identify the performance obligations in the contract. Our contracts include the lease of the device, the supply obligation of disposable transducer arrays and technical support for the term of treatment. To the extent a contract includes multiple promised products and/or services, the Company must apply judgment to determine whether those products and/or services are capable of being distinct in the context of the contract. If these criteria are not met the promised products and/or services are accounted for as a combined performance obligation. In the Company’s case, the device, support, and disposables are provided as one inseparable package of monthly treatment for a single monthly fee. For more information, see Note 2(w).
3.Determine the transaction price. The transaction price is determined based on the consideration to which the Company will be entitled in exchange for providing a Product to the patient. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. The Company has agreements with many payers that define explicit discounts off the gross transaction price. In addition to the explicit discounts negotiated with each payer, the Company expects to receive, in aggregate for a given portfolio, less than the gross revenue net of explicit discounts. ASC 606 requires that the Company recognize this variable consideration as an implicit discount in the billing period. The implicit discount includes both an estimate of claims that will pay at an amount less than billed and an estimate of claims that will not pay within a given time horizon. The implicit discount adjustments to the transaction price are due to concessions, not collectability concerns driven by payer credit risk.
4.Allocate the transaction price to performance obligations in the contract. If a contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. As discussed above, there is a combined performance obligation under the Company’s contracts and, therefore, the monthly transaction price determined for the performance obligation will be recognized over time ratably over the monthly term of the treatment.  
5.Recognize revenue when or as the Company satisfies a performance obligation. The Company satisfies performance obligations over time. Revenue is recognized at the time the related performance obligation is satisfied by transferring a promised service to a patient. The patient consumes the benefits of treatment on a daily basis over the monthly term. As this criterion is met, the revenues will be recognized over the monthly term. For more information, see Note 2(w).
At adoption of ASC 606 on January 1, 2018, trade receivables increased by $2,807, deferred revenues increased by $645 and the Company recorded a cumulative impact to its accumulated deficit of $2,162 in 2018. Total deferred revenues balances at December 31, 2019 and 2018 were $19,580 and $18,769, respectively, presented as short-term and long-term liabilities. Unbilled revenues include revenues recognized for therapy provided and not invoiced in the reported period, and are presented as part of accounts receivable.
Revenues are presented net of indirect taxes.
Net revenues in 2019 and 2018 also include amounts recognized pursuant to the Zai Agreement. For additional information, see Note 12.
m. Charitable care:
The Company provides treatment at no charge to patients who meet certain criteria under its charitable care policy. Because the Company does not pursue collection of amounts determined to qualify as charity, they are not reported as revenue. The Company's costs of care provided under charitable care were $2,847, $2,762 and $1,483 for the
years ended December 31, 2019, 2018 and 2017, respectively. These amounts were determined by applying charitable care as a percentage of gross billings to total cost of goods sold.
n. Shipping and handling costs:
The Company does not separately bill its customers for shipping and handling costs associated with shipping Products to its customers. These direct shipping and handling costs of $2,688, $2,936 and $5,322 for the years ended December 31, 2019, 2018 and 2017, respectively are included in Sales and Marketing costs.
o. Accounting for share-based compensation:
The Company accounts for share-based compensation in accordance with ASC 718, "Compensation—Stock Compensation." ASC 718 requires companies to estimate the fair value of share-based compensation awards on the date of grant using an option-pricing model. The value of the award is recognized as an expense over the requisite service periods in the Company’s consolidated statements of operations. The Company's policy is to account for forfeitures as they occur.
The Company recognizes compensation costs for the value of awards granted using the accelerated method over the requisite service period of the award, which is generally the restricted share unit vesting term of three years and option vesting term of four years, respectively.
The Company applies the Black-Scholes model as it believes it is the most appropriate fair value method for all equity awards and for the Employee Share Purchase Plan (the "ESPP"). For market condition awards, the Company also applies the Monte-Carlo simulation model. The Black-Scholes model requires a number of assumptions, of which the most significant are the share price, expected volatility and the expected award term.
The computation of expected volatility is based on actual historical share price volatility of comparable companies when there is not sufficient historical information for the Company. Expected term of options granted is calculated using the average between the vesting period and the contractual term to the expected term of the options in effect at the time of grant. The Company has historically not paid dividends and has no foreseeable plans to pay dividends and, therefore, uses an expected dividend yield of zero in the option pricing model. The risk-free interest rate is based on the yield of U.S. treasury bonds with equivalent terms.
p. Fair value of financial instruments:
The carrying amounts of cash and cash equivalents, short-term investments, restricted cash, receivables and prepaid expenses, trade receivables, trade payables and other accounts payable and accrued expenses approximate their fair value due to the short-term maturity of such instruments. Based upon the borrowing terms and conditions currently available to the Company, the carrying values of the long-term loans approximate fair value.
The Company accounts for certain assets and liabilities at fair value under ASC 820, "Fair Value Measurements and Disclosures." Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety.
The three levels of inputs that may be used to measure fair value are as follows:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets;
Level 2 - Includes other inputs that are directly or indirectly observable in the marketplace, other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets, quoted prices for identical
or similar assets or liabilities in markets with insufficient volume or infrequent transactions, or other inputs that are observable (model-derived valuations in which significant inputs are observable), or can be derived principally from or corroborated by observable market data; and
Level 3 - Unobservable inputs which are supported by little or no market activity.
