FORM 10‑K
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
For the fiscal year ended: December 31, | ||||||||
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||||
EXACT SCIENCES CORPORATION
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Common Stock, $0.01 Par Value EXAS Large accelerated filer x ¨ 174,116,598. EXACT SCIENCES CORPORATION We believe the competitive advantages of sDNA screening launched demographically-targeted, direct-to-patient advertising campaigns in digital, social, print, and other channels. •asymptomatic (no signs or symptoms of colorectal disease including, but not limited to, lower gastrointestinal pain, blood in stool, positive guaiac fecal occult blood test or fecal immunochemical test), and paid for many months, if at all. Furthermore, if a third-party payer denies coverage after final appeal, it may take a substantial amount of time to collect from the patient, if we are able to collect at all. We currently manufacture the Cologuard test. that the labeling claims cleared or approved by the FDA will be consistent with our current claims or adequate to support continued adoption of and reimbursement for our products. Ongoing compliance with FDA regulations could increase the cost of conducting our business, subject us to FDA inspections and other regulatory actions, and potentially subject us to penalties in the event we fail to comply with such requirements. LDTs, including without limitation our Oncotype tests. Covered Entities and business associates of Covered Entities. Penalties for violations of HIPAA include civil money and criminal penalties. plans, including potentially a temporary inability to provide tests to patients in the European Union. is not defined in the federal Anti-Kickback Statute and has been broadly interpreted to include anything of value, including for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payment, ownership interests and providing anything at less than its fair market value. Sanctions for violations of the federal Anti-Kickback Statute may include imprisonment and other criminal penalties, civil monetary penalties, and exclusion from participation in federal healthcare programs. Many states have also adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs, and do not contain identical safe harbors. 2022. Our success depends collaborations with third parties. In addition to the 2024. achieve our mission. To help our employees achieve financial well being and share in the success they create, we offer competitive base pay, a company-sponsored 401(k) plan with employer matching, retirement planning resources, employee stock purchase plan opportunities, stock awards upon hire and annually thereafter, and annual cash bonus programs. To help our employees get and stay healthy, we offer our employees generous health benefits, including among others, medical, dental, and vision care coverage for employees and their dependents; family formation benefits (such as adoption assistance, (in)fertility treatments, etc.), life, disability, and accident insurance and critical illness benefits; health care and dependent care flexible spending account programs and employer contributions to health savings accounts (for specific medical plans). To enable our employees to take the time they need to re-energize and focus on what matters most, we offer a parental leave program and ample time away benefits (vacation, sick, holidays, volunteer time, voting time, other leaves). To foster a culture of care and compassion, we offer an employee assistance program with employer-paid counseling coverage for employee and household members, charitable donation matches, commuter benefits, family care assistance, wellness programs, including fitness and mental health/well being, and more. 10-K. compliance with applicable laws and regulations and other factors. If we raise additional funds through the sale of equity, convertible debt or other equity-linked securities, our stockholders’ ownership will be diluted, and the market price of our common stock could be depressed. We may issue securities that have rights, preferences and privileges senior to our common stock. If we raise additional funds through collaborations, licensing arrangements or other structured financing transactions, we may relinquish rights to test and our Oncotype DX breast cancer test and the successful commercialization of our tests in development. We may be unable to compete effectively against our competitors either because their products and services are superior or because they If any of our facilities or our laboratory equipment were damaged or destroyed, or if we experience a significant disruption in our operations for any reason, our ability to continue to operate our business could be materially harmed. the near future as a commercially viable alternative. Further, Illumina may be the only commercially viable supplier of certain equipment and reagents necessary for future tests we may develop, including MCED, MRD, and recurrence monitoring tests. We U.S. are at will, which means that either we or the employee may terminate their employment at any time. If we are not able to attract and retain the necessary personnel, our business and operating results could be harmed. Any claim brought against us, with or without merit, could increase our liability insurance rates or prevent us from securing insurance coverage in the future. In addition, legal proceedings, and any adverse resolution thereof, can result in adverse publicity and damage to our reputation, which could adversely impact our business. reimbursement. payable to us. Any such action could have a negative impact on our revenues. our Cologuard test. Moreover, coverage determinations and reimbursement rates are subject to change, and we cannot guarantee that even if we initially achieve adequate coverage and reimbursement rates for our tests, they will operations. If we are unable to deploy and maintain effective sales, marketing and medical affairs capabilities, we will have difficulty achieving market awareness and selling our products and services. third-party coverage or reimbursement. Recommendations, guidelines, and quality metrics issued by various organizations reimburse our Cologuard test at adequate levels, if at all, which could adversely impact our business. Additionally, if our Cologuard test was removed from or not included in HEDIS, the Star Ratings, or other quality metrics, Any cancer diagnostic test we develop will need to address an unmet medical need with accurate performance and utility. offerings. Frequently, we must make those assumptions many years before a test is ready for clinical use. property. revenues and ability to achieve sustained profitability. collaborators or licensors may not lead to the establishment of collaborations on favorable terms, if at all. To the extent we agree to work exclusively with one collaborator in a given area, our opportunities to collaborate with other entities could be limited. Potential collaborators or licensors may reject collaborations with us based upon their assessment of our financial, regulatory, or intellectual property We may be subject to substantial costs and liability or be prevented from using technologies incorporated in our able to develop or commercialize competing products and services that do not infringe our affected to the extent third parties develop or commercialize competing products or services in countries where we did not apply for patents, where our patents have not issued, or where our intellectual property rights are not recognized. results. the indenture for the notes. In addition, the indenture and the convertible notes will prohibit us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations under the convertible notes and the indenture. These and other provisions in the indenture could deter or prevent a third party from acquiring us. Our stock price has fluctuated widely and is likely to continue to be volatile. sufficient to enable us to meet our payment obligations under the convertible notes and to fund other liquidity needs. If we are not able to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, including the convertible notes, sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may not be able to meet our payment obligations under the convertible notes, and such a default could cause us to be in default on any other currently existing or future outstanding Location Primary Function Total Square Feet (approx.) Leased or Owned Madison, Wisconsin Research and development, Research and development, Leased Year Ended December 31, 2018 2017 2016 2015 2014 (Amounts in thousands, except per share data) Statements of Operations Data: Revenue: $ 454,462 $ 265,989 $ 99,376 $ 39,437 $ 1,798 Cost of sales(1) 117,982 79,196 45,195 24,501 4,325 Gross margin 336,480 186,793 54,181 14,936 (2,527) Operating expenses: Research and development(1) 68,210 42,139 33,473 33,914 28,669 General and administrative(1) 178,293 109,040 76,898 57,950 30,435 Sales and marketing(1) 249,448 153,924 112,826 82,140 38,908 495,951 305,103 223,197 174,004 98,012 Loss from operations (159,471) (118,310) (169,016) (159,068) (100,539) Investment income 21,203 3,932 2,018 1,271 542 Interest expense (36,789) (206) (213) (6) (51) Net loss before tax (175,057) (114,584) (167,211) (157,803) (100,048) Income tax benefit (expense) (92) 187 — — — Net loss $ (175,149) $ (114,397) $ (167,211) $ (157,803) $ (100,048) Net loss per share: Basic and diluted $ (1.43) $ (0.99) $ (1.63) $ (1.71) $ (1.25) Weighted average common shares outstanding: Basic and diluted 122,207 115,684 102,335 92,135 80,232 Balance Sheet Data: Cash and cash equivalents $ 160,430 $ 77,491 $ 48,921 $ 41,135 $ 58,131 Marketable securities 963,752 347,224 262,179 265,744 224,625 Total assets 1,524,022 598,560 377,040 364,030 312,824 Convertible notes, net 664,749 — — — — Long-term debt 24,073 4,269 4,633 4,789 1,000 Other long-term liabilities 9,475 5,633 5,734 4,601 3,599 Total liabilities 843,081 78,142 41,745 37,174 23,840 Stockholders’ equity 680,941 520,418 335,295 326,856 288,984 2018 2017 2016 2015 2014 Cost of sales $ 3,531 $ 1,783 $ 1,064 $ 876 $ 279 Research and development 10,189 6,836 4,014 3,744 4,149 General and administrative 34,181 20,221 14,597 9,358 5,575 Sales and marketing 12,363 6,672 4,057 4,072 1,517 We have omitted discussion of 2019 results where it would be redundant to the discussion previously included in Management's Discussion and Analysis of Financial Condition and Results of Operations on Form 10-K for the year ended December 31, 2020, which has been filed with the SEC. people we serve. Results of Operations laboratory testing services will continue to depend on our ability to execute our order to cash operations efficiently. At each reporting period-end, we monitor our estimates of transaction price to ensure reflection of conditions that exist at each reporting date, and while we strive to restrict volatility in our realized reimbursement rates, changes in transaction price can occur. During the year ended December 31, 2021, we identified new constraints on variable consideration that had not previously existed resulting in an adjustment to revenue. Cost of sales (exclusive of amortization of acquired intangible assets).Cost of sales includes costs related to inventory production and usage, shipment of Amounts in millions 2018 2017 Change Production costs $ 82.8 $ 57.3 $ 25.5 Facility and support services 11.1 8.3 2.8 Personnel expenses 20.3 11.6 8.7 Stock-based compensation 3.5 1.8 1.7 Other cost of sales expenses 0.3 0.2 0.1 Total cost of sales expense $ 118.0 $ 79.2 $ 38.8 Amounts in millions 2018 2017 Change Personnel expenses $ 19.3 $ 13.9 $ 5.4 Direct research and development expenses 28.3 16.8 11.5 Professional and legal fees 5.3 2.1 3.2 Stock-based compensation 10.2 6.8 3.4 Other research and development expenses 5.1 2.5 2.6 Total research and development expenses $ 68.2 $ 42.1 $ 26.1 Amounts in millions 2018 2017 Change Personnel expenses $ 67.8 $ 42.7 $ 25.1 Facility and support services 37.8 21.1 16.7 Stock-based compensation 34.2 20.2 14.0 Professional and legal fees 30.9 20.1 10.8 Other general and administrative 7.6 4.9 2.7 Total general and administrative expenses $ 178.3 $ 109.0 $ 69.3 Amounts in millions 2018 2017 Change Personnel expenses $ 105.6 $ 70.4 $ 35.2 Direct marketing costs and professional fees 127.7 75.4 52.3 Stock-based compensation 12.4 6.7 5.7 Other sales and marketing expenses 3.7 1.4 2.3 Total sales and marketing expenses $ 249.4 $ 153.9 $ 95.5 Amounts in millions 2017 2016 Change Production costs $ 57.3 $ 30.0 $ 27.3 Personnel expenses 11.6 6.8 4.8 Facility and support services 8.3 7.2 1.1 Stock-based compensation 1.8 1.1 0.7 Other cost of sales expenses 0.2 0.1 0.1 Total cost of sales expenses $ 79.2 $ 45.2 $ 34.0 Amounts in millions 2017 2016 Change Personnel expenses $ 13.9 $ 11.5 $ 2.4 Stock-based compensation 6.8 4.0 2.8 Direct research and development expenses 16.8 13.8 3.0 Professional and legal fees 2.1 1.9 0.2 Other research and development expenses 2.5 2.3 0.2 Total research and development expenses $ 42.1 $ 33.5 $ 8.6 Amounts in millions 2017 2016 Change Personnel expenses $ 42.7 $ 31.8 $ 10.9 Professional and legal fees 20.1 11.9 8.2 Stock-based compensation 20.2 14.6 5.6 Other general and administrative expenses 4.9 2.9 2.0 Facility and support services 21.1 15.7 5.4 Total general and administrative expenses $ 109.0 $ 76.9 $ 32.1 Amounts in millions 2017 2016 Change Direct marketing costs and professional fees $ 75.4 $ 50.6 $ 24.8 Personnel expenses 70.4 57.4 13.0 Stock-based compensation 6.7 4.1 2.6 Other sales and marketing expenses 1.4 0.7 0.7 Total sales and marketing expenses $ 153.9 $ 112.8 $ 41.1 Liquidity and Capital Resources Oncotype tests. investments in privately held companies. $150.0 million. We Payments Due by Period Less Than More Than (In thousands) Total One Year 1 - 3 Years 3 - 5 Years 5 Years Convertible notes(1) $ 908,500 $ — $ — $ — $ 908,500 Long-term debt obligations(2) 43,054 943 2,085 26,035 13,991 Other long-term liabilities(3) 1,200 — — 1,200 — Operating lease obligations(4) 68,450 3,861 10,130 10,173 44,286 Total $ 1,021,204 $ 4,804 $ 12,215 $ 37,408 $ 966,777 As of December 31, consolidated balance sheet. Year Ended December 31, (In thousands) 2018 2017 2016 Medicare Parts B & C $ 254,431 $ 172,255 $ 81,976 Commercial 184,538 84,842 16,017 Other 15,493 8,892 1,383 Total $ 454,462 $ 265,989 $ 99,376 Item 7A. Quantitative and Qualitative Disclosures about Market Risk bonds, which as of December 31, Page and Stockholders of Exact Sciences Corporation and Internal Control over Financial Reporting fraud, and whether effective internal control over financial reporting was maintained in all material respects. opinions. December 31, December 31, 2018 2017 ASSETS Current Assets: Cash and cash equivalents $ 160,430 $ 77,491 Marketable securities 963,752 347,224 Accounts receivable, net 44,239 26,419 Inventory, net 39,148 26,027 Prepaid expenses and other current assets 20,498 10,055 Total current assets 1,228,067 487,216 Long-term Assets: Property, plant and equipment, net 245,259 79,986 Goodwill and intangibles, net 46,281 24,205 Other long-term assets, net 4,415 7,153 Total assets $ 1,524,022 $ 598,560 LIABILITIES AND STOCKHOLDERS’ EQUITY Current Liabilities: Accounts payable $ 28,141 $ 16,135 Accrued liabilities 100,644 49,126 Accrued interest 4,593 — Debt, current portion 8 182 Other short-term liabilities 3,204 2,681 Total current liabilities 136,590 68,124 Convertible notes, net 664,749 — Long-term debt, less current portion 24,073 4,269 Other long-term liabilities 9,475 5,749 Lease incentive obligation, less current portion 8,194 — Total liabilities 843,081 78,142 Commitments and contingencies Stockholders’ Equity: Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—no shares at December 31, 2018 and December 31, 2017 — — Common stock, $0.01 par value Authorized—200,000,000 shares issued and outstanding—123,192,540 and 120,497,426 shares at December 31, 2018 and December 31, 2017 1,232 1,205 Additional paid-in capital 1,716,894 1,380,577 Accumulated other comprehensive loss (1,422) (750) Accumulated deficit (1,035,763) (860,614) Total stockholders’ equity 680,941 520,418 Total liabilities and stockholders’ equity $ 1,524,022 $ 598,560The NASDAQNasdaq Stock Market LLCwell‑knownwell-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒x No ☐¨☐¨ No ☒x☒x No ☐¨S‑TS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒x No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S‑K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10‑K or any amendment to this Form 10‑K. ☒non‑acceleratednon-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act. (Check one): ☒Accelerated filer ☐Non‑accelerated filer ¨ Smaller reporting company ☐ Emerging growth company ☐ (Do not check if a Smaller reporting company ☐
Emerging growth company ☐☐¨☒xnon‑votingnon-voting common equity held by non‑affiliatesnon-affiliates of the Registrant, as of the last business day of the Registrant’s most recently completed second fiscal quarter was approximately $7,176,273,88321,211,910,456 (based on the closing price of the Registrant’s Common Stock on June 29, 201830, 2021 of $59.79$124.31 per share).20, 201921, 2022 was 125,760,907.2018.2021. Portions of such proxy statement are incorporated by reference into Part III of this Form 10‑K.Page No.Page No. 416383838383940415557105105105106106106106106107111112forward‑lookingforward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections. Forward‑lookingForward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward‑lookingforward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “would,” “could,” “seek,” “intend,” “plan,” “goal,” “project,” “estimate,” “anticipate” or other comparable terms. All statements other than statements of historical facts included in this Annual Report on Form 10‑K regarding our strategies, prospects, expectations, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding expected future operating results, anticipated results ofresults; our salesstrategies, positioning, resources, capabilities and marketing efforts, expectations concerning payer reimbursementfor future events or performance; and the anticipated resultsbenefits of our product development efforts.acquisitions, including estimated synergies and other financial impacts. Forward-looking statements are neither historical facts nor assurances of future performance.performance or events. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actualActual results, conditions and financial conditionevents may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results, conditions and financial conditionevents to differ materially from those indicated in the forward-looking statements include, among others, the following: uncertainties associated with the coronavirus (COVID-19) pandemic, including its possible effects on our operations, including our supply chain and clinical studies, and the demand for our products and services; our ability to efficiently and flexibly manage our business amid uncertainties related to COVID-19; our ability to raise additional capital in amounts and on terms satisfactory to us, if at all; our ability to successfully and profitably market our products and services; the acceptance of our products and services by patients and healthcare providers; our ability to meet demand for our products and services; the willingness of health insurance companies and other payers to cover our products and services and adequately reimburse us for such products and services; the amount and nature of competition from other cancer screening and diagnostic products and services; the effects of the adoption, modification or repeal of any healthcare reform law, rule, order, interpretation or policy; the effects of changes in pricing, coverage and reimbursement for our products and services, including without limitation as a resultservices; the effects of any judicial, executive or legislative action affecting us or the Protecting Access to Medicare Act of 2014;healthcare system; recommendations, guidelines and quality metrics issued by various organizations such as the U.S. Preventive Services Task Force, the American Cancer Society, and the National Committee for Quality Assurance regarding cancer screening or our products and services; our ability to successfully develop new products and services;services and assess potential market opportunities; our ability to effectively enter into and utilize strategic partnerships such as through our Promotion Agreement with Pfizer, Inc., and acquisitions; our success establishing and maintaining collaborative, licensing and supplier arrangements; our ability to obtain and maintain regulatory approvals and comply with applicable regulations; our ability to manage an international business and our expectations regarding our international expansion and opportunities; the potential effects of foreign currency exchange rate fluctuations and our efforts to hedge such effects; the possibility that the anticipated benefits from our business acquisitions will not be realized in full or at all or may take longer to realize than expected; the possibility that costs or difficulties related to the integration of acquired businesses’ operations will be greater than expected and the possibility that integration efforts will disrupt our business and strain management time and resources; the outcome of any litigation, government investigations, enforcement actions or other legal proceedings, including in connection with acquisitions; our ability to retain and hire key personnel including employees at businesses we acquire; and the other risks and uncertainties described in the Risk Factors and in Management's Discussion and Analysis of Financial Condition and Results of Operations sections ofin this Annual Report on Form 10‑K10-K and our subsequently filed Quarterly Reports on Form 10-Q. WeYou are further cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.3molecularleading, global, advanced cancer diagnostics company focused on the early detection and prevention ofcompany. We have developed some of the deadliest forms of cancer. We have developed an accurate, non-invasive, patient-friendly screening test called Cologuard® for the early detection of colorectalmost impactful tests in cancer and pre-cancer,diagnostics, and we are currently working on the development ofto develop additional tests, for other types of cancer, with the goal of becomingbringing new, innovative cancer tests to patients throughout the world.leader inroutine part of medical care. From screening to treatment guidance, we seek to help people get the answers they need to make more informed decisions across the cancer continuum. Our revenues are primarily generated by our laboratory testing services from our Cologuard® colorectal cancer screening test, our Oncotype DX® cancer diagnostic tests and diagnostics.Our Cologuard TestColorectalservices, and our COVID-19 test.istests to patients.second leading causeuse of hereditary cancer deaths in the United Statestesting (“U.S.”HCT”) and the leading cause of cancer deaths in the U.S. among non-smokers. Each yearand globally.U.S. there are approximately:
number of sales positions supporting its Internal Medicine therapeutic area, these employees had been promoting our Cologuard test under our promotion agreement (the “Promotion Agreement”) with Pfizer. Pursuant to a November 2021 amendment to our promotion agreement with Pfizer, Pfizer ceased promoting our Cologuard test on November 30, 2021.·146,000 new cases of colorectal cancer·51,000 deaths from colorectal cancerIt is widely accepted that colorectal•Acquisition of PFS Genomics — In May 2021, we acquired PFS Genomics Inc. (“PFS”), a healthcare company focused on personalizing treatment for breast cancer is amongpatients to improve outcomes and reduce unnecessary treatment.preventable, yet least prevented cancers. Colorectalcomprehensive genomic cancer can take uptests available. Ashion provides advanced whole exome, matched germline, and transcriptome sequencing capabilities.10-15 yearsThe Translational Genomics Research Institute’s (“TGen”) proprietary Targeted Digital Sequencing (“TARDIS”) technology for use in minimal residual disease (“MRD”). We are currently seeking to progress fromutilize TARDIS’s compelling and technically distinct approach to develop a pre-cancerous lesiontest to metastaticdetect small amounts of tumor DNA that may remain in cancer patients’ blood after they have undergone initial treatment.death. Patients who are diagnosed early inServices progression of the disease—with pre-cancerous lesions or polyps or early-stage cancer—are more likely to have a complete recovery and to be treated less expensively. Of the more than 85 million people between the ages of 50 and 85, who are at average-risk for colorectal cancer in the U.S., 38 percent have not been screened according to current guidelines. Internal studies have shown that approximately 50% of Cologuard users were previously unscreened for colorectal cancer. Poor compliance with screening guidelines has meant that nearly two-thirds of colorectal cancer diagnoses are made in the disease’s late stages. The five-year survival rates for stages 3 and 4 are 70 percent and 13 percent, respectively. We believe the large underserved population of unscreened and inadequately screened patients represents a significant opportunity for a patient-friendly screening test.Our Cologuard test, is a patient-friendly, non-invasive, stool-based DNA (“sDNA”) screening test that utilizes a multi-target approach to detect DNA and hemoglobin biomarkers associated with colorectal cancer and pre-cancer. Eleven biomarkers are targeted that have been shown to be strongly associated with colorectal cancer and pre-cancer. Methylation, mutation, and hemoglobin results are combined in the laboratory analysis through a proprietary algorithm to provide a single positive or negative reportable result.Changes in DNA methylation,the occurrence of mutations, alter gene expression and other mechanismsinadequately screened patients represents a significant opportunity for cell cycle regulation and differentiation. As a result, the affected cells continue to proliferate, often resulting in malignancies associated withour Cologuard test. It is widely accepted that colorectal cancer is among the most preventable, yet least prevented cancers. Colorectal cancer can take up to 10-15 years to progress from a pre-cancerous lesion to metastatic cancer and pre-cancer. Hemoglobin is the protein complex responsible for transporting oxygendeath. Patients who are diagnosed early in red blood cells. During the progression of the disease — with pre-cancerous lesions or early-stage cancer — are more likely to have a complete recovery and to be treated less expensively. Colorectal cancer is the probabilitysecond leading cause of bleeding into the colon increases. The presence of hemoglobin, released from red blood cells, can be detectedcancer deaths in the stool. Using sDNA Cologuard purifies, amplifiesUnited States (“U.S.”) and detects increased levelsthe leading cause of methylation, and presence of mutations,cancer deaths in specific genes. By combining these DNA indicators with a test for hemoglobin, Cologuard produces a multi-marker result effective for the detectionU.S. among non-smokers. Each year in the U.S. there are approximately 150,000 new cases of colorectal cancer and pre-cancerous adenomas.In August 2014approximately 53,000 deaths.granted premarket approval (“PMA”) toin August 2014, our Cologuard for use as a colorectal cancer screening test in adults 50 years of age and older who are at average-risk for colorectal cancer. Upon approval, Cologuard became the first and only FDA-approved sDNA non-invasive colorectal cancer screening test. Our original PMA submission toIn September 2019, the FDA expanded its indication to include average-risk individuals ages 45-49. Our Cologuard test is now indicated for Cologuard included the resultsaverage risk adults 45 years of our pivotal DeeP-C clinical trial that had over 10,000 patients enrolled at 90 sites in the U.S.age and Canada. The results of our DeeP-C clinical trialolder.Cologuard wereColorectal-Cancer Screening,” published in the New England Journal of Medicine in April 2014. The peer-reviewed study, “Multi-target Stool DNA Testing for Colorectal-Cancer Screening,”2014, highlighted the performance of the Cologuard test in the trial population:
its 10,000 patient Deep-C clinical trial:·Cancer Sensitivity: 92%
•Cancer Sensitivity: 92%·Stage I and II Cancer Sensitivity: 94%
•Stage I and II Cancer Sensitivity: 94%·High-Grade Dysplasia Sensitivity: 69%·Specificity: 87%4may provide a significant market opportunity. There are 85nearly 110 million people in the U.S.Americans between the ages of 50-8545 and 85 who are at average risk for colorectal cancer. At a three-year screening interval and an average revenue per test of approximately $500, this represents a potential $14$18 billion market for our Cologuard test.which our current share is approximately four percent.Our Cologuard Commercialization StrategyOur commercialization strategy includes three main elements focusing on physicians, patients,Americans between the ages of 45 and payers.Physicians and PatientsOur sales team actively engages with physicians and their staffs to emphasize the need85 who are at average risk for colorectal cancer are not up-to-date with screening educate them onaccording to the valueAmerican Cancer Society’s (“ACS”) colorectal cancer screening guidelines. We believe our Cologuard test helps more people get screened for colorectal cancer. Internal studies have shown that approximately 40% of surveyed Cologuard and facilitate their ability to order the test. We focus on specific physicians based on a combinationusers were previously unscreened for colorectal cancer.order history and ordering potential. We also focus on physician groups and larger regional and national health systems. We recently expanded our physician engagement and Cologuard marketing campaign through a Promotion Agreement (“Promotion Agreement”) with Pfizer, Inc. (“Pfizer”). The Promotion Agreementtest is discussedincluded in more detail below.Securing inclusion inkey guidelines and quality measures is a key part of our physician engagement strategy sincethat many physicianshealthcare providers rely on such guidelines and quality measures when making screening recommendations.June 2016,its updated guidelines released in May 2021, the U.S. Preventive Services Task Force (“USPSTF”) issued an updated recommendation statement for colorectal cancer screening and gave an "A" grade to colorectal cancer screening starting at age 50 and continuing until age 75. The statement specifies seven screening methods, including FIT-DNA,75 and Cologuard is the only version of FIT-DNA available in the U.S.Many professionala "B" grade to colorectal cancer screening for ages 45 to 49. The updated guidelines include our Cologuard test (referred to in the U.S., including those of the American Cancer Society (“ACS”) and the National Comprehensive Cancer Network (“NCCN”), recommend regular screening using any of a variety of methods. Since 2008, joint colorectal cancer screening guidelines endorsed by the ACS have included sDNA screening technologytheir statement as a screening option for the detection of colorectal cancer in average risk, asymptomatic individuals starting at age 50. In October 2014, the ACS updated its colorectal cancer screening guidelines to specifically include CologuardsDNA-FIT) as a recommended screening method for all average-risk patients in the 45-75 age group.and, as further discussed below, in May 2018 the ACS updated itsa recommended colorectal cancer screening guidelines to recommendtest in average-risk, asymptomatic individuals. The ACS recommends colorectal cancer screening beginbeginning at age 45 for people at average risk of the disease. In June 2016, the NCCN updated its Colorectalcolorectal cancer.Screening Guidelines to addNetwork (“NCCN”) includes sDNA screening at a once-every-three-years interval toin its list of recommended screening tests. In May 2018, the ACS updated its guidelines to recommend colorectal cancer screening beginning at age 45, rather than 50, for people at average risk of the disease due to the rising incidence rate within the 45-49 year-old population. There are 21 million people who are within the ages of 45-49, and we estimate approximately 19 million of them are at average risk for colorectal cancer and eligible for screening. Cologuard is currently indicated for average risk individuals age 50 years or older. We intend to seek FDA approval to expand Cologuard’s indication to people age 45 or older who are at average risk for colorectal cancer to align with the ASC updated guideline. We cannot be certain that FDA will grant such approval, or, if it does, when. Further, even if FDA does approve a label expansion, we cannot be certain that healthcare providers will prescribe, patients will use, or payers will reimburse Cologuard in the 45-49 age population.In October 2016, theColorectal Cancer Screening Guidelines.includedincludes sDNA testing on a three-year interval as one of the methods permitted for colorectal cancer screening in the 2017its most recent Healthcare Effectiveness Data and Information Set (“HEDIS”) quality measures. More than 90 percent of America’s health plans measure quality based on HEDIS. In April 2017, theincludedincludes our Cologuard test in its updated 2018most recent Medicare Advantage Star Ratings program.complianceadherence program, which involves active engagement with patients and providers.providers by our adherence team. This customer-oriented support activity is focused on encouraging and helping patients to complete Cologuard tests that have been ordered for them by their providers. We may undertake severala variety of activities to promote patient complianceadherence including letters, text messages, online chat, emails, and phone calls, and incentives such as gift cards.After the launchcalls.5In 2016, we beganWe promote our Cologuard test through a national television advertising campaign, with a majority of placements in national cable and syndicated programming widely viewed by our target patient demographic. In the second quarter of 2018,During 2021, in response to COVID-19, we extended our television advertising campaign to highlight the accuracy, ease of use, and commercial coverage of Cologuard. In 2019 we plan to increase our television advertising efforts, acceleratedeepened our investment in digital and social media, and embark upon other marketing initiatives designed to increase awareness of Cologuard.We are focused onvirtual resources, including strengthening our Cologuard core business by increasing the size of our nationwide salesforce.telehealth option for patients, which can be found on Cologuard.com. We advanced this goal in August 2018 by entering into a Promotion Agreement with Pfizer. Under the terms of the Promotion Agreement, Pfizer will promote Cologuard and provide certain sales, marketing, analytical and other commercial operations support services. We and Pfizer committed in the Promotion Agreementalso built new capabilities to invest specified amounts in the advertising and promotion of Cologuard. We agreed to pay Pfizer a service fee based on incremental gross profits over specified baselines and pay Pfizer royalties for Cologuard related revenues for a specified period after the expiration or termination of the Promotion Agreement. The initial term of the Promotion Agreement runs through December 31, 2021, but may be terminated by either party at any time on or after February 21, 2020 upon six months’ written notice to the other party.PayersSuccessful commercialization ofmarket our Cologuard test depends,to health systems, with a focus on health information technologies. Following the FDA’s September 2019 expansion and the USPSTF's updated guidelines in large part, on adequate reimbursement from government insurance plans,May 2021 of Cologuard’s indication to average risk individuals ages 45-49, we updated our direct-to-consumer efforts to educate and motivate this younger population to screen with our Cologuard test.organizationsgroup, and patient support network, is critical to the success of our Oncotype products. In our domestic sales, marketing and reimbursement efforts, we interact directly with medical, radiation, and surgical oncologists, urologists, pathologists, and payers. We employ a direct sales approach that targets oncologists, cancer surgeons and urologists, and utilizes medical education and scientific liaisons who target key opinion leaders. We also plan to continue conducting clinical studies with the objective of having results published in peer-reviewed journals. We believe the combination of these approaches is our best means to increase patient and healthcare provider awareness of our Oncotype products and services and the number of favorable reimbursement coverage decisions by third-party payers.insurance plans.In October 2014, CMS issued apayers. As outlined in CMS’s National Coverage Determination (“NCD”) for Cologuard following a parallel review process with the FDA. Medicare covers approximately half of patients in the current screening population for Cologuard. Cologuard was the first screening test approved by the FDA and covered by CMS through a parallel process. As outlined in the NCD,, Medicare Part B covers our Cologuard test once every three years for beneficiaries who meet all of the following criteria:·age 50 to 85 years,
