EXACT SCIENCES CORP, 10-Q filed on 11/2/2021
Quarterly Report
v3.21.2
Cover Page - shares
9 Months Ended
Sep. 30, 2021
Nov. 01, 2021
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Sep. 30, 2021  
Document Transition Report false  
Entity File Number 001-35092  
Entity Registrant Name EXACT SCIENCES CORPORATION  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 02-0478229  
Entity Address, Address Line One 5505 Endeavor Lane  
Entity Address, City or Town Madison  
Entity Address, State or Province WI  
Entity Address, Postal Zip Code 53719  
City Area Code 608  
Local Phone Number 535-8815  
Title of 12(b) Security Common Stock, $0.01 par value per share  
Trading Symbol EXAS  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   172,318,821
Document Fiscal Year Focus 2021  
Document Fiscal Period Focus Q3  
Entity Central Index Key 0001124140  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
v3.21.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Sep. 30, 2021
Dec. 31, 2020
Current Assets:    
Cash and cash equivalents $ 273,779 $ 1,491,288
Marketable securities 944,688 348,699
Accounts receivable, net 249,572 233,185
Inventory 95,167 92,265
Prepaid expenses and other current assets 52,385 33,157
Total current assets 1,615,591 2,198,594
Long-term Assets:    
Property, plant and equipment, net 524,200 451,986
Operating lease right-of-use assets 167,911 125,947
Goodwill 2,242,535 1,237,672
Intangible assets, net 2,044,958 847,123
Other long-term assets, net 59,241 63,770
Total assets 6,654,436 4,925,092
Current Liabilities:    
Accounts payable 41,717 35,709
Accrued liabilities 304,714 233,604
Operating lease liabilities, current portion 19,220 11,483
Debt, current portion 1,319 1,319
Convertible notes, net, current portion 313,104 312,716
Other current liabilities 30,157 38,265
Total current liabilities 710,231 633,096
Long-term Liabilities:    
Convertible notes, net, less current portion 1,865,647 1,861,685
Long-term debt, less current portion 21,438 22,342
Other long-term liabilities 436,580 51,342
Operating lease liabilities, less current portion 162,950 121,075
Total liabilities 3,196,846 2,689,540
Commitments and contingencies (Note 14)
Stockholders’ Equity:    
Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—no shares at September 30, 2021 and December 31, 2020 0 0
Common stock, $0.01 par value Authorized—400,000,000 shares issued and outstanding—172,242,798 and 159,423,410 shares at September 30, 2021 and December 31, 2020 1,723 1,595
Additional paid-in capital 5,876,644 4,279,327
Accumulated other comprehensive income 133 526
Accumulated deficit (2,420,910) (2,045,896)
Total stockholders’ equity 3,457,590 2,235,552
Total liabilities and stockholders’ equity $ 6,654,436 $ 4,925,092
v3.21.2
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares
Sep. 30, 2021
Dec. 31, 2020
Statement of Financial Position [Abstract]    
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, authorized (in shares) 5,000,000 5,000,000
Preferred stock, issued (in shares) 0 0
Preferred stock, outstanding (in shares) 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, authorized (in shares) 400,000,000 400,000,000
Common stock, issued (in shares) 172,242,798 159,423,410
Common stock, outstanding (in shares) 172,242,798 159,423,410
v3.21.2
Condensed Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2021
Sep. 30, 2020
Sep. 30, 2021
Sep. 30, 2020
Income Statement [Abstract]        
Revenue $ 456,379 $ 408,363 $ 1,293,275 $ 1,025,052
Operating expenses        
Cost of sales (exclusive of amortization of acquired intangible assets) 115,738 95,061 339,699 254,559
Research and development 75,356 31,471 297,158 107,653
Sales and marketing 196,617 136,481 577,585 423,092
General and administrative 186,541 115,589 621,897 336,265
Amortization of acquired intangible assets 23,940 23,430 70,954 70,199
Intangible asset impairment charge 20,210 209,666 20,210 209,666
Total operating expenses 618,402 611,698 1,927,503 1,401,434
Other operating income 0 0 0 23,665
Loss from operations (162,023) (203,335) (634,228) (352,717)
Other income (expense)        
Investment income (expense), net (4,093) 2,523 30,524 5,532
Interest expense (4,680) (4,478) (13,948) (63,382)
Total other income (expense) (8,773) (1,955) 16,576 (57,850)
Net loss before tax (170,796) (205,290) (617,652) (410,567)
Income tax benefit 3,858 2,752 242,638 5,294
Net loss $ (166,938) $ (202,538) $ (375,014) $ (405,273)
Net loss per share - basic (in usd per share) $ (0.97) $ (1.35) $ (2.19) $ (2.71)
Net loss per share - diluted (in usd per share) $ (0.97) $ (1.35) $ (2.19) $ (2.71)
Weighted average common shares outstanding - basic (in shares) 171,978 150,155 170,978 149,346
Weighted average common shares outstanding - diluted (in shares) 171,978 150,155 170,978 149,346
v3.21.2
Condensed Consolidated Statements of Comprehensive Loss - USD ($)
$ in Thousands
3 Months Ended 9 Months Ended
Sep. 30, 2021
Sep. 30, 2020
Sep. 30, 2021
Sep. 30, 2020
Statement of Comprehensive Income [Abstract]        
Net loss $ (166,938) $ (202,538) $ (375,014) $ (405,273)
Other comprehensive income (loss), before tax:        
Unrealized gain (loss) on available-for-sale investments 66 (405) (563) 1,159
Foreign currency adjustment 0 0 0 25
Comprehensive loss, before tax (166,872) (202,943) (375,577) (404,089)
Income tax expense related to items of other comprehensive loss 0 0 170 0
Comprehensive loss, net of tax $ (166,872) $ (202,943) $ (375,407) $ (404,089)
v3.21.2
Condensed Consolidated Statements of Stockholders Equity - USD ($)
$ in Thousands
Total
Common Stock
Additional Paid-In Capital
Accumulated Other Comprehensive Income (Loss)
Accumulated Deficit​
Balance (in shares) at Dec. 31, 2019   147,625,696      
Beginning balance at Dec. 31, 2019 $ 1,957,639 $ 1,477 $ 3,178,552 $ (100) $ (1,222,290)
Increase (Decrease) in Stockholders' Equity          
Exercise of common stock options (in shares)   160,286      
Exercise of common stock options 4,300 $ 2 4,298    
Issuance of common stock to fund the Company's 401(k) match (in shares)   136,559      
Issuance of common stock to fund the Company's 401(k) match 12,007 $ 1 12,006    
Compensation expense related to issuance of stock options and restricted stock awards (in shares)   1,141,376      
Compensation expense related to issuance of stock options and restricted stock awards 29,560 $ 11 29,549    
Issuance of common stock for business combinations and asset acquisition (in shares)   382,947      
Issuance of common stock for business combination and asset acquisition 28,597 $ 4 28,593    
Net loss (134,643)       (134,643)
Other comprehensive income (loss) (1,617)     (1,617)  
Ending balance at Mar. 31, 2020 1,895,843 $ 1,495 3,252,998 (1,717) (1,356,933)
Balance (in shares) at Mar. 31, 2020   149,446,864      
Balance (in shares) at Dec. 31, 2019   147,625,696      
Beginning balance at Dec. 31, 2019 $ 1,957,639 $ 1,477 3,178,552 (100) (1,222,290)
Increase (Decrease) in Stockholders' Equity          
Issuance of common stock for business combinations and asset acquisition (in shares) 382,947        
Issuance of common stock for business combination and asset acquisition $ 28,847        
Net loss (405,273)        
Ending balance at Sep. 30, 2020 1,730,686 $ 1,505 3,355,660 1,084 (1,627,563)
Balance (in shares) at Sep. 30, 2020   150,373,486      
Balance (in shares) at Mar. 31, 2020   149,446,864      
Beginning balance at Mar. 31, 2020 1,895,843 $ 1,495 3,252,998 (1,717) (1,356,933)
Increase (Decrease) in Stockholders' Equity          
Exercise of common stock options (in shares)   208,434      
Exercise of common stock options 6,638 $ 2 6,636    
Compensation expense related to issuance of stock options and restricted stock awards (in shares)   157,579      
Compensation expense related to issuance of stock options and restricted stock awards 40,039 $ 2 40,037    
Purchase of employee stock purchase plan shares (in shares)   167,921      
Purchase of employee stock purchase plan shares 9,799 $ 2 9,797    
Net loss (68,092)       (68,092)
Other comprehensive income (loss) 3,206     3,206  
Ending balance at Jun. 30, 2020 1,887,433 $ 1,501 3,309,468 1,489 (1,425,025)
Balance (in shares) at Jun. 30, 2020   149,980,798      
Increase (Decrease) in Stockholders' Equity          
Exercise of common stock options (in shares)   140,145      
Exercise of common stock options 4,470 $ 1 4,469    
Compensation expense related to issuance of stock options and restricted stock awards (in shares)   249,197      
Compensation expense related to issuance of stock options and restricted stock awards 41,476 $ 2 41,474    