The availability of observable inputs can vary from instrument to instrument and is affected by a wide variety of factors, including, for example, the type of instrument, the liquidity of markets and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment and the instrument is categorized as Level 3.
q. Basic and diluted net loss per share:
Basic net income (loss) per share is computed based on the weighted average number of ordinary shares outstanding during each period. Diluted net income per share is computed based on the weighted average number of ordinary shares outstanding during the period, plus potential dilutive shares considered outstanding during the period, in accordance with ASC 260-10, as determined under the treasury stock method. As the inclusion of all potential dilutive shares (deriving from options, RSUs and the ESPP) outstanding would be anti-dilutive, basic and diluted net loss per ordinary share was the same for each full year presented. See Note 19 for additional information regarding the three month periods ended September 30, 2019 and December 31, 2019.
r. Income taxes:
The Company accounts for income taxes in accordance with ASC 740-10, "Income Taxes." ASC 740-10 prescribes the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences between the financial reporting and 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. The Company provides a valuation allowance, to reduce deferred tax assets to their estimated realizable value, if needed.
The Company established reserves for uncertain tax positions based on the evaluation of whether or not the Company’s uncertain tax position is "more likely than not" to be sustained upon examination. The Company records interest and penalties pertaining to its uncertain tax positions in the financial statements as income tax expense.
s. Concentration of risks:
Our cash, cash equivalents, short-term investments and trade receivables are potentially subject to a concentration of risk. Cash, cash equivalents and short-term investments are invested at top tier financial institutions globally. As such, these investments may be in excess of insured limitations or not insured in certain jurisdictions. Generally, these investments may be redeemed upon demand and therefore, bear minimal risk.
The Company has no off-balance sheet concentrations of credit risk such as foreign exchange contracts, option contracts or other foreign hedging arrangements.
t. Retirement, pension and severance plans:
The Company has a 401(k) retirement savings plan for its U.S. employees. Each eligible employee may elect to contribute a portion of the employee’s compensation to the plan. Company contributions to the plan are at the sole discretion of the Company's Board of Directors. Currently, the Company provides a matching contribution of 50% of the employee's contributions, up to a maximum of three percent (3%) of the employee's annual salary. The Company began making matching contributions as of January 1, 2019 and, as of December 31, 2019, the Company had made matching contributions in the amount of $978 pursuant to the plan.
The Company sponsors a defined benefit plan (the "Swiss Plan") for all its employees in Switzerland for retirement benefits, as well as benefits on death or long-term disability, whereby the employee and the Company contribute a portion of the employee's compensation to the plan. The Swiss Plan is part of a collective pension fund managed by a top tier insurance company. The Company’s exposure under the Swiss Plan is insured. The Company has financial exposure under the Swiss Plan only in the event that the insurance company does not meet its obligations. The Company accounts for this potential counterparty risk in accordance with ASC 715, "Compensation –
Retirement Benefits" (see Note 9). The pension expense for the years ended December 31, 2019, 2018 and 2017 was $984, $882 and $1,036, respectively.
Israeli law generally requires payment of severance pay upon dismissal of an employee or upon termination of employment in certain other circumstances. The Company contributes to employee pension plans to fund its severance liabilities. According to Section 14 of Israel Severance Pay Law, the Company makes deposits on behalf of its employees with respect to the Company’s severance liability and therefore no obligation is provided for in the financial statements. Severance pay liabilities with respect to employees who are not subject to Section 14, are provided for in the financial statements based upon the number of years of service and the latest monthly salary and the related deposits are recorded as an asset based on the cash surrender value. Contributions pursuant to these obligations for the years ended December 31, 2019, 2018 and 2017 amounted to $784, $526 and $506, respectively.
u. Contingent liabilities:
The Company accounts for its contingent liabilities in accordance with ASC 450, "Contingencies." A provision is recorded when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated.
With respect to legal matters, provisions are reviewed and adjusted to reflect the impact of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter.
v. Other comprehensive income (loss):
The Company accounts for comprehensive income (loss) in accordance with ASC 220, "Comprehensive Income." ASC 220 establishes standards for the reporting and display of comprehensive income (loss) and its components. Comprehensive income (loss) generally represents all changes in shareholders' equity during the period except those resulting from investments by, or distributions to, shareholders. The accumulated other comprehensive income (loss), net of taxes, relates to a pension liability and foreign currency translation adjustments.
w. Leases:
1.Lessee accounting:
On January 1, 2019, the Company adopted ASU No. 2016-02, Leases (ASC 842). The Company determines if an arrangement is a lease and the classification of that lease at inception based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefits from the use of the asset throughout the period, and (3) whether the Company has a right to direct the use of the asset. The Company elected to not recognize a lease liability or right-of-use ("ROU") asset for leases with a term of twelve months or less. The Company also elected the practical expedient to not separate lease and non-lease components for its leases.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make minimum lease payments arising from the lease. ROU assets are initially measured at amounts, which represents the discounted present value of the lease payments over the lease, plus any initial direct costs incurred. The ROU assets are reviewed for impairment. The lease liability is initially measured at lease commencement date based on the discounted present value of minimum lease payments over the lease term. The implicit rate within the operating leases are generally not determinable; therefore, the Company uses the Incremental Borrowing Rate ("IBR") based on the information available at commencement date in determining the present value of lease payments. The Company’s IBR is estimated to approximate the interest rate on similar terms and payments and in economic environments where the leased asset is located.
Certain leases include options to extend or terminate the lease. An option to extend the lease is considered in connection with determining the ROU asset and lease liability when it is reasonably certain that the Company will exercise that option. An option to terminate is considered unless it is reasonably certain that the Company will not exercise the option.
2. Lessor accounting - Operating leases:
ASC 842 provides lessors with an optional practical expedient, by class of underlying asset, not to separate non-lease components from the associated lease component and, instead, to account for those components as a single component if the non-lease components otherwise would be accounted for under the new revenue guidance (ASC 606) and both of the following criteria are met:

1. The timing and pattern of transfer of the lease component and the non-lease component(s) are the same; and
2. The lease component would be classified as an operating lease if it were accounted for separately.
The Company's product supply agreements include the right to use the device (lease component), the supply obligation of disposable transducer arrays and technical support for the term of treatment (non-lease component).