•age 50 to 85 years,·asymptomatic (no signs or symptoms of colorectal disease including, but not limited to, lower gastrointestinal pain, blood in stool, positive guaiac fecal occult blood test or fecal immunochemical test), and· for developing colorectal cancer (e.g., no personal history of adenomatous polyps, colorectal cancer, or inflammatory bowel disease, including Crohn’s Disease and ulcerative colitis; no family history of colorectal cancers or adenomatous polyps, familial adenomatous polyposis or hereditary non-polyposis colorectal cancer).The Clinical Laboratory Fee Schedule (“CLFS”) for both 2018developing colorectal cancer (e.g., no personal history of adenomatous polyps, colorectal cancer, or inflammatory bowel disease, including Crohn’s Disease and 2019 set the CMS reimbursement rate for Cologuard at $508.87. Under the Protecting Access to Medicare Actulcerative colitis; no family history of 2014 (“PAMA”), payment rates for clinical diagnostic laboratory tests are calculated based on the volume-weighted mediancolorectal cancers or adenomatous polyps, familial adenomatous polyposis or hereditary non-polyposis colorectal cancer).we seek to secure favorable coverage and in-network reimbursement agreements from commercial payers. Mostmost commercial payers have issued positive coverage decisions for our Cologuard test, and we have entered intocontinue to negotiate contracts with several payers to include our Cologuard test as an in-network service. In-network agreements with payers have varying terms and conditions, including reimbursement rate, term, and termination. From time to time in the ordinary course of our business, we may enter into new agreements, certain existing agreements may expire without renewal and certain other existing agreements may be terminated early by us or the third-party payer. We6believe that commercial payers’ reimbursement of Cologuard will depend on a number of factors, including payers’ determination that it is: sensitive and specific for colorectal cancer; not experimental or investigational; approved or recommended by major organizations’ guidelines; reliable, safe and effective; medically necessary; appropriate for the specific patient; and cost-effective. Reimbursement may also be affected by whether Cologuard is in-network for a given payer. Also, someSome payers may apply various medical management requirements, including a requirement that they give prior authorization for a Cologuard test before they are willing to pay for it. Other payers may perform post-payment reviews or audits, which couldmay lead to payment recoupments. Medical management, such as prior authorizationspost-payment review or audits, may require that we, patients, or physicians provide the payer with extensive medical records and other information.Coverage ofregulations establish coverage requirements relevant to our Cologuard may also depend, in whole or in part, on whether payers determine, or courts and/or regulatory authorities determine, coverage is required under applicable federal or state laws mandating coverage of certain colorectal cancer screening services. For example, test.without imposing any patient cost-sharing (“ACA Mandate”). Similarly, federalcost-sharing. Following the June 2016 update to the USPSTF colorectal cancer screening recommendation statement,cost-sharing, and CMS has issued an updated Evidence of Coveragea notice foraffirming that Medicare Advantage plans that affirms such plans must include coverage of our Cologuard test every three years without patient cost-sharing. While we believe the ACA Mandate will require most health insurers to cover Cologuard without patient cost-sharing certain health insurers have disagreed and determined not to cover Cologuard and others may take that position in the future. It may be difficult for us or patients to enforce the ACA Mandate directly, and we may need to rely on states to take enforcement action, which they may choose not to do.It is also possible that the ACA Mandate will be repealed, overturned or significantly modified in the future.Congress may modify or repeal all or part of the ACA, and any such modification or repeal may repeal or limit the ACA Mandate for preventive services. Additionally, the ACA has been the subject of various legal challenges, which, if ultimately successful, could overturn the ACA Mandate. In December 2018, a federal district court in Texas held that the ACA is unconstitutional and unenforceable. The court’s decision is subject to appeal.Similarly, wesome insurers have agreed with our interpretation regarding certainmost of the state mandates other insurers have disagreed. In some cases, we have filed lawsuits in an effort to enforce state lawsapply beginning at age 50, we believe some should be interpreted to require coverage beginning at age 45.Cologuard,our Oncotype tests.may file additional suitsbill the third-party payer, the hospital or referring laboratory and/or the patient (for deductibles and coinsurance or copayments, where applicable) in the future. We mayaccordance with established policy, contract or agreement terms. Where there is no payer policy in place, we pursue third-party reimbursement on behalf of each patient on a case-by-case basis. Our efforts on behalf of these patients involve a substantial amount of time and expense, and bills may not be successful in any such lawsuit.are pursuing a variety of strategies to maximize commercial payerhave obtained coverage for Cologuard,our invasive breast cancer test outside of the U.S., including providing cost effectiveness data to payers to makecoverage for certain patients in Canada, France, Spain, Germany, Italy, Ireland, Israel, Netherlands, Saudi Arabia, Sweden, Switzerland, and the case for Cologuard reimbursement. U.K.are focusingexpect that our effortsinternational sales will be heavily dependent on large nationalthe availability of reimbursement, and regional insurers and health plans that have affiliated health systems.We believe quality metrics may influence payers’broadening coverage and contracting decisions, as well as physicians’ cancer screening procedures. Somereimbursement for our Oncotype and other tests outside of the United States will take years.payers are adopting pay-for-performance programs that differentiate paymentsinsurance plans for healthcare services based on the achievement of documented quality metrics, cost efficiencies or patient outcomes. Payers may look to quality measures, such as HEDIS and CMS Star Ratings, to assess quality of care. We believe Cologuard’s inclusion in the HEDIS measures and Star Ratings measures positively impacts payers’ willingness to reimburse Cologuard, as well as on healthcare providers’ willingness to prescribe the test. As partour commercialization strategy, we established a state-of-the-art, highly automated lab facilitythe art, high throughput clinical laboratories in Madison, Wisconsin that isare certified pursuant to federal Clinical Laboratory Improvement Amendments (“CLIA”) requirements to process Cologuard testsCLIA and provide patient results.accredited by CAP. Our commercial lab operation is housed in a 55,000 square foot facility in Madison, Wisconsin. At our lab, we currently have the capacity to process approximately three million tests per year.During the fourth quarter of 2017 we began construction of a new clinical lab facility in Madison, Wisconsin that is expected to be completed mid-2019. After the new clinical laboratory is operational, we expect our total lab capacity at both facilities will beis approximately seven million Cologuard tests per year, bywith the end of 2019.7theour Cologuard test in a facilityat two facilities in Madison, Wisconsin. As we expand the commercialization of Cologuard, we believe it will be necessary to expand our manufacturing capacity. Accordingly, we are in the process of building an additional manufacturing facility which we expect to complete in 2019. We are committed to manufacturing and providing medical devices and related products that meet customer expectations and applicable regulatory requirements. We adhere to manufacturing and safety standards required by federal, state, and local laws and regulations and operate our manufacturing facilities under a quality management system. We purchase certain components for our Cologuard test from third-party suppliers and manufacturers.Future Product OpportunitiesEnhance CologuardMay 2018,2022, we will continue to manufacture COVID-19 reagents out of our manufacturing facilities, and will now provide all the ACS updatedcomponents for the test kits to be assembled with a third-party vendor.guidelinesCLIA-accredited, CAP-certified clinical reference laboratory facility in San Diego, California. Beginning in 2022, a portion of our international Oncotype tests will be processed in our newly constructed facility in Trier, Germany, which is operated by a third-party partner.recommendprocess all of our tests. We are in the process of constructing additional facilities as we expand our business.beginning at age 45, rather than 50, for people at average riskis large, consisting of the disease due to the rising incidence rate within the 45-49 year-old population. There are nearly 21110 million people who are between the ages of 45-49, and we estimate approximately 19 million of them are at average risk for colorectal cancer and would be eligible for screening under the ACS guidelines. We plan to conduct clinical and other necessary work to gain FDA approval to expand Cologuard’s indication to peopleindividuals between the ages of 45 and 49 who are at average risk for colorectal cancer.In addition, we are seeking opportunities to improve upon Cologuard’s performance characteristics. For example, we are evaluating whether new biomarkers would increase specificity while maintaining sensitivity. If we could increase the specificity of Cologuard, we believe that would enhance its adoption as a front-line screening test. We are also evaluating ways that we might make Cologuard even easier for patients to use85, and opportunities for lowering the cost of providing Cologuard.The timing of any expansion of Cologuard’s indication or of any such enhancements to Cologuard is unknown and would be subject to FDA approval.Advance Liquid BiopsyWe also are focusing our research and development efforts on building a pipeline of potential future products and services with a focus on blood-based (“liquid biopsy”) tests. We will continue to advance liquid biopsy through biomarker discovery and validation in tissue and blood. We have identified proprietary biomarkers for several cancers, including liver cancer and lung cancer. We have successfully performed validation studies on tissue samples for thirteen cancers and on blood samples for eight cancers. The ACS estimates that liver cancer will be diagnosed in 42,000 Americans and cause 32,000 deaths in 2019, three-fourths of which will be hepatocellular carcinoma (“HCC”). Incidence and mortality rates are both increasing at approximately 3 percent per year. People who have been diagnosed with cirrhosis of the liver or Hepatitis B are at high risk of developing HCC. Evidence shows that HCC testing in these high-risk groups leads to earlier detection and improved outcomes. The NCCN and American Association for the Study of Liver Diseases (“AASLD”) guidelines recommend that these two groups be tested for HCC every six months using ultrasound and the blood-based biomarker alpha-fetoprotein (“AFP”). However, ultrasound and AFP are documented to have poor sensitivity for early stage cancer, which is the primary target of testing. We are currently seeking to develop a blood-based biomarker test to serve as an alternative to ultrasound and AFP for use in HCC testing, and our goal is to develop a patient-friendly test that performs better than this current standard of care. We are currently enrolling a case control study of at least 1,500 patients to finalize the development of our liver cancer test.The ACS estimates that, in the U.S. in 2019, lung cancer will be diagnosed in 228,000 people and cause 143,000 deaths. Currently, more than half of lung cancer cases are diagnosed at an advanced stage, after symptoms appear, when the five-year survival rate is in the low single digits. We are currently seeking to develop a blood-based biomarker test to aid in the early detection of lung cancer in individuals with lung nodules discovered through a computerized tomography (“CT”)8or other scan. Such a test may help reduce the number of follow-up procedures, and thereby reduce costs and improve health outcomes.Research and DevelopmentResearch and development costs account for a material portion of our operating expenses. As we seek to enhance Cologuard and expand our product pipeline by developing additional cancer screening and diagnostic tests, we expect that our research and development expenditures will continue to increase.CompetitionThe U.S. market for colorectal cancer and pre-cancer screening is large, consisting of more than 85 million individuals between the ages of 50 and 85. If the screening population includes 45-49 year olds, as recommended by the ACS, the colorectal cancer screening market would increase by approximately 19 million people to approximately 104 million people. Given the large market for colorectal cancer screening, we facehas attracted numerous competitors, some of which possess significantly greater financial and other resources and development capabilities than us.competitors. Our Cologuard test faces competition from procedure‑basedprocedure-based detection technologies such as colonoscopy, flexible sigmoidoscopy, and “virtual” colonoscopy - a radiological imaging approach that visualizes the inside of the bowel by CT scan (spiral computerized axial tomography), - as well as other common screening tests, such as the fecal occult blood test (“FOBT”("FOBT") and the fecal immunochemical test (“FIT”), and newerother screening technologies. Newer screening technologies include liquid biopsy tests, such as Epi proColon, which was approved by the FDA in April 2016, and pill-based imaging solutions like PillCam COLON, which was cleared by the FDA in February 2014, and C-Scan, which obtained a CE Mark in early 2019. As noted below, a number of companies are developing liquid biopsy tests for colorectal cancer screening, as well as other applications.In addition, some companies and institutions are developing liquid biopsy tests based on the detection of proteins, tumor cells, nucleic acids, epigenetic markers, or other biomarkers in the blood. These tests could represent significant competition for Cologuard and other tests we may develop. We are aware of at least 13 companies—Epigenomics AG, EDP Biotech Corporation, Freenome Inc., GRAIL, Inc., CellMax, Inc., Volition Diagnostics, Cambridge Epigenetix Limited, Nucleix Ltd., Singlera Genomics, DiaCarta, Genomictree, Bioprognos, and PapGene, Inc. — that have developed, or are developing, liquid biopsy tests for the detection of colorectal cancer. Epigenomics AG received FDA approval for its liquid biopsy screening test for colorectal cancer, Epi proColon, in April 2016, and began offering the test commercially in May 2016. We also are aware of at least two companies, DiaTech and Geneoscopy, that have launched outside the U.S., or are seeking to develop, stool-based colorectal cancer tests based on the detection of nucleic acids.We believe other companies are also working on liquid biopsy tests using next‑generation sequencing or other technologies, and these tests could represent significant competition for Cologuard and other tests we may develop. compliance, andadherence, or high cost. For example, colonoscopy requires advanceadvanced dietary restrictions and bowel cleansing and can be uncomfortable, time‑consuming,time-consuming, hazardous, and expensive. Colonoscopy requires sedation, potential lost time from work, and someone to drive the patient home from the procedure. A 2010 study shows that seven7 out of 10 people age 50 and older who were told they should get a colonoscopy did not do so primarily due to fears.fear. Fecal blood testing, including FIT testing, suffers from poor sensitivity, with only a 74 percent74% detection rate for cancer and 24 percent24% detection rate for pre‑cancers.pre-cancer. The blood‑basedblood-based DNA tests currently available are also disadvantaged by relatively low sensitivity. Epigenomics AG has reported that the Epi proColon test has an overall cancer sensitivity rate of 68 percent,68%, and only 59 percent59% for early-stage cancer. Additionally, FIT testing suffers from low adherence over time. One study published in the American Journal of Managed Care demonstrated that only three3 out of every 1,000 patients studied adhered to fecal test screening guidelines during a continuous 10-year observation period.Cologuard test, as we seek to develop otherprincipal competition for our Oncotype tests to detect cancerhas also come from existing diagnostic methods used by pathologists and pre-cancer, we expectoncologists, and such traditional diagnostic methods can be difficult to compete with or supplement. Our Oncotype tests also face competition from commercial laboratories with strong distribution networks for diagnostic tests, such as Laboratory Corporation of America Holdings and Quest Diagnostics Incorporated. Other potential competitors include companies that develop diagnostic tests such as Roche Diagnostics, a broad rangedivision of organizationsRoche Holding, Ltd, and Siemens AG, as well as other companies and academic and research institutions.other countries that are engagedclinical operations, encourage healthcare provider participation in the development, productionMedicare-required information collection efforts, and commercialization of cancer screening and diagnostic products and services. These competitors include:9
successfully expand our reach into additional product markets including through collaborations with third parties.
In addition to our on-market products, we intend to offer additional liquid biopsy tests that:·may haveare more expertise, experience, financial resources, or stronger business relationships. These competitors may have broader product lines and greater name recognition than we do. We have limited experience developing tests for detecting non-colorectal cancers and cannot guarantee that our research and development activities will be successfuleffective in developing any marketable testingor commercializing competing products and services are more effective in developing or commercializing competing products and services. Furthermore, even if we do develop new marketable products or services, our current and future competitors may develop products and services that are more clinically or commercially attractive than ours, and they may bring those products and services to market earlier or more effectively than us.We If we are inunable to compete successfully against current or future competitors, we may be unable to increase market acceptance for and sales of our tests, which could prevent us from increasing or sustaining our revenues or achieving sustained profitability and could cause the early stagesmarket price of Cologuard’s commercialization andour common stock to decline.physicians,healthcare providers, climate and weather conditions in our markets,, seasonal conditions that may affect medical practices and provider activity, including for example influenza outbreaks that may reduce the percentage of patients that can be seen, for preventive care such as colorectal cancer screening, and other factors relating to the timing of patient deductibles and co-insurance limits.Government stateforeign laws, including anti-fraud and abuse, anti-kickback and patient privacy. Failure to comply with applicable requirements can lead to sanctions, including withdrawal of products from the market, recalls, refusal to authorize government contracts, product seizures, exclusion from participation in federal and state healthcare programs, civil money penalties, injunctions, and criminal prosecution.The FDA granted premarket approval (“PMA”) for Cologuard in August 2014. arewere required to conduct a post-approval study. AThe post-approval study concluded in 2020 and final report on this study is dueresults were submitted to the FDA in late 2020. There can be no assurance that the results of this study will be satisfactory and will not cause the FDA to modify or withdraw our approval for Cologuard.We may develop newarewe seek to develop may be regulated by the FDA as medical devices. The regulatory review and approval process for medical devices can be costly, timely, and uncertain. This process may involve, among other things, successfully completing additional clinical trials and submitting a premarket clearance notice or filing a premarket approval application with the FDA. If premarket review is required by the FDA, there can be no assurance that our tests will be cleared or approved on a timely basis, if at all. In addition, there can be no assurance10We may also develop diagnostic products or services that, under today’s laws, would be regulated as laboratory developed tests (“LDTs”) under CLIA. However, as noted below, the regulation of LDTs may be in flux, as the FDA retracted a proposal for increased LDT oversight in January 2017 and continues to apply enforcement discretion.diseasediseases and uncommon conditions.In October 2014,published two draft guidancehas issued documents describing a proposed risk-based framework under which theoutlining its intent to require varying levels of FDA might regulate LDTs.oversight of many LDTs, including our tests. The FDA’s draft framework proposed, among other things, premarket review for higher-risk LDTs, such as those that have the same intended use as FDA-approved or cleared diagnostics currently on the market. In November 2015, the FDA issued a report citing evidence for the need for additional regulationhas yet to implement any form of oversight requirements with respect to LDTs, and stated the FDA is continuing to work to finalize premarket review requirements for LDTs. However, in November 2016 the FDA announced it would not issue a final guidance for LDTs. In January 2017, the FDA issued a Discussion Paper on LDTs, whichconfirmed it would not finalize its guidance on the regulation of LDTs to allow more time for public discussion and time for the congressional authorizing committees to develop a legislative solution. It is unclear at this time if or when the FDA endends enforcement discretion for LDTs. It is also unclear whether the FDA may decide to regulate certain LDTs on a case-by-case basis at any time. Action by the FDA to exercise enforcement discretion over LDTs may materially impact our development and commercialization of LDTs. and Florida, impose certification requirements for clinical laboratories, and establish standards for quality assurance and quality control, among other things. CLIA provides that a state may adopt different or more stringent regulations than federal law and permits states to apply for exemption from CLIA if the state’s laboratory laws are equivalent to or more stringent than CLIA. For example, the State of New York’s clinical laboratory regulations, which have received an exemption from CLIA, contain provisions that are in certain respects more stringent than federal law. Therefore, as long as New York maintains a licensure program that is CLIA-exempt, we will need to comply with New York’s clinical laboratory regulations in order to offer our clinical laboratory products and services in New York.11HIPAA. Beginning in 2020 we will also need to comply withHIPAA including the California Consumer Privacy Act of 2018, which protects personal information other than health information covered by HIPAA. InHIPAA and allows certain data access and erasure rights to California consumers. Further, we are required to comply with international personal data protection laws and regulations, including the E.U., theEuropean Union's General Data Protection Regulation (“GDPR”) took effect. The GDPR is a prescriptive, detailed regulation that provides extensive powers to public authorities to sanction and stop use of personal data. While companies are afforded some flexibility in May 2018determining how to comply with the GDPR’s various requirements, the GDPR has and imposes increasingly stringent data protectionwill continue to require significant effort and privacy rules. expense to ensure compliance. All of these laws may impact our business and may change periodically, which could have an effect onadversely affect our business operations if compliance becomes substantially costlier than under current requirements.operations. Our failure to comply with these privacy laws or significant changes in the laws restricting our ability to obtain stool, tissue, blood, and other patient samples and associated patient information could significantly impact our business and our future business plans.Antifraudantifraudanti-fraud and abuse laws, including the Federal False Claims Act. Many of these antifraudanti-fraud laws are broad in scope, and neither the courts nor government agencies have extensively interpreted these laws. Prohibitions under some of these laws include:·the submission of false claims or false information to government programs;
•the submission of false claims or false information to government programs,·the retention of any overpayments by governmental payers;
•the retention of any overpayments by governmental payers,·deceptive or fraudulent conduct;
•deceptive or fraudulent conduct,·excessive or unnecessary services or services at excessive prices; and
•excessive or unnecessary services or services at excessive prices, and·defrauding private sector health insurers.antifraudanti-fraud and abuse laws. In addition, private insurers may also bring private actions. In some circumstances, private whistleblowers are authorized to bring fraud suits on behalf of the government against providers and are entitled to receive a portion of any final recovery.may identifyhave identified overpayments and be required to refund those amountsmade refunds to government payers.“Self‑Referral”“Self-Referral” and “Anti-Kickback” RestrictionsAnti‑Kickback12Self‑Referral“self‑referral”“self-referral” law, commonly referred to as the “Stark” law, provides that physicianshealthcare providers who, personally or through a family member, have ownership interests in or compensation arrangements with a laboratory are prohibited from making a referral to that laboratory for laboratory tests reimbursable by Medicare, and also prohibits laboratories from submitting a claim for Medicare payments for laboratory tests referred by physicianshealthcare providers who, personally or through a family member, have ownership interests in or compensation arrangements with the testing laboratory. The Stark law contains a number of specific exceptions which, if met, permit physicianshealthcare providers who have ownership or compensation arrangements with a testing laboratory to make referrals to that laboratory and permit the laboratory to submit claims for Medicare payments for laboratory tests performed pursuant to such referrals. We are subject to comparable state laws, some of which apply to all payers regardless of source of payment, and do not contain identical exceptions to the Stark law.or CHIP, to report annually to CMS any payments or other transfers of value made to physicianshealthcare providers and teaching hospitals, unless an exception applies. Manufacturers must also disclose to CMS any physicianhealthcare provider ownership or investment interests. Some states have similar transparency laws. Our failure to comply with any applicable transparency reporting requirements may subject us to substantial penalties.healthcare‑relatedhealthcare-related facilities. In addition, because our operations require employees to use certain hazardous chemicals, we also must comply with regulations on hazard communication and hazardous chemicals in laboratories. These regulations require us, among other things, to develop written programs and plans, which must address methods for preventing and mitigating employee exposure, the use of personal protective equipment, and training. for Cologuard subject us to regulations of the Department of Transportation, the United StatesU.S. Postal Service, and the Centers for Disease Control and Prevention that apply to the surface and air transportation of clinical laboratory specimens.2018,2021, and there are no material expenditures planned for such purposes for the year ended December 31, 2019.13 to a significant degree upon our ability to protect our technologies through patent coverage. As of December 31, 2018,2021, we owned 43had 144 issued patents in the U.S. and 42765 issued patents outside of the U.S., which includes validated patents issued by the European Patent Office in key European Union countries, covering genes and methods that are components of the Cologuard test, Oncotype DX breast, colon and prostate cancer tests, pipeline technologies or research methods, and platform technologies. In addition, we have a number of pending patent applications in the United States,U.S. and 87in other countries, including provisional and non-provisional filings. Our issued U.S. patents expire at various times between 2022 and 67 pending2039. Some of these U.S. patent applications also have corresponding pending or granted applications under the Patent Cooperation Treaty in foreignCanada, Europe, Japan, Australia, and other jurisdictions.As further described In these patent applications, we have either sole or joint ownership positions. In certain cases where joint ownership positions were created, we have negotiated contractual provisions providing us with the opportunity to acquire exclusive rights under the patent applications. Under some patent applications, we have elected to allow exclusive options to lapse without exercising the option. The joint ownership agreements generally are in the “License Agreements” section below, we acquired certain patents related to Cologuard from MDxHealth (“MDx”) on April 25, 2017 as partform of a royalty buy-out agreement and patent purchase agreement.In December 2017, we entered into an asset purchase agreement (the “Armune Purchase Agreement”) with Armune BioScience, Inc. (“Armune”), pursuant to which we acquired intellectual property and certain other assets underlying Armune’s APIFINY®, APIFINY® PRO and APIFINY® ACTIVE SURVEILLANCE prostate cancer diagnostic tests. The portfolio of Armune assets we acquired is expected to complement our product pipeline. The total consideration was comprised of an up-front cash payment of $12.0 million and $17.5 million in contingent payment obligationsmaterial data transfer agreements that will become payable upon our achievement of development and commercial milestones usingwere executed at the acquired intellectual property. In connection with the Armune Purchase Agreement, Armune terminated a license agreement pursuant to which it licensed certain patent rights and know-how from the Regents of the University of Michigan (“University of Michigan”), and we entered into a license agreement with the University of Michigan with respect to such patent rights and know-how, as well as certain additional intellectual property rights. Pursuant to our agreement with the University of Michigan, we are required to pay the University of Michigan a low single-digit royalty on our net sales of products using the licensed intellectual property.Eachonset of our patents generally has a term of 20 years from its respective priority filing date. Of our issued patents referenced above, the earliest is set to expire in 2020 and the last of these will expire in 2035.andor maintenance fees.Foundation for Medical Education and Research (“Mayo”). Our license agreement with Mayowhich was amended and restated in February 2015 and furthermost recently amended in January 2016, October 2017, and in December 2018.September 2020. Under the license agreement, Mayo granted us an exclusive, worldwide license to certain Mayo patents and patent applications, as well as a non‑exclusive,non-exclusive, worldwide license with regard to certain Mayo know‑how.know-how. The scope of the license covers any screening, surveillance, or diagnostic teststest or toolstool for use in connection with any type of cancer, pre-cancer, disease, or condition.Mayo has agreed to make available personnel through January 2020 to provide us product development and research and development assistance.a low single-digit royalty on our net sales of products using the licensed Mayo intellectual property, with minimum annual royalty fees of $25,000 each year during the term of the Mayo agreement. The January 2016 amendment to the Mayo license agreement established various low single-digit royalty rates on net sales of current and future products and clarified how net sales will be calculated. As partusing the licensed Mayo intellectual property during the term of the January 2016 and October 2017 amendments, the royalty rate on our net sales of Cologuard increased, but the rate remained a low single-digit percentage of net sales. Mayo agreement.14royalty ratesroyalties described above, we are also required to pay Mayo cash of $0.2 million, $0.8 million, and $2.0 million upon each product using the licensed Mayo intellectual property reaching $5.0 million, $20.0 million, and $50.0 million in cumulative net sales, respectively.February 2015September 2020 amendment, and restatement of the license agreement, we agreed to pay Mayo an additional $5.0$6.3 million, payable in five annual installments, through 2019.20332039 (or later, if certain licensed patent applications are issued). However, if we are still using the licensed Mayo know‑howknow-how or certain Mayo‑providedMayo-provided biological specimens or their derivatives on such expiration date, the term shall continue until the earlier of the date we stop using such know‑howknow-how and materials and the date that is five years after the last of the licensed patentspatent expires. The license agreement contains customary termination provisions and permits Mayo to terminate the license agreement if we sue Mayo or its affiliates, other than any such suit claiming an uncured material breach by Mayo of the license agreement.HologicOctober 2009,addition to granting us a license to the covered Mayo intellectual property, Mayo provides us with 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.entered intoacquired a technologyworldwide exclusive license agreement with Hologic, Inc. (“Hologic”). Under the license agreement, Hologic granted us an exclusive, worldwide license within the fieldJHU for use of human stool based colorectal cancer and pre‑cancer detection or identification with regard to certain Hologic patents, patent applications and improvements, including Hologic’s Invader detection chemistry (the “Covered Hologic IP”). The licensedseveral JHU patents and patent applications contain both methodlicensed know-how. We are seeking to utilize the JHU licensed technology to develop and composition‑of‑matter claims.commercialize a blood-based MCED test. The jurisdictions covered by these patentsagreement terms include single-digit sales-based royalties and patent applications include the U.S., Australia, Canada, China, the European Union, Japan,sales-based milestone payments of $10.0 million, $15.0 million, and Korea. The license agreement also provided$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.with non‑exclusive, worldwide licenses to the Covered Hologic IP within a field covering clinical diagnostic purposes relating to colorectal cancer (including cancer diagnosis, treatment, monitoring or staging) and the field of detection or identification of colorectal cancer and pre‑cancers through means other than human stool samples. In December 2012, we entered into an amendment to this license agreement with Hologic pursuant to which Hologic granted us a non‑exclusive worldwide license to the Covered Hologic IP withincovered JHU intellectual property, JHU provides us with research and development assistance pursuant to other collaboration arrangements.fieldclarity to take life-changing action earlier drives us to find ambitious, dynamic individuals who thrive in a team-based environment. To facilitate talent attraction and retention, we strive to make Exact Sciences a diverse and inclusive workplace, with opportunities for our employees to grow and develop in their careers, supported by strong compensation, benefits, and health and wellness programs.any disease or condition within, related to or affecting the gastrointestinal tract and/or appended mucosal surfaces.Wewhich were full-time employees. More than 97% of our employees are required to pay Hologic a low single-digit royalty on our net sales of products using the Covered Hologic IP.Unless earlier terminated in accordance with the agreement, the license agreement will remain in effect until the last of the licensed patents expires in 2029. The agreement contains customary termination provisions which, among other things, permit terminationlocated in the event of material uncured breaches.MDx HealthIn July 2010, we entered into a technology licenseUnited States and royalty agreement (“MDx License Agreement”) with MDx Health (formerly Oncomethylome Sciences, S.A.) (“MDx”). Under the MDx License Agreement, MDx granted us a royalty bearing, exclusive, worldwide license to certain patents. Under the MDx License Agreement, we were obligated to make commercially reasonable efforts to bring products covered by the license agreement to market. We were required to pay MDx a low-single digit royalty fee, subject to an annual minimum, as well as various milestone payments.Effective April 2017, we and MDx entered into a Royalty Buy-Out Agreement, which terminated the MDx License Agreement. Pursuant to the Royalty Buy-Out Agreement, we paid MDx a one-time fee of $8.0 million in exchange for an assignment of certain patents covered by the MDx License Agreement and the elimination of all ongoing royalties and other payments by us to MDx under the MDx License Agreement. Also included in the Royalty Buy-Out Agreement is a mutual release of liabilities, which includes all amounts previously accrued under the MDx License Agreement. Concurrently with entering into the Royalty Buy-Out Agreement, we entered into a Patent Purchase Agreement with MDx under which we paid MDx an additional $7.0 million in exchange for the assignment of certain other patent rights that were not covered by the MDx License Agreement.15 AcquisitionsIn October 2018, we completed the acquisition of Biomatrica, Inc. (“Biomatrica”), a privately held company specializing in the collection and preservation of biological materials. In the acquisition, we acquired all of the outstanding equity interests for an aggregate purchase price of $20.0 million net of cash received, debt repaid and certain other adjustments. Contingent consideration for up to an additional $20.0 million could be earned based upon certain revenue milestones being met. EmployeesAs of December 31, 2018, we had 1,977 full‑time employees. Nonenone of our employees are represented by a labor union. During fiscal year 2021, our voluntary turnover rate was approximately 12%, below the healthcare industry benchmark, which is comprised of certain of our key competitors (Aon, 2021 Salary Increase and Turnover Study — Second Edition, December 2021).considerbelieve diversity in thought, experience, perspective, and background within our relationshipteam is necessary to support our core value of innovation. We are firmly committed to providing equal opportunity in all aspects of employment and will not discriminate in any employment decision because of a person’s race, color, sex, religion, national origin, age, disability, sexual orientation, gender identity, genetic information, veteran status, or any other basis prohibited by applicable law. In order to increase the pool of diverse candidates for open positions, we partner with community resource groups and participate in diversity-focused career fairs.generallya sense of ownership in our company, and pride and determination to be good.10‑K10-K and accompanying notes to the consolidated financial statements.441 Charmany Drive,5505 Endeavor Lane, Madison, Wisconsin 53719. Our telephone number is 608‑284‑5700.608-284-5700. Our Internet website address is www.exactsciences.com. Our Annual Report on Form 10‑K,10-K, Quarterly Reports on Form 10‑Q,10-Q, Current Reports on Form 8‑K, including exhibits, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through the investor relations page of our Internet website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our Internet website and the information contained therein or connected thereto are not intended to be incorporated into this Annual Report on Form 10‑K.formed and only began generating revenue from Cologuard, our only product, in 2014.formed. From our date of inception on February 10, 1995 through December 31, 2018,2021, we have accumulated a total deficit of approximately $1.0$2.64 billion. We expect to continue investing significantly toward development and commercialization of our colorectal cancer screening technology, our Oncotype tests, our blood-based multi-cancer early detection test and other products and services. If our revenue does not grow significantly,faster than our operating expenses, we will not be profitable. We cannot be certain that the revenue from the sale of any products or services based on our technologies will be sufficient to make us profitable.16certain of our technologies or products or services, grant security interests in our assets or grant licenses to third parties on terms that are unfavorable to us.test.test.and Oncotype DX breast cancer tests. There can be no assurance that we will develop or commercialize any other productproducts or serviceservices that will generate significant revenue. The commercial success of our Cologuard testtests and our ability to generate revenues will depend on a variety of factors, including the following:·acceptance in the medical community;