Issuance of common stock for business combinations and asset acquisition (in shares)   3,346      
Issuance of common stock for business combination and asset acquisition 250 $ 1 249    
Net loss (202,538)       (202,538)
Other comprehensive income (loss) (405)     (405)  
Ending balance at Sep. 30, 2020 $ 1,730,686 $ 1,505 3,355,660 1,084 (1,627,563)
Balance (in shares) at Sep. 30, 2020   150,373,486      
Balance (in shares) at Dec. 31, 2020 159,423,410 159,423,410      
Beginning balance at Dec. 31, 2020 $ 2,235,552 $ 1,595 4,279,327 526 (2,045,896)
Increase (Decrease) in Stockholders' Equity          
Conversion of convertible notes, net of tax (in shares) 344        
Conversion of convertible notes, net of tax $ 26   26    
Exercise of common stock options (in shares)   967,107      
Exercise of common stock options 8,759 $ 10 8,749    
Issuance of common stock to fund the Company's 401(k) match (in shares)   162,606      
Issuance of common stock to fund the Company's 401(k) match 22,934 $ 2 22,932    
Compensation expense related to issuance of stock options and restricted stock awards (in shares)   1,355,435      
Compensation expense related to issuance of stock options and restricted stock awards 158,252 $ 13 158,239    
Issuance of common stock for business combinations and asset acquisition (in shares)   9,384,410      
Issuance of common stock for business combination and asset acquisition 1,254,798 $ 94 1,254,704    
Net loss (31,164)       (31,164)
Other comprehensive income (loss) (162)     (162)  
Ending balance at Mar. 31, 2021 $ 3,648,995 $ 1,714 5,723,977 364 (2,077,060)
Balance (in shares) at Mar. 31, 2021   171,293,312      
Balance (in shares) at Dec. 31, 2020 159,423,410 159,423,410      
Beginning balance at Dec. 31, 2020 $ 2,235,552 $ 1,595 4,279,327 526 (2,045,896)
Increase (Decrease) in Stockholders' Equity          
Issuance of common stock for business combinations and asset acquisition (in shares) 9,510,436        
Issuance of common stock for business combination and asset acquisition $ 1,270,918        
Net loss (375,014)        
Ending balance at Sep. 30, 2021 $ 3,457,590 $ 1,723 5,876,644 133 (2,420,910)
Balance (in shares) at Sep. 30, 2021 172,242,798 172,242,798      
Balance (in shares) at Mar. 31, 2021   171,293,312      
Beginning balance at Mar. 31, 2021 $ 3,648,995 $ 1,714 5,723,977 364 (2,077,060)
Increase (Decrease) in Stockholders' Equity          
Conversion of convertible notes, net of tax (in shares) 197        
Conversion of convertible notes, net of tax $ 14   14    
Exercise of common stock options (in shares)   140,478      
Exercise of common stock options 2,858 $ 1 2,857    
Compensation expense related to issuance of stock options and restricted stock awards (in shares)   121,575      
Compensation expense related to issuance of stock options and restricted stock awards 56,285 $ 2 56,283    
Issuance of common stock for business combinations and asset acquisition (in shares)   126,026      
Issuance of common stock for business combination and asset acquisition 16,120 $ 1 16,119    
Purchase of employee stock purchase plan shares (in shares)   173,717      
Purchase of employee stock purchase plan shares 12,038 $ 2 12,036    
Net loss (176,912)       (176,912)
Other comprehensive income (loss) (297)     (297)  
Ending balance at Jun. 30, 2021 $ 3,559,101 $ 1,720 5,811,286 67 (2,253,972)
Balance (in shares) at Jun. 30, 2021   171,855,305      
Increase (Decrease) in Stockholders' Equity          
Conversion of convertible notes, net of tax (in shares) 39        
Conversion of convertible notes, net of tax $ 3   3    
Exercise of common stock options (in shares)   100,474      
Exercise of common stock options 1,755 $ 1 1,754    
Compensation expense related to issuance of stock options and restricted stock awards (in shares)   286,980      
Compensation expense related to issuance of stock options and restricted stock awards 63,603 $ 2 63,601    
Net loss (166,938)       (166,938)
Other comprehensive income (loss) 66     66  
Ending balance at Sep. 30, 2021 $ 3,457,590 $ 1,723 $ 5,876,644 $ 133 $ (2,420,910)
Balance (in shares) at Sep. 30, 2021 172,242,798 172,242,798      
v3.21.2
Condensed Consolidated Statements of Stockholders Equity (Parenthetical) - $ / shares
Sep. 30, 2021
Dec. 31, 2020
Sep. 30, 2020
Statement of Financial Position [Abstract]      
Common stock, par value (in dollars per share) $ 0.01 $ 0.01 $ 0.01
v3.21.2
Condensed Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
9 Months Ended
Sep. 30, 2021
Sep. 30, 2020
Cash flows from operating activities:    
Net loss $ (375,014) $ (405,273)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation and amortization 64,267 53,345
Loss on disposal of property, plant and equipment 928 930
Unrealized (gain) loss on equity investments 1,937 (1,183)
Deferred tax benefit (248,716) (6,161)
Stock-based compensation 197,180 111,075
Post-combination expense for acceleration of unvested equity 80,960 0
Realized gain on preferred stock investment (30,500) 0
Loss on settlement of convertible notes 0 50,819
Amortization of deferred financing costs, convertible note debt discount and issuance costs, and other liabilities 4,948 340
Amortization of premium on short-term investments 3,265 1,040
Amortization of acquired intangible assets 70,954 70,199
Intangible asset impairment charge 20,210 209,666
Asset acquisition IPR&D expense 85,337 0
Remeasurement of contingent consideration 10,986 0
Non-cash lease expense 18,347 11,041
Changes in assets and liabilities:    
Accounts receivable, net (14,038) (73,642)
Inventory, net (1,091) (18,472)
Operating lease liabilities (11,834) (6,135)
Accounts payable and accrued liabilities 64,344 (7,608)
Other assets and liabilities (20,134) 35,097
Net cash provided by (used in) operating activities (77,664) 25,078
Cash flows from investing activities:    
Purchases of marketable securities (1,021,557) (890,012)
Maturities and sales of marketable securities 424,830 559,907
Purchases of property, plant and equipment (76,374) (48,371)
Business combination, net of cash acquired (415,549) (6,658)
Asset acquisition (58,073) 0
Investments in privately held companies (13,555) (10,610)
Other investing activities (244) 345
Net cash used in investing activities (1,160,522) (395,399)
Cash flows from financing activities:    
Proceeds from issuance of convertible notes, net 0 1,125,547
Proceeds from exercise of common stock options 13,372 15,408
Proceeds in connection with the Company’s employee stock purchase plan 12,038 9,799
Payments on settlement of convertible notes 0 (150,054)
Other financing activities (4,742) (938)
Net cash provided by financing activities 20,668 999,762
Net increase (decrease) in cash, cash equivalents and restricted cash (1,217,518) 629,441
Cash, cash equivalents and restricted cash, beginning of period 1,491,594 177,528
Cash, cash equivalents and restricted cash, end of period 274,076 806,969
Supplemental disclosure of non-cash investing and financing activities:    
Property, plant and equipment acquired but not paid 21,110 7,209
Unrealized gain (loss) on available-for-sale investments, before tax (563) 1,159
Issuance of 162,606 and 136,559 shares of common stock to fund the Company’s 401(k) matching contribution for 2020 and 2019, respectively 22,934 12,007
Issuance of 9,510,436 and 382,947 shares of common stock for business combinations and asset acquisition for 2021 and 2020, respectively 1,270,918 28,847
Business combination contingent consideration liability 350,348 0
Supplemental disclosure of cash flow information:    
Interest paid $ 10,685 $ 9,239
v3.21.2
Condensed Consolidated Statements of Cash Flows (Parenthetical) - shares
9 Months Ended
Sep. 30, 2021
Sep. 30, 2020
Statement of Cash Flows [Abstract]    
Issuance of shares of common stock to fund the Company's 401(k) matching contribution (in shares) 162,606 136,559
Issuance of common stock for business combinations and asset acquisition (in shares) 9,510,436 382,947
v3.21.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
9 Months Ended
Sep. 30, 2021
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Exact Sciences Corporation (together with its subsidiaries, “Exact,” or the “Company”) was incorporated in February 1995. Exact is a leading global cancer diagnostics company. It has developed some of the most impactful brands in cancer screening and diagnostics, including Cologuard® and Oncotype DX®. Exact is currently working on the development of additional tests, with the goal of bringing new, innovative cancer tests to patients throughout the world.
Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements, which include the accounts of Exact Sciences Corporation and those of its wholly owned subsidiaries and variable interest entities, are unaudited and have been prepared on a basis substantially consistent with the Company’s audited financial statements and notes as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K (the “2020 Form 10-K”). All intercompany transactions and balances have been eliminated upon consolidation. These condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair statement of its financial position, operating results and cash flows for the periods presented. The condensed consolidated balance sheet at December 31, 2020 has been derived from audited financial statements, but does not contain all of the footnote disclosures from the 2020 Form 10-K. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year. The statements should be read in conjunction with the audited financial statements and related notes included in the 2020 Form 10-K.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are those that affect the Company’s financial statements materially and involve difficult, subjective or complex judgments by management, and actual results could differ from those estimates. These estimates include revenue recognition, valuation of intangible assets and goodwill, and accounting for income taxes among others. The Company’s critical accounting policies and estimates are explained further in the notes to the condensed consolidated financial statements in this Quarterly Report and the 2020 Form 10-K.
The spread of the coronavirus (“COVID-19”) has affected many segments of the global economy, including the cancer screening and diagnostics industry. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of September 30, 2021 and through the date of the filing of this Quarterly Report on Form 10-Q. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, equity investments, software, and the carrying value of the goodwill and other long-lived assets. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in additional material impacts to the Company’s consolidated financial statements in future reporting periods.
The pandemic and related precautionary measures began to materially disrupt the Company's operations in March 2020 and may continue to disrupt the business for an unknown period of time. As a result, the pandemic impacted the Company's revenues and operating results for the three and nine months ended September 30, 2021.
The ultimate impact of COVID-19 depends on factors beyond the Company’s knowledge or control, including the duration and severity of the outbreak, as well as third-party actions taken to contain its spread and mitigate its public health effects. As a result, the Company is unable to estimate the extent to which COVID-19 will negatively impact its financial results or liquidity.
Significant Accounting Policies
During the nine months ended September 30, 2021, there were no changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, except as described in the Recently Adopted Accounting Pronouncements section below.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation in the condensed consolidated financial statements and accompanying notes to the condensed consolidated financial statements.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In August 2020, The Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2020-06, Debt – Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This update simplifies the accounting for convertible debt instruments by removing the beneficial conversion and cash conversion separation models for convertible instruments. Under the update, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives or that do not result in substantial premiums accounted for as paid-in capital. The update also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will no longer be available. This standard may be adopted through either a modified retrospective method of transition or a full retrospective method of transition. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.
The Company adopted the standard on January 1, 2021 through application of the full retrospective method of transition. This method of adoption was applied to enhance comparability between the periods presented in the Company’s financial statements. The Company applied the standard to convertible notes outstanding as of the date of the first offering of the Company’s outstanding convertible notes as discussed in Note 9.
The Company’s convertible debt instruments will be accounted for as a single liability measured at its amortized cost. The notes are no longer bifurcated between debt and equity, rather accounted for entirely as debt at face value net of any discount or premium and issuance costs. Interest expense is comprised of (1) cash interest payments, (2) amortization of any debt discounts or premiums based on the original offering, and (3) amortization of any debt issuance costs. Gain or loss on extinguishment of convertible notes is calculated as the difference between the (i) fair value of the consideration transferred and (ii) the sum of the carrying value of the debt at the time of repurchase.
As of January 1, 2019, the cumulative effect of adoption resulted in a decrease in additional-paid-in-capital of $260.2 million, a decrease in accumulated deficit of $26.6 million, and an increase to net deferred tax assets of $55.7 million offset by a corresponding increase of $55.7 million in the valuation allowance. As of January 1, 2020, the cumulative effect of adoption resulted in a decrease in additional-paid-in-capital of $227.8 million, an increase in accumulated deficit of $102.6 million, and an increase to the net deferred tax assets of $83.2 million offset by a corresponding increase of $74.7 million in the valuation allowance resulting in a net decrease of $8.5 million in recorded deferred tax liabilities. As of December 31, 2020, the cumulative effect of adoption resulted in an increase in the net carrying amount of convertible notes, net, current portion of $57.3 million and convertible notes, net, less current portion of $540.9 million, a decrease in additional-paid-in-capital of $510.3 million, an increase in accumulated deficit of $77.7 million, and an increase to net deferred tax assets of $146.0 million offset by a corresponding increase of $135.8 million in the valuation allowance resulting in a net decrease of $10.2 million in recorded deferred tax liabilities. For the three months ended September 30, 2020, interest expense in the condensed consolidated statement of operations decreased by $19.1 million as a result of a decrease in amortization of debt discounts, premiums, and issuance costs, income tax benefit decreased by $1.8 million and net loss per share, basic and diluted, decreased by $0.12 per share. For the nine months ended September 30, 2020, interest expense in the condensed consolidated statement of operations decreased by $8.3 million as a result of a decrease in amortization of debt discounts, premiums, and issuance costs of $51.2 million, which was offset by an increase in loss on extinguishment of $42.9 million in connection with the extinguishment of $100.0 million face value of 2025 Notes. Income tax benefit decreased by $1.8 million and net loss per share, basic and diluted, increased by $0.04 per share.
Net Loss Per Share
Basic net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average common shares outstanding during the period. Basic and diluted net loss per share is the same because all outstanding common stock equivalents have been excluded, as they are anti-dilutive as a result of the Company’s losses.
The following potentially issuable common shares were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses for each period:
September 30,
(In thousands)20212020
Shares issuable in connection with acquisitions (1)45 157 
Shares issuable upon exercise of stock options2,380 2,429 
Shares issuable upon the release of restricted stock awards4,306 4,035 
Shares issuable upon the release of performance share units863 619 
Shares issuable upon conversion of convertible notes20,309 20,309 
27,903 27,549 
______________
(1)During the third quarter of 2021, shares were issued related to holdback amounts on the previously closed acquisition of Viomics, Inc. (“Viomics”). The remaining issuable shares relate to the previously closed acquisition of Paradigm Diagnostics, Inc. (“Paradigm”).
v3.21.2
REVENUE
9 Months Ended
Sep. 30, 2021
Revenue from Contract with Customer [Abstract]  
REVENUE REVENUE The Company’s revenue is primarily generated by its laboratory testing services utilizing its Cologuard, Oncotype DX, and COVID-19 tests. The services are completed upon release of a patient’s test result to the ordering healthcare provider.
Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated by revenue source:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2021202020212020
Screening
Medicare Parts B & C$116,088 $98,847 $329,034 $256,589 
Commercial151,245 106,002 419,268 280,451 
Other13,045 9,774 36,341 28,367 
Total Screening280,378 214,623 784,643 565,407 
Precision Oncology
Medicare Parts B & C$51,607 $33,945 $142,428 $114,973 
Commercial42,844 37,402 145,821 137,212 
International27,229 16,243 80,133 56,227 
Other23,732 3,989 44,246 14,493 
Total Precision Oncology145,412 91,579 412,628 322,905 
COVID-19 Testing$30,589 $102,161 $96,004 $136,740 
Total$456,379 $408,363 $1,293,275 $1,025,052 
Screening revenue primarily includes laboratory service revenue from the Cologuard test while Precision Oncology revenue primarily includes laboratory service revenue from global Oncotype DX products.