If the lease component is the predominant component, the Company accounts for all revenues under such lease as a single component in accordance with the new lease accounting standard. Conversely, if the non-lease component is the predominant component, all revenues under such lease are accounted for in accordance with the revenue recognition accounting standard. The Company's operating leases qualify for the single component accounting, and the non-lease component in each of the Company's leases is predominant. Therefore, The Company accounts for all revenues from its operating leases in accordance with the revenue recognition accounting standard.
x. Recently adopted accounting pronouncements:
In 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)", which amends the existing standards for lease accounting, requiring lessees to recognize most leases on their balance sheets. The new standard establishes a right-of-use model that requires a lessee to recognize a right-of-use asset and lease liability on the balance sheet for all leases. Leases will be classified as finance or operating. The standard is effective for interim and annual reporting periods beginning after December 15, 2018.
The provisions of ASU 2016-02 are to be applied using a modified retrospective approach. In July 2018, the FASB issued ASU No. 2018-11, "Targeted Improvements - Leases (Topic 842)" (together with ASU 2016-02, "ASC 842"). This update provides an additional (and optional) transition method to adopt the new leases standard. Under this method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Consequently, the prior comparative period’s financials will remain the same as those previously presented. The Company adopted the new standard as of January 1, 2019 and it has also elected to adopt the package of practical expedients permitted in ASC 842.
Upon implementation of ASC 842, effective January 1, 2019, the Company recorded an increase in right-of-use assets obtained in exchange for lease liabilities of $15,733 on its opening balance sheet. The standard did not have a material impact to the Company's consolidated statements of comprehensive income.
The consolidated financial statements for the year ended December 31, 2019 are presented under the new standard, while comparative years presented are not adjusted and continue to be reported in accordance with Topic 840, Leases.
y. Recently issued accounting pronouncements:
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more timely recognition of losses. ASU 2016-13 also applies to employee benefit plan accounting, with an effective date of the first quarter of fiscal 2020. The amendments in this update are effective for fiscal years beginning after December 31, 2019, including interim periods within those fiscal years. We have adopted the new standard effective January 1, 2020 and do not expect the adoption of this guidance to have a material impact on the Company's consolidated financial statements.
In August 2018, FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The implementation costs incurred in a hosting arrangement that is a service contract should be presented as a prepaid asset in the balance sheet and expensed over the term of the hosting arrangement to the same line item in the statement of income as the costs related to the hosting fees. The guidance in this ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, and early adoption is permitted including adoption in any interim period. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after adoption. The Company is currently evaluating the impact that the standard will have, if any, on its consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU 2018-14—Compensation—Retirement Benefits—Defined Benefit Plans—General (Topic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. ASU 2018-14 improves disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. This standard is effective for fiscal years ending after December 15, 2020, for public business entities. Early adoption is permitted. An entity should apply the amendments in this ASU on a retrospective basis to all periods presented. The Company is currently evaluating the impact that the standard will have, if any, on its consolidated financial statements and related disclosures.
In December 2019, the FASB issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). This guidance will be effective for the Company in the first quarter of 2021 on a prospective basis, and early adoption is permitted. The Company is currently evaluating the impact of the new guidance on the Company's consolidated financial statements.
v3.19.3.a.u2
Cash and Cash Equivalents and Short-Term Investments
12 Months Ended
Dec. 31, 2019
Cash, Cash Equivalents, and Short-term Investments [Abstract]  
Cash and Cash equivalents and Short-term investments Cash and Cash equivalents and Short-term investments
a.Cash and cash equivalents:
Cash equivalents include items almost as liquid as cash, such as certificates of deposit and time deposits with maturity periods of three months or less when purchased.
December 31,
20192018
Cash$18,377  $9,197  
Money market funds158,944  131,425  
Total cash and cash equivalents$177,321  $140,622  
b. Short-term investments
The Company invests in marketable U.S. Treasury Bills ("T-bills") that are classified as held-to-maturity securities. The amortized cost and recorded basis of the T-bills are presented as short-term investments.
December 31,
20192018
Short-term investments$148,769  $105,256  
Quoted market prices were applied to determine the fair value of cash equivalents and short-term investments, therefore they are categorized as Level 1 in accordance with ASC 820, "Fair Value Measurements and Disclosures." The estimated fair value of our short-term investments as of December 31, 2019 and 2018 was $148,738 and $105,266, respectively.
v3.19.3.a.u2
Receivables and Prepaid Expenses
12 Months Ended
Dec. 31, 2019
Receivables And Prepaid Expenses [Abstract]  
Receivables and Prepaid Expenses Receivables and prepaid expenses
The following table sets forth the Company’s receivables and prepaid expenses:
December 31,
20192018
Advances to and receivables from suppliers$5,097  $4,565  
Government authorities21,382  6,106  
Prepaid expenses2,251  3,531  
Others471  77  
 $29,202  $14,279  
v3.19.3.a.u2
Inventories
12 Months Ended
Dec. 31, 2019
Inventory Disclosure [Abstract]  
Inventories Inventories
The following table sets forth the Company’s inventories:
 December 31,
 20192018
Raw materials$3,912  $870  
Work in process6,482  8,667  
Finished goods13,308  13,018  
 $23,701  $22,555  
v3.19.3.a.u2
Property and Equipment, Net
12 Months Ended
Dec. 31, 2019
Property, Plant and Equipment [Abstract]  
Property and Equipment, Net Property and equipment, net
The following table sets forth the Company’s property and equipment, net:
December 31,
20192018
Cost:
Computers and laboratory equipment$15,448  $12,220  
Office furniture2,486  2,308  
Production equipment1,237  1,228  
Leasehold improvements4,818  4,192  
Total cost$23,988  $19,948  
Accumulated depreciation and amortization(14,647) (11,506) 
Depreciated cost$9,342  $8,442  
The Company capitalized software costs according to FASB's ASC 350-40, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Cumulative capitalization as of December 31, 2019 and 2018 was $7,199 and $6,256, respectively. Amortization of capitalized software costs for the years ended December 31, 2019, 2018 and 2017 was $1,682, $1,486 and $1,226, respectively.