•acceptance in the medical community;·inclusion of Cologuard in healthcare guidelines and recommendations, such as those developed by ACS and USPSTF;
•inclusion in healthcare guidelines and recommendations, such as those developed by ACS, USPSTF, American Society of Clinical Oncology, and NCCN and similar guidelines and recommendations outside the United States;·inclusion of Cologuard in quality measures including the HEDIS measures and the CMS Medicare Advantage Star Ratings;
•inclusion in quality measures including the HEDIS measures and the CMS Medicare Advantage Star Ratings;·recommendations and studies regarding Cologuard specifically or colorectal cancer screening generally that may be published by government agencies, professional organizations, academic or medical journals or other key opinion leaders;
•recommendations and studies that may be published by government agencies, companies, professional organizations, academic or medical journals or other key opinion leaders;·patient acceptance of and demand for the Cologuard test;
•patient acceptance and demand;·patient compliance with orders for the Cologuard test by healthcare providers, and patient adherence over time to recommendations regarding periodic re-screening;
•patient compliance with orders for our tests by healthcare providers, and patient adherence to recommendations regarding periodic re-testing;·successful sales, marketing, and educational programs, including successful direct-to-patient marketing such as television advertising and social media;
•successful sales, marketing, and educational programs, including successful direct-to-patient marketing such as television advertising and social media;·the number of patients screened for colorectal cancer, as well as the number of patients who use Cologuard for that purpose;
•the number of patients screened for colorectal cancer, as well as the number of patients who use our Cologuard test for that purpose; ·sufficient coverage and reimbursement by third-party payers, which may depend in whole or in part on multiple factors, including federal or state laws that mandate coverage for colorectal cancer screening, the extent to which those laws mandate coverage of Cologuard and the enforcement of those laws;
•the number of women diagnosed with breast cancer;·the amount and nature of competition from other colorectal cancer or pre-cancer screening products and procedures;
•sufficient coverage and reimbursement by third-party payers within and outside the U.S.;·maintaining FDA marketing approval of Cologuard;
•the existence of federal or state laws that mandate coverage for colorectal cancer and other types of screening, the extent to which those laws mandate coverage of our tests and the enforcement of those laws; ·the ease of use of our ordering process for physicians;
•the amount and nature of competition from other products and procedures; ·maintaining and defending patent protection for the intellectual property relevant to Cologuard; and
•maintaining regulatory approvals to legally market;·our ability to establish and maintain adequate commercial manufacturing, distribution, sales and CLIA laboratory testing capabilities.develop and maintain substantialcontinue to grow sales of our Cologuard testand Oncotype DX breast cancer tests or if we are significantly delayed or limited in doing so, our business prospects, financial condition and results of operationoperations would be adversely affected. quarterly operating results could be subject to significant fluctuation, which could increase the volatility of our stock price and cause losses to our stockholders.·our success in marketing and selling, and changes in demand for, our Cologuard test, and the level of reimbursement and collection obtained for Cologuard;·seasonal variations affecting physician recommendations for colorectal cancer screenings and patient compliance with physician recommendations, including without limitation holidays, weather events, and circumstances such as the outbreak of influenza that may limit patient access to medical practices for preventive services such as colorectal cancer screening;17
•seasonal variations affecting healthcare provider recommendations for our tests and patient compliance with healthcare provider recommendations, including without limitation holidays, weather events, and circumstances such as the outbreak of influenza that may limit patient access to medical practices for diagnostic tests and preventive services;
•the pricing of our tests, including potential changes in CMS or other reimbursement rates;·our success in collecting payments from third-party payers, patients and collaborative partners, variation in the timing of these payments and recognition of these payments as revenues;
•circumstances affecting our ability to provide our tests, including weather events, supply shortages, or regulatory or other circumstances that adversely affect our ability to manufacture our tests or process tests in our clinical laboratories;·the pricing of our Cologuard test, including potential changes in CMS or other reimbursement rates;
•fluctuations in the amount and timing of our selling and marketing costs and our ability to manage costs and expenses and effectively implement our business; and·circumstances affecting our ability to provide our Cologuard test, including weather events, supply shortages, or regulatory or other circumstances that adversely affect our ability to manufacture our Cologuard test or process Cologuard tests in our clinical laboratory;
•our research and development activities, including the timing, size, complexity, and cost of clinical studies.·fluctuations in the amount and timing of our selling and marketing costs and our ability to manage costs and expenses and effectively implement our business; and·our research and development activities, including the timing of costly clinical trials.OtherWe face intense competition from other companies and may not be able to compete successfully.institutionshave announced that they are developing products that compete with ours. Some of our current and potential competitors may develop and market novel or improved technologies,have significant competitive advantage over us, which may make our technologies, including our Cologuard test, less competitivethem more attractive to hospitals, clinics, group purchasing organizations and physicians, including:obsolete.The U.S.more established distribution networks and customer bases;for colorectal cancertheir products;pre-cancer screening is large, consisting of more than 85 million individuals between the ages of 50manufacturing capabilities and 85. If the screening population includes 45-49 year olds, as recommended by the ACS, the colorectal cancer screening market would increase by approximately 19 million people to approximately 104 million people. Given the large market for colorectal cancer screening, we face numerous competitors, some of which possess significantly greater financial resources; and otherand development capabilities than us. Our Cologuard test faces competition from procedure‑based detection technologies such as colonoscopy, flexible sigmoidoscopy, and “virtual” colonoscopy, a radiological imaging approach that visualizes the inside of the bowel by CT scan (spiral computerized axial tomography), as well as other common screening tests, such as the fecal occult blood test (“FOBT”) and the fecal immunochemical test (“FIT”), and newer screening technologies such as pill-based imaging solutions like PillCam COLON, cleared by the FDApositioning them to continue to improve their technology in February 2014, and C-Scan, which obtained a CE Mark in early 2019. Our competitors may also be developing additional methods of detecting colorectal cancer and pre-cancer that have not yet been announced.In addition, some companies and institutions are developing liquid biopsy tests based on the detection of proteins, tumor cells, nucleic acids, epigenetic markers, or other biomarkers in the blood. These tests could represent significant competition for Cologuard and other tests we may develop. We are aware of at least 13 companies—Epigenomics AG, EDP Biotech Corporation, Freenome Inc., GRAIL, Inc., CellMax, Inc., Volition Diagnostics, Cambridge Epigenetix Limited, Nucleix Ltd., Singlera Genomics, DiaCarta, Genomictree, Bioprognos, and PapGene, Inc. — that have developed, or are developing, liquid biopsy tests for the detection of colorectal cancer. Epigenomics AG received FDA approval for its liquid biopsy screening test for colorectal cancer, Epi proColon, in April 2016, and began offering the test commercially in May 2016. We also are aware of at least two companies, DiaTech and Geneoscopy, that have launched outside the U.S., or are seeking to develop, stool-based colorectal cancer tests based on the detection of nucleic acids.Beyond our Cologuard test, as we seek to develop other tests to detect cancer and pre-cancer, we expectorder to compete with a broad range of organizations in the U.S. and other countries that are engaged in the development, production and commercialization of cancer screening and diagnostic products and services. These competitors include:
an evolving industry.·biotechnology, diagnostic and other life science companies;·academic and scientific institutions;·governmental agencies; and·public and private research organizations.may haveare more expertise, experience, financial resources, or stronger business relationships. These competitors may have broader product lines and greater name recognition than we do. We have limited experience developing tests for detecting non-colorectal cancers and cannot guarantee that our research and development activities will be successfuleffective in developing any marketable testingor commercializing competing products orand services. Furthermore, even if we do develop new marketable products or services, our current and future competitors may develop products and services that are more clinically or commercially attractive than ours, and they may bring those products and services to market earlier or more effectively than us.18
If we are unable to compete successfully against current or future competitors, we may be unable to increase market acceptance for and sales of our tests, which could prevent us from increasing or sustaining our revenues or achieving sustained profitability and could cause the market price of our common stock to decline.successful expanding Cologuard’s indicationable, or it may take considerable time, to include peoplereplicate our testing processes or results in a new facility. Additionally, any new clinical reference laboratory facility opened by us would be subject to certification under CLIA and licensing by several states, including California and New York, which could take a significant amount of time and result in delays in our ability to resume operations.45our suppliers could have a disruptive effect on our business.49 years oldthe unique attributes of products that are incorporated into our tests, we maintain either a single-source supplier relationship or a very limited set of supplier relationships. Certain of our third-party suppliers possess exclusive intellectual property or otherwise may be the only party with the rights or expertise to provide us critical supplies. These third parties are independent entities subject to their own unique operational, regulatory compliance, and financial risks that are outside our control. These third parties may not be willing to enter or renew long-term supply arrangements with us or continue to supply us at average riskall. Additionally, they may not perform their obligations in a timely and cost-effective manner and they may be unwilling to increase production capacity commensurate with demand for colorectal cancerour tests or in commercializing Cologuard forfuture products or services. Our relationships with suppliers may also be negatively affected by general supply chain material shortages worldwide, as suppliers struggle to keep pace with demand and manage their own supply chains.this patient population.plancurrently procure Illumina equipment and reagents on a purchase order basis, without any long-term supply agreement. In August 2021, Illumina completed its acquisition of GRAIL, which is commercializing a MCED test against which certain of our planned tests would compete. Illumina’s ownership of GRAIL could incentivize Illumina to seek FDA approvaloffer its sequencing products in a manner that advantages GRAIL over us and other competitors, including the potential that Illumina may be unwilling or unable to expand Cologuard’s indicationsupply, or commit to people age 45supplying, us with sequencing equipment and older who arereagents on commercially acceptable terms, or at average riskall. Although Illumina has made an irrevocable standing offer to supply any customer with its sequencing products on certain terms, that offer may not provide pricing or other terms necessary for colorectal cancerus or others to successfully compete against GRAIL, including outside of the U.S. Although we expect to continue our efforts to validateundertake any clinical work requiredoptimize their use in our tests. Industry demand for Hamilton supplies has increased significantly since the onset of the COVID-19 pandemic, and although we have a long-term supply agreement with Hamilton, it is possible that Hamilton could become unable or unwilling to support such approval, so that we can market Cologuardcontinue to that population. The efforts necessary to support FDA approval of this label expansion may be expensiveprovide us with certain equipment and time consuming andsupplies on commercially acceptable terms, if at all. Hamilton may require us to exclusively use Hamilton consumables and components in connection with certain Hamilton laboratory equipment. Therefore, if our access to certain Hamilton consumables and components became impacted, we may need to completely replace the Hamilton platform. Validating alternative vendors’ offerings could be expensive, time-consuming, and unsuccessful. Further, because our Cologuard test is regulated by the FDA, we may also need FDA clearance or approval to replace certain Hamilton equipment and supplies with another vendor’s offerings. FDA approval or clearance may entail extensive new clinical and material costs and delays and may be ultimately unsuccessful.trials.laboratory equipment could significantly disrupt our operations and our research and development efforts.obtain FDA approvalbe able to attract and retain the necessary staff. Our research and development programs, commercial laboratory operations and information technology infrastructure depend on our ability to attract and retain highly skilled personnel. We may not be able to attract or retain qualified talent due to the competition for qualified personnel among life science and technology businesses. We also face competition from universities and public and private research institutions in recruiting and retaining highly qualified scientific personnel. In addition, our success depends on our ability to attract and retain salespeople with extensive experience in primary care, oncology, gastroenterology, women's health, and urology and close relationships with healthcare providers and other hospital personnel. All of our employees in the expanded indication. FDA approves Cologuardcommercialization of our tests, we have added, and expect to continue to add personnel in the areas of sales and marketing, laboratory operations, billing and collections, quality assurance, and compliance. Our number of full-time employees has increased from 4,110, as of December 31, 2019, to 4,833, as of December 31, 2020 and to 6,278, as of December 31, 2021. Further, as we build our commercialization efforts and expand research and development activities for usenew products and services, the scope and complexity of our operations is increasing significantly. As a result of our growth, our operating expenses and capital requirements have also increased, and we expect that they will continue to increase significantly. Our ability to manage our growth effectively requires us to expend funds to improve our operational, financial and management controls, reporting systems and procedures. As we move forward in commercializing our tests, we will also need to effectively manage our growing manufacturing, laboratory operations, and sales and marketing needs. We are continuing to expand our current facilities and add new facilities to support anticipated demand for our tests and anticipated growth in our personnel. We face various risks in managing these expansion efforts, including financing, construction delays, budget management, quality control, design efficiency, and transition execution. If we are unable to manage our anticipated growth effectively, our business could be harmed.people from 45-49 years old at average risk for colorectal cancer,the acquisitions;successfully commercialize Cologuardmake such acquisitions on favorable terms or at all. Any acquisitions we make may not strengthen our competitive position, and these transactions may be viewed negatively by investors, healthcare providers, patients and others. In addition to this patient population unless Governmentthe risks outlined above, we may decide to incur debt in connection with an acquisition or issue our common stock or other securities to the stockholders of the acquired company, which would reduce the percentage ownership of our existing stockholders. We cannot predict the number, timing or size of future acquisitions or the effect that any such transactions might have on our operating results.third-partygovernmental approvals, permits and licenses;managed care organizations, approve reimbursementinfrastructure conditions and transportation delays;Cologuard testtests and exposure to foreign currency exchange rate fluctuations;suchan unknown period of time. COVID-19 has significantly impacted, and may continue to significantly impact, our work force, supply chain and operating results including our revenues, margins, and cash utilization, among other measures. The territories in which we market, sell, distribute and perform our tests are attempting to address the COVID-19 pandemic in varying ways, including stay-at-home orders, temporarily closing businesses, restricting gatherings, restricting travel, and mandating social distancing and face coverings. The level and nature of the disruption caused by COVID-19 is unpredictable, may be cyclical and long-lasting and may vary from location to location.adequate reimbursement rates. We expectsome or all of our clinical laboratories;securing compete with ours;favorable recommendationcombination of factors, including infection from the U.S. Preventative Services Task Force, as well as other influential recommendations, inclusionvirus, supply shortfalls or disruptions, and inability to obtain or maintain equipment, could increase our operating expenses and adversely affect our lab capacity and our ability to meet the demand for our testing services;healthcare guidelinesthe behaviors of medical professionals and inclusion in quality metrics will be keys to payers’ willingness to cover, and healthcare providers’ willingness to prescribe, Cologuard for people in this expanded population. However,patients resulting from the pandemic.these guidelineswe will continue to successfully offer, perform, or generate revenues from the test.quality metricsour ability to generate profits from COVID-19 testing will support depend on a variety of factors, including:expanded uselevel of Cologuard. Further,demand for COVID-19 testing, the price we cannot be sureare able to charge for performing the test, and the length of time for which that payers will be willing to cover, thatdemand persists;willand patients may prefer to our test;willing to prescribe the test to patients in this population,more profitable or that 45-49 year-old patients will be willing to use Cologuard.strategic. If we are unable to successfully commercialize Cologuardprovide COVID-19 testing while continuing to people age 45operate our business, our results of operations, financial position, and reputation may suffer.49,litigation in the normal course of business or otherwise, which could affect our business and financial position.and our business prospects mayof operations or cash flows could be materially and adversely affected. reimbursement, which could reduce our revenue.and Affordable Care Act (the “ACA”)the ACA, and the Protecting Access to Medicare Act of 2014 (“PAMA”), are significantly affecting the U.S. healthcare and medical services industry. Existing legislation, and possible future legal and regulatory changes, including potential repeal or modification of the ACA, elimination of penalties regarding the individual mandate for coverage, or approval of health plans that allow lower levels of coverage for preventive services, could substantiallymaterially change the structure and finances of the health insurance system and the methodology for reimbursing medical services, drugs and devices, including our current and future products and services. The ACA has also been the subject of various legal challenges and if the plaintiffs in December 2018, a federal district court in Texas held that the ACA is unconstitutional and unenforceable. The court’s decision is subject to appeal, but if this case, or any other case challenging the ACA isare ultimately successful insurance coverage for Cologuardour tests could be materially and adversely affected. Any change in reimbursement policy could result in a change in patient cost-sharing, which could adversely affect a provider’s willingness to prescribe and patient’s willingness and ability to use our Cologuard testtests and any other product or service we may develop. Healthcare reforms, which may intend to reduce healthcare costs, may have the effect of discouraging third-party payers from covering certain kinds of medical products and services, particularly newly developed technologies, such as our Cologuard testlike those we have developed in the past or other products or tests we may develop in the future. We cannot predict whether future healthcare reform initiatives will be implemented at the federal or state level or the effect any such future legislation or regulation will have on us. The taxes imposed by new legislation, cost reduction measures and the expansion in the government’s role in the U.S. healthcare industry may result in decreased profits to us, which may adversely affect our business, financial condition and results of operations.The CLFS for both 2018 and 2019 set the CMS reimbursement rate for Cologuard at $508.87. Under PAMA, payment rates for clinical diagnostic laboratory tests are calculated based on the volume-weighted median of private payer rates for each clinical diagnostic laboratory test based on data submitted by certain applicable laboratories. The current CMS reimbursement rate for Cologuard was based on the volume-weighted median of private payer rates for Cologuard from January 1, 2016 through June 30, 2016. Based on current regulations, we expect that the CMS reimbursement rate for Cologuard will remain in place until January 2021 and then will be reset based on the volume-weighted median of private payer rates for Cologuard during the data collection period from January 1, 2019 to June 30, 2019. rates for Cologuard.rates. Because Medicare currently covers approximately halfa significant number of theour patients, in the current screening population for Cologuard, any reduction in the CMS reimbursement rate for Cologuardour tests would negatively affect our revenues and our business prospects. Under PAMA, CMS reimbursement rates for clinical diagnostic laboratory tests are updated every three years or annually for clinical laboratory tests that are considered "advanced diagnostic laboratory tests." There can be no assurance under PAMA that adequate CMS reimbursement rates will continue to be assigned to our tests. Congress could modify or repeal PAMA in the future or CMS could modify regulations under PAMA, and any such action could have the effect of reducing the CMS reimbursement rate for our tests. Further, it is possible that Medicare or other federal payers that provide reimbursement for our tests may suspend, revoke or discontinue coverage at any time, may require co-payments from patients, or may reduce the reimbursement rates19colorectal cancer screening services. For example, Section 2713 of the ACA mandates that certain health insurers cover evidence-based items or services that have in effect a rating of “A” or “B” in the current recommendations of USPSTF without imposing any patient cost-sharing (“ACA Mandate”). Similarly, federal regulations require that Medicare Advantage plans cover “A” or “B” rated preventive services without patient cost-sharing. Following the June 2016 update to the USPSTF colorectal cancer screening recommendation statement, CMS issued an updated Evidence of Coverage notice for Medicare Advantage plans that affirms such plans must include coverage of Cologuard every three years without patient cost-sharing. Whilewhile we believe the ACA Mandate requires most health insurers to cover our Cologuard test for most patients between the ages of 5045 and 75 without patient cost-sharing, some health insurers have disagreed and determined not to cover our Cologuard test and others may take that position in the future. It may be difficult for us or patients to enforce the ACA Mandate directly, and we may need to rely on states to take enforcement action, which they may choose not to do. It is also possible that the ACA Mandate will be repealed or overturned or significantly modified in the future.Several states have laws mandating coverage for preventive services, such as colorectal cancer screening services, applicable to certain health insurers. Not all of these laws apply to Cologuard, however. Further, if the ACA is repealed, replaced or overturned, or even if it is not, states may decide to modify their laws, which may include repeal of those coverage mandates that we believe currently apply to Cologuard. third-party payers, including managed care organizations, do not approve and maintain reimbursement for our Cologuard testtests at adequate reimbursement rates, we mayour commercial success could be unable to successfully commercialize our Cologuard test which, we expect, would limit or slow our revenue generation and likely have a material adverse effect on our business.Successful commercialization of our Cologuard testcompromised.new healthcare products.products and services. As a result, there is uncertainty surrounding whether Cologuard the future level of reimbursement, if any, for our current tests and any new testtests we may develop, will be eligible for coverage by third-party payers or, if eligible for coverage, what the reimbursement rates will be.develop. Reimbursement of sDNA colorectal cancer screening by a third-party payer may depend on a number of factors, including a payer’s determination that tests using our technologies are: sufficiently sensitive and specific for colorectal cancer and pre-cancer;specific; not experimental or investigational; approved or recommended by the major guidelinesguideline organizations; subject to applicable federal or state coverage mandates; reliable, safe and effective; medically necessary; appropriate for the specific patient; and cost-effective.If we are unable to obtain positive decisions from third-party payers, including managed care organizations, approving reimbursement for our Cologuard test at adequate levels, its commercial success will be compromised and our revenues would be significantly limited. Healthcare providers may be reluctant to prescribe Cologuard if they believe that a significant number of their patients will not be reimbursed for the test.We may also experience material delays in obtaining such reimbursement decisions and payment for our Cologuard test that are beyond our control. Further, there can be no assurance that CMS and commercial payers who initially decide to cover Cologuard will continue to do so. We are pursuing a variety of strategies to increase commercial payer coverage and reimbursement of Cologuard. In certain situations, where we believe payers are obligated to cover Cologuard under federal and state laws that mandate coverage for certain colorectal cancer screening tests, we have sued to enforce coverage obligations. We may pursue similar litigation or other tactics in the future. Such litigation and tactics may be costly, may divert management attention from other responsibilities, may cause payers, including those not directly involved in any litigation, to resist contracting with us, and may ultimately prove unsuccessful.As noted above, federal and state coverage mandates may be deemed not to apply to Cologuard, may be interpreted in a manner unfavorable to us, may be difficult to enforce and are subject to repeal or modification. For example, the ACA may be repealed or materially modified, in whole or in part, or replaced with an alternative legal framework20governing healthcare matter. Such repeal, modification or replacement may eliminate or modify the coverage mandate for preventive services, and any such elimination or modification may have an adverse effect on our business prospects.be applicablecontinue to our Cologuard testapply in the future.future or remain adequate as we face increases in operating costs, such as labor and supply costs that are subject to inflation. As noted above, under PAMA, our Medicare reimbursement raterates will be subject to adjustment based on our volume-weighted median commercial reimbursement rate. Any reduction in our Medicare reimbursement raterates could significantly and adversely affect our business prospects, financial condition, and results of operation.Cologuard,one of our tests, other factors may have a significant impact on the actual reimbursement we receive for a Cologuard test from that payer. For example, if we do not have a contract with a given payer, we may be deemed an “out-of-network” provider by that payer, which could result in the payer allocating a portion of the cost of the Cologuard test to the patient, notwithstanding any applicable coverage mandate. We may be unsuccessful in our efforts to enter into, or maintain, a network contract with a given payer, and we expect that our network status with a given payer may change from time to time for a variety of reasons, many of which may be outside our control. To the extent Cologuardone of our tests is out of network for a given payer, physicianshealthcare providers may be less likely to prescribe Cologuardthat test for their patients and their patients may be less likely to comply with those prescriptions that are written. Also, some payers may require that they give prior authorization for a Cologuard test before they are willing to pay for it or review claims post-service to ensure the service was medically appropriate for specific patients. Prior authorization and other medical management practices may require that we, patients, or physicianshealthcare providers provide the payer with extensive medical records and other information. Prior authorization and other medical management practices impose a significant additional cost on us, may be difficult to comply with given our position as a laboratory that generally does not have direct access to patient medical records, may make physicianshealthcare providers less likely to prescribe Cologuardour tests for their patients, and may make patients less likely to comply with physicianhealthcare provider orders for Cologuard,our tests, all or any of which may have an adverse effect on our revenues.clinical studiesOncotype DX tests outside of the U.S., our ability to expand internationally will be compromised.satisfy providers,have direct reimbursement arrangements with payers, patientswe may not be able to retain reimbursement coverage in those countries if our agreement with a distributor is terminated or expires, if a distributor fails to pay us or if other events prevent payment. We may also be negatively affected by the financial instability of, and others asausterity measures implemented by, several countries in the European Union and elsewhere.reliability, effectivenesscommercial sale and/or marketing of any products and superiorityservices and otherwise cause us to incur significant expense.any future improvements to that test.develop and seek to commercialize, we may experience reluctancemodify or refusal onwithdraw the partapproval of physicians to order, and third-party payers to pay for, such test.Although we have received FDA approval for our Cologuard test if the results of this post-approval study are not satisfactory. We anticipate feedback from FDA in 2022 on the acceptance of these data to close the post-approval order.activities relatingapprovals. In particular, the entry into application of the E.U.'s In Vitro Diagnostic Device Regulation will impose new requirements and create new compliance risks. Obtaining and maintaining these approvals, and complying with all laws and regulations, may subject us to communicationsimilar risks and delays as those we could experience under FDA, FTC and state regulation. We incur various costs in complying and overseeing compliance with these laws and regulations. The growth of our business and sales organization, the acquisition of additional businesses or products and services and our expansion outside of the U.S. may increase the potential of violating these laws, regulations or our internal policies and procedures.results,failures, future failures to timely submit claims could result in further downward adjustments to revenue.convince guidelines organizations, physicianspay us our full, contracted rate for a test, for example, for failure to satisfy prior-authorization or other payer medical management requirements, we may not be permitted to collect the balance from the patient and our business is adversely impacted.patientsTreatment for Patients and Communities Act. Similar to the Medicare/Medicaid anti-kickback law, EKRA imposes criminal penalties for knowing or willful payment or offer, or solicitation or receipt, of any remuneration, whether directly or indirectly, overtly or covertly, in cash or in kind, in exchange for the referral or inducement of laboratory testing (among other healthcare services) unless a specific exception applies. However, unlike the Medicare/Medicaid anti-kickback law, EKRA is not limited to services covered by federal or state healthcare programs but applies more broadly to services covered by “healthcare benefit programs,” including commercial insurers. As currently drafted, EKRA potentially expands the universe of arrangements that could be subject to government enforcement under federal fraud and abuse laws. In addition, while the Medicare/Medicaid anti-kickback law includes certain exceptions that are widely relied upon in the healthcare industry, not all of those same exceptions apply under EKRA. Because EKRA is a relatively new law, there is no agency guidance or court precedent to indicate how and to what extent it will be applied and enforced. We cannot assure you that our Cologuard test is reliable, effectiverelationships with healthcare providers, sales representatives, hospitals, customers, or any other party will not be subject to scrutiny or will survive regulatory challenge under EKRA.superior to alternative screening methods,accurately code claims for reimbursement, proactively monitor the accuracy and appropriateness of Medicare claims and payments received, diligently investigate any credible information indicating that we may experience reluctancehave received an overpayment, and promptly return any overpayments. Medicare payments are subject to audit, including through the Comprehensive Error Rate Testing (“CERT”) program, and payments may be recouped by CMS if it is determined that they were improperly made. Currently, a significant percentage of our revenues are generated by payments from Medicare. The federal anti-kickback statute and certain false claims laws prescribe civil and criminal penalties (including fines) for noncompliance that can be substantial. While we continually strive to comply with these complex requirements, interpretations of the applicability of these laws to marketing and billing practices are constantly evolving and even an unsuccessful challenge could cause adverse publicity and be costly to respond to, and thus could harm our business and prospects. Our failure to comply with applicable laws could result in various adverse consequences that could have a material adverse effect upon our business, including the exclusion of our products and services from government programs and the imposition of civil or refusalcriminal sanctions.partSEC to have false or inaccurate books or records or to fail to maintain a system of physiciansinternal accounting controls. We are also required to order,maintain accurate information and third-party payerscontrol over sales and distributors’ activities that may fall within the purview of the FCPA, its books and records provisions and its anti-bribery provisions.payincur significant costs and expenses, including legal fees, and result in a material adverse effect on our business. We could also suffer severe penalties, including criminal and civil penalties, disgorgement and other remedial measures.Cologuard test,services, and our healthcare operations activities;prospects. Likewise, if theand results of our researchoperations. Although the HIPAA statute and clinical studies and our sales and marketing activities relating to new tests we may develop in the futureregulations do not convinceexpressly provide for a private right of damages, we could also incur damages under state laws to private parties for the wrongful use or disclosure of confidential health information or other private personal information.regulators, guidelines organizations, physicianscomparable foreign regulatory authorities; provide true, complete and accurate information to such regulatory authorities; comply with manufacturing and clinical laboratory standards; comply with healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws; or report financial information or data accurately or to disclose unauthorized activities to us. In particular, research, sales, marketing, education, and other business arrangements in the healthcare providers, third-party payersindustry are subject to extensive laws designed to prevent fraud, kickbacks, self-dealing, and patientsother abusive practices, as well as off-label product promotion. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, educating, marketing and promotion, sales and commission, certain customer incentive programs, and other business arrangements generally. Activities subject to these laws also involve the improper use of information obtained in the course of participant recruitment for clinical studies, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of business conduct and ethics, but it is not always possible to identify and deter misconduct by employees and third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions. Even if it is later determined after an action is instituted against us that other testswe were not in violation of these laws, we may developbe faced with negative publicity, incur significant expenses defending our actions, and seekhave to commercialize indivert significant management resources from other matters.future are safe, effective, reliableFDA or other U.S. or foreign regulatory bodies, and superior to alternative tests, those teststhird parties may not receiveperform satisfactorily.sustain necessaryconduct studies in accordance with regulatory approvalsrequirements or our study design. Our reliance on third parties that we do not control will not relieve us of our requirement to prepare, and ensure our compliance with, various procedures required under good clinical practices, even though third-party contract research organizations may prepare and comply with their own, comparable procedures. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our studies may be extended, delayed, suspended or terminated, and we may experience reluctancenot be able to obtain a required regulatory approval.refusalinterpretations of tax rules and regulations in the jurisdictions in which we do business or by changes in the valuation of our deferred tax assets and liabilities. Furthermore, we provide for certain tax liabilities that involve significant judgment. We are subject to the examination of our tax returns by federal, state and foreign tax authorities, which could focus on our intercompany transfer pricing methodology as well as other matters. If our tax strategies are ineffective or we are not in compliance with domestic and international tax laws, our financial position, operating results and cash flows could be adversely affected.partU.S., Europe and elsewhere are often uncertain, contradictory and in flux. In order to mitigate concerns about overseas data transfers and to comply with provisions of physiciansthe GDPR and its predecessor regulations, we self-certified with the Department of Commerce for compliance with the U.S.-E.U. Privacy Shield. However, the Court of Justice of the European Union invalidated the U.S.-E.U. Privacy Shield program in its July 2020 Schrems II decision. Although we are taking other measures to order,ensure compliance with the GDPR, the changing legal landscape could cause us to incur substantial costs or change our operations and third-party payers to pay for, those tests,compliance procedures, all of which couldmay adversely affect our business prospects.selling and marketing resources, and only limited sales, marketing, customer support, manufacturing, distribution and commercial laboratory experience, which may restrict our success in commercializing Cologuard and otherour products, we may develop, and we may be unsuccessful in entering into or maintaining third-party arrangements to support our internal efforts.Cologuard test. Also, in connection with the launch of Cologuard in late 2014, we began operating a CLIA certifiedtests and operate CLIA-certified lab facilityfacilities to process Cologuardour tests and provide patient results. Wea manufacturing operation and clinical lab facility and welaboratory operations for multiple products in multiple locations with divergent regulatory requirements. We may encounter difficulties retaining and managing the specialized workforce these activities require. We may seek to partner with others to assist us with any or all of these functions. For example, we rely on a third-party partner to operate our German laboratory that is expected to perform a portion of our international tests. However, we may be unable to find appropriate third parties with whom to enter into these arrangements. In August 2018, we entered into a Promotion Agreementarrangements or maintain successful relationships with Pfizer, pursuant to which Pfizer agreed to promote Cologuard and provide certain sales, marketing, analytical and other commercial operationsthird parties once established.21support services. The Promotion Agreement, and any other future partnership arrangement, may not perform as expected or the arrangements may otherwise prove to be detrimental to our short‑ and long‑term results. For example, certain third‑party arrangements may cause us to forego or defer the development or acquisition of internal capabilities. If a third‑party arrangement fails to perform as expected or if it is terminated prematurely for any reason, our business may be harmed not only by such failure or termination itself, but also by the opportunity cost associated with not timely developing or acquiring necessary for useful capabilities internally.testand Oncotype tests and our future products and services, we must continue to develop and grow our sales, marketing and medical affairs organizations and our sales, marketing and medical affairs organizations mustto effectively explain to healthcare providers the reliability, effectiveness and benefits of Cologuardour current and our future products and services as compared to alternatives. WeOur sales efforts have grown in size and complexity, and we may not be able to successfully manage our dispersed or inside sales forces or our sales force may not be effective. Because of the competition for their services, we may be unable to hire, partner with or retain additional qualified sales representatives or marketing or medical affairs personnel, either as our employees or independent contractors or through independent sales or other third-party organizations. Market competition for commercial, marketing and medical affairs talent is significant, and we may not be able to hire or retain such talent on commercially reasonable terms, if at all.testand Oncotype tests or any future products or services.physicians,healthcare providers, patients, healthcare payers, and others in the medical community. Cologuard test and our future products and services may not gain market acceptance by physicians,healthcare providers, healthcare payers, and others in the medical community. The degree of market acceptance of our Cologuard test, our Oncotype tests, and our futureother products and services that we may offer will depend on a number of factors, including:·its demonstrated sensitivity and specificity;
•demonstrated performance and utility;·its price;
•price;·the availability and attractiveness of alternative screening methods;
•the availability and attractiveness of alternative tests;·the willingness of physicians to prescribe our products and services;
•the willingness of healthcare providers to prescribe our products and services;·the ease of use of our ordering process for physicians; and·adequate third-party coverage or reimbursement.Use•the ease of a stool-based DNA colorectal cancer screening test requires people to collect a stool sample, which some people may be reluctant to do. Ifuse of our Cologuard test does not achieve an ordering process for healthcare providers; andlevel of acceptance, we may not generate the substantial revenues we need to generate to become profitable.Cologuardour products or services may not prove true. WeFor example, we estimate the potential market opportunity for our Cologuard test assuming, among other things, the size of the screening population, the adoption rate in the screening population and a three-year screening interval. Although ACS guidelines and others recommend a three-year screening interval for our Cologuard test and CMS has determined that Medicare will cover the test at this interval, the label for our Cologuard test does not specify a three-year interval and physicians,healthcare providers, healthcare payers, the FDA, and other regulators and opinion leaders could recommend a different interval. Further, patients may not adhere to any recommended testing interval.22including the U.S. Preventative Services Task Force, the American Cancer Society and the National Committee for Quality Assurance, may significantly affect payers’ willingness to cover and physicians’healthcare providers’ willingness to prescribe our products.physicianhealthcare provider and payer engagement strategies. These guidelines, recommendations, and quality metrics may shape payers’ coverage decisions and physicians’healthcare providers’ cancer screening procedures.physiciansproviders and epidemiologists and other national experts funded by the U.S. Department of Health and Human Services’ Agency for Healthcare Research and Quality, makes influential recommendations on clinical preventativepreventive services. In June 2016, the USPSTF issued an updatedupdates its screening recommendations periodically, approximately every five to eight years. The USPSTF's most recent recommendation statement for colorectal cancer screening and gave an "A" grade to colorectal cancer screening starting at age 50 and continuing until age 75. The statement specifies seven screening methods, including FIT-DNA (which is Cologuard). USPSTF updates its screening recommendations periodically, approximately every five to eight years. USPSTF distributed75 and gave a draft research plan for public comment on January 3, 2019. The research plan, once finalized, will be used to guide a systematic review of the evidence by researchers at an evidence-based practice center. The resulting evidence review will form the basis of the next update to the USPSTF recommendation statement regarding colorectal cancer screening. We cannot be certain when USPSTF will next update its colorectal cancer screening recommendations, whether updated recommendations will continue to give an “A”"B" grade to colorectal cancer screening between thefor ages of 50 and 75, whether updated recommendations will continue45 to include FIT-DNA, whether updated recommendations may take a different format, including by ranking different methodologies and positioning FIT-DNA below other methodologies, or whether updated recommendations will include new technologies that are competitive with Cologuard and that may have greater appeal to physicians, patients and payers.49. Any update to the USPSTF recommendations that may have the effect of reducing screening, that does not include FIT-DNA in a favorable manner, or that adds new technologies could have a material adverse effect on our business.statementfor our Cologuard test may have certain potentially significant implications. For example, the ACA mandates that certain non-grandfathered health insurers cover evidence-based items or services that have in effect a rating of “A” or “B” in the current recommendations of USPSTF without imposing any patient cost-sharing.cost-sharing (the "ACA Mandate"). Similarly, federal regulations require that Medicare Advantage plans cover “A” or “B” graded preventive services without patient cost-sharing. Following the updated 2016 USPSTF recommendation statement, the Centers for Medicare & Medicaid Services (“CMS”) issued an updated Evidence of Coverage notice for Medicare Advantage plans that affirms such plans must include coverage of our Cologuard test every three years without patient cost-sharing. While we believe the ACA Mandate requires certain health insurers to cover our Cologuard test for individuals between the ages of 45 and 75 without patient cost-sharing, some health insurers have disagreed. Enforcement of the ACA Mandate is difficult and depends on state, federal, or other third-party enforcement actions that we do not control. Further, a court or regulatory agency may agree with arguments that have been made, or that may in the future be made, by insurers and determine that the ACA Mandate does not require that they cover our Cologuard test or may otherwise interpret the ACA Mandate in a manner unfavorable to us. Also, Congress may modify or repeal all or part of the ACA, and any such modification or repeal may repeal or limit the ACA Mandate for preventive services. Additionally, thethe ACA has also been the subject of various legal challenges and, if the plaintiffs are successful in December 2018, a federal district court in Texas held that the ACA is unconstitutional and unenforceable. The court’s decision is subject to appeal, but if this case, or any other case challenging the ACA is ultimately successful,such challenges, insurance coverage for our Cologuard test could be materially and adversely affected. If the ACA Mandate for preventive services is repealed, overturned or modified, if the ACA Mandate is determined not to require coverage of our Cologuard test, if the ACA Mandate is otherwise interpreted in a manner unfavorable to us, or if we are unable to influence or secure effective enforcement of the ACA Mandate, even if it is held to require coverage of our Cologuard test, our business prospects may be adversely affected.In addition, theNational Committee for Quality Assurance (“NCQA”), Healthcare Effectiveness Data and Information Set (“HEDIS”)NCQA, HEDIS, and the CMS Medicare Advantage Star Ratings to assess quality of care. These measures are intended to provide incentives to service providers to deliver the same or better results while consuming fewer resources. In October 2016, the NCQAOur Cologuard test has been included Cologuard testing on a three-year interval in the final publishedNCQA's HEDIS measures since 2017 HEDIS measures. In April 2017, CMS released final details for the 2018and in CMS's Medicare Advantage Star Ratings program and included Cologuard. since 2018. If for some reason our Cologuard test was removed from or not included in HEDIS, the Star Ratings, or other quality metrics, payers may be less inclined to23physicianshealthcare providers may not earn quality credit for prescribing our Cologuard test and therefore may be less inclined to do so. If our Cologuard test fails to maintain its current position within any updated USPSTF colorectal cancer screening recommendations, our Cologuard test may, as a result, become excluded from the HEDIS measures and the Star Ratings.screening and diagnostic tools,tests, which may not be successful.In addition to commercializing our Cologuard test, weCologuard’sour Cologuard test’s specificity by substituting new biomarkers and to develop a pipeline for future products and services, including screeningmulti-cancer early detection, minimal residual disease, recurrence monitoring, and diagnostic tests for liver, lung and other types of cancers.hereditary cancer tests. We expect to incur significant expenses on these development efforts, but they may not be successful.screening or diagnostic toolstests is a speculative and risky endeavor. Candidate products and services that may initially show promise may fail to achieve the desired results in larger clinical studies or may not achieve acceptable levels of clinical accuracy. Results from early studies or trials are not necessarily predictive of future clinical study or trial results, and interim results of a trial are not necessarily indicative of final results. From time to time, we may publicly disclose then-available data from clinical studies before the studies are complete, and the results and related findings and conclusions may be subject to change following the final analysis of the data related to the particular study or trial. As a result, such data should be viewed with caution until the final data are available. Additionally, such data from clinical studies are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment and/or follow-up continues and more patient data become available. Significant adverse differences between initial or interim data and final data could significantly harm our reputation and business prospects.markerbiomarker combinations, alter our candidate products or platform technologies, and repeat clinical studies before we identify a potentially successful candidate. We may need to acquire, whether through purchase, license or otherwise, technologies owned by third parties, and we may not be able to acquire such technologies on commercially reasonable terms or at all. Product development is expensive, may take years to complete, and can have uncertain outcomes. Failure can occur at any stage of the development. If, after development, a candidate product or service appears successful, we may, depending on the nature of the product or service, still need to obtain FDA and other regulatory clearances or approvals before we can market it. The FDA’s clearance or approval pathways are likely to involve significant time, as well as additional research, development, and clinical study expenditures. There can be no guarantee that the FDA would clear or approve any future product or service we may develop. Additionally, developmentIn developing a test, we must make numerous assumptions regarding the commercial viability of any product or service may be disrupted or made less viable by the developmenta test, including with respect to healthcare providers’ and patients’ interest in a test, payers’ willingness to pay for a test, our costs to perform a test, and availability and attractiveness of competing products or services.property, which could adversely affect our ability to develop and commercialize our products and services.currently have a collaborative and licensing arrangementarrangements with Mayo Foundation for Medical Education and Research.Research, under which Mayo provides us with certain exclusive and non-exclusive intellectual property rights and ongoing product development and research and development assistance. In addition, we have licensing agreements with Hologic, Johns Hopkins University, Ludwig Institute for Cancer Research, Translational Genomics Research Institute, and others. Such arrangements provide us with intellectual property and other business rights crucial to our product development and commercialization, including technology that wecommercialization. We have incorporated licensed technology into our Cologuard test.test and expect to incorporate licensed technology into our pipeline products. Our dependence on licensing, collaboration, and other similar agreements with third parties may subject us to a number of risks. There can be no assurance that any current contractual arrangements between us and third parties or between our strategic partners and other third parties will be continued on materially similar terms and will not be breached or terminated early. Any failure to obtain or retain the rights to necessary technologies on acceptable commercial terms could require us to re-configure our products and services, which could negatively impact their commercial sale or increase the associated costs, either of which could materially harm our business and adversely affect our future revenues.24 position.We have entered into a Promotion Agreement with Pfizer regarding In addition, the commercialization of Cologuard. If we or Pfizer fail to adequately perform under the Promotion Agreement, or if the Promotion Agreement is terminated prior to its full term, our business, prospects, financial condition and results of operation could be adversely affected.In August 2018 we entered into a Promotion Agreement (“Promotion Agreement”) with Pfizer, Inc. (“Pfizer”), pursuant to which Pfizer will promote Cologuard and provide certain sales, marketing, analytical and other commercial operations support services. We and Pfizer committed in the Promotion Agreement to invest specified amounts in the advertising and promotion of Cologuard. We agreed to pay Pfizer a service fee based on incremental gross profits over specified baselines and pay Pfizer royalties for Cologuard-related revenues for a specified period after the expiration or terminationsuccess of the Promotion Agreement. The initial termprojects that require collaboration with third parties will be dependent on the continued success of the Promotion Agreementsuch collaborators. There is scheduledno guarantee that our collaborators will continue to run through December 31, 2021, butbe successful and, as a result, we may be terminated by either party at any time on or after February 21, 2020 upon six months’ written notice to the other party.We have dedicated significantexpend considerable time and resources to negotiating and implementing our Promotion Agreement. The growth in Cologuard revenue we anticipate as a result of the Promotion Agreement may not occur. We may not realize the expected benefits from the Promotion Agreement for a number of reasons including, among others, if we and Pfizer fail to coordinate our promotional efforts effectively, if Pfizer fails to optimally or effectively promote, market and sell Cologuard or otherwise fails to perform under the Promotion Agreement, if Pfizer prioritizes the promotion of its own, or other partners’, products or services over Cologuard, if the Promotion Agreement is terminated before its anticipated benefits can be fully realized, or if other factors, extraneous to the Promotion Agreement, adversely impact sales of Cologuard (for example, reimbursement, competition, or seasonal factors). Our relationship with Pfizer is new, we have limited experience executing under co-promotion agreements and Pfizer has limited experience promoting molecular diagnostic products. Our strategic partnership with Pfizer will impact the retention and development of our own sales and marketing capabilities, both for Cologuard and other products in our pipeline. If we do not realize the expected benefits from the Promotion Agreement, either because Pfizer’s marketing strategy and sales and marketing expertise do not translate well to the promotion of Cologuard or for any other reason, our business, prospects, financial condition and results of operation may be adversely affected.If we fail to meet any applicable requirements of CLIA or similar state laws, that failure could adversely affect any future payer consideration of our technologies, prevent their approval entirely, and/or interrupt the commercial sale and/or marketing of any products and services and otherwise cause us to incur significant expense.We are subject to federal and state laws and regulations regarding the operation of clinical laboratories. Federal CLIA requirements and laws of certain states, including New York, impose certification requirements for clinical laboratories, establish standards for quality assurance and quality control, among other things. Some state laws restrict laboratory marketing activities, which may adversely affect our ability to market our laboratory services. Clinical laboratories are subject to inspection by regulators, and to sanctions for failing to comply with applicable requirements. Sanctions available under CLIA include prohibiting a laboratory from running tests, requiring a laboratory to implement a corrective plan, and imposing civil monetary penalties. If we fail to meet any applicable requirements of CLIA or state law, that failure could adversely affect any payer consideration of our current or future technologies, prevent their approval entirely, and/or interrupt the commercial sale and/or marketing of any products and services and otherwise cause us to incur significant expense.We must maintain FDA approval for Cologuard and compliance with applicable FDA requirements; failure to maintain compliance with FDA requirements may prevent or delay the development, marketing or manufacturing of our Cologuard test.As a condition of the FDA approval of our Cologuard test, we are required to conduct a post-approval study. We anticipate that the post-approval study will require significant funding and resources to reach its conclusion. There is a25risk that the FDA may modify or withdraw the approval of Cologuard if the results of this post-approval study are not satisfactory or are inconsistent with previous studies. We rely on third parties, such as contract research organizations, medical institutions and clinical investigators to conduct the post-approval study. We have limited control over the activities of these third parties and the post-approval study may be delayed or halted prior to its completion for reasons outside our control.Additionally, our Madison, Wisconsin manufacturing and laboratory facilities are periodically subject to inspection by the FDA and other governmental agencies to ensure they meet production and quality requirements. Operations at these facilities could be interrupted or halted if the FDA or other governmental agency deems the findings of such inspections unsatisfactory.Further, failure to comply with FDA or other regulatory requirements regarding the development, marketing, promotion, manufacturing and distribution of our tests could result in fines, unanticipated compliance expenditures, recall or seizures of our products, total or partial suspension of production or distribution, restrictions on labeling and promotion, termination of ongoing research, disqualification of data for submission to regulatory authorities, enforcement actions, injunctions and criminal prosecution.If we do not meet applicable regulatory or quality standards, our products may be subject to recall, and, under certain circumstances, we may be required to notify applicable regulatory authorities about a recall. In 2017, we recalled one of the components of our Cologuard test kit and circumstances may arise that cause us to recall other products or components used in connection with our Cologuard test. Any such recalls could have an adverse effect on our ability to provide the Cologuard test, which in turn would adversely affect our financial condition. Our inability to obtain without delay any necessary regulatory clearances or approvals for new medical devices, or improvements to or expanded indications for our current offerings, could prevent, delay or adversely impact future product commercialization.We may develop new diagnostic test candidates that are regulated by the FDA as medical devices. Unless otherwise exempted, medical devices must receive either FDA regulatory approval or clearance before being marketed in the U.S. The FDA determines whether a medical device will require either regulatory approval or clearance based on statutory criteria that include the risk associated with the device and whether the device is similar to an existing, legally marketed product. The process to obtain either regulatory approval or clearance will likely be costly, time-consuming and uncertain. However, we believe the regulatory approval process is generally more challenging. Even if we design a product that we expect to be eligible for the regulatory clearance process, the FDA may require that the product undergo the regulatory approval process. There can be no assurance that the FDA will ever permit us to market any new product or service that we develop. Even if regulatory approval or clearance is granted, such approval may include significant limitations on indicated uses, which could materially and adversely affect the prospects of any new medical device.FDA regulatory approval or clearance is not just required for new medical devices we develop, but would also be required for certain enhancements we may seek to make to our Cologuard test. Delays in receipt of, or failure to obtain, clearances or approvals could materially delay or prevent us from commercializing our products and services or result in substantial additional costs that could decrease our profitability. In addition, even if we receive FDA clearance or approval for a new or enhanced product, the FDA may condition, withdraw or materially modify its clearance or approval.In the future, we may develop tests that could be regulated as LDTs. If the FDA begins to actively regulate LDTs, we may need to obtain additional FDA or other regulatory approvals, which may prevent, delay, or adversely impact our commercialization of these diagnostic tests.We may developdeveloping products or services that would be regulated as LDTs under CLIA. LDTs are clinical laboratory tests that are developed, validated and manufactured by a laboratory for its own use. Historically, LDTs have been regulated under CLIA while the FDA has exercised enforcement discretion and not required approvals or clearances for most LDTs performed by CLIA-certified laboratories. The FDA has historically chosen not to exercise its authority to regulate LDTs because LDTs were limited in number, were relatively simple tests, and typically were used to diagnose rare disease and uncommon conditions.26In October 2014, the FDA published two draft guidance documents describing a proposed risk-based framework under which it might regulate LDTs. The FDA’s draft framework proposed, among other things, premarket review for higher-risk LDTs, such as those that have the same intended use as FDA-approved or cleared diagnostics currently on the market. In November 2015, the FDA issued a report citing evidence for the need for additional regulation of LDTs and stated the FDA is continuing to work to finalize premarket review requirements for LDTs. However, in November 2016, the FDA announced it would not issue a final guidance for LDTs. In January 2017, the FDA issued a Discussion Paper on LDTs, which confirmed it would not finalize guidance on the regulation of LDTs to allow more time for public discussion and time for the congressional authorizing committees to develop a legislative solution. We cannot predict the timing, content or form of any legislation, regulation or guidance, or the potential effect on our existing molecular diagnostic tests or our tests in development, or the potential impact of such guidance or regulation on our business, financial condition or results of operation.Our business could be materially affected if the FDA begins to actively regulate LDTs. We may be required to change business plans regarding the development and commercialization of new diagnostic tests. New laws and regulations may significantly slow the time it would take us to bring LDTs to market, may materially increase the costs of developing, and decrease the profitability of providing, LDTs, and may prevent us from commercializing certain products or services. We cannot provide any assurance that FDA clearance or approval will not ultimately be required in the future for any of our tests, whether as a result of additional guidance or regulations issued by the FDA, new enforcement policies adopted by the FDA or new legislation adopted by Congress. It is possible that legislation will be enacted into law, regulations could be promulgated or guidance could be issued by the FDA that may result in increased regulatory burdens for us to continue to offer molecular diagnostic tests or to develop and introduce new tests. Moreover, if pre-market review is required by the FDA or if we decide to voluntarily pursue the FDA’s pre-market review for any of our tests, there can be no assurance that they will be cleared or approved on a timely basis, if at all, nor can there be assurance that labeling claims will be consistent with our current claims or adequate to support continued adoption of and reimbursement for our tests. If pre-market review is required, our business could be negatively impacted as a result of commercial delay that may be caused by any new requirements.We currently manufacture our Cologuard test predominantly in one facility and perform our Cologuard test in one laboratory facility. If demand for our Cologuard test grows, we may lack adequate facility space and capabilities to meet increased processing requirements. Moreover, if these or any future facilities or our equipment were damaged or destroyed, or if we experience a significant disruption in our operations for any reason, our ability to continue to operate our business could be materially harmed.We currently perform our Cologuard test in a single laboratory facility in Madison, Wisconsin. We manufacture the Cologuard test in a single facility in Madison, Wisconsin. Our headquarters are also located in Madison, Wisconsin.As we expand the commercialization of Cologuard and increase the number of tests processed by our laboratory facility, we believe it will be necessary to both expand our existing laboratory facility and to add one or more new manufacturing and laboratory facilities in order to increase our manufacturing and processing capacity to meet anticipated demand. During 2018 we expanded the capacity at our existing laboratory facility to approximately three million tests per year. Also, during the fourth quarter of 2017, we purchased real property in Madison, Wisconsin and began construction of a new clinical laboratory facility. The new laboratory facility is expected to increase our annual capacity by approximately four million tests per year. Construction of the new facility is expected to be completed near mid‑2019. We are also in the process of building an additional manufacturing facility and additional warehouse and office space on the recently-acquired real property, which are expected to be completed in 2019. Manufacturing in the new facility is expected commence during 2020. We have also