The downward adjustment to revenue from changes in transaction price was $0.2 million for the three months ended September 30, 2021 and revenue recognized from changes in transaction price was $0.5 million for the three months ended September 30, 2020. The downward adjustment to revenue from changes in transaction price was $13.2 million for the nine months ended September 30, 2021 and revenue recognized from changes in transaction price was $9.1 million for the nine months ended September 30, 2020. At each reporting period end, the Company conducts an analysis of the estimates used to calculate the transaction price to determine whether any new information available impacts those estimates made in prior reporting periods.
Deferred revenue balances are reported in other current liabilities in the Company’s condensed consolidated balance sheets and were $18.7 million and $25.0 million as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 2021, $17.8 million of the Company’s deferred revenue balance is a result of the billing terms pursuant to the existing COVID-19 laboratory service agreements (“LSAs”) with customers.
Revenue recognized for the three months ended September 30, 2021 and 2020, which was included in the deferred revenue balance at the beginning of each period, was $0.2 million and $5,000, respectively. Of the $0.2 million of revenue recognized for the three months ended September 30, 2021, which was included in the deferred revenue balance at the beginning of the period, $0.1 million related to COVID-19 testing. Revenue recognized for the nine months ended September 30, 2021 and 2020, which was included in the deferred revenue balance at the beginning of each period, was $24.6 million and $0.2 million, respectively. Of the $24.6 million of revenue recognized for the nine months ended September 30, 2021, which was included in the deferred revenue balance at the beginning of the period, $24.3 million related to COVID-19 testing.
v3.21.2
MARKETABLE SECURITIES
9 Months Ended
Sep. 30, 2021
Cash and Cash Equivalents [Abstract]  
MARKETABLE SECURITIES MARKETABLE SECURITIES
The following table sets forth the Company’s cash, cash equivalents, restricted cash, and marketable securities at September 30, 2021 and December 31, 2020:
(In thousands)September 30, 2021December 31, 2020
Cash, cash equivalents, and restricted cash
Cash and money market$273,779 $901,294 
Cash equivalents— 589,994 
Restricted cash297 306 
Total cash, cash equivalents, and restricted cash274,076 1,491,594 
Marketable securities
Available-for-sale debt securities941,620 347,178 
Equity securities3,068 1,521 
Total marketable securities944,688 348,699 
Total cash and cash equivalents, restricted cash and marketable securities$1,218,764 $1,840,293 
Available-for-sale debt securities at September 30, 2021 consisted of the following:
(In thousands)Amortized CostGains in Accumulated
Other Comprehensive
Income (Loss) (1)
Losses in Accumulated
Other Comprehensive
Income (Loss) (1)
Estimated Fair
Value
Marketable securities
Corporate bonds$368,662 $213 $(43)$368,832 
U.S. government agency securities276,146 19 (84)276,081 
Certificates of deposit175,508 35 (1)175,542 
Commercial paper10,000 — 10,001 
Asset backed securities111,171 11 (18)111,164 
Total available-for-sale securities$941,487 $279 $(146)$941,620 
______________
(1)Gains and losses in accumulated other comprehensive income (loss) (“AOCI”) are reported before tax impact.
Available-for-sale debt securities at December 31, 2020 consisted of the following:
(In thousands)Amortized CostGains in Accumulated
Other Comprehensive
Income (Loss) (1)
Losses in Accumulated
Other Comprehensive
Income (Loss) (1)
Estimated Fair Value
Cash equivalents
U.S. government agency securities$589,986 $$— $589,994 
Total cash equivalents589,986 — 589,994 
Marketable securities
U.S. government agency securities207,119 52 — 207,171 
Asset backed securities7,070 24 — 7,094 
Corporate bonds132,301 612 — 132,913 
Total marketable securities346,490 688 — 347,178 
Total available-for-sale securities$936,476 $696 $— $937,172 
______________
(1)Gains and losses in AOCI are reported before tax impact.
The following table summarizes contractual underlying maturities of the Company’s available-for-sale debt securities at September 30, 2021:
Due one year or lessDue after one year through five years
(In thousands)CostFair ValueCostFair Value
Marketable securities
U.S. government agency securities$7,049 $7,067 $269,097 $269,014 
Corporate bonds235,977 236,101 132,685 132,731 
Certificates of deposit175,508 175,542 — — 
Asset backed securities— — 111,171 111,164 
Commercial paper10,000 10,001 — — 
Total$428,534 $428,711 $512,953 $512,909 
The following table summarizes the gross unrealized losses and fair values of available-for-sale debt securities in an unrealized loss position as of September 30, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
Less than one yearOne year or greaterTotal
(In thousands)Fair ValueGross Unrealized LossFair ValueGross Unrealized LossFair ValueGross Unrealized Loss
Marketable securities
Corporate bonds$155,043 $(43)$— $— $155,043 $(43)
Certificates of deposit15,650 (1)— — 15,650 (1)
Asset backed securities81,478 (18)— — 81,478 (18)
U.S. government agency securities259,019 (84)— — 259,019 (84)
Total available-for-sale securities$511,190 $(146)$— $— $511,190 $(146)
The Company evaluates investments that are in an unrealized loss position for impairment as a result of credit loss. It was determined that no credit losses exist as of September 30, 2021 and December 31, 2020, because the change in market value for those securities in an unrealized loss position has resulted from fluctuating interest rates rather than a deterioration of the credit worthiness of the issuers. The realized gain recorded on available-for-sale debt securities was not material to the condensed consolidated statements of income for the three and nine months ended September 30, 2021 and 2020.
The Company recorded a loss of $4.5 million and $1.9 million from its equity securities for the three and nine months ended September 30, 2021 as compared to a gain of $33,000 and a loss of $0.3 million for the three and nine months ended September 30, 2020.
The gains and losses recorded are included in investment income (expense), net in the Company’s condensed consolidated statements of operations.
v3.21.2
INVENTORY
9 Months Ended
Sep. 30, 2021
Inventory Disclosure [Abstract]  
INVENTORY INVENTORY
Inventory consisted of the following:
(In thousands)September 30, 2021December 31, 2020
Raw materials$47,971 $43,083 
Semi-finished and finished goods47,196 49,182 
Total inventory$95,167 $92,265 
v3.21.2
PROPERTY, PLANT AND EQUIPMENT
9 Months Ended
Sep. 30, 2021
Property, Plant and Equipment [Abstract]  
PROPERTY, PLANT AND EQUIPMENT PROPERTY, PLANT AND EQUIPMENT
The carrying value and estimated useful lives of property, plant and equipment are as follows:
(In thousands)Estimated Useful LifeSeptember 30, 2021December 31, 2020
Property, plant and equipment
Landn/a$4,466 $4,466 
Leasehold and building improvements(1)142,025 117,865 
Land improvements15 years4,894 4,864 
Buildings
30 - 40 years
201,040 200,980 
Computer equipment and computer software3 years99,889 75,417 
Laboratory equipment
3 - 10 years
175,393 142,110 
Furniture and fixtures
3 - 10 years
27,593 24,968 
Assets under constructionn/a64,187 18,854 
Property, plant and equipment, at cost719,487 589,524 
Accumulated depreciation(195,287)(137,538)
Property, plant and equipment, net$524,200 $451,986 
______________
(1)Lesser of remaining lease term, building life, or estimated useful life.
Depreciation expense for the three months ended September 30, 2021 and 2020 was $22.3 million and $19.7 million, respectively. Depreciation expense for the nine months ended September 30, 2021 and 2020 was $64.3 million and $53.3 million, respectively.