Depreciation expense was $2,080, $1,967 and $1,968 for the years ended December 31, 2019, 2018 and 2017, respectively.
v3.19.3.a.u2
Field Equipment, Net
12 Months Ended
Dec. 31, 2019
Field Equipment [Abstract]  
Field Equipment, Net Field equipment, net
The following table sets forth the Company’s field equipment, net:
December 31,
20192018
Field equipment$21,075  $17,380  
Accumulated depreciation(13,391) (10,456) 
Field equipment, net$7,684  $6,924  
Depreciation expense was $4,631, $5,553 and $4,483 for the years ended December 31, 2019, 2018 and 2017, respectively. Write downs of $326, $350, and $195 were identified for the years ended December 31, 2019, 2018 and 2017, respectively.
v3.19.3.a.u2
Other Payables and Accrued Expenses
12 Months Ended
Dec. 31, 2019
Payables and Accruals [Abstract]  
Other Payables and Accrued Expenses Other payables and accrued expenses
The following table sets forth the Company’s other payables and accrued expenses: 
December 31,
 20192018
Employees and payroll accruals$20,904  $16,717  
Taxes payable and others12,011  12,263  
Deferred revenues11,773  8,840  
Other4,699  32  
 $49,386  $37,852  
v3.19.3.a.u2
Employee Benefit Obligations
12 Months Ended
Dec. 31, 2019
Retirement Benefits [Abstract]  
Employee Benefit Obligations Employee benefit obligations
The Company's liability in respect of the Swiss Plan (see Note 2(t)) is the projected benefit obligation calculated using the projected unit credit method. The projected benefit obligation as of December 31, 2019 represents the actuarial present value of the estimated future payments required to settle the obligation that is attributable to employee service rendered before that date. Swiss Plan assets are recorded at fair value. Pension expense is presented in the payroll expenses in the various functions in which the employees are engaged. Actuarial gains and losses arising from differences between the actual and the expected return on the Swiss Plan assets are recognized in accumulated other comprehensive income (loss) and amortized over the requisite service period. The Swiss Plan is part of a collective pension foundation of pooled investments managed by a top tier insurance company. The Company and the employees pay retirement contributions, which are defined as a percentage of the employees’ covered salaries. Interest is credited to the employees’ account at the minimum rate provided in the Swiss Plan, which represents the Swiss Plan’s primary asset. The targeted allocation for these funds is as follows:
Asset Allocation by Category as of September 30, 2019:
Asset
allocation (%)
Asset Category:
Debt Securities36%  
Real Estate26%  
Equity Securities33%  
Others5%  
Total100%  
The following table sets forth the Swiss Plan’s funded status and amounts recognized in the consolidated financial statements for the year ended December 31, 2019 and 2018:
December 31,
 20192018
Change in Benefit Obligation
Projected benefit obligation at beginning of year$12,249  $10,317  
Interest cost114  64  
Company service cost932  820  
Employee contributions599  486  
Prior service cost—  —  
Benefits paid(109) 475  
Actuarial loss1,900  87  
Projected benefit obligation at end of year$15,685  $12,249  
Change in Plan Assets
Fair value of plan assets at beginning of year$9,936  $8,243  
Actual return on plan assets1,031   
Employer contributions899  729  
Employee contributions599  486  
Benefits paid(109) 475  
Fair value of plan assets at end of year$12,356  $9,936  
Funded Status at End of year
Excess of obligation over assets$3,329  $2,313  
Change in Accrued Benefit Liability
Accrued benefit liability at beginning of year$(2,313) $(2,074) 
Company contributions made during year899  729  
Net periodic benefit cost for year(1,024) (874) 
Net decrease (increase) in accumulated other comprehensive loss(891) (94) 
Accrued benefit liability at end of year$(3,329) $(2,313) 

December 31,
 20192018
Non-current plan assets$12,357  $9,936  
Non-current liability15,686  12,249  
Accrued benefit liability at end of year$(3,329) $(2,313) 
Projected Benefit Payments
Projected year 1$270  $206  
Projected year 21,434  205  
Projected year 3255  1,158  
Projected year 4260  195  
Projected year 5571  200  
Projected years 6-102,109  2,859  
The fair value of the plan assets is the estimated cash surrender value of the insurance contract at December 31, 2019. The level of inputs used to measure fair value was Level 2.
Year ended
December 31,
 20192018
Net Periodic Benefit Cost  
Service cost$932  $820  
Interest cost (income)114  69  
Expected return on plan assets(97) (54) 
Amortization of transition obligation54  65  
Amortization of prior service costs(19) (18) 
Total net periodic benefit cost$984  $882  
Weighted average assumptions:
Discount rate as of December 310.20 %  0.90%  
Expected long-term rate of return on assets0.20 %  0.90%  
Rate of compensation increase1.00%  1.00%  
Mortality and disability assumptions   (*)
BVG 2015 GTBVG 2015 GT
(*) Mortality data used for actuarial calculation.
v3.19.3.a.u2
Long-Term Loan, Net of Discount and Issuance Costs
12 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Long-Term Loan, Net of Discount and Issuance Costs Long-term loan, net of discount and issuance costs
On February 7, 2018, the Company and certain of its subsidiaries entered into a Loan and Security Agreement ("2018 Loan Agreement") with BioPharma Credit PLC pursuant to which such lender made a term loan to the Company in the principal amount of $150 million (the "2018 Credit Facility"). The term loan, which was drawn in full upon execution of the 2018 Loan Agreement, bears interest at 9.0% per annum, payable quarterly in arrears. The Company used a portion of the proceeds of the 2018 Credit Facility to repay in full the Company’s obligations under its then-existing term loan credit facility and is using the remaining proceeds to fund general corporate purposes.