contracted with a third party regarding the construction and lease of a new headquarters facility in Madison, Wisconsin, which is expected to be completed in the first quarter of 2020. Failure to complete, or timely complete, these expansion projects, may significantly delay our Cologuard processing times and capabilities, or other operations, which may adversely affect our business, financial condition and results of operation. In addition, our financial condition may be adversely affected if we are unable to complete these expansion projects on budget and otherwise on terms and conditions acceptable to us. Finally, our financial condition will be adversely affected if demand for our products and services does not materialize in line with our current expectations and if, as a result, we end up building excess capacity that does not yield a reasonable return on our investment.If our present, or any future facilities, were to be damaged, destroyed or otherwise unable to operate, whether due to fire, floods, storms, tornadoes, other inclement weather events or natural disasters, employee malfeasance, terrorist27acts, power outages, or otherwise, our business could be severely disrupted. If our present and/or future Madison, Wisconsin, manufacturing facility or laboratory is disrupted, we may not be able to produce or perform our Cologuard test or generate test reports as promptly as patients and healthcare providers require or expect, or possibly not at all. If we are unable to perform our Cologuard test or generate test reports within a timeframe that meets patient and healthcare provider expectations, our business, financial results and reputation could be materially harmed.We currently maintain insurance against damage to our property and equipment and against business interruption, subject to deductibles and other limitations. If we have underestimated our insurance needs with respect to an interruption, or if an interruption is not subject to coverage under our insurance policies, we may not be able to cover our losses.We rely upon certain single-source suppliers and loss or interruption of supply from single-source suppliers could have a disruptive effect on our business.We purchase certain supplies from third-party suppliers and manufacturers. In some cases, due to the unique attributes of products that are incorporated into our Cologuard test, we maintain a single-source supplier relationship. These third parties are independent entities subject to their own unique operational, regulatory compliance, and financial risks that are outside our control. These third parties may not perform their obligations in a timely and cost-effective manner and they may be unwilling to increase production capacity commensurate with demand for our Cologuard test or future products or services. Moreover, we may become dependent on other single-source suppliers as we expand and develop our product pipeline.The loss of a single-source supplier, the failure to perform by a single-source supplier, the deterioration of our relationship with a single-source supplier or any unilateral modification to the contractual terms under which we are supplied materials by a single-source supplier could have a disruptive effect on our business, and could adversely affect our results of operations.Failure in our information technology, storage systems or our clinical laboratory equipment could significantly disrupt our operations and our research and development efforts, which could adversely impact our revenues, as well as our research, development and commercialization efforts.Our ability to execute our business strategy depends, in part, on the continued and uninterrupted performance of our information technology (“IT”) systems, which support our operations, including at our clinical laboratory, and our research and development efforts. We are substantially dependent on our IT systems to receive and process Cologuard test orders, securely store patient health records and deliver the results of our Cologuard tests. The integrity and protection of our own data, and that of our customers and employees, is critical to our business. The regulatory environment governing information, security and privacy laws is increasingly demanding and continues to evolve. IT systems are vulnerable to damage from a variety of sources, including telecommunications or network failures, malicious human acts and natural disasters. Moreover, despite network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins, computer viruses and similar disruptive problems. Despite the precautionary measures we have taken to prevent unanticipated problems that could affect our IT systems, sustained or repeated system failures that interrupt our ability to generate and maintain data, and in particular to operate our clinical laboratory, could adversely affect our ability to operate our business. Any interruption in the operation of IT systems could have an adverse effect on our operations. Furthermore, any breach in our IT systems could lead to the unauthorized access, disclosure and use of non-public information, including protected health information, which is protected by HIPAA and other laws. Any such access, disclosure, or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and damage to our reputation.System upgrades and enhancements require significant expenditures and allocation of valuable employee resources. We are currently in the process of upgrading our systems with SAP SE. Additionally we continuously upgrade our customer facing software applications. On November 12, 2018, we entered into an agreement with Epic Systems Corporation (“Epic”) pursuant to which we will use Epic’s software to handle multiple components of our information technology system, from order entry all the way through revenue cycle and customer care. Delays in integration or disruptions to our business from implementation of these new or upgraded systems could have a material adverse impact on our financial condition and operating results. There can be no assurance that our process of improving existing systems, developing new systems to support our expanding operations, integrating new systems, protecting confidential patient information, and improving service levels will not be delayed or that additional systems issues will not arise in28the future. Failure to adequately protect and maintain the integrity of our information systems issues and data may result in a material adverse effect on our financial position, results of operations and cash flows.We rely on courier delivery services to transport Cologuard collection kits to patients and samples back to laboratory facilities for analysis. If these delivery services are disrupted or become prohibitively expensive, customer satisfaction and our business could be negatively impacted.In most cases, we ship Cologuard collection kits to patients, and patients ship samples to our Madison, Wisconsin, laboratory facility for analysis, by air and ground express courier delivery service. Disruptions in delivery service, whether due to bad weather, natural disaster, labor disruptions, terrorist acts or threats, or for other reasons, can adversely affect customer satisfaction, specimen quality and our ability to provide our services on a timely basis. If the courier delivery services that transport Cologuard collection kits institute significant price increases, our profitability would be negatively affected and we may need to identify alternative delivery methods, if possible, modify our service model, or attempt to raise our pricing, which may not be possible with regard to Medicare claims or commercially practicable with regard to commercial claims.Due to billing complexities in the diagnostic and laboratory service industry, we may not be able to collect payment for the Cologuard tests we perform.Billing for diagnostic and laboratory services is a complex process. Laboratories bill many different payers including patients, private insurance companies, Medicare, Medicaid, and employer groups, all of which have different billing requirements. We are continuing to work with third-party payers to cover and reimburse Cologuard tests. If we are unsuccessful, we may not receive payment for Cologuard tests we perform for patients on a timely basis, if at all, and we may not be able to provide services for patients with certain healthcare plans. We may have to litigate to enforce coverage obligations under Medicare laws and laws that mandate coverage for certain colorectal cancer screening tests or to enforce contractual coverage obligations. Such litigation may be costly, may divert management attention from other responsibilities, may cause payers, including those not directly involved in the litigation, to resist contracting with us, and may ultimately prove unsuccessful for a variety of reasons. We may face lawsuits by government or commercial payers if they believe they have overpaid us for our Cologuard test services or as a result of other circumstances. We may face write-offs of doubtful accounts, disputes with payers and patients, and long collection cycles. We may face patient dissatisfaction, complaints or lawsuits, including to the extent Cologuard tests are not fully covered by insurers and patients become responsible for all or part of the price of the test. As a result, patient demand for Cologuard could be adversely affected. To the extent patients express dissatisfaction with our billing practices to their physicians, those physicians may be less likely to prescribe Cologuard for other patients, and our business would be adversely affected.Even if payers do agree to cover Cologuard, our billing and collections process may be complicated by the following and other factors, which may be beyond our control:·disputes among payers as to which payer is responsible for payment;·disparity in coverage among various payers or among various healthcare plans offered by a single payer;·payer medical management requirements, including prior authorization requirements;·differing information and billing requirements among payers; and·failure by patients or physicians to provide complete and correct billing information.Sometimes, when we have a contract with a commercial payer to cover Cologuard, we are not permitted to bill patients insured by that payer for amounts beyond deductibles, co‑payments and co‑insurance as prescribed in the coverage agreement between the payer and the patients. Therefore, when such contracted payers do not pay us our full, contracted rate for a Cologuard test, for example, for failure to satisfy prior‑authorization or other payer medical management requirements, we may not be permitted to collect the balance from the patient and our business is adversely impacted.The uncertainty of receiving payment for our Cologuard test and complex laboratory billing processes could negatively affect our business and our operating results. 29Cologuard test,screening or diagnostic tests as a result of litigation or other proceedings relating to patent or other intellectual property rights.colorectal cancer and pre-cancer, as well as in the guidance of cancer treatment decisions, and is designed to maximize our patent protection against third parties. We have filed patent applications that we believe cover the methods we have designed and use in our Cologuard test to detect colorectal cancer and pre-cancer.pre-cancer, our Oncotype tests to provide prognosis and guide treatment decisions, and for pipeline cancer tests still in development. In order to protect or enforce our patent and other intellectual property rights, we may have to initiate actions against third parties. Any actions regarding patents could be costly and time-consumingtime consuming and divert the attention of our management and key personnel from our business. Additionally, such actions could result in challenges to the validity, enforceability, or applicability of our patents. Because the U.S. Patent & Trademark Office maintains patent applications in secrecy until a patent application publishes or the patent is issued, we have no way of knowing if others may have filed patent applications covering technologies used by usour partners or our partners.us. Additionally, there may be third-party patents, patent applications, and other intellectual property relevant to our technologies that may block or compete with our technologies. From time to time we have received correspondence from third parties alleging to hold intellectual property rights that could block our development or commercialization of products. While none of these inquiries to date have had any material effect on us, we may receive inquiries in the future that could have a material effect on our business. Even if third-party claims are without merit, defending a lawsuit may result in substantial expense to us and may divert the attention of management and key personnel. In addition, we cannot provide assurance that we would prevail in any such suits to the extent necessary to conduct our business according to our strategic plan or that the damages or other remedies, if any, awarded against us would not be substantial. Claims of intellectual property infringement may require that we, or our strategic partners, enter into royalty or license agreements with third parties that may only be available on unacceptable terms, if at all. These claims may also result in injunctions against the further development and commercial sale of services or products containing our technologies, which would have a material adverse effect on our business, financial condition, and results of operations. you that we will be successful in defending challenges made against our patents and patent applications. Any successful third-party challenge to our patents could result in co-ownership of such patents with the third party or the unenforceability or invalidity of such patents. Furthermore, in the life sciences field, courts frequently render opinions that may affect the patentability of certain inventions or discoveries, including opinions that may affect the patentability of isolated DNA and/or methods for analyzing or comparing DNA. Such decisions may adversely impact our ability to obtain new patents and facilitate third-party challenges to our existing patents.ToWe may face competition internationally in jurisdictions where we do not have intellectual property protection. Our business may be adversely affected to the extent third parties are30patents, our business willpatents. We may also be adversely impacted.various complex laws and regulations. We couldapply when examining process claims that narrow the scope of patentable subject matter. While these guidelines may be subject to significant finesreview and penaltiesmodification by the USPTO over time, we cannot assure you that our patent portfolio will not be negatively impacted by the decisions mentioned above, rulings in other cases, or changes in guidance or procedures issued by the USPTO.we orany, impact these substantive changes will ultimately have on the cost of prosecuting our partners failpatent applications, our ability to comply with these laws and regulations.As a provider of clinical diagnostic products and services, weobtain patents based on our discoveries, and our partners are subjectability to extensive and frequently changing federal, state and local laws and regulations governing various aspects ofenforce or defend our business. In particular, the clinical laboratory industry is subject to significant governmental certification and licensing regulations, as well as federal and state laws regarding:·test ordering and billing practices; ·marketing, sales and pricing practices; ·health information privacy and security, including the Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, or HITECH, and comparable state laws; ·insurance; ·anti-markup legislation; and ·consumer protection.We are also required to comply with FDA regulations, including with respect to our labeling and promotion activities. In addition, advertising of our tests is subject to regulation by the Federal Trade Commission, or FTC, and advertising of laboratory services is regulated by certain state laws. Violation of any FDA requirement could result in enforcement actions, such as seizures, injunctions, civil penalties and criminal prosecutions, and violation of any FTC or state law requirement could result in injunctions and other associated remedies,issued patents, all of which could have a material adverse effect on our business. Most states also have similar regulatory and enforcement authority for devices. Additionally, most foreign countries have authorities comparable to the FDA and processes for obtaining marketing approvals. Obtaining and maintaining these approvals, and complying with all laws and regulations, may subject us to similar risks and delays as those we could experience under FDA, FTC and state regulation. We incur various costs in complying and overseeing compliance with these laws and regulations.Healthcare policy has been a subject of extensive discussion in the executive and legislative branches of the federal and many state governments and healthcare laws and regulations are subject to change. Development of the existing commercialization strategy for our Cologuard test and planned development of products in our pipeline has been based on existing healthcare policies. We cannot predict what additional changes, if any, will be proposed or adopted or the effect that such proposals or adoption may have on our business, financial condition and results of operations.If we or our partners, including Pfizer, fail to comply with these laws and regulations, we could incur significant fines and penalties and our reputation and prospects could suffer. Additionally, any such partners could be forced to cease offering our products and services in certain jurisdictions, which could materially disrupt our business.Some of our activities may subject us to risks under federal and state laws prohibiting ‘kickbacks’ and false or fraudulent claims.In addition to FDA marketing and promotion restrictions, several other types of state and federal healthcare fraud and abuse laws have been applied in recent years to restrict certain marketing practices in the healthcare product and service industry and to regulate billing practices and financial relationships with physicians, hospitals and other healthcare providers. These laws include a federal law commonly known as the Medicare/Medicaid anti-kickback law, and several similar state laws, which prohibit payments intended to induce physicians or others either to refer patients or31to acquire or arrange for or recommend the acquisition of healthcare products or services. While the federal law applies only to referrals, products or services for which payment may be made by a federal healthcare program, state laws often apply regardless of whether federal funds may be involved. These laws constrain the sales, marketing and other promotional activities of manufacturers of medical devices and providers of laboratory services by limiting the kinds of financial arrangements, including sales programs, that may be used with hospitals, physicians, laboratories and other potential purchasers or prescribers of medical devices and laboratory services. Other federal and state laws generally prohibit individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party payers that are false or fraudulent, or are for items or services that were not provided as claimed. Additionally, to avoid liability under federal false claims laws, we must carefully and accurately code claims for reimbursement, proactively monitor the accuracy and appropriateness of Medicare claims and payments received, diligently investigate any credible information indicating that we may have received an overpayment, and promptly return any overpayments. Medicare payments are subject to audit, including through the Comprehensive Error Rate Testing (CERT) program, and payments may be recouped by CMS if it is determined that they were improperly made. Currently, a significant percentage of our revenues are generated by payments from Medicare. The federal anti-kickback statute and certain false claims laws prescribe civil and criminal penalties (including fines) for noncompliance that can be substantial. While we continually strive to comply with these complex requirements, interpretations of the applicability of these laws to marketing and billing practices are constantly evolving and even an unsuccessful challenge could cause adverse publicity and be costly to respond to, and thus could harm our business and prospects. Our failure to comply with applicable laws could result in various adverse consequences that could have a material adverse effect upon our business, including the exclusion of our products and services from government programs and the imposition of civil or criminal sanctions.Compliance with the HIPAA security, privacy and breach notification regulations may increase our costs.The HIPAA privacy, security and breach notification regulations, including the expanded requirements under HITECH, establish comprehensive federal standards with respect to the uses and disclosures of protected health information (“PHI”) by health plans, healthcare providers and healthcare clearinghouses, in addition to setting standards to protect the confidentiality, integrity and security of PHI. The regulations establish a complex regulatory framework on a variety of subjects, including:·administrative, technical and physical safeguards required of entities that use or receive PHI; andWe have implemented practices to meet the requirements of the HIPAA privacy, security and breach notification regulations, as required by law. We are required to comply with federal privacy, security and breach notification regulations as well as varying state privacy, security and breach notification laws and regulations, which may be more stringent than federal HIPAA requirements. In addition, for healthcare data transfers from other countries relating to citizens of those countries, we must comply with the laws of those countries. The federal privacy regulations restrict our ability to use or disclose patient identifiable data, without patient authorization, for purposes other than payment, treatment, healthcare operations and certain other specified disclosures such as public health and governmental oversight of the healthcare industry.HIPAA provides for significant fines and other penalties for wrongful use or disclosure of PHI, including potential civil and criminal fines and penalties. Computer networks are always vulnerable to breach and unauthorized persons may in the future be able to exploit weaknesses in the security systems of our computer networks and gain access to PHI. Additionally, we share PHI with third-parties who are legally obligated to safeguard and maintain the confidentiality of PHI. Unauthorized persons may be able to gain access to PHI stored in such third-parties computer networks. Any wrongful use or disclosure of PHI by us or such third-parties, including disclosure due to data theft or unauthorized accessRisks Relating to our or our third-parties computer networks, could subject us to fines or penalties that could adversely affect our business and results of operations. Although the HIPAA statute and regulations do not expressly provide for a private32right of damages, we could also incur damages under state laws to private parties for the wrongful use or disclosure of confidential health information or other private personal information.While we believe we currently have adequate internal control over financial reporting, weWe are required to assess our internal control over financial reporting on an annual basis and any future adverse results from such assessmentassessments could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price. or not our internal control over financial reporting is effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting identified by management. While we believe our internal control over financial reporting is currently effective, the effectiveness of our internal controls in future periods is subject to the risk that our controls may become inadequate because of changes in conditions. Establishing, testing, and maintaining an effective system of internal control over financial reporting requires significant resources and time commitments on the part of our management and our finance staff, may require additional staffing and infrastructure investments, and would increase our costs of doing business. If we are unable to assert that our internal control over financial reporting is effective in any future period (or if our auditors are unable to express an opinion on the effectiveness of our internal controls or conclude that our internal controls are ineffective), we could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our stock price.The success of our business is substantially dependent upon the efforts of our senior management team.Our success depends largely on the skills, experience and performance of key members of our senior management team including Kevin Conroy, our Chairman, President and Chief Executive Officer, Mark Stenhouse, our President of Cologuard, Scott Coward, our Senior Vice President, General Counsel and Chief Administrative Officer, Scott Johnson, our Senior Vice President of Research & Development, and Jeff Elliott, our Chief Financial Officer. These executives are critical to directing and managing our growth and development in the future. Our success is substantially dependent upon our senior management’s ability to lead our company, implement successful corporate strategies and initiatives, develop key relationships, including relationshipscollaborators and business partners, and successfully commercialize products and services. While our management team has experience in developing and securing FDA approvals for diagnostic products, we have considerably less experience in commercializing products or services. The efforts of our management team will be critical to us as we develop our technologies and seek to commercialize our Cologuard test and other products and services.Our success depends on our ability to retain our managerial personnel and to attract additional personnel.Our success depends in large part on our ability to attract and retain managerial personnel. If we were to lose any of our senior management team, we may experience difficulties in competing effectively, developing our technologies and implementing our business strategies. Competition for desirable personnel is intense, and there can be no assurance that we will be able to attract and retain the necessary staff. The failure to maintain management or to attract sales and marketing personnel as we commercialize our Cologuard testcurrency exchange rate fluctuations, which could materially adversely affect our business, financial condition and results of operations.Our management has broad discretion over the use of our available cash and marketable securities and might not spend available cash and marketable securities in ways that increase the value of your investment.As of December 31, 2018, we had $1.1 billion in combined cash and marketable securities. Our management currently expects to deploy these resources primarily to expand our Cologuard operation and commercialization activities, to fund our product development efforts and for general corporate and working capital purposes. However, our management has broad discretion to pursue other objectives and we may use these funds for other purposes. Our management might not effectively deploy our cash and marketable securities which could have an adverse effect on our business.33Our business and reputation will suffer if we are unable to establish and comply with, stringent quality standards to assure that the highest level of quality is observed in the performance of our Cologuard test.Inherent risks are involved in providing and marketing cancer screening and diagnostic tests, such as our Cologuard test, and related services. Patients and healthcare providers rely on us to provide accurate clinical and diagnostic information that may be used to make critical healthcare decisions. As such, users of our Cologuard test may have a greater sensitivity to errors than users of some other types of products and services.We must maintain top service standards and FDA-mandated and other quality controls. Performance defects, incomplete or improper process controls, excessively slow turnaround times, unanticipated uses of Cologuard or mishandling of stool samples or Cologuard test results (whether by us, patients, healthcare providers, courier delivery services or others) can lead to adverse outcomes for patients and interruptions to our services. These events could lead to voluntary or legally mandated safety alerts relating to Cologuard or our laboratory facility and could result in the removal of Cologuard from the market or the suspension of our laboratory’s operations. Insufficient quality controls and any resulting negative outcomes could result in significant costs and litigation, as well as negative publicity that could reduce demand for Cologuard and payers’ willingness to cover our Cologuard test. Even if we maintain adequate controls and procedures, damaging and costly errors may occur.Product and professional liability suits against us could result in expensive and time-consuming litigation, payment of substantial damages and increases in our insurance rates.The sale and use of our Cologuard test could lead to product or professional liability claims. Such claims could also arise out of clinical studies we may conduct or any of our other activities. A product or professional liability claim could result in substantial damages, be costly and time consuming to defend, and cause material harm to our business, reputation or financial condition. We cannot assure you that our liability insurance would protect our assets from the financial impact of defending a product or professional liability claim. Any claim brought against us, with or without merit, could increase our liability insurance rates or prevent us from securing insurance coverage in the future.We expect to rely on third parties to conduct any future studies of our technologies that may be required by the FDA or other US or foreign regulatory bodies, and those third parties may not perform satisfactorily.We do not have the ability to independently conduct the clinical or other studies that will be required to obtain FDA or other regulatory approvals or clearances for future products we may develop or the approval of foreign regulatory bodies that may be required for such future products or for our Cologuard test to the extent we seek to market products internationally. Accordingly, we expect to rely on third parties such as contract research organizations, medical institutions and clinical investigators to conduct any such studies, including the post-approval study required by the FDA for our Cologuard test. Our reliance on these third parties for clinical development activities will reduce our control over these activities. These third-parties may not complete activities on schedule or conduct studies in accordance with regulatory requirements or our study design. Our reliance on third parties that we do not control will not relieve us of our requirement to prepare, and ensure our compliance with, various procedures required under good clinical practices, even though third-party contract research organizations may prepare and comply with their own, comparable procedures. If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our studies may be extended, delayed, suspended or terminated, and we may not be able to obtain a required regulatory approval.Our inability to manage growth could harm our business.In connection with the commercialization of our Cologuard test, we have added, and expect to continue to add, additional personnel in the areas of sales and marketing, laboratory operations, billing and collections, quality assurance and compliance. Our number of full-time employees has increased from 736, as of December 31, 2016, to 1,268, as of December 31, 2017, and to 1,977, as of December 31, 2018. Further, as we build our commercialization efforts and expand research and development activities for new products and services, the scope and complexity of our operations is increasing significantly. As a result of our growth, our operating expenses and capital requirements have also increased, andinternational operations, we expect that they will continue to increase, significantly. Our ability to manage our growth effectively requires us to expend funds to improve our operational, financial and management controls, reporting systems and procedures. As we move forward in commercializing our Cologuard test, we will also need to effectively manage our growing34manufacturing, laboratory operations and sales and marketing needs. We are presently seeking to add facilities to support anticipated demand for our Cologuard test and anticipated associated growth in our personnel. We are expanding the capacityreceive a portion of our existing clinical laboratory,revenues and have started constructionpay a portion of a second clinical laboratory, bothour expenses in Madison, Wisconsin. We have begun construction on new manufacturing, warehouse and office facilities. We face various risks in managing these expansion efforts, including financing, construction delays, budget management, quality control, design efficiency, and transition execution. If we are unable to manage our anticipated growth effectively, our business could be harmed.International operations could subject us to risks and expenses that could adversely impact our business and results of operations.To date, we have not undertaken substantial commercial activities outsidecurrencies other than the United States. We have evaluated the commercialization of Cologuard in several European, Middle Eastern and Asian countries. After undertaking preliminary preparatory activities, we determined to cease those efforts and we do not have present plans to expand Cologuard internationally. If we seek to expand Cologuard internationally, or launch other products or services internationally, in the future, those efforts would expose us to risks from the failure to comply with foreign laws and regulations that differ from those under which we operate in the U.S., as well as U.S. rules and regulations that govern foreign activitiesdollar, such as the U.S. Foreign Corrupt Practices Act.Euro, the Swiss franc, the British pound and the Canadian dollar. In addition, many of our distribution agreements contain clauses requiring regular U.S. dollar price re-adjustments to account for fluctuations in the exchange rate between the U.S. dollar and the local currency. As a result, we are at risk from exchange rate fluctuations between such foreign currencies and the U.S. dollar, which could adversely affect our results of operations. Additionally, the volume of our international orders may be adversely affectednegatively impacted by other risks associated with operating ina strong U.S. dollar. For the year ended December 31, 2021, approximately 6.2% of our revenues came from foreign countries. Economic uncertainty in somedenominated currencies. If the U.S. dollar strengthens against foreign currencies, the translation of the geographic regions in which we might operate, including developing regions, couldthese foreign currency denominated transactions will result in the disruption of commercedecreased revenues and negatively impact cash flows from our operations in those areas. Also, if we choose to pursue international expansion efforts, it may be necessary or desirable to contract with third parties, such as laboratories, distributors or others.operating expenses. We may not be able to offset adverse foreign currency impact with increased revenues. We enter into such agreements on commercially acceptable terms, or at all, such arrangements mayforward contracts to mitigate the impact of adverse movements in foreign exchange rates related to the re-measurement of monetary assets and liabilities and hedge our foreign currency exchange rate exposure. Even with this strategy in place to mitigate balance sheet foreign currency risk, we will not performeliminate our exposure to our expectations, we may be exposed to various risks as a result of the activities of our partners, and we may be exposed to contractual or other liabilities to our partners if the arrangements prove non‑beneficial for them or if we seek to terminate them early.These and other factors may have a material adverse effect on any international operations we may seek to undertake and, consequently,foreign exchange rate fluctuations on our financial condition and results of operations.15 percent15% or more of its capital stock unless the holder has held the stock for three years or, among other things, the board of directors has approved the transaction. Accordingly, our board of directors could rely on Delaware law to prevent or delay an acquisition of our company. In addition, certain provisions of our certificate of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management. These provisions include the following:·Our board of directors is divided into three classes serving staggered three-year terms.
•Our board of directors is divided into three classes serving staggered three-year terms. ·Only our board of directors can fill vacancies on the board.
•Only our board of directors can fill vacancies on the board.·Our stockholders may not act by written consent.
•Our stockholders may not act by written consent.·There are various limitations on persons authorized to call a special meeting of stockholders and advance notice requirements for stockholders to make nominations of candidates for election as directors or to bring matters before an annual meeting of stockholders.