At September 30, 2021, the Company had $64.2 million of assets under construction which consisted of $11.8 million in laboratory equipment, $40.6 million related to building and leasehold improvements, $11.6 million in capitalized costs related to software projects, and $0.2 million related to land improvements. Depreciation will begin on these assets once they are placed into service upon completion between 2021 and 2023.
v3.21.2
INTANGIBLE ASSETS AND GOODWILL
9 Months Ended
Sep. 30, 2021
Goodwill and Intangible Assets Disclosure [Abstract]  
INTANGIBLE ASSETS AND GOODWILL INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The following table summarizes the net-book-value and estimated remaining life of the Company’s intangible assets as of September 30, 2021:
(In thousands)Weighted Average Remaining Life (Years)Gross Carrying AmountAccumulated Amortization
Net Balance at
September 30, 2021
Finite-lived intangible assets
Trade name14.1$100,700 $(11,980)$88,720 
Customer relationships12.02,700 (539)2,161 
Patents3.010,442 (6,427)4,015 
Acquired developed technology8.4853,171 (155,404)697,767 
Supply agreements5.72,295 — 2,295 
Total finite-lived intangible assets969,308 (174,350)794,958 
In-process research and developmentn/a1,250,000 — 1,250,000 
Total intangible assets$2,219,308 $(174,350)$2,044,958 
The following table summarizes the net-book-value and estimated remaining life of the Company’s intangible assets as of December 31, 2020:
(In thousands)Weighted Average Remaining Life (Years)Gross Carrying AmountAccumulated Amortization
Net balance at
December 31, 2020
Finite-lived intangible assets
Trade name14.9$100,700 $(7,258)$93,442 
Customer relationships12.82,700 (404)2,296 
Patents3.710,441 (5,422)5,019 
Acquired developed technology9.0814,171 (93,278)720,893 
Supply agreements6.530,000 (4,527)25,473 
Total intangible assets$958,012 $(110,889)$847,123 
As of September 30, 2021, the estimated future amortization expense associated with the Company’s finite-lived intangible assets for each of the five succeeding fiscal years is as follows:
(In thousands)
2021 (remaining three months)$23,053 
202292,205 
202392,202 
202491,868 
202590,820 
Thereafter404,810 
$794,958 
The Company’s acquired intangible assets are being amortized on a straight-line basis over the estimated useful life.
During the third quarter of 2021 and in connection with the preparation of the financial statements, the Company recorded a non-cash, pre-tax impairment loss of $20.2 million related to the supply agreement intangible asset that was initially recorded as part of the combination with Genomic Health due to lower than anticipated performance of the underlying product. The Company utilized the income approach to measure the fair value of the supply agreement, which involves significant unobservable inputs (Level 3 inputs). The impairment is recorded in intangible asset impairment charge in the condensed consolidated statement of operations for the three and nine months ended September 30, 2021.
During the third quarter of 2020, the Company began discussions with Biocartis regarding the termination of its agreements with Biocartis related to the development of an in vitro diagnostic (“IVD”) version of the Oncotype DX Breast Recurrence Score® test. As a result, and in connection with the preparation of the financial statements included in the Company’s Form 10-Q for the period ended September 30, 2020, the Company recorded a non-cash, pre-tax impairment loss of $200.0 million related to the in-process research and development intangible asset that was initially recorded as part of the combination with Genomic Health. The impairment is recorded in intangible asset impairment charge in the condensed consolidated statement of operations for the three and nine months ended September 30, 2020.
During the third quarter of 2020, the Company abandoned certain research and development assets acquired through an asset purchase agreement with Armune Biosciences, Inc. in 2017. These assets were expected to complement the Company’s product pipeline and were expected to have alternative future uses at the time of acquisition; however, due to changes in strategic priorities and efforts during the third quarter of 2020, these assets are no longer expected to be utilized to advance the Company’s product pipeline. As a result, and in connection with the preparation of the financial statements included in the Company’s Form 10-Q for the period ended September 30, 2020, the Company wrote-off the gross cost basis of the intangible asset of $12.2 million and accumulated amortization of $2.5 million as of September 30, 2020. This write-off resulted in a non-cash, pre-tax impairment loss of $9.7 million, which is recorded in intangible asset impairment charge in the condensed consolidated statement of operations for the three and nine months ended September 30, 2020.
Goodwill
The change in the carrying amount of goodwill for the periods ended September 30, 2021 and December 31, 2020 is as follows:
(In thousands)
Balance, January 1, 2020$1,203,197 
Paradigm & Viomics acquisition30,431 
Genomic Health acquisition adjustment (1)
4,044 
Balance, December 31, 2020$1,237,672 
Thrive acquisition948,105 
Ashion Acquisition56,758 
Balance September 30, 2021$2,242,535 
______________
(1)The Company recognized a measurement period adjustment to goodwill related to an increase in Genomic Health’s pre-acquisition deferred tax liability due to finalization of certain income-tax related items.
There were no impairment losses for the three and nine months ended September 30, 2021 and 2020.
v3.21.2
FAIR VALUE MEASUREMENTS
9 Months Ended
Sep. 30, 2021
Fair Value Disclosures [Abstract]  
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS
The three levels of the fair value hierarchy established are as follows:
Level 1    Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2    Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3    Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.
The following table presents the Company’s fair value measurements as of September 30, 2021 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.
(In thousands)Fair Value at September 30, 2021Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash, cash equivalents, and restricted cash
Cash and money market$273,779 $273,779 $— $— 
Restricted cash297 297 — — 
Marketable securities
Corporate bonds368,832 — 368,832 — 
Certificates of deposit175,542 — 175,542 — 
Commercial paper10,001 — 10,001 — 
U.S. government agency securities276,081 — 276,081 — 
Asset backed securities111,164 — 111,164 — 
Equity securities (1)3,068 — 3,068 — 
Non-marketable securities2,540 — — 2,540 
Liabilities
Contingent consideration(363,647)— — (363,647)
Total$857,657 $274,076 $944,688 $(361,107)
______________
(1)The equity securities held are classified as Level 2 as they are subject to a short-term lock-up restriction and have been discounted from the observable market prices of the similar unrestricted equity securities.
The following table presents the Company’s fair value measurements as of December 31, 2020 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.
(In thousands)Fair Value at December 31, 2020Quoted Prices
in Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
Cash and money market$901,294 $901,294 $— $— 
U.S. government agency securities589,994 — 589,994 — 
Restricted cash306 306 — — 
Marketable securities
U.S. government agency securities207,171 — 207,171 — 
Corporate bonds132,913 — 132,913 — 
Asset backed securities7,094 — 7,094 — 
Equity securities1,521 1,521 — — 
Liabilities
Contingent consideration(2,477)— — (2,477)
Total$1,837,816 $903,121 $937,172 $(2,477)
There have been no changes in valuation techniques or transfers between fair value measurement levels during the periods ended September 30, 2021 and December 31, 2020. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities are valued using a third-party pricing agency where the valuation is based on observable inputs including pricing for similar assets and other observable market factors. The Company’s marketable equity security investment in Biocartis held as of December 31, 2020 was classified as a Level 1 instrument prior to being sold in the first quarter of 2021.
Contingent Consideration
Certain of the Company’s business combinations involve potential payment of future consideration that is contingent upon the achievement of certain regulatory and product revenue milestones being achieved. A liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized within general and administrative expenses on the Company’s condensed consolidated statements of operations.
The fair value of contingent consideration as of September 30, 2021 and December 31, 2020 was $363.6 million and $2.5 million, respectively, which was recorded in other long-term liabilities in the condensed consolidated balance sheets.
The following table provides a reconciliation of the beginning and ending balances of contingent consideration:
(In thousands)Contingent Consideration
Beginning balance, January 1, 2021$2,477 
Purchase price contingent consideration (1)350,348 
Changes in fair value10,986 
Payments(164)
Ending balance, September 30, 2021
$363,647 
______________
(1)The increase in the contingent consideration liability is due to the contingent consideration associated with the acquisitions of Ashion Analytics, LLC (“Ashion”) and Thrive Earlier Detection Corporation (“Thrive”). Refer to Note 17 for further information.
This fair value measurement of contingent consideration is categorized as a Level 3 liability, as the measurement amount is based primarily on significant inputs not observable in the market.
The fair value of the contingent consideration liability recorded related to regulatory and product development milestones associated with the Thrive and Ashion acquisitions was $361.3 million as of September 30, 2021. The Company evaluates the fair value of the regulatory and product development contingent consideration liabilities using the probability-weighted scenario based discounted cash flow model, which is consistent with the initial measurement of the expected contingent consideration liabilities. Probabilities of success are applied to each potential scenario and the resulting values are discounted using a rate that considers a present-value factor. The passage of time in addition to changes in projected milestone achievement timing, present-value factor, the degree of achievement if applicable, and probabilities of success may result in adjustments to the fair value measurement. The fair value measurements of contingent consideration for which a liability is recorded include significant unobservable inputs. As of September 30, 2021, the fair value of the contingent consideration liability recorded related to regulatory and product development milestones was determined using a weighted average probability of success of 90.5% and a weighted average present-value factor of 2.0%. The projected fiscal year of payment range is from 2024 to 2027. Unobservable inputs were weighted by the relative fair value of the contingent consideration liability.