The 2018 Credit Facility will mature on February 7, 2023, at which time any unpaid principal and accrued unpaid interest in respect of the term loan will be due and payable. The Company may prepay the term loan, in full, at any time. The Company must prepay the term loan (i) in full or in part upon the entry into certain licensing arrangements and (ii) in full in the event of a change of control. In each case, any prepayment (whether permitted or mandatory) is subject to a prepayment premium and/or make-whole payment. The prepayment fee if the Company prepays outstanding loan amounts prior to February 7, 2021 is 2.0% and is 1.0% if made after the February 7, 2021 but prior to February 7, 2022.If the Company prepays outstanding loan amounts prior to August 7, 2020, it must pay a make-whole amount equal to the amount of interest that would have accrued on the amount of all principal that is prepaid from the date of such prepayment through February 7, 2021.
All obligations under the 2018 Credit Facility are guaranteed by the Company’s current and future direct and indirect subsidiaries. In addition, the obligations under the 2018 Credit Facility are secured by a first-priority security interest in substantially all of the property and assets of, as well as the equity interests owned by, the Company and certain of the other guarantors. The 2018 Credit Facility contains other customary covenants.
Total net issuance costs of the 2018 Credit Facility, which were $576 as of December 31, 2019, are presented net of the 2018 Credit Facility proceeds and are amortized to interest expense over the five year term of the loan using the effective interest method.
On February 7, 2018, the Company’s 2015 term loan credit facility was terminated upon the Company’s repayment in full of the term loan issued thereunder. The unamortized discount in the amount of $1,160 and issuance costs in the amount of $1,399 were fully amortized and included in the Company’s finance expenses in the first quarter of 2018.
v3.19.3.a.u2
Other Long-term Liabilities
12 Months Ended
Dec. 31, 2019
Other Liabilities Disclosure [Abstract]  
Other Long-term Liabilities Other long-term liabilities
December 31,
 20192018
Deferred rent liability$40  $773  
Leasehold improvements financing and other66  94  
Unrecognized tax benefits (Note 13(e))116  103  
Deferred tax liability—  124  
 $222  $1,094  
v3.19.3.a.u2
Commitments and Contingent Liabilities
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingent Liabilities Commitments and contingent liabilities
a.Operating leases
The facilities of the Company are leased under various operating lease agreements for periods ending no later than 2030. The Company also has the option to extend the term of certain facility lease agreements and these are included in the calculation of right-of-use assets. The Company also leases motor vehicles under various operating leases, which expire on various dates, the latest of which is in 2022.
Under ASC 842, all leases with durations greater than 12 months, including non-cancelable operating leases, are now recognized on the balance sheet. The aggregated present value of lease agreements, net of deferred rent, is recorded as a long-term asset titled right-of-use assets. The corresponding lease liabilities are split between other payables and long-term lease liabilities.
Upon implementation of ASC 842, effective January 1, 2019, the Company recorded an increase in right-of-use assets obtained in exchange for lease obligations of $15,733 on our opening balance sheet. Future minimum lease payments under non-cancelable operating leases as of December 31, 2019, are as follows:
December 31,
2019
Future minimum lease payments:  
2020  $5,046  
2021  5,030  
2022  3,823  
2023  2,524  
2024  1,934  
Thereafter  4,081  
Total future minimum lease payments  $22,438  
Less imputed interest  (3,663) 
Net present value of future minimum lease payments  $18,775  
Current year end  
Short-term lease liabilities  $4,635  
Long-term lease liabilities  14,140  
Net present value of future minimum lease payments  $18,775  
Weighted average of remaining operating lease term (years) 5.54
Weighted average of operating lease discount rate  7.32 %
Lease and rental expense for the years ended December 31, 2019, 2018 and 2017 was $4,607, $4,033, and $3,474, respectively.
b. Bank guarantee and pledges
As of December 31, 2019 and 2018 the Company pledged bank deposits of $1,557 and $1,143, respectively, to cover bank guarantees in respect of its leases of operating facilities and obtained guarantees by the bank for the fulfillment of the Company’s lease commitments of $1,390 and $1,299, respectively.
c.  Technion Settlement Agreement
In the first quarter of 2018, the Company made the final milestone payment of $5.5 million (the "Milestone Payment") to the Technion Research and Development Foundation ("Technion") pursuant to the settlement agreement dated February 10, 2015 (the "Settlement Agreement"). Pursuant to the Settlement Agreement, and in exchange for a release of potential disputes regarding intellectual property developed by our founder and previously assigned to us, the Company was obligated to pay the Milestone Payment to Technion in the quarter following the quarter in which the Company achieved $250.0 million of cumulative net sales (as defined in the Settlement Agreement) (the "Net Sales Milestone"). The Company met the Net Sales Milestone in the fourth quarter of 2017.
d.  Zai License and Collaboration Agreement
On September 10, 2018, the Company entered into a License and Collaboration Agreement (the "Zai Agreement") with Zai Lab (Shanghai) Co., Ltd. ("Zai"). Under the Zai Agreement, the Company granted Zai exclusive rights to commercialize Optune in the field of oncology in China, Hong Kong, Macau and Taiwan ("Greater China"). The Zai Agreement also established a development partnership for Optune in multiple solid tumor indications. In partial consideration for the license grant to Zai for Greater China, the Company was entitled to a non-refundable, up-front license fee in the amount of $15 million (the "License Fee"). The Zai Agreement also provides for certain development, regulatory and commercial milestone payments totaling up to $78 million. Furthermore, pursuant to the Zai Agreement, Zai will pay the Company tiered royalties at percentage rates from 10 up to the mid-teens on the net sales of the licensed products in Greater China. Zai is purchasing licensed products for commercial use exclusively from the Company at the Company’s fully burdened manufacturing cost.