•There are various limitations on persons authorized to call a special meeting of stockholders and advance notice requirements for stockholders to make nominations of candidates for election as directors or to bring matters before an annual meeting of stockholders.·Our board of directors may issue, without stockholder approval, shares of undesignated preferred stock.the $690 million and $218.5 million ofour outstanding convertible notes we issued in January 2018, 2019, and June 2018, respectively,2020 could make it more difficult or more expensive for a third party to acquire us. Upon the occurrence of certain transactions constituting a “fundamental change,” as such term is defined in the indenture for the notes, holders of the convertible notes will have the right, at their option, to require us to repurchase all of their convertible notes or any portion of the principal amount of such convertible notes in integral multiples of $1,000. We may also be required to increase the conversion rate in the event of a “make-whole fundamental change,” as such term is defined in35We may engage in acquisitions that could disrupt our business, cause dilution to our stockholders and reduce our financial resources.We have recently undertaken certain acquisition activities. In 2018, we acquired the stock of Biomatrica, Inc. We could incur losses resulting from yet undiscovered liabilities of these acquired business that are not covered by any indemnification or other contractual remedies. In addition, we may not be able to successfully integrate these businesses into our existing operations in an effective, timely and non‑disruptive manner.In the future, we may enter into transactions to acquire other businesses, products, services or technologies. Because we have only made a limited number of small acquisitions to date, our ability to do so successfully is unproven. If we do identify suitable candidates, we may not be able to make such acquisitions on favorable terms or at all. Any acquisitions we make may not strengthen our competitive position, and these transactions may be viewed negatively by investors, healthcare providers, patients and others. We may decide to incur debt in connection with an acquisition or issue our common stock or other securities to the stockholders of the acquired company, which would reduce the percentage ownership of our existing stockholders. We could incur losses resulting from undiscovered liabilities of the acquired business that are not covered by any indemnification we may obtain from the seller. In addition, we may not be able to successfully integrate the acquired personnel, technologies and operations into our existing business in an effective, timely and non-disruptive manner. Acquisitions may also divert management from day-to-day responsibilities, increase our expenses and reduce our cash available for operations and other uses. We cannot predict the number, timing or size of future acquisitions or the effect that any such transactions might have on our operating results.2018,2021, we had federal, state, and stateforeign net operating loss carryforwards (“NOLs”) of approximately $937.4$2.15 billion, $1.04 billion, and $15.9 million, and $403.5 million, respectively. In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change NOLs to offset future taxable income. An ownership change is generally defined as a greater than 50 percent50% change in equity ownership by value over a specified time period (generally three years). Given the Code’s broad definition, an ownership change could be the unintended consequence of otherwise normal market trading in our stock that is outside our control. An ownership change under Section 382 of the Code could also be triggered by certain strategic transactions. Additionally, tax law limitations may result in our NOLs expiring before we have the ability to use them. Pursuant to the Tax Cuts and Jobs Act (H.R. 1) of 2017, federal NOLs arising in tax years beginning after December 31, 2017 have an indefinite carryover period and may only be used to offset 80 percent80% of current year taxable income. For these reasons, even if we attain profitability, our ability to utilize our NOLs may be limited, potentially significantly so.36$82.85$159.54 and a low of $37.36$71.81 in the twelve-month period ended December 31, 2018.2021. Our stock price is likely to continue to be volatile and subject to significant price and volume fluctuations in response to market and other factors, including those listed in this “Item 1A. Risk Factors” section and other, unknown factors. OurAmong numerous other factors, our stock price also may be affected by:·comments by securities analysts regarding our business or prospects;
•comments by securities analysts regarding our business or prospects;·our quarterly operating performance;
•our quarterly operating performance;·our issuance of common stock or other securities;
•our issuance of common stock or other securities;·our inability to accurately forecast future performance;
•our inability to accurately forecast future performance;·our inability to meet analysts’ expectations;
•our inability to meet analysts’ expectations;·our entering into merger, acquisition or other similar transactions;
•our entering into merger, acquisition, or other similar transactions;·general fluctuations in the stock market or in the stock prices of companies in the life sciences or healthcare diagnostics industries; and
•general fluctuations in the stock market or in the stock prices of companies in the life sciences or healthcare diagnostics industries; and·general conditions and publicity regarding the life sciences or healthcare diagnostics industries.retainuse any earningscash proceeds from our operations to finance the growth of our business rather than to pay cash dividends. Payments of any cash dividends in the future will depend on our financial condition, results of operations and capital requirements, as well as other factors deemed relevant by our board of directors.$908.5 million$2.21 billion of indebtedness, and we have a construction loan outstanding of $24.3 million as of December 31, 2018.indebtedness. This level of debt could have significant consequences on our future operations, including:
•increasing our vulnerability to adverse economic and industry conditions;·making it more difficult for us to meet our payment and other obligations;
•making it more difficult for us to meet our payment and other obligations;·making it more difficult to obtain any necessary future financing for working capital, capital expenditures, debt service requirements or other purposes;
•requiring the dedication of a substantial portion of any cash flow from operations to service our indebtedness, thereby reducing the amount of cash flow available for other purposes, including capital expenditures;·placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital than we have; and
•placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access to capital than we have; and·limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete.37indebtedness$908.5 million$2.21 billion aggregate principal amount of our 1.0%, 0.375%, and 0.375% convertible senior notes due 2025, 2027, and 2028, respectively, depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt, including the convertible notes, and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt, or obtaining additional equity capital on terms that mayor share-settling the convertible notes which could be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.2018,2021, we occupied approximately 437,0001,316,000 square feet of space at our significant facilities in the Madison, Wisconsin area a 10,000and 254,000 square foot facilityfeet in San Diego California, a 6,000 square foot facilityour facilities in Ann Arbor, Michigan, and a 5,000 square foot facility in Salt LakeRedwood City, Utah.California. See Note 715 in the Notes to Consolidated Financial Statements included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” for further discussion surrounding our leased facilities and Note 9 in the Notes to our Consolidated Financial Statements for further discussion surrounding mortgages on our owned properties.2018,2021, our material facilities are as follows:48,000LeasedLeased/Owned Madison, WisconsinCorporate offices160,000OwnedMadison, WisconsinOperations35,000LeasedMadison, WisconsinOperations66,000LeasedMadison, WisconsinClinical laboratory55,000LeasedMadison, WisconsinCorporate offices45,000LeasedSalt Lake City, UtahCorporate offices5,000LeasedSan Diego, CaliforniaCorporate offices10,000LeasedAnn Arbor, Michigan6,000LeasedMadison, WisconsinCorporate offices2,000Middleton, WisconsinCorporate offices26,000LeasedWe are not currently a partyLegal proceedings, including litigation, government investigations and enforcement actions could result in material costs, occupy significant management resources and entail civil and criminal penalties. The information called for by this item is incorporated by reference to any pending litigation that we believe is likelythe information in Note 15 of the Notes to have a material adverse effectConsolidated Financial Statements included in Item 8 of this Annual Report on our business operations or financial condition.3820, 2019,21, 2022, there were 125,760,907174,116,598 shares of our common stock outstanding held by approximately 85201 holders of record.capitalcommon stock and do not plan to pay any cash dividends in the foreseeable future.39
Unregistered Sales of Equity SecuritiesItem 6. Selected Financial DataThe selected historical financial data for the five years ended December 31, 2018 is derived from our audited consolidated financial statements. The selected historical financial data should be read in conjunction with, and is qualified by reference to “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and notes thereto.(1)Non‑cash stock‑based compensation expense included in these amounts are as follows:40(together with its subsidiaries, “Exact,” “we,” “us,” “our” or the “Company”) is a molecularleading, global, advanced cancer diagnostics company focused on the early detection and prevention ofcompany. We have developed some of the deadliest forms of cancer. We have developed an accurate, non-invasive, patient-friendly screening test called Cologuard® for the early detection of colorectalmost impactful tests in cancer and pre-cancer,diagnostics, and we are currently working on the development of additional tests, for other types of cancer, with the goal of becoming a leader inbringing new innovative cancer screening and diagnostics.Our Cologuard TestColorectal cancer istests to patients throughout the second leading cause of cancer deaths in the U.S. and the leading cause of cancer deaths in the U.S. among non-smokers. Each year in the U.S. there are approximately:
world.·146,000 new cases of colorectal cancer·51,000 deaths from colorectal cancerIt is widely accepted that colorectal cancer is among the most preventable, yet least prevented cancers. Colorectal cancer can take up to 10-15 years to progress from a pre-cancerous lesion to metastatic cancer and death. Patients who are diagnosed early in the progression of the disease—with pre-cancerous lesions or polyps or early-stage cancer—are more likely to have a complete recovery and to be treated less expensively. Of the more than 85 million people between the ages of 50 and 85, who are at average-risk for colorectal cancer in the U.S., 38 percent have not been screened according to current guidelines. Internal studies have shown that approximately 50% of Cologuard users were previously unscreened for colorectal cancer. Poor compliance with screening guidelines has meant that nearly two-thirds of colorectal cancer diagnoses are made in the disease’s late stages. The five-year survival rates for stages 3 and 4 are 70 percent and 13 percent, respectively. We believe the large underserved population of unscreened and inadequately screened patients represents a significant opportunity for a patient-friendly screening test.Our Cologuard test is a non-invasive sDNA screening test that utilizes a multi-target approach to detect DNA and hemoglobin biomarkers associated with colorectal cancer and pre-cancer. Eleven biomarkers are targeted that have been shown to be strongly associated with colorectal cancer and pre-cancer. Methylation, mutation, and hemoglobin results are combined in the laboratory analysis through a proprietary algorithm to provide a single positive or negative reportable result.Changes in DNA methylation, and the occurrence of mutations, alter gene expression and other mechanisms for cell cycle regulation and differentiation. As a result, the affected cells continue to proliferate, often resulting in malignancies associated with colorectal cancer and pre-cancer. Hemoglobin is the protein complex responsible for transporting oxygen in red blood cells. During the progression of cancer, the probability of bleeding into the colon increases. The presence of hemoglobin, released from red blood cells, can be detected in the stool. Using sDNA Cologuard purifies, amplifies and detects increased levels of methylation, and presence of mutations, in specific genes. By combining these DNA indicators with a test for hemoglobin, Cologuard produces a multi-marker result effective for the detection of colorectal cancer and pre-cancerous adenomas.In August 2014, the FDA granted PMA to Cologuard for use as a colorectal cancer screening test in adults 50 years of age and older who are at a typical average-risk for colorectal cancer. Upon approval, Cologuard became the first and only FDA-approved sDNA non-invasive colorectal cancer screening test. Our original PMA submission to the FDA for Cologuard included the results of our pivotal DeeP-C clinical trial that had over 10,000 patients enrolled at 90 sites in the U.S. and Canada. The results of our DeeP-C clinical trial for Cologuard were published in the New England Journal of Medicine in April 2014. The peer-reviewed study, “Multi-target Stool DNA Testing for Colorectal-Cancer Screening,” highlighted the performance of Cologuard in the trial population:·Cancer Sensitivity: 92%·Stage I and II Cancer Sensitivity: 94%41·High-Grade Dysplasia Sensitivity: 69%·Specificity: 87%We believe the competitive advantages of sDNA screening may provide a significant market opportunity. There are 85 million people in the U.S. between the ages of 50-85 who are at average risk for colorectal cancer. At a three-year screening interval and an average revenue per test of $500 this represents a potential $14 billion market for Cologuard, of which our current share is approximately four percent.We are also seeking to develop a pipeline of potential future products and services with a focus on liquid biopsy tests.Our Clinical Laboratory and Manufacturing FacilitiesAs part of our commercialization strategy, we established a state-of-the-art, highly automated lab facility that is certified pursuant to federal CLIA requirements to process Cologuard tests and provide patient results. Our commercial lab operation is housed in a 55,000 square foot facility in Madison, Wisconsin. At our lab, we currently have the capacity to process approximately three million tests per year.During the fourth quarter of 2017 we began construction of a new clinical lab facility in Madison, Wisconsin that is expected to be completed mid-2019. After the new clinical laboratory is operational, we expect our total lab capacity at both facilities will be approximately seven million tests per year by the end of 2019.We currently manufacture the Cologuard test in a facility in Madison, Wisconsin. As we expand the commercialization of Cologuard, we believe it will be necessary to expand our manufacturing capacity. Accordingly, we are in the process of building an additional manufacturing facility which we expect to complete in 2019. We are committed to manufacturing and providing medical devices and related products that meet customer expectations and applicable regulatory requirements. We adhere to manufacturing and safety standards required by federal, state, and local laws and regulations and operate our manufacturing facilities under a quality management system. We purchase certain components for our Cologuard test from third-party suppliers and manufacturers. How We Recognize RevenueWe recognize revenue on the delivery of a test result to an ordering healthcare provider for tests performed where based on our estimate of the amount that we will ultimately collect at the time delivery is complete. The amount of revenue we recognize is based on the established billing rates less contractual and other adjustments, which yields the constrained amount that we expect to ultimately collect. We determine the amount we expect to ultimately collect on a per-payer or per-agreement basis, using historical collections, established reimbursement rates and other adjustments. The expected amount is typically lower than, if applicable, the agreed-upon reimbursement amount due to several factors, such as the amount of any patient co-payments, the existence of secondary payers and claim denials. Upon ultimate collection, the aggregate amount received from payers and patients where reimbursement was estimated is compared to previous collection estimates and, if necessary, the contractual allowance is adjusted. Finally, should we recognize revenue from claims on an accrual basis and later determine the judgments underlying estimated collections change, our financial results could be negatively impacted in future quarters. Historically, a portion of our revenue was recognized upon cash receipt, because we were unable to reasonably estimate the amount that would ultimately be collected from certain payers. Effective during the first quarter of 2017, we determined that we had the ability to reasonably estimate the amount that will ultimately be collected from all payers, including the impact of patient cost-share collections. Accordingly, as noted above, we now recognize revenue for all billed claims at the time the test results are delivered to the customer.Our average reimbursement per test, as further defined below, was approximately $476 and $438 throughOn December 31, 2018 and 2017, respectively. This cumulative average Cologuard reimbursement rate will change over time due to a number of factors, such as medical coverage decisions by payers, changes in the payer mix, the effects of contracts signed with payers, non-renewal or termination of payer contracts, changes in allowed amounts by payers, our ability to successfully win appeals for payment, settlements reached with payers regarding previously denied claims and our ability to collect cash payments from payers and individual patients. Historical average reimbursement is not necessarily indicative of future average reimbursement.42We calculate the average Cologuard reimbursement per test on a trailing twelve-month basis for all tests that are at least six months old, since it can take that long, or in some cases longer, to collect from some payers and patients. Thus, the average reimbursement per test at December 31, 2018 and December 31, 2017, respectively, represents the total cash collected through such dates for tests performed during the twelve-month periods ended June 30, 2018 and June 30, 2017, respectively, divided by the number of tests performed during those same periods.AcquisitionsIn October 2018,2021, we completed the acquisition of Biomatrica,PreventionGenetics. PreventionGenetics is a privately held company specializing in the collectionCLIA-certified and preservation of biological materials. InCAP-accredited clinical DNA testing laboratory, providing more than 5,000 predefined genetic tests for nearly all clinically relevant genes, additional custom panels, and comprehensive germline whole exome and whole genome sequencing tests. We expect this acquisition to complement our advanced cancer diagnostics portfolio and support our entrance into hereditary cancer testing.acquiredcompleted the acquisition of all of the outstanding equity interests forof Ashion from PMed Management, LLC, which is a subsidiary of TGen. Ashion is a CLIA-certified and CAP-accredited sequencing lab based in Phoenix, Arizona and developed oncomap ExTra, one of the most comprehensive genomic cancer tests available, and provides access to whole exome, matched germline, and transcriptome sequencing capabilities.aggregate purchase priceaffiliate of $20.0 million netCity of cash received, debt repaidHope. We intend to use the TARDIS technology to develop a test to detect small amounts of tumor DNA that may remain in patients’ blood after they have undergone initial treatment, known as MRD.certain other adjustments. Contingent consideration forcommercial infrastructure to bring an additional $20.0 million could be earned based upon certain revenue milestones being met. 2019accurate blood-based, multi-cancer early detection test to patients faster.20192022 are to (1) power our partnership with Pfizer,impact more lives, (2) enhance Cologuard through label expansion and product improvements,advance new tests, and (3) advance liquid biopsy.Powertake care of the Partnership2018,2021, when Pfizer announced a decrease in the number of sales positions supporting its Internal Medicine therapeutic area, these employees had been promoting our Cologuard test under our Promotion Agreement with Pfizer.Promotion Agreement with Pfizer. Under the termstotal of the Promotion Agreement,$35.9 million in three installments throughout 2022 and eliminated our obligation to pay Pfizer agreedroyalties or other fees except for certain media fees, advertising fees, and any detail fees owed to promotePfizer for promoting our Cologuard and provide certain other sales and marketing services. We andtest prior to November 30, 2021. Pfizer committed in the Promotion Agreement to invest specified amounts in the advertising and promotion of Cologuard. Pfizer has a large primary care sales team that has extensive experience with large health system organizations and enhances our physician and consumer marketing capabilities. A priority for 2019 is executing on the Pfizer partnership in order to grow the Cologuard brand and get more patients screened with Cologuard.Enhance CologuardIn May 2018, the ACS updated its guidelines to recommend colorectal cancer screening beginning at age 45, rather than 50, for people at average risk of the disease due to the rising incidence rate within the 45-49 year-old population. There are nearly 21 million people who are between the ages of 45-49, and we estimate approximately 19 million of them are at average risk for colorectal cancer and would be eligible for screening under the ACS guidelines. We plan to conduct clinical and other necessary work to gain FDA approval to expand Cologuard’s indication to people between the ages of 45 and 49 who are at average risk for colorectal cancer.In addition, we are seeking opportunities to improve upon Cologuard’s performance characteristics. For example, we are evaluating whether new biomarkers would increase specificity while maintaining sensitivity. If we could increase the specificity of Cologuard, we believe that would enhance its adoption as a front-line screening test. We are also evaluating ways that we might make Cologuard even easier for patients to use and opportunities for lowering the cost of providing Cologuard. The timing of any expansion of Cologuard’s indication or of any such enhancements to Cologuard is unknown and would be subject to FDA approval.Advance Liquid BiopsyWe also are focusing our research and development efforts on building a pipeline of potential future products and services with a focus on liquid biopsy tests. We will continue to advance liquid biopsypurchase certain advertising for our Cologuard test on our behalf through biomarker discoverythe third quarter of 2022, which we will reimburse Pfizer for, and validationwill provide support in tissuetransitioning responsibilities for purchasing such advertising.blood. We have identified proprietary biomarkers for several cancers, including liver cancer and lung cancer. We have successfully performed validation studiesthrough the acquisitions further discussed in our consolidated financial statements included in this Annual Report on tissue samples for thirteen cancers and on blood samples for eight cancers. The ACS estimates that liver cancer will be diagnosed in 42,000 Americans and cause 32,000 deaths in 2019, three-fourths of which will be hepatocellular carcinoma (“HCC”). Incidence and mortality rates are both increasing at approximately 3 percent per year. People who have been diagnosed with cirrhosis of the liver or Hepatitis B are at high43risk of developing HCC. Evidence shows that HCC testing in these high-risk groups leads to earlier detection and improved outcomes. The NCCN and American Association for the Study of Liver Diseases (“AASLD”) guidelines recommend that these two groups be tested for HCC every six months using ultrasound and the blood-based biomarker alpha-fetoprotein (“AFP”). However, ultrasound and AFP are documented to have poor sensitivity for early stage cancer, which is the primary target of testing. We are currently seeking to develop a blood-based biomarker test to serve as an alternative to ultrasound and AFP for use in HCC testing, and our goal is to develop a patient-friendly test that performs better than this current standard of care. We are currently enrolling a case control study of at least 1,500 patients to finalize the development of our liver cancer test.The ACS estimates that, in the U.S. in 2019, lung cancer will be diagnosed in 228,000 people and cause 143,000 deaths. Currently, more than half of lung cancer cases are diagnosed at an advanced stage, after symptoms appear, when the five-year survival rate is in the low single digits. We are currently seeking to develop a blood-based biomarker test to aid in the early detection of lung cancer in individuals with lung nodules discovered through a CT or other scan. Such a test may help reduce the number of follow-up procedures, and thereby reduce costs and improve health outcomes.Our top priorities for 2018 were to (1) continue to strengthen our core Cologuard business by increasing the size of our nationwide sale force, (2) prepare for future demand including by continuing to invest in people, processes, technology and systems to build capacity, and (3) expand our product pipeline by developing additional cancer screening and diagnostic tests. During 2018, we completed approximately 934,000 Cologuard tests, and generated $454.5 million of revenue compared to 2017 when we completed 571,000 tests and generated $266.0 million of revenue. We believe that the increase in revenues and tests completed from the prior year was primarily driven by sales force execution, our patient advertising campaign, and the increase in commercial coverage for Cologuard. As of December 31, 2018, nearly 147,000 health care providers have ordered Cologuard compared to nearly 102,000 health care providers as of December 31, 2017. In August 2018, we entered into a Promotion Agreement with Pfizer, Inc. Pfizer is promoting Cologuard to both physicians and health systems and will also actively participate in extending and deepening the Cologuard marketing campaign.During 2018, we made investments in our technical systems, manufacturing capabilities, customer care center, and our sales force in order to enhance our infrastructure and position our operations and processes for continued growth. Additionally, we continued to focus on cost containment throughout the business which, along with the increase in test volume, helped drive improvements in our gross margin from 70 percent for 2017 to 74 percent for 2018.In 2018, we continued to invest in research and development and focused on the development of additional cancer diagnostic tests as outlined in the “Advance Liquid Biopsy” section above. In order to support the commercialization of Cologuard and to achieve our goals for 2018, our selling, general, and administrative costs increased by $164.8 million during the year. In addition, our efforts in 2018 to develop our pipeline products and improvements to Cologuard led to an increase in research and development costs of $26.1 million during the year. We ensured that we were well capitalized to meet our future goals by raising $671.1 million and $225.3 million, net of issuance costs, through an underwritten public offering of convertible notes completed in January 2018 and June 2018, respectively, and finished the year with $1.1 billion in cash, cash equivalents, and marketable securities.Comparison of the years ended December 31, 2018 and 2017performing screeningour laboratory testing services usingfrom our Cologuard, test. For the years ended December 31, 2018Oncotype, and 2017, we completed approximately 934,000 and 571,000 Cologuard tests, respectively, and generated revenue of $454.5 million and $266.0 million, respectively. COVID-19 tests.Amounts in millions 2021 2020 Change Screening $ 1,062.3 $ 815.1 $ 247.2 Precision Oncology 561.7 440.5 121.2 COVID-19 Testing 143.1 235.8 (92.7) Total $ 1,767.1 $ 1,491.4 $ 275.7 averagethe number of completed Oncotype tests, which was driven by an increase in Oncotype DX breast test orders, both domestically and internationally, and to revenue recognized per testgenerated from new products as a result of our acquisition of Ashion during the current period dueyear.increased commercialrevenue of $11.8 million on completed tests from the prior year after identifying a lower realized reimbursement rate on a portion of our laboratory testing services. This change in transaction price is primarily driven by certain prior claims not being submitted to insurance coveragetimely. We are working to address these issues, and are more broadly working on improvements to our billing systems to prevent recurrence. Pursuant to our contracts with payers and standards within the industry, claims submitted outside of specified timeframes may not be reimbursed. Successful reimbursement for our Cologuard test. cost structure. Our selling, general, and administrative expenses consist primarily of non-research personnel salaries, office expenses, professional fees, sales and marketing expenses incurred in supportrevenues are affected by the test volume of our commercialization effortsproducts, patient adherence rates, payer mix, the levels of reimbursement, our order to cash operations, and non-cash stock-based compensation.44
payment patterns of payers and patients.test collection kits and tissue samples, royalties, and the cost of services to process tests and provide results to physicians. We incur expenses for tests in the period in which the activities occur, therefore, gross margin as a percentage of revenue may vary due to costs being incurred in one period that relate to revenues recognized in a later period.We expect that gross margin for our services will continue to fluctuate and be affected by Cologuard test volume, our operating efficiencies, patient compliance rates, payer mix, the levels of reimbursement, and payment patterns of payers and patients.Cost of sales. Cost of sales increased to $118.0 million for the year ended December 31, 2018 from $79.2 million for the year ended December 31, 2017.healthcare providers. The increase in cost of sales is primarily due to the increasesan increase in production costs, which is a direct result of an increase in completed Cologuard and Oncotype tests. The Companyincrease was partially offset by a reduction in the number of COVID-19 tests completed approximately 934,000year over year. We expect that cost of sales (exclusive of amortization of acquired intangible assets) will continue to increase in future years as a result of an increase in production costs in line with an increase in completed Cologuard and 571,000 CologuardOncotype tests, for the years ended December 31, 2018along with a corresponding increase in personnel and 2017, respectively.Amounts in millions 2021 2020 Change Production costs $ 252.8 $ 186.3 $ 66.5 Personnel expenses Personnel expenses 126.8 103.3 23.5 Facility and support services 61.1 51.4 9.7 Stock-based compensation 16.8 12.9 3.9 Other cost of sales expenses 1.3 0.4 0.9 Total cost of sales expense $ 458.8 $ 354.3 $ 104.5 Research and development expenses increased to $68.2 million for the year ended December 31, 2018 compared to $42.1 million for the year ended December 31, 2017. The increasedecrease in research and development expenses was primarily due to relatively smaller intellectual property acquisitions in 2021 as compared to 2020. In 2020 we acquired Base Genomics, which resulted in an expense of $412.6 million, whereas in 2021 we spent a total of $85.3 million to acquire PFS Genomics and an exclusive license to TARDIS. The acquisitions were accounted for as asset acquisitions and are further described in Note 19 of our consolidated financial statements included in this Annual Report on Form 10-K. When excluding the impact of these asset acquisitions, research and development expenses increased by $158.8 million. The increase in research and development expenses is primarily a result of the acquisition of Thrive in January 2021, which resulted in increased direct research and development expenses, for our pipeline as well as an increase in personnel costsand stock-based compensation expenses due to the increase in headcount. We also saw an increase in clinical trial related expenses, which were driven by the BLUE-C study, as enrollment increased headcount.Generalin 2021 following a slowdown in 2020 due to the COVID-19 pandemic and administrativecost cutting measures that were put in place. We expect that research and development expenses will continue to increase in future years as we continue to invest in our pipeline products and the improvement of our current products, which are further discussed above in this Annual Report on Form 10-K.Amounts in millions 2021 2020 Change Intellectual property acquisition $ 85.3 $ 412.6 $ (327.3) Personnel expenses 98.8 60.5 38.3 Direct research and development expenses 111.5 42.9 68.6 Stock-based compensation 49.7 20.0 29.7 Facility and support services 25.4 12.7 12.7 Professional fees 9.0 3.1 5.9 Other research and development expenses 5.9 2.3 3.6 Total research and development expenses $ 385.6 $ 554.1 $ (168.5) General The increase in sales and administrativemarketing expenses was primarily due to an increase in direct marketing spend to support the future growth of our products and increased to $178.3 million forpersonnel expenses and stock-based compensation as a result of an increase in headcount, including the approximately 400 former Pfizer sales representatives that were onboarded in the third quarter of 2021. In addition, professional fees increased during the year ended December 31, 20182021 primarily due to an increase in costs related to our Promotion Agreement with Pfizer during the second and third quarters of 2021 as compared to $109.02020, which were reduced due to cost saving measures as a result of the COVID-19 pandemic. The increase in professional fees also includes the $35.9 million forfee incurred in the year ended December 31, 2017.fourth quarter of 2021 as a result of the amendment of the Promotion Agreement with Pfizer as further discussed above. We expect that sales and marketing expenses will continue to increase in future years to support the expected future growth of our Cologuard, Oncotype, and pipeline products.Amounts in millions 2021 2020 Change Personnel expenses $ 387.7 $ 280.3 $ 107.4 Direct marketing costs 193.9 133.8 60.1 Professional and legal fees 150.2 77.7 72.5 Facility and support services 67.8 45.5 22.3 Stock-based compensation 55.7 44.0 11.7 Other sales and marketing expenses 6.6 8.6 (2.0) Total sales and marketing expenses $ 861.9 $ 589.9 $ 272.0 a resultconsists of integration related stock-based compensation and professional and legal fees incurred. Personnel expenses and stock-based compensation also increased costsdue to an increase in headcount to prepare for future growth in our operations and from our recent acquisitions. Due to the COVID-19 pandemic and the protective measures that were put in place, we experienced lower spend in our personnel and professional fees during the first half of 2020. As our business began to recover in the areas outlinedthird quarter of 2020, personnel expenses and stock-based compensation increased due to additional headcount. These factors account for a portion of the increase that we see for the year ended December 31, 2021 when compared to the prior year. We expect significant leverage in the table belowgeneral and administrative expenses going forward, but expenses will continue to increase in future years due to an increase in headcount that will be necessary to support the overall growth in our existing and pipeline products.Amounts in millions 2021 2020 Change Personnel expenses $ 316.1 $ 222.0 $ 94.1 Professional and legal fees 125.7 86.4 39.3 Stock-based compensation 217.0 76.0 141.0 Facility and support services 86.1 58.3 27.8 Other general and administrative 56.4 38.7 17.7 Total general and administrative expenses $ 801.3 $ 481.4 $ 319.9 the Company.Sales and marketing expenses. Sales and marketing expensesacquired intangible assets. $249.4$95.0 million for the year ended December 31, 20182021 compared to $153.9$93.4 million for the year ended December 31, 2017. The2020. This increase in sales and marketing expensesamortization of acquired intangible assets was a resultprimarily due to the amortization of hiring additional sales and marketing personnel and increasing our advertising and45patient marketing effortsintangible assets acquired as part of the ongoing commercializationour acquisition of our Cologuard test.Investment income. Investment income increased to $21.2Intangible asset impairment charge. Intangible asset impairment charge was $20.2 million for the year ended December 31, 20182021 compared to $3.9$209.7 million for the year ended December 31, 2017. This increase in investment2020. The impairment recorded during the year ended December 31, 2021 relates to the impairment of the supply agreement intangible asset acquired as part of the combination with Genomic Health. The impairment recorded during the year ended December 31, 2020 primarily relates to the impairment of the in-process research and development intangible asset acquired as part of the combination with Genomic Health.was duedecreased to an increase in the average cash and marketable securities balance and an increase in the average rate of return on investments due to an increase in market interest rateszero for the year ended December 31, 2018 when2021 compared to the same period in 2017.Interest expense. Net interest expense increased to $36.8$23.7 million for the year ended December 31, 2018 compared2020. The income generated during the year ended December 31, 2020 represents the funding received under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) Provider Relief Fund, which was accepted from the Department of Health & Human Services in May 2020.