The fair value of the contingent consideration earnout liability related to certain revenue milestones associated with the Biomatrica acquisition was $2.3 million as of September 30, 2021. The revenue milestone associated with the Ashion acquisition is not expected to be achieved and therefore no liability has been recorded for this milestone.
Non-Marketable Equity Investments
As of September 30, 2021 and December 31, 2020, the aggregate carrying amounts of the Company’s non-marketable equity securities without readily determinable fair values were $22.7 million and $29.1 million, respectively, which are classified as a component of other long-term assets in the Company’s condensed consolidated balance sheets. There have been no downward or upward adjustments made on these investments since initial recognition.
Derivative Financial Instruments
As of September 30, 2021 and December 31, 2020, the Company had open foreign currency forward contracts with notional amounts of $29.5 million and $22.4 million, respectively. The Company's foreign exchange derivative instruments are classified as Level 2 within the fair value hierarchy as they are valued using inputs that are observable in the market or can be derived principally from or corroborated by observable market data. The fair value of the foreign currency forward contracts was zero at September 30, 2021 and December 31, 2020, and there were no gains or losses recorded for the three and nine months ended September 30, 2021 and 2020.
v3.21.2
LONG-TERM DEBT
9 Months Ended
Sep. 30, 2021
Debt Disclosure [Abstract]  
LONG-TERM DEBT LONG-TERM DEBT
Construction Loan Agreement
During December 2017, the Company entered into a loan agreement with Fifth Third Bank (formerly MB Financial Bank, N.A.) (the “Construction Loan Agreement”), which provides the Company with a non-revolving construction loan (the “Construction Loan”) of $25.6 million. The Company used the Construction Loan proceeds to finance the construction of an additional clinical laboratory and related facilities in Madison, Wisconsin. The Construction Loan is collateralized by the additional clinical laboratory and related facilities.
Pursuant to the Construction Loan Agreement, funds drawn will bear interest at a rate equal to the sum of the 1-month LIBOR rate plus 2.25 percent. Regular monthly payments are interest-only for the first 24 months, with further payments based on a 20-year amortization schedule. Amounts borrowed pursuant to the Construction Loan Agreement may be prepaid at any time without penalty. The maturity date of the Construction Loan Agreement is December 10, 2022.
In November 2017, Fifth Third Bank, on behalf of the Company, issued an Irrevocable Standby Letter of Credit in the amount of $0.6 million in favor of the City of Madison, Wisconsin (the “City Letter of Credit”). The City Letter of Credit is deemed to have been issued pursuant to the Construction Loan Agreement. The amount of the City Letter of Credit will reduce, dollar for dollar, the amount available for borrowing under the Construction Loan Agreement.
As a condition to Fifth Third Bank’s initial advance of loan proceeds under the Construction Loan Agreement, the Company was required to first invest at least $16.4 million of its own cash into the construction project. The Company fulfilled its required initial investment and made its first draw on the Construction Loan in June 2018. In December 2019, the Company began making monthly payments towards the outstanding principal balance plus accrued interest. As of September 30, 2021 and December 31, 2020, the outstanding balance was $22.8 million and $23.8 million, respectively, from the Construction Loan, including $0.7 million of interest incurred, which is accrued for as an interest reserve and represents a portion of the loan balance. The Company capitalized the $0.7 million of interest to the construction project. The Company incurred approximately $0.2 million of debt issuance costs related to the Construction Loan, which are recorded as a direct deduction from the liability. The debt issuance costs are being amortized over the life of the Construction Loan.
The carrying amount of the Construction Loan approximates fair value due to the short maturity of this instrument. The Construction Loan is privately held with no public market for this debt and therefore is classified as a Level 3 fair value measurement. The change in the fair value during the three and nine months ended September 30, 2021 was due to payments made on the loan resulting in a decrease in the liability.
The Construction Loan Agreement was amended effective June 30, 2020 to include a financial covenant to maintain a minimum liquidity of $250 million and remove the minimum tangible net worth covenant. As of September 30, 2021, the Company is in compliance with the covenant included in the amended agreement.
Tax Increment Financing Loan Agreements
The Company entered into two separate Tax Increment Financing Loan Agreements (“TIFs”) in February 2019 and June 2019 with the City of Madison, Wisconsin. The TIFs provide for $4.6 million of financing in the aggregate. In return for the loans, the Company is obligated to create and maintain 500 full-time jobs over a five-year period, starting on the date of occupancy of the buildings constructed. In the event that the job creation goals are not met, the Company would be required to pay a penalty.
The Company records the earned financial incentives as the full-time equivalent positions are filled. The amount earned is recorded as a liability and amortized as a reduction of operating expenses over a two-year period, which is the timeframe when the TIFs will be repaid through property taxes.
As of December 31, 2019, the Company had earned and received payment of the full $4.6 million from the City of Madison, and the corresponding liability became fully amortized in October 2020. In May 2021 the City of Madison confirmed that the Company had repaid the TIFs in full and released the Company from the loans and the related property lien.
v3.21.2
CONVERTIBLE NOTES
9 Months Ended
Sep. 30, 2021
CONVERTIBLE NOTES [Abstract]  
CONVERTIBLE NOTES CONVERTIBLE NOTES
Convertible note obligations included in the condensed consolidated balance sheet consisted of the following as of September 30, 2021:
Fair Value (2)
(In thousands)Principal AmountUnamortized Debt Discount and Issuance CostsNet Carrying AmountAmountLeveling
2028 Convertible notes - 0.375%
$1,150,000 $(19,596)$1,130,404 $1,222,968 2
2027 Convertible notes - 0.375%
747,500 (12,257)735,243 834,285 2
2025 Convertible notes - 1.000% (1)
315,005 (1,901)313,104 455,204 2
Convertible note obligations included in the condensed consolidated balance sheet consisted of the following as of December 31, 2020:
Fair Value (2)
(In thousands)Principal AmountUnamortized Debt Discount and Issuance CostsNet Carrying AmountAmountLeveling
2028 Convertible notes - 0.375%
$1,150,000 $(21,878)$1,128,122 $1,526,625 2
2027 Convertible notes - 0.375%
747,500 (13,937)733,563 992,306 2
2025 Convertible notes - 1.000% (1)
315,049 (2,333)312,716 601,744 2
______________
(1)Based on the Company’s share price on the days leading up to September 30, 2021 and December 31, 2020, holders of the 2025 Convertible Notes have the right to convert their debentures. As a result, the 2025 Convertible Notes are included within convertible notes, net, current portion on the condensed consolidated balance sheets. Some holders did convert their debentures, resulting in a decrease of the principal amount of the 2025 Convertible Notes.
(2)The fair values are based on observable market prices for this debt, which is traded in active markets and therefore is classified as a Level 2 fair value measurement.
Issuances and Settlements
In January 2018, the Company issued and sold $690.0 million in aggregate principal amount of 1.0% Convertible Notes (the “January 2025 Notes”) with a maturity date of January 15, 2025. The January 2025 Notes accrue interest at a fixed rate of 1.0% per year, payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The net proceeds from the issuance of the January 2025 Notes were approximately $671.1 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.
In June 2018, the Company issued and sold an additional $218.5 million in aggregate principal amount of 1.0% Convertible Notes (the “June 2025 Notes”). The June 2025 Notes were issued under the same indenture pursuant to which the Company previously issued the January 2025 Notes (the “Indenture”). The January 2025 Notes and the June 2025 Notes (collectively, the “2025 Notes”) have identical terms (including the same January 15, 2025 maturity date) and are treated as a single series of securities. The net proceeds from the issuance of the June 2025 Notes were approximately $225.3 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.
In March 2019, the Company issued and sold $747.5 million in aggregate principal amount of 0.375% Convertible Notes (the “2027 Notes”) with a maturity date of March 15, 2027. The 2027 Notes accrue interest at a fixed rate of 0.375% per year, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2019. The net proceeds from the issuance of the 2027 Notes were approximately $729.5 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.
The Company utilized a portion of the proceeds from the issuance of the 2027 Notes to settle a portion of the 2025 Notes in privately negotiated transactions. In March 2019, the Company used cash of $494.1 million and an aggregate of 2.2 million shares of the Company’s common stock valued at $182.4 million for total consideration of $676.5 million to settle $493.4 million of the 2025 Notes, of which $0.7 million was used to pay off interest accrued on the 2025 Notes. The transaction resulted in a loss on settlement of convertible notes of $187.7 million, which is reflected in accumulated deficit in the Company’s condensed consolidated balance sheets. The loss represents the difference between (i) the fair value of the consideration transferred and (ii) the carrying value of the debt at the time of repurchase.