Zai paid the License Fee in the fourth quarter of 2018. Net of withholding taxes, the Company received $12.7 million.
The Company recognizes revenue pursuant to the License Agreement with Zai in accordance with ASC 606, "Revenue Recognition from Customers." The License Fee, net of withholding taxes, is deferred and recognized over related six year performance period commencing September 10, 2018 ("Zai Performance Period"). The License Fee will be recognized on a straight-line basis, resulting in revenue of $2,115 and $767 for the years ended December 31, 2019 and 2018, respectively. Revenue from any future commercial milestone payments will be recognized upon the achievement of such milestones and clinical or regulatory milestone payments will be recognized in a straight line over the applicable performance period, in accordance with ASC 606. Revenue from royalty payments are recognized in accordance with ASC 606 in the period accrued.
e.  Paz Litigation
In February 2019, a civil claim was filed in the District Court in Haifa, Israel (the "Court"), by Ofir Paz ("Paz"), a former member of the Company's Board of Directors, and EES Investments Ltd., a company wholly owned by Paz (together with Paz, "Plaintiff") against the Company and Prof. Yoram Palti ("Respondents"). Based on Plaintiff's recent motions described below, Plaintiff claims that he is entitled to approximately 1,200,000 ordinary shares (as adjusted for share capital splits since 2003). In May 2019, the Company filed a motion to dismiss the claim that is still pending. Plaintiff has also filed motions in September and December 2019 to add Asaf Danziger as a Respondent and change the basis of his claims from breach of contract to wrongful deregistration. These motions are pending. The Company believes that the complaint is without merit and plans to defend against this claim vigorously. The Company has not accrued any amounts in respect of these claims, as it believes liability is not probable and the amount of any potential liability cannot be reasonably estimated.
v3.19.3.a.u2
Income Taxes
12 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes Income taxes
a.  Tax provision
The provision (benefit) for income taxes from continuing operations is comprised of:
Income (loss) before income taxes:
Year ended December 31,
 201920182017
United States (U.S.)$(87,925) $(114,890) $(77,654) 
Non-U.S.79,101  68,948  29,157  
Total income (loss) before income taxes
$(8,824) $(45,942) $(48,497) 
Income tax:
Year ended December 31,
 201920182017
Current:   
U.S. (1)$(6,143) $6,701  $8,491  
Non-U.S. (2)4,405  10,568  5,028  
Total current$(1,738) $17,269  $13,519  
Deferred:
U.S.$—  —  $(3) 
Non-U.S.144  348  (351) 
Total deferred144  348  (354) 
Total income tax provision$(1,594) $17,617  $13,165  
(1) This change was driven primarily by research and development credits claimed in the U.S. and deductions associated with share-based compensation.
(2) This change primarily resulted from amortization of intellectual property rights.
b.  Theoretical tax
The Company's effective tax rate is affected by the tax rates in the various jurisdictions in which the Company operates. For purposes of comparability, the Company used the notional U.S. federal income tax rate of 21% for the 2019 and 2018 tax year and 35% for the 2017 tax year when presenting the Company's reconciliation of the income tax provision.  A reconciliation of the provision for income taxes compared with the amounts at the notional federal statutory rate was:
Year ended December 31,
 201920182017
Loss before income taxes$(8,824) $(45,942) $(48,497) 
U.S statutory income tax rate21.0 %21.0 %35.0 %
Notional U.S. federal income taxes at statutory rate$(1,853) $(9,648) $(16,974) 
Non-deductible expenses741  1,030  3,308  
Foreign taxes rate differential(4,216) (6,000) (7,333) 
Change in valuation allowance (see Note 13(c))244,344  28,657  5,742  
State income taxes(16,679) 1,957  (9,089) 
Change in excess tax benefit(26,528) 2,088  2,203  
Unamortized intangible assets(189,410) —  —  
Research and Development Credits(2,333) —  —  
Other(5,673) (326) 34,881  
Unrecognized tax expense (benefit)13  (141) 427  
Income tax$(1,594) $17,617  $13,165  
Effective tax rate18.1 %(38.3)%(27.1)%
In 2017, the Tax Cuts and Jobs Act ("TCJA") was signed into law in the U.S. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017. In accordance with ASC 740, the Company recorded $34.8 million of deferred tax expense in connection with the remeasurement of certain deferred tax assets and liabilities. This was fully offset by a valuation allowance. Accordingly, there was no net impact on the Company’s income tax expense for the year ended December 31, 2017. The Company’s subsidiary in the United States does not have any foreign subsidiaries and, therefore, the remaining provisions of the TCJA have no material impact on the Company's results of operations. December 22, 2018 marked the end of the measurement period for purposes of ASU 2018-05, and the Company concluded that no change was required to its initial assessment.
The table below reflects the 2017 net impact of the TCJA:
 December 31, 2017
 
ETR before
TCJA
US Tax
Cuts &
Jobs Act
Impact
Reported
ETR
U.S statutory income taxes rate35.0 %— %35.0 %
Non-deductible expenses(6.8) —  (6.8) 
Foreign taxes rate differential15.1  —  15.1  
Change in valuation allowance(83.4) 71.5  (11.9) 
State income taxes12.8  5.9  18.7  
Share based compensation2.0  (6.5) (4.5) 
Change in unrecognized taxes expense(0.9) 0.1  (0.8) 
Other(0.9) (71.0) (71.9) 
Effective taxes rate(27.1)%— %(27.1)%
c.  Deferred income tax
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:
December 31,
 20192018
Deferred tax assets:
Implicit discounts recognized under ASC 606 (see Note 2)$124,255  $99,316  
Net operating loss carryforwards (see Note 13(d))35,267  843  
Share based compensation12,253  10,886  
Deferred revenue2,450  1,643  
Interest limitations4,028  —  
Unamortized intangible assets (1)176,783  —  
Other temporary differences2,359  1,384  
Total gross deferred tax assets$357,395  $114,072  
Less: valuation allowance(357,012) (112,360) 
Total deferred tax assets$383  $1,712  
Deferred tax liabilities:
Fixed assets380  1,427  
Other liabilities —  
Total gross deferred tax liabilities$383  $1,427  
Net deferred taxes assets$—  $285  
(1) The Company recorded a deferred tax asset of $189,410 related to unamortized intangible assets. Amortization of this intangible asset will be straight-line through 2029. As of December 31, 2019, the balance of this deferred tax asset was $176,783, offset by a valuation allowance of the same amount.
d.  Carryforward loss:
As of December 31, 2019, the Company had $108,172 of U.S. federal net operating loss carryforwards ("NOLs") and $128,912 of U.S. state NOLs. The U.S. federal NOLs carry forward indefinitely. Also, approximately $21,524 in U.S. state NOLs carry forward indefinitely, with the remainder expiring from 2022 through 2039.

In addition, the Company had $38,603 of non-U.S NOLs as of December 31, 2019. Approximately $618 of the non-U.S. NOLs carry forward indefinitely, with the remainder expiring between 2026 and 2036.
e.  Uncertain tax benefits:
A reconciliation of the beginning and ending balances of uncertain tax benefits is as follows:
 December 31,
 201920182017
Balance at beginning of the year$103  $2,827  $2,400  
Additions (reductions) for taxes positions related current year—  (141) 55  
Additions (reductions) for taxes positions related to prior years13  (2,583) 372  
Balance at the end of the year$116  $103  $2,827  
The Company recognizes interest and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2019, 2018 and 2017, the Company accrued $13, $2 and $95, respectively, for interest and penalties expenses related to uncertain tax positions.
We file income tax returns in the U.S. and various state and foreign jurisdictions. We are currently not under examination by the Internal Revenue Service, and any state, local or foreign taxing jurisdictions. Additional tax years within the period 2015 to 2019 remain subject to examination by the U.S. Internal Revenue Service. Furthermore, tax years 2014 to 2019 remain subject to examination in other U.S. state and municipal jurisdictions, as well as foreign jurisdictions.
v3.19.3.a.u2
Share Capital
12 Months Ended
Dec. 31, 2019
Share-based Compensation, Allocation and Classification in Financial Statements [Abstract]  
Share Capital Share capital
Share capital is composed as follows:
Issued and outstanding
Number of shares
December 31,
 20192018
Ordinary shares no par value99,528,435  93,254,185  
a.  Warrants:
As part of the Series D and E Convertible Preferred share investment agreements, the investors received warrants to purchase ordinary shares. The Company accounted for these warrants as equity instruments based on the guidance of ASC 815, "Derivatives and Hedging," ASC 480-10, "Distinguishing Liabilities from Equity," its related FASB staff positions, ASC 815-40 "Contracts in Entity’s Own Stock" and the AICPA Technical Practice Aid for accounting for preferred shares and warrants, including the roadmap for accounting for freestanding financial instruments indexed to, and potentially settled in, a company’s own stock.
In the years ended December 31, 2018 and 2017, warrants to purchase 504,225 and 1,418,711 ordinary shares, respectively, were cashlessly exercised, resulting in the issuance of 437,081 and 803,138 ordinary shares, respectively. Also, in the year ended December 31, 2018 and 2017 warrants to purchase 3,879 and 6,498 ordinary shares, respectively, with an exercise price of $3.59 per share were exercised for cash. No warrants were outstanding as of December 31, 2019 and 2018.
b.  Share option plans and ESPP:
Until the IPO in October 2015, the Company maintained and granted option awards under the 2003 Share Option Plan (the "2003 Plan") and the 2013 Equity Incentive Share Option Plan (the "2013 Plan") for the Company’s officers, directors, employees and advisors. The 2003 Plan and the 2013 Plan terminated as of the IPO as to future awards, but they continue to govern option awards previously granted thereunder.
In September 2015, the Company adopted the 2015 Omnibus Incentive Plan (the "2015 Plan"). The Company’s shareholders approved the 2015 Plan in September 2015. Under the 2015 Plan, the Company can issue various types of equity compensation awards such as restricted shares, performance shares, restricted stock units ("RSUs"), performance units, long-term cash award and other share-based awards. Options granted under the 2015 Plan generally have a four-year vesting period and expire ten years after the date of grant. Options granted under the 2015 Plan that are cancelled or forfeited before expiration become available for future grants. RSUs granted under the 2015 Plan vest in equal installments over a three-year period.  
On December 31, 2019, in accordance with the terms of the 2015 Plan, the number of shares available for issuance under the 2015 Plan automatically increased by 4% of the Company’s outstanding ordinary shares as of December 30, 2019.  As a result, the number of shares available for issuance under the 2015 Plan increased from 27,035,515 shares to 31,015,695 shares. As of December 31, 2019, 15,826,518 ordinary shares are available for grant under the 2015 Plan.