In February 2020, the Company issued and sold $1.15 billion in aggregate principal amount of 0.375% Convertible Notes (the “2028 Notes” and, collectively with the 2025 Notes and the 2027 Notes, the “Notes”) with a maturity date of March 1, 2028. The 2028 Notes accrue interest at a fixed rate of 0.375% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2020. The net proceeds from the issuance of the 2028 Notes were approximately $1.13 billion, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.
In February 2020, the Company used $150.1 million of the proceeds from the issuance of the 2028 Notes to settle $100.0 million of the 2025 Notes, of which $0.1 million was used to pay off interest accrued on the 2025 Notes. The transaction resulted in a loss on settlement of convertible notes of $50.8 million, which is recorded in interest expense in the Company’s condensed consolidated statement of operations. The loss represents the difference between (i) the fair value of the consideration transferred and (ii) the carrying value of the debt at the time of repurchase.
Summary of Conversion Features
Until the six-months immediately preceding the maturity date of the applicable series of Notes, each series of Notes is convertible only upon the occurrence of certain events and during certain periods, as set forth in the Indentures filed at the time of the original offerings. On or after the date that is six-months immediately preceding the maturity date of the applicable series of Notes until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert such Notes at any time. The Notes will be convertible into cash, shares of the Company’s common stock (plus, if applicable, cash in lieu of any fractional share), or a combination of cash and shares of the Company’s common stock, at the Company’s election.
It is the Company’s intent and policy to settle all conversions through combination settlement. The initial conversion rate is 13.26, 8.96, and 8.21 shares of common stock per $1,000 principal amount for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively, which is equivalent to an initial conversion price of approximately $75.43, $111.66, and $121.84 per share of the Company’s common stock for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively. The 2025 Notes, 2027 Notes, and 2028 Notes may be convertible in up to 4.2 million, 6.7 million, and 9.4 million shares, respectively. The conversion rate is subject to adjustment upon the occurrence of certain specified events as set forth in the Indentures filed at the time of the original offerings but will not be adjusted for accrued and unpaid interest. In addition, holders of the Notes who convert their Notes in connection with a “make-whole fundamental change” (as defined in the Indenture), will, under certain circumstances, be entitled to an increase in the conversion rate.
If the Company undergoes a “fundamental change” (as defined in the Indenture), holders of the Notes may require the Company to repurchase for cash all or part of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest.
Based on the closing price of the Company’s common stock of $95.45 on September 30, 2021, the if-converted values on the Company’s 2025 Notes exceed the principal amount by $83.6 million and the 2027 Notes and 2028 Notes do not exceed the principal amount.
Ranking of Convertible Notes
The Notes are the Company’s senior unsecured obligations and (i) rank senior in right of payment to all of its future indebtedness that is expressly subordinated in right of payment to the Notes; (ii) rank equal in right of payment to each outstanding series thereof and to all of the Company’s future liabilities that are not so subordinated, unsecured indebtedness; (iii) are effectively junior to all of the Company’s existing and future secured indebtedness and other secured obligations, to the extent of the value of the assets securing that indebtedness and other secured obligations; and (iv) are structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries.
Issuance costs are amortized to interest expense over the term of the Notes. The following table summarizes the original issuance costs at the time of issuance for each set of Notes:
(In thousands)
January 2025 Notes$10,284 
June 2025 Notes7,362 
2027 Notes14,285 
2028 Notes24,453 
The Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by the Company.
Interest expense includes the following:
Three Months Ended September 30,Nine Months Ended September 30,
(In thousands)2021202020212020
Debt issuance costs amortization$1,444 $1,443 $4,284 $3,860 
Debt discount amortization37 37 110 94 
Loss on settlement of convertible notes— — — 50,819 
Coupon interest expense2,566 2,567 7,699 7,065 
Total interest expense on convertible notes4,047 4,047 12,093 61,838 
Other interest expense633 431 1,855 1,544 
Total interest expense$4,680 $4,478 $13,948 $63,382 
The effective interest rates on the 2025 Notes, 2027 Notes, and 2028 Notes for the three months ended September 30, 2021 and 2020 were 1.18%, 0.68%, and 0.64% and 1.18%, 0.68%, and 0.64%, respectively. The effective interest rates on the 2025 Notes, 2027 Notes, and 2028 Notes for the nine months ended September 30, 2021 and 2020 were 1.18%, 0.67%, and 0.64% and 1.21%, 0.68%, and 0.63%, respectively. The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 3.30, 5.46, and 6.42 years for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively.
v3.21.2
LICENSE AND COLLABORATION AGREEMENTS
9 Months Ended
Sep. 30, 2021
LICENSE AGREEMENTS [Abstract]  
LICENSE AND COLLABORATION AGREEMENTS LICENSE AND COLLABORATION AGREEMENTS
The Company licenses certain technologies that are, or may be, incorporated into its technology under several license agreements, as well as the rights to commercialize certain diagnostic tests through collaboration agreements. Generally, the license agreements require the Company to pay low single-digit royalties based on net revenues received using the technologies and may require minimum royalty amounts or maintenance fees.
Mayo
In June 2009 the Company entered into a license agreement with Mayo Foundation for Medical Education and Research (“Mayo”). The Company’s license agreement with Mayo was most recently amended and restated in September 2020. Under the license agreement, Mayo granted the Company an exclusive, worldwide license to certain Mayo patents and patent applications, as well as a non-exclusive, worldwide license with regard to certain Mayo know-how. The scope of the license covers any screening, surveillance or diagnostic test or tool for use in connection with any type of cancer, pre-cancer, disease or condition.
The licensed Mayo patents and patent applications contain both method and composition claims that relate to sample processing, analytical testing and data analysis associated with nucleic acid screening for cancers and other diseases. The jurisdictions covered by these patents and patent applications include the U.S., Australia, Canada, the European Union, China, Japan and Korea. Under the license agreement, the Company assumed the obligation and expense of prosecuting and maintaining the licensed Mayo patents and is obligated to make commercially reasonable efforts to bring to market products using the licensed Mayo intellectual property.
Pursuant to the Company’s agreement with Mayo, the Company is required to pay Mayo a low-single-digit royalty on the Company’s net sales of current and future products using the licensed Mayo intellectual property each year during the term of the Mayo agreement.
As part of the most recent amendment, the Company agreed to pay Mayo an additional $6.3 million, payable in five equal annual installments through 2024. The annual installments are recorded in research and development expenses in the Company’s condensed consolidated statements of operations.
The license agreement will remain in effect, unless earlier terminated by the parties in accordance with the agreement, until the last of the licensed patents expires in 2038 (or later, if certain licensed patent applications are issued). However, if the Company is still using the licensed Mayo know-how or certain Mayo-provided biological specimens or their derivatives on such expiration date, the term shall continue until the earlier of the date the Company stops using such know-how and materials and the date that is five years after the last licensed patent expires. The license agreement contains customary termination provisions and permits Mayo to terminate the license agreement if the Company sues Mayo or its affiliates, other than any such suit claiming an uncured material breach by Mayo of the license agreement.
In addition to granting the Company a license to the covered Mayo intellectual property, Mayo provides the Company with product development and research and development assistance pursuant to the license agreement and other collaborative arrangements. In September 2020, Mayo also agreed to make available certain personnel to provide such assistance through January 2025. In connection with this collaboration, the Company incurred charges of $1.3 million and $0.9 million for the three months ended September 30, 2021 and 2020, respectively. The Company incurred charges of $3.5 million and $2.8 million for the nine months ended September 30, 2021 and 2020, respectively. The charges incurred in connection with this collaboration are recorded in research and development expenses in the Company’s condensed consolidated statements of operations.