In September 2015, the Company adopted an ESPP to encourage and enable eligible employees to acquire ownership of the Company’s ordinary shares purchased through accumulated payroll deductions on an after-tax basis. The ESPP is intended to be an "employee stock purchase plan" within the meaning of Section 423 of the Code and the provisions of the ESPP will be construed in a manner consistent with the requirements of such section. The Company began its offerings under the ESPP on August 1, 2016. The Company issued 414,559 ordinary shares for the plan periods ended through December 31, 2019.  
On December 31, 2019, in accordance with the terms of the ESPP, the number of shares available for purchase by eligible employees who participate in the ESPP automatically increased by 1% of the Company’s outstanding ordinary shares outstanding on December 30, 2019.    As of December 31, 2019, 4,050,089 ordinary shares are available for offering under the ESPP.
The fair value of share-based awards was estimated using the Black-Scholes model for all equity grants. For market condition awards, the Company also applied the Monte-Carlo simulation model, with the following underlying assumptions:
Year ended December 31,
 201920182017
Stock Option Plans
Expected term (years)
5.50-6.00
5.50-6.25
5.50-6.25
Expected volatility
55%-61%
52%-55%
57%-59%
Risk-free interest rate
1.73%-2.40%
2.70%-2.99%
1.97%-2.23%
Dividend yield0.00 %0.00 %0.00 %
ESPP
Expected term (years)0.500.500.50
Expected volatility
44%-62%
45%-53%
76%-82%
Risk-free interest rate
2.10%-2.51%
1.61%-2.14%
0.62%-1.13%
Dividend yield0.00 %0.00 %0.00 %
A summary of the status of the Company’s options to purchase ordinary shares as of December 31, 2019 and changes during the year ended on that date is presented below:
Year ended December 31, 2019
 
Number of
options
Weighted
average
exercise
price
Aggregate
intrinsic
value
Outstanding at beginning of year14,438,215  $13.56  
Granted1,552,987  50.45  
Exercised(5,466,170) 10.83  
Forfeited and cancelled(174,222) 22.11  
Outstanding at end of year10,350,810  $20.40  $661,150  
Exercisable options3,217,923  $15.55  $221,146  
A summary of the status of the Company’s RSUs as of December 31, 2019 and changes during the year ended on that date is presented below:
 Year ended December 31, 2019
 
Number of
RSUs
Weighted
average
grant date
fair value
price
Aggregate
intrinsic
value
Unvested at beginning of year1,613,197  $14.04  
Granted634,694  52.28  
Vested(740,714) 13.47  
Forfeited and cancelled(32,782) 37.84  
Unvested at end of year1,474,395  $30.26  $124,247  
The total equity-based compensation expense related to all of the Company’s equity-based awards recognized for the years ended December 31, 2019, 2018 and 2017, was comprised as follows:
Year ended December 31,
 201920182017
Cost of revenues$2,231  $1,261  $467  
Research, development and clinical trials7,570  4,709  3,587  
Sales and marketing11,897  7,393  3,784  
General and administrative30,718  26,483  19,278  
Total share-based compensation expense$52,416  $39,846  $27,116  
As of December 31, 2019, unamortized share-based compensation costs amounted to $62,498 and are expected to be recognized over a weighted average period of approximately 2.51 years.
The weighted average grant date exercise price of the Company’s options granted during the years ended December 31, 2019, 2018 and 2017 were $50.45, $23.73 and $10.53 per share, respectively.  
The weighted average grant date fair values of the Company’s options forfeited and cancelled during the years ended December 31, 2019, 2018 and 2017 were $22.11, $15.09 and $12.54, respectively.
The aggregate intrinsic values for the options exercised during the years ended December 31, 2019, 2018 and 2017 were $266,626, $57,813 and $17,945, respectively. The aggregate intrinsic value is calculated as the difference between the per share exercise price and the deemed fair value of the Company’s ordinary shares for each share subject to an option multiplied by the number of shares subject to options at the date of exercise. The Company deemed the fair value of the Company’s ordinary shares to be $84.27, $33.48 and $20.20 per share as of December 31, 2019, 2018, and 2017, respectively.
The options outstanding as of December 31, 2019 are as follows:
Exercise price
Number
of options
outstanding
Weighted
average
remaining
contractual
term
Number
of options
exercisable
Weighted
average
remaining
contractual
term
$ (years) (years)
0.23 - 10.00
2,256,916  6.15984,380  4.87
10.01 - 20.00
3,205,758  6.83869,058  5.84
20.01 - 30.00
2,933,518  7.41,225,951  6.57
30.01 - 40.00
424,414  8.56138,534  8.47
40.01 - 50.00
1,347,064  9.29—  
50.01 - 60.00
44,380  9.39—  
60.01 - 90.00
138,760  9.7—  
 10,350,810  7.283,217,923  5.94
v3.19.3.a.u2
Financial Expenses, Net
12 Months Ended
Dec. 31, 2019
Interest and Debt Expense [Abstract]  
Financial Expenses, Net Financial expenses, net
The following table sets forth the Company’s total financial expenses, net:
Year ended December 31,
 201920182017
Financial expenses:
Interest expense$(13,718) $(13,491) $(10,261) 
Amortization of credit facility costs(156) (2,777) (1,111) 
Foreign currency transaction losses(431) (398) —  
Others(338) (242) (321) 
 $(14,643) $(16,908) $(11,693) 
Financial income:
Amortization of treasury bills premium$2,331  $1,986  $859  
Foreign currency transaction gains—