Johns Hopkins University (“JHU”)
Through the acquisition of Thrive, the Company acquired a worldwide exclusive license agreement with JHU for use of several JHU patents and licensed know-how. The license is designed to enable the Company to leverage JHU proprietary data in the development and commercialization of a blood-based, multi-cancer early detection test. The agreement terms include single-digit sales-based royalties and sales-based milestone payments of $10.0 million, $15.0 million, $20.0 million upon achieving calendar year licensed product revenue using JHU proprietary data of $0.50 billion, $1.00 billion, and $1.50 billion, respectively.
v3.21.2
PFIZER PROMOTION AGREEMENT
9 Months Ended
Sep. 30, 2021
PFIZER PROMOTION AGREEMENT  
PFIZER PROMOTION AGREEMENT PFIZER PROMOTION AGREEMENTIn August 2018, the Company entered into a Promotion Agreement (the “Original Promotion Agreement”) with Pfizer Inc. (“Pfizer”), which was amended and restated in October 2020 (the “Restated Promotion Agreement”). The Restated Promotion Agreement extends the relationship between the Company and Pfizer and restructures the manner in which the Company compensates Pfizer for promotion of the Cologuard test through a service fee, and provision of certain other sales and marketing services related to the Cologuard test. The Restated Promotion Agreement includes fixed and performance-related fees, some of which retroactively went into effect on April 1, 2020. All payments to Pfizer are recorded in sales and marketing expenses in the Company’s condensed consolidated statements of operations. Under the Original Promotion Agreement, the service fee was calculated based on incremental gross profits over specified baselines during the term. Under the Restated Promotion Agreement, the service fee provides a fee-for-service model that includes certain fixed fees and performance-related bonuses. The performance-related bonuses are contingent upon the achievement of certain annual performance criteria with any applicable expense being recognized ratably upon achievement of the payment becoming probable. The Company incurred charges of $16.8 million and $18.0 million for the service fee for the three months ended September 30, 2021 and 2020, respectively. The Company incurred charges of $63.6 million and $39.7 million for the service fee for the nine months ended September 30, 2021 and 2020, respectively. The Company incurred charges of $30.2 million and $15.8 million for promotion, sales and marketing services performed by Pfizer on behalf of the Company during the three months ended September 30, 2021 and 2020, respectively. The Company incurred charges of $88.0 million and $56.3 million for promotion, sales and marketing services performed by Pfizer on behalf of the Company during the nine months ended September 30, 2021 and 2020, respectively. During 2022, and contingent upon the achievement of certain Cologuard test revenue metrics during 2021, the Company will pay Pfizer a royalty based on a low single-digit royalty rate applied to actual 2022 Cologuard test revenues. The term of the Restated Promotion Agreement runs through December 31, 2022.
v3.21.2
STOCKHOLDERS' EQUITY
9 Months Ended
Sep. 30, 2021
Equity [Abstract]  
STOCKHOLDERS' EQUITY STOCKHOLDERS’ EQUITY
Ashion Acquisition Stock Issuance
In April 2021 the Company completed its acquisition of Ashion. In connection with the acquisition, which is further described in Note 17, the Company issued 0.1 million common shares that had a fair value of $16.2 million.
Thrive Acquisition Stock Issuance
In January 2021, the Company completed its acquisition of Thrive. In connection with the acquisition, which is further described in Note 17, the Company issued 9.3 million common shares that had a fair value of $1.19 billion.
Targeted Digital Sequencing (“TARDIS”) License Acquisition Stock Issuance
In January 2021, the Company acquired a worldwide exclusive license to the TARDIS technology from The Translational Genomics Research Institute (“TGen”), which is further described in Note 17. As part of the consideration transferred, the Company issued 0.2 million shares that had a fair value of $27.3 million.
Paradigm Diagnostics, Inc. and Viomics, Inc. Acquisition Stock Issuance
In March 2020, the Company completed the acquisitions of Paradigm and Viomics. The purchase price for these acquisitions consisted of cash and stock with a fair value of $40.4 million. Of the $40.4 million purchase price, $32.2 million is expected to be settled through the issuance of 0.4 million shares of common stock. Of the $32.2 million that will be settled through the issuance of common stock, $28.8 million was issued as of September 30, 2021, and the remainder was withheld and may become issuable as additional merger consideration subject to the terms and conditions of the acquisition agreements.
Changes in Accumulated Other Comprehensive Income (Loss)
The amount recognized in AOCI for the nine months ended September 30, 2021 were as follows:
(In thousands)Unrealized
Gain (Loss)
on Marketable
Securities
Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, 2020$526 $526 
Other comprehensive loss before reclassifications(292)(292)
Amounts reclassified from accumulated other comprehensive loss(271)(271)
Net current period change in accumulated other comprehensive loss, before tax(563)(563)
Income tax expense related to items of other comprehensive income170 170 
Balance at September 30, 2021$133 $133 
The amounts recognized in AOCI for the nine months ended September 30, 2020 were as follows:
(In thousands)Foreign
Currency
Translation
Adjustments
Unrealized
Gain (Loss)
on Marketable
Securities (1)
Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, 2019$(25)$(75)$(100)
Other comprehensive loss before reclassifications— 1,159 1,159 
Amounts reclassified from accumulated other comprehensive loss25 — 25 
Net current period change in accumulated other comprehensive loss, before tax25 1,159 1,184 
Balance at September 30, 2020$— $1,084 $1,084 
______________
(1)There was no tax impact from the amounts recognized in AOCI for the three and nine months ended September 30, 2020.
Amounts reclassified from AOCI for the nine months ended September 30, 2021 and 2020 were as follows:
Affected Line Item in the
Statements of Operations
Nine Months Ended September 30,
Details about AOCI Components (In thousands)20212020
Change in value of available-for-sale investments
Sales and maturities of available-for-sale investmentsInvestment income (expense), net$(271)$— 
Foreign currency adjustmentGeneral and administrative— 25 
Total reclassifications$(271)$25 
v3.21.2
STOCK-BASED COMPENSATION
9 Months Ended
Sep. 30, 2021
Share-based Payment Arrangement [Abstract]  
STOCK-BASED COMPENSATION STOCK-BASED COMPENSATION
Stock-Based Compensation Plans
The Company maintains the 2010 Omnibus Long-Term Incentive Plan (As Amended and Restated Effective July 27, 2017), the 2019 Omnibus Long-Term Incentive Plan, the 2010 Employee Stock Purchase Plan, and the 2016 Inducement Award Plan (collectively, the “Stock Plans”).
Stock-Based Compensation Expense
The Company records stock-based compensation expense in connection with the amortization of restricted stock and restricted stock unit awards (“RSUs”), stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees, non-employee consultants and non-employee directors. The Company recorded $63.6 million and $41.5 million in stock-based compensation expense during the three months ended September 30, 2021 and 2020, respectively. The Company recorded $283.3 million and $111.1 million in stock-based compensation expense during the nine months ended September 30, 2021 and 2020, respectively.
As of September 30, 2021, there was $401.6 million of expected total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. The Company expects to recognize that cost over a weighted average period of 2.8 years.
In connection with the acquisition of Thrive, the Company accelerated the vesting of shares of previously unvested stock options and restricted stock units for employees with qualifying termination events. During the three months ended September 30, 2021, the Company accelerated 34,167 shares of previously unvested stock options and 24,865 shares of previously unvested restricted stock awards and restricted stock units and recorded $4.5 million of non-cash stock-based compensation for the accelerated awards. During the nine months ended September 30, 2021, the Company accelerated 138,163 shares of previously unvested stock options and 58,171 shares of previously unvested restricted stock awards and restricted stock units and recorded $19.0 million of non-cash stock-based compensation for the accelerated awards. As further discussed in Note 17, the Company also recorded $86.2 million in stock-based compensation related to accelerated vesting of awards held by Thrive employees in connection with the acquisition.
Stock Options
The Company determines the fair value of each service-based option award on the date of grant using the Black-Scholes option-pricing model, which utilizes several key assumptions which are disclosed in the following table:
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Option Plan Shares
Risk-free interest rates(1)(1)(1)
0.11% - 1.47%
Expected term (in years)(1)(1)(1)
0.25 - 6.15
Expected volatility(1)(1)(1)
44.19% - 77.51%
Dividend yield(1)(1)(1)—%
______________
(1)The Company did not grant stock options under its 2010 Omnibus Long-Term Incentive Plan or 2019 Omnibus Long-Term Incentive Plan during the period.
A summary of stock option activity under the Stock Plans is as follows:
OptionsSharesWeighted
Average
Exercise
Price (1)
Weighted
Average
Remaining
Contractual
Term(Years)
Aggregate
Intrinsic
Value(2)
(Aggregate intrinsic value in thousands)
Outstanding, January 1, 20212,231,059 $39.67 6.0
Granted— — 
Assumed through acquisition1,393,748 5.51 
Exercised