$0.2$31.8 million for the year ended December 31, 2017. We issued $690.0 million and $218.5 million of convertible debt in January 2018 and June 2018, respectively, which collectively resulted in $36.4 million in interest expense during the year ended December 31, 2018. $28.6 million of interest expense relates2021 compared to amortization of debt discount and debt issuance costs for the year ended December 31, 2018. The remaining $7.8 million of interest expense for the year ended December 31, 2018 relates to the stated interest that was paid in cash during the year. There was minimal interest expense for the year ended December 31, 2018 related to the mortgage on one of our facilities in Madison, Wisconsin that was entered into in June 2015. The interest expense for the year ended December 31, 2017 is related solely to the mortgage on one of our facilities in Madison, Wisconsin that was entered into in June 2015.Comparison of the years ended December 31, 2017 and 2016Revenue. Our revenue is generated by performing screening services using our Cologuard test. For the years ended December 31, 2017 and 2016, the Company completed approximately 571,000 and 244,000 Cologuard tests, respectively, and generated revenue of $266.0 million and $99.4 million, respectively. The increase in revenue was primarily due to an increase in completed Cologuard tests during the period. Cost of sales. Cost of sales increased to $79.2$6.6 million for the year ended December 31, 2017 from $45.22020. The increase in investment income, net was due to the realized gain of $30.5 million that was recorded on our preferred stock investment in Thrive at closing in January 2021, which represented the adjustment to our historical investment to its fair value prior to our acquisition of Thrive. Our acquisition of Thrive is further described in Note 19 of our consolidated financial statements included in this Annual Report on Form 10-K.2016. The increase in cost of sales is primarily due2021 compared to the increase in completed Cologuard tests. The company completed approximately 571,000 and 244,000 Cologuard tests for the years ended December 31, 2017 and 2016, respectively.Research and development expenses. Research and development expenses increased to $42.1$67.9 million for the year ended December 31, 20172020. Interest expense recorded from $33.5our outstanding convertible notes totaled $16.1 million and $65.9 million for the years ended December 31, 2021 and 2020, respectively. Of the interest expense recorded on outstanding convertible notes for the year ended December 31, 2020, $50.8 million is due to the loss on settlement of convertible notes. The convertible notes are further described in Note 10 of our consolidated financial statements included in this Annual Report on Form 10-K.2016. The increase in research and development expenses was primarily due2021 compared to an increase in personnel costs due to increased headcount and an increase in46direct research and development expenses for our pipeline.General and administrative expenses. General and administrative expenses increased to $109.0$5.5 million for the year ended December 31, 2017 from $76.9 million for the year ended December 31, 2016.2020. The increase in general and administrative expenses wasincome tax benefit is primarily due to an income tax benefit of $239.2 million recorded as a result of increased personnel costs, facility and support costs, legal and professional fees, and stock-based compensation expense to support the overall growthchange in the deferred tax asset valuation allowance resulting from the acquisition of the Company.Sales and marketing expenses. Sales and marketing expenses increased to $153.9 million for the year ended December 31, 2017 from $112.8 million for the year ended December 31, 2016. The increase in sales and marketing expense was a result of hiring additional sales and marketing personnel and increasing our advertising and patient marketing efforts as part of the ongoing commercialization of Cologuard test.Investment income. Investment income increased to $3.9 million for the year ended December 31, 2017 from $2.0 million for the year ended December 31, 2016. This increase in investment income was due to a higher average balance and return on investments for the year ended December 31, 2017 when compared to the same period in 2016.Interest expense.Net interest expense of $0.2 million was realized for each of the years ended December 31, 2017 and 2016. Interest expense is related to the mortgage on one of our facilities in Madison, Wisconsin that was entered into in June 2015. since inception primarily through public offerings of our common stock and convertible debt and through revenue generated by the sale of Cologuard. our laboratory testing services. We expect our operating expenditures to continue to increase to support future growth of our laboratory testing services, as well as an increase in research and development and clinical trial costs to support the advancement of our pipeline products and bringing new tests to market. We expect that cash and cash equivalents and marketable securities on hand at December 31, 2021, along with cash flows generated through our operations, will be sufficient to fund our current operations for at least the next twelve months based on current operating plans. We have access to additional financing resources, if needed, and we may raise additional capital to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons. If we are unable to obtain sufficient additional funds to enable us to fund our planned operations, our results of operations and financial condition could be materially adversely affected, and we may be required to delay the implementation of our plans or otherwise scale back our operations. There can be no certainty that we will ever be successful in generating sufficient cash flow from operations to achieve and maintain profitability and meet all of our obligations as they come due.2018,2021, we had approximately $160.4$315.5 million in unrestricted cash and cash equivalents and approximately $963.8$715.0 million in marketable securities.Allavailable‑for‑sale.available-for-sale. The objectives of this portfolio are to provide liquidity and safety of principal while striving to achieve the highest rate of return. Our investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer.47Amounts In millions 2021 2020 Net cash provided by (used in) operating activities $ (102.2) $ 136.5 Net cash used in investing activities (1,082.1) (702.0) Net cash provided by financing activities 8.5 1,879.6 NetThe increase in cash used in operating activities was $69.3 million, $71.7 million, and $130.1 million for the years ended December 31, 2018, 2017 and 2016, respectively. The principal use of cash in operating activities for each of the years ended December 31, 2018, 2017 and 2016 was to fund our net loss. The decrease in use of cash in operating activities for the year ended December 31, 2018 when compared to the same period in 2017 and 2016 is2021 was primarily due to increased Cologuard revenuean increase in cash payments made related to expenses necessary to process our tests and an increase in non-cashoperating expenses suchto prepare for future growth of our operations as amortizationfurther discussed above. The increase in cash used in operating activities was partially offset by an increase in revenue, which was driven by an increase in completed Cologuard and stock-based compensation. $781.9 million, $160.8 million, and $11.5 million for the years ended December 31, 2018, 2017, and 2016, respectively. The increase in cash used in investing activities$1.08 billion for the year ended December 31, 2018 when compared to the same period2021. We purchased $1.16 billion in 2017 and 2016 was primarily the result of the timing of purchases and maturities of marketable securities, followingwhile $794.3 million of our convertible debt offerings.marketable securities were sold or matured during the year. Excluding the impact of purchases, sales, and maturities of marketable securities, net cash used in investing activities was $168.6consisted primarily of our acquisition of Thrive of $343.2 million, $75.2our acquisition of PreventionGenetics of $84.2 million, our acquisition of Ashion of $72.3 million, our asset acquisition of PFS Genomics of $33.1 million, and $14.9our TARDIS license asset acquisition of $25.0 million, for the years ended December 31, 2018, 2017, and 2016, respectively. The increase in investing activities from 2017 to 2018, excluding the impact of purchases and maturities of marketable securities, was primarily due to an increase in purchases of property and equipment duringof $135.8 million, and investments in privately held companies of $18.0 million. Net cash used in investing activities was $702.0 million for the year ended December 31, 2018 from increased laboratory equipment purchases, computer equipment and computer software purchases, and assets under construction2020. We purchased $1.09 billion in order to continue to scale-up our operations for future expected growthmarketable securities, while $886.7 million of our Cologuard business. Additionally,marketable securities were sold or matured during the increase for 2018 was driven byyear. We used net cash of $411.4 million in the acquisition of Biomatrica for $17.9Base Genomics and $6.7 million compared to 2017 when we completed an acquisition of Sampleminded, Inc. (“Sampleminded”) for $3.0 million. The increase in investing activities from 2016 to 2017, excluding the impact of purchases and maturities of marketable securities was primarily due to an increaseother business combinations. We also invested $65.1 million in purchases of property and equipment during the year ended December 31, 2018. Additionally, the increase for 2017 was driven by the purchase of intangible assets for $20.7and $15.9 million and the acquisition of Sampleminded for $3.0 million compared to 2016 when we had no activity in these areas.$934.1$8.5 million $261.0 million, and $149.6 million for the years ended December 31, 2018, 2017, and 2016, respectively. The increase in cash provided by financing activities for the year ended December 31, 2018 when compared to the same period in 2017 was primarily the result of proceeds from our offerings of convertible debt in January 2018 and June 2018. The increase in2021. Net cash provided by financing activities consisted of proceeds of $14.4 million from the exercise of stock options and $23.1 million from our employee stock purchase plan, which was partially offset by cash outflows of $23.7 million for payments on our construction loan and $5.3 million for other financing activities. Net cash provided by financing activities was $1.88 billion for the year ended December 31, 2017 when compared2020. We received proceeds of $1.13 billion from the issuance of convertible notes with a maturity date of March 1, 2028 (the “2028 Notes”), and we used $150.1 million of cash to settle a portion of the same period in 2016 was primarily the resultconvertible notes with a maturity date of an increase inJanuary 1, 2025 (the “2025 Notes”). We also received proceeds of $861.7 million from the sale of common stock, net of issuance costs. Additionally, we received proceeds of $27.1 million from $144.2the exercise of stock options, and $18.4 million from our employee stock purchase plan.2016capital expenditures in 2022.$253.4 million in 2017.expectbelieve that our anticipated income from operations, cash and cash equivalents and marketable securities on hand, at December 31, 2018and borrowing capacity under our line of credit will be sufficientadequate to fund our current operations for at least the next twelve months, based on current operating plans.meet these short-term and long-term commitments. However, we may need to raise additional capital to fully fund our current strategic plan which includes successfully commercializing Cologuard and developing a pipelineand meet our commitments. We continuously evaluate our liquidity and capital resources, including access to external capital, in light of future products. Additionally, we may enter into transactions to acquire other businesses, products, services, or technologies as part ofcurrent economic and market conditions and our strategic plan. If we are unable to obtain sufficient additional funds to enable us to fund our operations through the completion of such plan, our results of operations and financial condition would be materially adversely affected, and we may be required to delay the implementation of our plan and otherwise scale back our operations. Even if we successfully raise sufficient funds to complete our plan, we cannot assure that our business will ever generate sufficient cash flow from operations to become profitable.The following table sets forth certain information concerning our obligations to make contractual future payments, such as pursuant to debt and lease agreements, as of December 31, 2018:(1)Senior convertible notes were issued in January and June 2018 and are treated as a single series of securities with a maturity date of January 15, 2025. The table excludes expected interest payments related to the Notes. See Note 10 in the Notes to Consolidated Financial Statements for further information.48(2)Includes obligations associated with outstanding credit and loan agreements. The table excludes expected interest payments related to long term debt obligations. See Note 9 in the Notes to Consolidated Financial Statements for further information.(3)Includes fixed or minimum commitments associated with a land purchase option agreement with the owner of the land adjacent to one of our current Madison, Wisconsin facilities. See Note 12 in the Notes to Consolidated Financial Statements for further information.(4)Operating leases reflect remaining obligations associated with the leased facilities at our headquarters, operations and lab facilities in Madison, Wisconsin, San Diego, California, Salt Lake City, Utah, and Ann Arbor, Michigan. This also includes the lease payments associated with the research and development facility, which was recorded under the financing method. See Note 7 and Note 9 in the Notes to Consolidated Financial Statements for further information.Net Operating Loss Carryforwards2018,2021, we had no off-balance sheet arrangements.net operating lossNOL carryforwards of approximately $937.4 million, $403.5 million, $78.0$2.15 billion, $1.04 billion, and $15.9 million, respectively. We also had federal and state research tax credit carryforwards of approximately $17.4$63.0 million and $7.5$39.8 million, respectively. The net operating loss and tax credit carryforwards will expire at various dates through 2038,2040, if not utilized. The Internal Revenue Code and applicable state laws impose substantial restrictions on a corporation’s utilization of net operating loss and tax credit carryforwards if an ownership change is deemed to have occurred. Additionally, tax law limitations may result in our NOLs expiring before we have the ability to use them. The Tax Cuts and Jobs Act (H.R. 1) of 2017 limitlimits the deduction for NOLs to 80 percent80% of current year taxable income and provides for an indefinite carryover period for federal NOLs. Both provisions are applicable for losses arising in tax years beginning after December 31, 2017. As of December 31, 2021, we had $1.32 billion of NOLs incurred after December 31, 2017. For these reasons, even if we attain profitability our ability to utilize our NOLs may be limited, potentially significantly so.TheGiven the future limitations on and expiration of certain Federal and State deferred tax assets, are still available for us to usethe recording of a valuation allowance resulted in a deferred tax liability of approximately $28.8 million remaining at the future to offset taxable income,end of 2021, which would resultis included in the recognition of tax benefit and a reduction toother long-term liabilities on our effective tax rate.United StatesU.S. (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of thein our consolidated financial statements as well as the reported revenues and expenses during the reporting periods.accompanying notes. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, tax positions, and stock‑based compensation.judgments. We base our estimates on historical experience and on various other factors that are believed to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.21 in the Notes to Consolidated Financial Statements, we believe that the following accounting policies and judgments are most critical to aid in fully understanding and evaluating our reported financial results.Revenue.Our revenue is primarily generated by performing screening services using our Cologuard test, and the service is completed upon delivery of patient’s test result to the ordering physician. We account for revenue in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”),49which we adopted on January 1, 2018, using the modified retrospective method, which we elected to apply to all contracts. Application of the modified retrospective method did not impact amounts previously reported by us, nor did it require a cumulative effect adjustment upon adoption, as our method of recognizing revenue under ASC 606 was analogous to the method utilized immediately prior to adoption. Accordingly, there is no need for us to disclose the amount by which each financial statement line item was affected as a result of applying the new standard and an explanation of significant changes.The core principle of ASC 606 is that we recognize revenue to depict the transfer of promised goods or services to customershealthcare provider, in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We recognize revenue from our Cologuard test in accordance with that core principle, and key aspects considered include the following:ContractsOur customer is the patient. However, we do not enter into a formal reimbursement contract with a patient, as formal reimbursement contracts, including national coverage determination, are established with payers. Accordingly, we establish a contract with a patient in accordance with other customary business practices.·Approval of a contract is established via the order submitted by the patient’s physician and the return of a sample by the patient.·We are obligated to perform our laboratory services upon receipt of a sample from a patient, and the patient and/or applicable payer are obligated to reimburse us for services rendered based on the patient’s insurance benefits.·Payment terms are a function of a patient’s existing insurance benefits, including the impact of coverage decisions with CMS and applicable reimbursement contracts established between us and payers, unless the patient is a self-pay patient, whereby we require payment from the patient prior to us shipping a collection kit to the patient.·Once we deliver a patient’s test result to the ordering physician, we are legally able to collect payment and bill an insurer and/or patient, depending on payer contract status or patient insurance benefit status.·Our consideration is deemed to be variable, and we consider collection of such consideration to be probable to the extent that it is unconstrained.Performance obligationsA performance obligation is a promise in a contract to transfer a distinct good or service (or a bundle of goods or services) to the customer. Our contracts have a single performance obligation, which is satisfied upon rendering of services, which culminates in the delivery of a patient’s Cologuard test result to the ordering physician. The duration of time between sample receipt and delivery of a valid test result to the ordering physician is typically less than two weeks. Accordingly, we elect the practical expedient and therefore, we do not disclose the value of unsatisfied performance obligations.Transaction priceThe transaction price is the amount of consideration that we expect to collect in exchange for transferring promised goods or servicesthose services. The amount of revenue we recognize is based on the established billing rates less contractual and other adjustments, which yields the unconstrained amount that we expect to a customer, excluding amounts collected on behalfultimately collect.third parties (for example, some sales taxes).revenue recognized during the period. The consideration expected from a contract with a customer may include fixed amounts, variable amounts, or both.The consideration derived from our contractsamount is deemed to be variable, thoughtypically lower than, if applicable, the variability is not explicitly stated in any contract. Rather, the implied variability isagreed-upon reimbursement amount due to several factors, such as the amount of contractual adjustments, any patient co-payments, deductibles or compliance incentives,out-of-network payers, the existence of secondary payers, and claim denials. We estimate the amount of variableThe consideration using the expected value method, which represents the sum of probability-weighted amounts in a range of possible consideration amounts. When estimating the amount of variable consideration, the company considers several factors, such as historical collections experience, patient insurance eligibility and payer reimbursement contracts. We limit the amount of variable consideration included in the transaction price to the unconstrained portion of such consideration. In other words,derived from our contracts is fixed when we recognize revenue up to the amount of variable consideration that is not subject to a50significant reversal until additional information is obtained or the uncertainty associated with the additional payments or refunds is subsequently resolved. Differences between original estimates and subsequent revisions, including final settlements, represent changes in the estimate of variable consideration and are included in the period in which such revisions are made. Revenue recognized from changes in transaction prices was $15.0 million for the year ended December 31, 2018.We monitor our estimates of transaction price to depict conditions that exist at each reporting date. If we subsequently determine that we will collect more consideration than we originally estimated for a contract with a patient, we will account for the change as an increase in the estimate of the transaction price (i.e., an upward revenue adjustment) in the period identified. Similarly, if we subsequently determine that the amount we expectdirect bill payer. Our ability to collect from a patient is less than we originally estimated, we will generally account fornot contingent on the change as a decrease incustomer’s ability to collect through their downstream billing efforts.estimatecase of some of our agreements, the transaction price (i.e., a downward revenue adjustment), provided that such downward adjustment does not result in a significant reversal of cumulative revenue recognized. When we do not have significant historical experience or that experience has limited predictive value,right to bill and collect exists prior to the constraint over estimates of variable consideration may result in no revenue being recognized upon deliveryreceipt of a patient’s Cologuardspecimen and release of a test result to the ordering physician, with recognition generally occurring at the date of cash receipt. Since the first quarter of 2017, we determined that our historical experience has sufficient predictive value, such that there are no longer any contracts forhealthcare provider, which no revenue is recognized upon delivery of a Cologuard test result to an ordering physician under both legacy accounting principles, which were effective in 2017, and ASC 606, which was adopted in 2018 as discussed above. Of the revenue recognized in the twelve months ended December 31, 2017, approximately $4.3 million relates to the one-time impact of certain payers meeting our revenue recognition criteria for accrual-basis revenue recognition beginning with the period ended March 31, 2017. Approximately $1.0 million of this one-time impact relates to tests completed in the prior year and for which our accrual revenue recognition criteria were not met until 2017.Allocate transaction priceThe entire transaction price is allocated to the single performance obligation contained in a contract with a patient.Point in time recognitionOur single performance obligation is satisfied at a point in time, and that point in time is defined as the date a patient’s successful test result is delivered to the patient’s ordering physician. We consider this date to be the time at which the patient obtains control of the promised Cologuard test service. Disaggregation of RevenueThe following table presents our revenues disaggregated by revenue source for the years ended December 31, 2018, 2017 and 2016, respectively:Contract BalancesThe timing of revenue recognition, billings and cash collections results in billed accounts receivable and deferred revenue on the consolidated balance sheets. Generally, billing occurs subsequent to delivery of a patient’s test result to the ordering physician, resulting in an account receivable. However, we sometimes receive advance payment from a patient, particularly a self-pay patient, before a Cologuard test result is completed, resulting in deferred revenue. The deferred revenue balance is generally relieved upon deliverythe release of the applicable patient’s test result to the ordering physician. Changeshealthcare provider or as of the date the customer has surpassed the window of time in accounts receivable and deferred revenue were not materially impacted by any other factors.51
which they are able to exercise their rights for testing services. We believe these points in time represent our fulfillment of our obligations to the customer.DeferredThe quality of our billing operations, most notably those activities that relate to obtaining the correct information in order to bill effectively for services provided, directly impacts the collectability of our receivables and revenue balances are reportedestimates. As such, we continually assess the state of our order to cash operations in other short-term liabilities on our consolidated balance sheetsorder to identify areas of risk and were $0.5 millionopportunity that allow us to appropriately estimate receivables and $0.2 million as of December 31, 2018revenue. Upon ultimate collection, the aggregate amount received from payers and December 31, 2017, respectively.Revenue recognized for the year ended December 31, 2018patients where reimbursement was estimated is compared to previous collection estimates and, 2017, which was included in the deferred revenue balance at the beginning of each period was $0.1 million and $44,000, respectively.Practical expedientsWe do not adjustif necessary, the transaction price foris adjusted. Finally, should we later determine the effects of a significant financing component, as at contract inception we expect the collection cycle tojudgments underlying estimated collections change, our financial results could be one year or less.We expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses on our consolidated statements of operations.We incur certain other costs that are incurred regardless of whether a contract is obtained. Such costs are primarily related to legal services and patient communications (e.g. compliance reminder letters). These costs are expensed as incurred and recorded within general and administrative expenses on our consolidated statements of operations.Inventory. Inventory is stated at the lower of cost or market value (net realizable value)negatively impacted in future quarters.determine the cost of inventory using the first-in, first out method (“FIFO”). We estimate the recoverability of inventory by reference to internal estimates of future demands and product life cycles, including expiration. We periodically analyze our inventory levels to identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value and record a charge to cost of sales for such inventory as appropriate. In addition, our products are subject to strict quality control and monitoring which we perform throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, we record a charge to cost of sales to write down such unmarketable inventory to its estimated realizable value.Direct and indirect manufacturing costs incurred during process validation and for other research and development activities, which are not permitted to be sold, have been expensed to research and development.Stock‑Based Compensation. In accordance with GAAP, all stock-based payments, including grants of employee stock options, restricted stock and restricted stock units, market measure-based awards and shares purchased under an employee stock purchase plan (“ESPP”) (if certain parameters are not met), are recognized in the financial statements based on their fair values. The grant date fair value of market measure-based share-based compensation plans are calculated using a Monte Carlo simulation pricing model. The following assumptions are used in determining fair value for stock options, restricted stock and ESPP shares:·Valuation and Recognition—The fair value of each option award is estimated on the date of grant using the Black‑Scholes option‑pricing model. The fair value of each market measure-based award is estimated on the date of grant using a Monte Carlo simulation pricing model. The fair value of service-based awards for each restricted stock unit award is determined on the date of grant using the closing stock price on that day. The estimated fair value of these awards is recognized to expense using the straight-line method over the vesting period. For awards issued to non-employees, the measurement date is the date when the performance is complete or when the award vests, whichever is the earliest. Accordingly, non-employee awards are re-measured at each reporting period until the final measurement date. The fair value of the award is recognized as stock-based compensation expense over the requisite service period, generally the vesting period. The Black-Scholes and Monte Carlo pricing models utilize the following assumptions:·Expected Term—Expected term is based on our historical life data and is determined using the average of the vesting period and the contractual life of the stock options granted. Expected life of a market measure-based award is based on the applicable performance period.·Expected Volatility—Expected volatility is based on our historical stock volatility data over the expected term of the awards.·Risk‑Free Interest Rate—We base the risk‑free interest rate used in the Black‑Scholes and Monte Carlo valuation models on the implied yield currently available on U.S. Treasury zero‑coupon issues with an equivalent expected term.52·Forfeitures—Effective January 1, 2017, we adopted Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“Update 2016-09”). With the adoption of Update 2016-09, forfeiture estimates are no longer required, and the effects of actual forfeitures are recorded at the time they occur. The impact on the consolidated balance sheet was a cumulative-effect adjustment of $0.4 million, increasing opening accumulated deficit and additional paid-in capital.The fair value of service-based awards for each restricted stock award and restricted stock unit is determined on the date of grant using the closing stock price on that day. The fair value of market measure-based share-based compensation plans are calculated using a Monte Carlo simulation pricing model. The fair value of each option award is estimated on the date of grant using the Black‑Scholes option pricing model based on the assumptions noted above and as further described in Note 6 in the Notes to Consolidated Financial Statements.Tax Positions. A valuation allowance to reduce the deferred tax assets is reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.managementit may be necessary to record an allowance to reduce the tax assets we have recognized.$209.9valuation allowance of $262.2 million and $214.3$293.4 million valuation allowance at December 31, 20182021 and 20172020, respectively is necessary to reduce the tax assets to the amount that is more likely than not to be realized. The change in valuation allowance for 2018 and 2017 was a decrease of $4.4 million and $45.8 million, respectively. Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact our effective tax rate.Convertible Notes.convertible debt instrumentsacquired businesses using the acquisition method of accounting, which requires that maythe assets acquired and liabilities assumed be settledrecorded at the date of acquisition at their respective fair values. Goodwill is the residual after allocating the purchase price to net assets acquired, unless the transaction is an asset acquisition in cash or equity upon conversion by separatingwhich the liabilityexcess is allocated to acquired assets on a relative fair value basis. Determining the fair value of identifiable assets and equity componentsliabilities, particularly intangible assets, requires management to make significant judgements and estimates.instruments inacquisitions of Ashion and PreventionGenetics, we identified developed technology intangibles which we determined to have a manner that reflects our nonconvertible debt borrowing rate. In January 2018 and June 2018, we issued $690.0fair value of $39.0 million and $218.5$64.0 million, respectively,respectively. Key assumptions used to value developed technology include projected revenue growth, projected gross margin and operating expenses, discount rates, terminal growth rate, and other factors. We believe that the estimates applied are based on reasonable assumptions, but the estimates are inherently uncertain. As a result, the actual results may differ from the assumptions and judgments used to determine fair value of the assets acquired, which could result in aggregate principalmaterial impairment charges in the future. Determining the useful life of the developed technology also requires judgment and actual useful life may differ.1.0% Convertible Notessuch assets may not be recoverable. Based on the qualitative assessment, if it is determined that the fair value of indefinite-lived intangible assets is more likely than not to be less than its carrying amount, the fair value will be calculated and compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value. Determining whether impairment indicators exist and estimating the fair value of our indefinite-lived intangible assets if necessary for impairment testing requires significant judgment. We performed our annual goodwill assessment using a maturity datequalitative assessment and concluded there were no impairments. Qualitative factors considered in this assessment included industry and market conditions, overall financial performance, and other relevant events and factors. We also performed our annual IPR&D assessment using a qualitative assessment and concluded there were no impairments for the year ended December 31, 2021. Qualitative factors considered in this assessment included industry and market conditions, financial and strategic factors, the status of January 15, 2025 (the “Notes”).product development, and the consideration of legal, competitive, regulatory, and technical risks. We determinedrecorded an impairment charge of $200.0 million during the year ended December 31, 2020 related to the IPR&D acquired as part of the combination with Genomic Health due to the abandonment of further development of the IPR&D.liability component of the Notes by using assumptions that market participants would use in pricing a debt instrument, including market interest rates, credit standing, yield curves and volatilities. Determiningassets exceeds the fair value of the debt component requiresassets. We recorded an impairment charge of $20.2 million during the use of accounting estimate and assumptions. These estimates and assumptions are judgmental in nature and could have a significant impact on the determination of the debt component, and the associated non-cash interest expense.For the January 2018 offering, we allocated $194.9 million to the equity component of the convertible debt instrument. That equity component is treated as a discount on the liability component of the Notes, which is amortized over the seven-year term of the Notes using the effective interest rate method. For the June 2018 offering, we allocated $73.0 million to the equity component of the convertible debt instrument. That equity component, less the $14.2 million premium, is treated as a discount on the liability component of the Notes, which is amortized over the remaining six-and-a-half-year term of the Notes using the effective interest rate method. In addition, debt issuance costsyear ended December 31, 2021 related to the Notes were $18.9 million and $7.4 million for the January 2018 and June 2018 offerings, respectively. We allocated the costs to the liability and equity componentssupply agreement intangible asset acquired as part of the Notes based on their relative values. The debt issuance costs allocatedcombination with Genomic Health. We utilized the income approach to the liability component are being amortized over the life of the Notes as additional non-cash interest expense. The transaction costs allocated to the equity component are netted with the equity component of the convertible debt instrument in stockholders’ equity.Goodwill. In 2017, we recognized goodwill of $2.0 million from the acquisition of Sampleminded. During the fourth quarter of 2018, we recognized goodwill of $15.3 million from the acquisition of Biomatrica. We evaluate goodwill impairment on an annual basis or more frequently should an event or change in circumstance occur that indicates that the carrying amount is in excess of the fair value. There were no impairment losses for the years ended December 31, 2018, 2017, and 2016. Refer to Note 2 and 14 for further discussion of the goodwill recorded.Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). We adopted this guidance on January 1, 2018. See Note 2 for additional discussion.In January 2016, the Financial Accounting Standards Board issued ASU No. 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“Update 2016-01”). Update 2016-01 modifies how entities will have to measure equity investments and present changes in the fair value of financial53liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do not have readily determinable fair value and do not qualify for the practical expedient to estimate fair value under ASC 820, “Fair Value Measurements,” and as such these investments may be measured at cost. Update 2016-01 will be effective for the Company’s fiscal year beginning January 1, 2018, and subsequent interim periods. Update 2016-01 was further amended in February 2018 by ASU No. 2018-03, Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, (“Update 2018-03”). Update 2018-03 clarifies certain aspects of the guidance issued in Update 2016-01. Public business entities with fiscal years beginning between December 15, 2017 and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018. We adopted Update 2016-01 on January 1, 2018, and it did not have an impact on our consolidated financial statements.In February 2016, the Financial Accounting Standards Board issued ASU No. 2016-02, Leases (Topic 842), (“Update 2016-02”) to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. The most noteworthy change in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases under current U.S. GAAP. The standard requires disclosures to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.We will adopt the standard on January 1, 2019 with initial application on the effective date as permitted under ASU No. 2018-11. We will recognize and measure leases existing at the initial application date of January 1, 2019 through a cumulative-effect adjustment recorded at the beginning of fiscal year 2019. We intend to elect the package of practical expedients and accordingly, we will not reassess the lease classification or whether expired or existing contracts contain leases under the new definition of a lease. Additionally, we will elect not to separate the lease components from the non-lease components for all classes of underlying assets. Our ability to adopt the new standards depends on system readiness, including software procured from a third-party provider. We remain on schedule and have implemented key system functionality to enable preparation of financial statements in accordance with the new standard.We anticipate this standard will have a material impact on our consolidated balance sheets; however, we do not expect adoption to have a material impact on our consolidated statements of operations. We expect the most significant impact to be the recognition of ROU assets and lease liabilities for operating leases. Adoption of the standard is expected to result in the recognition of ROU assets and lease liabilities for operating leases of approximately $17.0 million to $18.0 million and $19.5 million to $20.5 million as of December 31, 2018, respectively. We are not party to any capital lease agreements as of December 31, 2018.Based on our analysis, the sale-lease back transaction detailed within Note 9, the buyer-lessor has not obtained control of the underlying asset as the present value of the lease payments is substantially all of the fair value of the underlying asset. As such,supply agreement which required management to make estimates including revenue projections, estimated cash flows and discount rate. We recorded an impairment charge of $9.7 million during the underlying asset and related financing obligation will continue to be included in our consolidated balance sheets upon adoption.Atyear ended December 31, 2018, we included $7.3 million2020 related to the patent intangible asset acquired as part of an asset under construction, including $2.1 millionpurchase agreement with Armune Biosciences, Inc. due to the abandonment of the research and development activities using the acquired assets. We believe that is funded by the landlord, withestimates applied are based on reasonable assumptions, but the estimates are inherently uncertain. As a corresponding financing obligation related to a build-to-suit construction project. result, the eventual realized value of the impaired asset may vary from its fair value.9 1 in the Notes to Consolidated Financial Statements for further information. Based on our analysis, upon adoption of Topic 842, we do not control the asset under construction and, as such, the asset and corresponding financing obligation will be de-recognized at adoption of ASC 842 on January 1, 2019.In August 2016, the Financial Accounting Standards Board issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, (“Update 2016-15”). Current GAAP either is unclear or does not include specific guidance on the eight cash flow classification issues included in the amendments in Update 2016-15. The amendments are an improvement to GAAP because they provide guidance for each of the eight issues, thereby reducing the current and potential future diversity in practice. We adopted this guidance on January 1, 2018, and it did not have an impact on our consolidated statements of cash flows.In October 2016, the Financial Accounting Standards Board issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, (“Update 2016-16”). This amendment improves the accounting for the income tax consequencesdiscussion of intra-entity transfers of assets other than inventory. We adopted this guidance on54January 1, 2018, and it did not have an impact on our consolidated financial statements.In November 2016, the Financial Accounting Standards Board issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, (“Update 2016-18”). Update 2016-18 provides guidance on the classification of restricted cash in the statement of cash flows. We adopted this guidance on January 1, 2018, and it did not have an impact on our consolidated financial statements, as we do not have restricted cash.In May 2017, the Financial Accounting Standards Board issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting, (“Update 2017-09”). Update 2017-09 provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. We adopted this guidance on January 1, 2018, and it did not have an impact on our consolidated financial statements.In June 2018, the Financial Accounting Standards Board issued ASU No. 2018-07 (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, (“Update 2018-07”). Update 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for certain exemptions specified in the amendment. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year. Early adoption is permitted, but no earlier than an entity’s adoption of Topic 606. We will adopt this guidance on January 1, 2019, and we do not anticipate it will have an impact on our consolidated financial statements.In July 2018, the Financial Accounting Standards Board issued ASU No. 2018-09, Codification Improvements, ("Update 2018-09"). Update 2018-09 provided various minor codification updates and improvements to address comments that the FASB had received regarding unclear or vague accounting guidance. The guidance is effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year. We will adopt this guidance on January 1, 2019, and we do not anticipate it will have an impact on our consolidated financial statements.In August 2018, the Financial Accounting Standards Board issued ASU No. 2018-13, Fair Value Measurement (Topic 820); Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, ("Update 2018-13"). Update 2018-13 provided an update to the disclosure requirements for fair value measurements under the scope of ASC 820. The guidance is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact of the guidance on our consolidated financial statements.In August 2018, the Financial Accounting Standards Board issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software, (“Update 2018-15”). Update 2018-15 provided guidance for evaluating the accounting for fees paid by a customer in a cloud computing arrangement that is a service contract. The guidance is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact of the guidance on our consolidated financial statements.In November 2018, the Financial Accounting Standards Board issued ASU No. 2018-18, Collaborative Arrangements (Topic 808), (“Update 2018-18”). Update 2018-18 provided additional guidance regarding the interaction between Topic 808 on Collaborative Arrangements and Topic 606 on Revenue Recognition. The guidance is effective for fiscal years beginning after December 15, 2019. We are currently evaluating the impact of the guidance on our consolidated financial statements.Off-Balance Sheet ArrangementsAs of December 31, 2018, we had no off-balance sheet arrangements.investment‑grade,investment-grade, highly liquid investments consisting of commercial paper, bank certificates of deposit, and corporate5520182021 and December 31, 20172020 were classified as available‑for‑sale.available-for-sale. We place our cash, cash equivalents, restricted cash, and marketable securities with high‑qualityhigh-quality financial institutions, limit the amount of credit exposure to any one institution, and have established investment guidelines relative to diversification and maturities designed to maintain safety and liquidity.risk‑sensitiverisk-sensitive financial instruments, and cash flows are immaterial, although the actual effects may differ materially from the hypothetical analysis. While we believe our cash, cash equivalents, restricted cash, and marketable securities do not contain excessive risk, we cannot provide absolute assurance that, in the future, our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash, cash equivalents, restricted cash, and marketable securities at one or more financial institutions that are in excess of federally insured limits. Given the potential instability of financial institutions, we cannot provide assurance that we will not experience losses on these deposits. We do not utilize interest rate hedging agreements or other interest rate derivative instruments.We have no significant operations outsideUnited StatesU.S. dollar, and as a result we doare not expectsubject to be impacted significantly bymaterial gains and losses from foreign currency fluctuations.translation of the subsidiary financial statements. Substantially all of our revenues are recognized in U.S. dollars, although a small portion is denominated in foreign currency as we continue to expand into markets outside of the U.S. Certain expenses related to our international activities are payable in foreign currencies. As a result, factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets will affect our financial results.565860616263646557Madison, WisconsinOpinionConsolidated Financial Statements and subsidiaries as of December 31, 20182021 and 2017,2020, and the related consolidated statements of operations, of comprehensive loss, of stockholders’ equity and of cash flows for each of the three years in the periodthen ended, December 31, 2018, andincluding the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).and subsidiaries atas of December 31, 20182021 and 2017,2020, and the results of theirits operations and theirits cash flows for each of the three years in the periodthen ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.We also have audited, Also in accordance withour opinion, the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company'smaintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control –- Integrated Framework (2013) issued by the Committee of Sponsoring Organizations ofCOSO. Treadway Commission (“COSO”) and our report dated February 21, 2019 expressed an unqualified opinion thereon.Basis for OpinionThese consolidated financial statements, are the responsibilityCompany changed the manner in which it accounts for convertible debt in 2021.Company’s management.effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial reporting appearing under Item 9A. Our responsibility is to express an opinionopinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the United StatesU.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.auditaudits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.We believe that our audits provide a reasonable basis for our opinion./s/ BDO USA, LLPWe have served as the Company’s auditor since 2012.Madison, WisconsinFebruary 21, 201958Report of Independent Registered Public Accounting FirmShareholders and Board of DirectorsExact Sciences CorporationMadison, WisconsinOpinion on Internal Control over Financial ReportingWe have audited Exact Sciences Corporation’s (the “Company’s”) internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company and subsidiaries as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and our report dated February 21, 2019 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with United States federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our auditaudits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit providesaudits provide a reasonable basis for our opinion.(1)(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2)(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3)(iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.20192020, except for the adoption of ASU 2020-06 as discussed in Notes 1 and 10, which is as of February 22, 202259December 31, 2021 December 31, 2020 ASSETS Current assets: Current assets: Cash and cash equivalents $ 315,471 $ 1,491,288 Marketable securities 715,005 348,699 Accounts receivable, net 216,645 233,185 Inventory Inventory 104,994 92,265 Prepaid expenses and other current assets 74,122 33,157 Total current assets 1,426,237 2,198,594 Long-term assets: Long-term assets: Property, plant and equipment, net 580,248 451,986 Operating lease right-of-use assets Operating lease right-of-use assets 174,225 125,947 Goodwill Goodwill 2,335,172 1,237,672 Intangible assets, net Intangible assets, net 2,094,411 847,123 Other long-term assets, net 74,591 63,770 Total assets $ 6,684,884 $ 4,925,092 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current liabilities: Accounts payable $ 67,829 $ 35,709 Accrued liabilities 398,556 233,604 Operating lease liabilities, current portion Operating lease liabilities, current portion 19,710 11,483 Convertible notes, net, current portion Convertible notes, net, current portion — 312,715 Debt, current portion — 1,319 Other current liabilities Other current liabilities 30,973 38,265 Total current liabilities 517,068 633,095 Long-term liabilities: Long-term liabilities: Convertible notes, net, less current portion Convertible notes, net, less current portion 2,180,232 1,861,685 Long-term debt, less current portion — 22,342 Other long-term liabilities 417,782 51,342 Operating lease liabilities, less current portion Operating lease liabilities, less current portion 182,166 121,075 Total liabilities 3,297,248 2,689,539 Commitments and contingencies 0 0 Stockholders’ equity: Stockholders’ equity: Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—no shares at December 31, 2021 and December 31, 2020 Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—no shares at December 31, 2021 and December 31, 2020 — — Common stock, $0.01 par value Authorized—400,000,000 shares issued and outstanding—173,674,067 and 159,423,410 shares at December 31, 2021 and December 31, 2020 Common stock, $0.01 par value Authorized—400,000,000 shares issued and outstanding—173,674,067 and 159,423,410 shares at December 31, 2021 and December 31, 2020 1,738 1,595 Additional paid-in capital 6,028,861 4,279,327 Accumulated other comprehensive income (loss) Accumulated other comprehensive income (loss) (1,443) 526 Accumulated deficit (2,641,520) (2,045,895) Total stockholders’ equity 3,387,636 2,235,553 Total liabilities and stockholders’ equity $ 6,684,884 $ 4,925,092
60
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|
|
|
|
|
|
| Year Ended December 31, |
|
|
| ||||
|
| 2018 |
| 2017 |
| 2016 | |||
Revenue |
| $ | 454,462 |
| $ | 265,989 |
| $ | 99,376 |
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
| 117,982 |
|
| 79,196 |
|
| 45,195 |
Gross margin |
|
| 336,480 |
|
| 186,793 |
|
| 54,181 |
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
Research and development |
|
| 68,210 |
|
| 42,139 |
|
| 33,473 |
General and administrative |
|
| 178,293 |
|
| 109,040 |
|
| 76,898 |
Sales and marketing |
|
| 249,448 |
|
| 153,924 |
|
| 112,826 |
Total operating expenses |
|
| 495,951 |
|
| 305,103 |
|
| 223,197 |
Loss from operations |
|
| (159,471) |
|
| (118,310) |
|
| (169,016) |
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
|
Investment income |
|
| 21,203 |
|
| 3,932 |
|
| 2,018 |
Interest expense |
|
| (36,789) |
|
| (206) |
|
| (213) |
Total other income (expense) |
|
| (15,586) |
|
| 3,726 |
|
| 1,805 |
|
|
|
|
|
|
|
|
|
|
Net loss before tax |
|
| (175,057) |
|
| (114,584) |
| $ | (167,211) |
|
|
|
|
|
|
|
|
|
|
Income tax benefit (expense) |
|
| (92) |
|
| 187 |
|
| — |
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (175,149) |
| $ | (114,397) |
| $ | (167,211) |
|
|
|
|
|
|
|
|
|
|
Net loss per share—basic and diluted |
| $ | (1.43) |
| $ | (0.99) |
| $ | (1.63) |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding—basic and diluted |
|
| 122,207 |
|
| 115,684 |
|
| 102,335 |
| Year Ended December 31, | ||||||||||||||||||||
| 2021 | 2020 | 2019 | ||||||||||||||||||
| Revenue | $ | 1,767,087 | $ | 1,491,391 | $ | 876,293 | ||||||||||||||
| Operating expenses: | ||||||||||||||||||||
| Cost of sales (exclusive of amortization of acquired intangible assets) | 458,757 | 354,324 | 216,717 | |||||||||||||||||
| Research and development | 385,646 | 554,052 | 139,694 | |||||||||||||||||
| Sales and marketing | 861,889 | 589,919 | 385,176 | |||||||||||||||||
| General and administrative | 801,262 | 481,393 | 352,453 | |||||||||||||||||
| Amortization of acquired intangible assets | 95,001 | 93,398 | 16,035 | |||||||||||||||||
| Intangible asset impairment charge | 20,210 | 209,666 | — | |||||||||||||||||
| Total operating expenses | 2,622,765 | 2,282,752 | 1,110,075 | |||||||||||||||||
| Other operating income | — | 23,665 | — | |||||||||||||||||
| Loss from operations | (855,678) | (767,696) | (233,782) | |||||||||||||||||
| Other income (expense) | ||||||||||||||||||||
| Investment income, net | 31,778 | 6,574 | 26,530 | |||||||||||||||||
| Interest expense | (18,606) | (67,941) | (199,192) | |||||||||||||||||
| Total other income (expense) | 13,172 | (61,367) | (172,662) | |||||||||||||||||
| Net loss before tax | (842,506) | (829,063) | (406,444) | |||||||||||||||||
| Income tax benefit | 246,881 | 5,458 | 193,354 | |||||||||||||||||
| Net loss | $ | (595,625) | $ | (823,605) | $ | (213,090) | ||||||||||||||
| Net loss per share—basic and diluted | $ | (3.48) | $ | (5.45) | $ | (1.62) | ||||||||||||||
| Weighted average common shares outstanding—basic and diluted | 171,348 | 151,137 | 131,257 | |||||||||||||||||
61
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|
|
|
| Year Ended December 31, | |||||||
|
| 2018 |
| 2017 |
| 2016 | |||
Net loss |
| $ | (175,149) |
| $ | (114,397) |
| $ | (167,211) |
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on available-for-sale investments |
|
| (708) |
|
| (475) |
|
| 230 |
Foreign currency translation gain (loss) |
|
| 36 |
|
| 143 |
|
| (215) |
Comprehensive loss |
| $ | (175,821) |
| $ | (114,729) |
| $ | (167,196) |
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Net loss | $ | (595,625) | $ | (823,605) | $ | (213,090) | |||||||||||
| Other comprehensive loss: | |||||||||||||||||
| Unrealized gain (loss) on available-for-sale investments | (2,162) | 771 | 1,322 | ||||||||||||||
| Foreign currency adjustment | 23 | 25 | — | ||||||||||||||
| Comprehensive loss, before tax | (597,764) | (822,809) | (211,768) | ||||||||||||||
| Income tax expense related to items of other comprehensive loss | 170 | (170) | — | ||||||||||||||
| Comprehensive loss, net of tax | $ | (597,594) | $ | (822,979) | $ | (211,768) | |||||||||||
62
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|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
| Additional |
| Other |
|
|
|
| Total | ||||||
|
| Number of |
| $0.01 |
| Paid In |
| Comprehensive |
| Accumulated |
| Stockholders’ | |||||
|
| Shares |
| Par Value |
| Capital |
| Income (Loss) |
| Deficit |
| Equity | |||||
Balance, January 1, 2016 |
| 96,674,786 |
| $ | 967 |
| $ | 904,932 |
| $ | (433) |
| $ | (578,610) |
| $ | 326,856 |
Issuance of common stock, net of issuance costs of $7.3 million |
| 9,775,000 |
|
| 98 |
|
| 144,144 |
|
| — |
|
| — |
|
| 144,242 |
Exercise of common stock options |
| 2,254,384 |
|
| 23 |
|
| 3,388 |
|
| — |
|
| — |
|
| 3,411 |
Issuance of common stock to fund the Company’s 2015 401(k) match |
| 341,507 |
|
| 3 |
|
| 2,148 |
|
| — |
|
| — |
|
| 2,151 |
Compensation expense related to issuance of stock options and restricted stock awards |
| 833,627 |
|
| 8 |
|
| 23,724 |
|
| — |
|
| — |
|
| 23,732 |
Purchase of employee stock purchase plan shares |
| 356,823 |
|
| 3 |
|
| 2,096 |
|
| — |
|
| — |
|
| 2,099 |
Net loss |
| — |
|
| — |
|
| — |
|
| — |
|
| (167,211) |
|
| (167,211) |
Accumulated other comprehensive income |
| — |
|
| — |
|
| — |
|
| 15 |
|
| — |
|
| 15 |
Balance, December 31, 2016 |
| 110,236,127 |
| $ | 1,102 |
| $ | 1,080,432 |
| $ | (418) |
| $ | (745,821) |
| $ | 335,295 |
Cumulative-effect adjustment - ASU 2016-09 adoption |
| — |
|
| — |
|
| 396 |
|
| — |
|
| (396) |
|
|
|
Issuance of common stock, net of issuance costs of $7.4 million |
| 7,450,000 |
|
| 74 |
|
| 253,314 |
|
| — |
|
| — |
|
| 253,388 |
Exercise of common stock options |
| 1,067,047 |
|
| 11 |
|
| 5,092 |
|
| — |
|
| — |
|
| 5,103 |
Issuance of common stock to fund the Company’s 2016 401(k) match |
| 158,717 |
|
| 2 |
|
| 3,006 |
|
| — |
|
| — |
|
| 3,008 |
Compensation expense related to issuance of stock options and restricted stock awards |
| 1,162,112 |
|
| 12 |
|
| 35,500 |
|
| — |
|
| — |
|
| 35,512 |
Purchase of employee stock purchase plan shares |
| 423,423 |
|
| 4 |
|
| 2,837 |
|
| — |
|
| — |
|
| 2,841 |
Net loss |
| — |
|
| — |
|
| — |
|
| — |
|
| (114,397) |
|
| (114,397) |
Accumulated other comprehensive loss |
|
|
|
| — |
|
| — |
|
| (332) |
|
| — |
|
| (332) |
Balance, December 31, 2017 |
| 120,497,426 |
| $ | 1,205 |
| $ | 1,380,577 |
| $ | (750) |
| $ | (860,614) |
| $ | 520,418 |
Equity component of convertible debt, net of issuance costs |
| — |
|
| — |
|
| 260,246 |
|
| — |
|
| — |
|
| 260,246 |
Exercise of common stock options |
| 1,033,012 |
|
| 10 |
|
| 6,626 |
|
| — |
|
| — |
|
| 6,636 |
Issuance of common stock to fund the Company’s 2017 401(k) match |
| 86,882 |
|
| 1 |
|
| 4,302 |
|
| — |
|
| — |
|
| 4,303 |
Compensation expense related to issuance of stock options and restricted stock awards |
| 1,228,611 |
|
| 13 |
|
| 60,251 |
|
| — |
|
| — |
|
| 60,264 |
Purchase of employee stock purchase plan shares |
| 346,609 |
|
| 3 |
|
| 4,892 |
|
| — |
|
| — |
|
| 4,895 |
Net loss |
| — |
|
| — |
|
| — |
|
| — |
|
| (175,149) |
|
| (175,149) |
Accumulated other comprehensive loss |
|
|
|
| — |
|
| — |
|
| (672) |
|
| — |
|
| (672) |
Balance, December 31, 2018 |
| 123,192,540 |
| $ | 1,232 |
| $ | 1,716,894 |
| $ | (1,422) |
| $ | (1,035,763) |
| $ | 680,941 |
| Common Stock | Additional Paid In Capital | Other Comprehensive Income (Loss) | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Number of Shares | $0.01 Par Value | ||||||||||||||||||||||||||||||||||
| Balance, January 1, 2019 | 123,192,540 | $ | 1,232 | $ | 1,456,648 | $ | (1,422) | $ | (1,009,200) | $ | 447,258 | ||||||||||||||||||||||||
| Shares issued to settle convertible notes | 2,159,716 | 22 | 182,413 | — | — | 182,435 | |||||||||||||||||||||||||||||
| Exercise of common stock options | 641,925 | 6 | 8,781 | — | — | 8,787 | |||||||||||||||||||||||||||||
| Issuance of common stock to fund the Company’s 2018 401(k) match | 86,532 | 1 | 7,408 | — | — | 7,409 | |||||||||||||||||||||||||||||
| Compensation expense related to issuance of stock options and restricted stock awards | 4,322,366 | 43 | 108,440 | — | — | 108,483 | |||||||||||||||||||||||||||||
| Purchase of employee stock purchase plan shares | 176,458 | 2 | 8,394 | — | — | 8,396 | |||||||||||||||||||||||||||||
| Issuance of common stock for business combinations | 17,046,159 | 171 | 1,406,909 | — | — | 1,407,080 | |||||||||||||||||||||||||||||
| Stock issuance costs | — | — | (441) | — | — | (441) | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (213,090) | (213,090) | |||||||||||||||||||||||||||||
| Accumulated other comprehensive income | — | — | — | 1,322 | — | 1,322 | |||||||||||||||||||||||||||||
| Balance, December 31, 2019 | 147,625,696 | $ | 1,477 | $ | 3,178,552 | $ | (100) | $ | (1,222,290) | $ | 1,957,639 | ||||||||||||||||||||||||
| Exercise of common stock options | 702,907 | 7 | 27,070 | — | — | 27,077 | |||||||||||||||||||||||||||||
| Issuance of common stock to fund the Company’s 2019 401(k) match | 136,559 | 1 | 12,006 | — | — | 12,007 | |||||||||||||||||||||||||||||
| Compensation expense related to issuance of stock options and restricted stock awards | 1,665,408 | 17 | 152,889 | — | — | 152,906 | |||||||||||||||||||||||||||||
| Purchase of employee stock purchase plan shares | 301,064 | 3 | 18,352 | — | — | 18,355 | |||||||||||||||||||||||||||||
| Issuance of common stock for business combinations | 386,293 | 4 | 28,843 | — | — | 28,847 | |||||||||||||||||||||||||||||
| Issuance of common stock for registered direct offering | 8,605,483 | 86 | 861,615 | — | — | 861,701 | |||||||||||||||||||||||||||||
| Stock issuance costs | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (823,605) | (823,605) | |||||||||||||||||||||||||||||
| Accumulated other comprehensive income | — | — | — | 626 | — | 626 | |||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 159,423,410 | $ | 1,595 | $ | 4,279,327 | $ | 526 | $ | (2,045,895) | $ | 2,235,553 | ||||||||||||||||||||||||
| Conversion of convertible notes, net of tax | 580 | — | 43 | — | — | 43 | |||||||||||||||||||||||||||||
| Exercise of common stock options | 1,295,104 | 13 | 14,424 | — | — | 14,437 | |||||||||||||||||||||||||||||
| Issuance of common stock to fund the Company’s 2020 401(k) match | 162,606 | 2 | 22,932 | — | — | 22,934 | |||||||||||||||||||||||||||||
| Compensation expense related to issuance of stock options and restricted stock awards | 1,879,169 | 19 | 334,004 | — | — | 334,023 | |||||||||||||||||||||||||||||
| Purchase of employee stock purchase plan shares | 331,769 | 3 | 23,067 | — | — | 23,070 | |||||||||||||||||||||||||||||
| Issuance of common stock for business combinations and asset acquisitions | 10,581,429 | 106 | 1,355,064 | — | — | 1,355,170 | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | (595,625) | (595,625) | |||||||||||||||||||||||||||||
| Accumulated other comprehensive loss | — | — | — | (1,969) | — | (1,969) | |||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 173,674,067 | $ | 1,738 | $ | 6,028,861 | $ | (1,443) | $ | (2,641,520) | $ | 3,387,636 | ||||||||||||||||||||||||
63
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, | |||||||
|
| 2018 |
| 2017 |
| 2016 | |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (175,149) |
| $ | (114,397) |
| $ | (167,211) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property and equipment |
|
| 20,482 |
|
| 14,500 |
|
| 11,309 |
Loss on disposal of property and equipment |
|
| 353 |
|
| 954 |
|
| 151 |
Loss on preferred stock investment |
|
| 765 |
|
| — |
|
| — |
Deferred tax benefit |
|
| — |
|
| (115) |
|
| — |
Stock-based compensation |
|
| 60,264 |
|
| 35,512 |
|
| 23,732 |
Amortization of debt discount |
|
| 26,291 |
|
| — |
|
| — |
Amortization of debt issuance costs |
|
| 2,273 |
|
| — |
|
| — |
Amortization of other liabilities |
|
| (2,500) |
|
| (1,674) |
|
| (1,013) |
Amortization of deferred financing costs |
|
| 106 |
|
| 54 |
|
| 52 |
Amortization of premium on short-term investments |
|
| (3,901) |
|
| 65 |
|
| 463 |
Amortization of intangible assets |
|
| 2,602 |
|
| 1,055 |
|
| 200 |
Proceeds from refundable tax credits |
|
| — |
|
| — |
|
| 800 |
Changes in assets and liabilities, net of effects of acquisition: |
|
|
|
|
|
|
|
|
|
Accrued interest |
|
| 4,593 |
|
| — |
|
| — |
Accounts receivable, net |
|
| (17,292) |
|
| (17,529) |
|
| (3,593) |
Inventory, net |
|
| (12,729) |
|
| (19,194) |
|
| (156) |
Prepaid expenses and other current assets |
|
| (9,076) |
|
| (995) |
|
| 761 |
Accounts payable |
|
| 11,332 |
|
| 15,383 |
|
| (2,598) |
Accrued liabilities |
|
| 21,744 |
|
| 15,154 |
|
| 7,349 |
Other short-term liabilities |
|
| 172 |
|
| 119 |
|
| — |
Lease incentive obligation |
|
| 345 |
|
| (616) |
|
| (312) |
Net cash used in operating activities |
|
| (69,325) |
|
| (71,724) |
|
| (130,066) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchases of marketable securities |
|
| (1,192,506) |
|
| (357,051) |
|
| (189,989) |
Maturities of marketable securities |
|
| 579,171 |
|
| 271,466 |
|
| 193,321 |
Purchases of property and equipment |
|
| (150,093) |
|
| (48,480) |
|
| (14,851) |
Business acquisition, net of cash acquired |
|
| (17,908) |
|
| (2,980) |
|
| — |
Investment in privately-held company |
|
| — |
|
| (3,000) |
|
| — |
Purchases of intangible assets |
|
| — |
|
| (20,690) |
|
| — |
Internally developed software |
|
| (578) |
|
| (70) |
|
| — |
Net cash used in investing activities |
|
| (781,914) |
|
| (160,805) |
|
| (11,519) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible notes, net |
|
| 896,430 |
|
| — |
|
| — |
Proceeds from financing obligation |
|
| 6,762 |
|
| — |
|
| — |
Proceeds from exercise of common stock options |
|
| 6,636 |
|
| 5,103 |
|
| 3,411 |
Proceeds from sale of common stock, net of issuance costs |
|
| — |
|
| 253,388 |
|
| 144,242 |
Proceeds in connection with the Company's employee stock purchase plan |
|
| 4,895 |
|
| 2,841 |
|
| 2,099 |
Payments of deferred financing costs |
|
| (24) |
|
| (202) |
|
| — |
Proceeds from construction loan |
|
| 24,260 |
|
| — |
|
| — |
Payments on mortgage payable |
|
| (4,678) |
|
| (174) |
|
| (166) |
Payments on capital lease |
|
| (139) |
|
| — |
|
| — |
Net cash provided by financing activities |
|
| 934,142 |
|
| 260,956 |
|
| 149,586 |
|
|
|
|
|
|
|
|
|
|
Effects of exchange rate changes on cash and cash equivalents |
|
| 36 |
|
| 143 |
|
| (215) |
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
| 82,939 |
|
| 28,570 |
|
| 7,786 |
Cash and cash equivalents, beginning of period |
|
| 77,491 |
|
| 48,921 |
|
| 41,135 |
Cash and cash equivalents, end of period |
| $ | 160,430 |
| $ | 77,491 |
| $ | 48,921 |
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Property and equipment acquired but not paid |
| $ | 33,452 |
| $ | 8,818 |
| $ | 655 |
Property acquired under build-to-suit lease |
| $ | 2,092 |
| $ | — |
|
| — |
Unrealized loss on available-for-sale investments |
| $ | (708) |
| $ | (475) |
| $ | 230 |
Issuance of 86,882, 158,717, and 341,507 shares of common stock to fund the Company’s 401(k) matching contribution for 2017, 2016, and 2015, respectively |
| $ | 4,303 |
| $ | 3,008 |
| $ | 2,151 |
Business acquisition contingent consideration liability |
| $ | 3,060 |
| $ | — |
| $ | — |
Interest paid |
| $ | 4,638 |
| $ | 201 |
| $ | 209 |
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net loss | $ | (595,625) | $ | (823,605) | $ | (213,090) | |||||||||||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | |||||||||||||||||
| Depreciation and amortization | 85,345 | 69,964 | 34,212 | ||||||||||||||
| Loss on disposal of property, plant and equipment | 1,055 | 2,470 | 1,394 | ||||||||||||||
| Unrealized (gain) loss on equity investments | 1,492 | (1,179) | 207 | ||||||||||||||
| Deferred tax benefit | (253,169) | (6,748) | (193,605) | ||||||||||||||
| Stock-based compensation | 253,063 | 152,906 | 108,483 | ||||||||||||||
| Post-combination expense for acceleration of unvested equity | 80,960 | — | — | ||||||||||||||
| Realized gain on preferred stock investment | (30,500) | — | — | ||||||||||||||
| Loss on settlement of convertible notes | — | 50,819 | 187,698 | ||||||||||||||
| Amortization of deferred financing costs, convertible note debt discount and issuance costs, and other liabilities | 6,683 | 1,546 | (1,758) | ||||||||||||||
| Accretion (Amortization) of discount (premium) on short-term investments | 4,618 | 1,549 | (3,102) | ||||||||||||||
| Amortization of acquired intangible assets | 95,001 | 93,398 | 16,035 | ||||||||||||||
| Asset acquisition IPR&D expense | 85,337 | 412,568 | — | ||||||||||||||
| Intangible asset impairment charge | 20,210 | 209,666 | — | ||||||||||||||
| Remeasurement of contingent consideration | 6,360 | (323) | — | ||||||||||||||
| Non-cash lease expense | 25,825 | 15,720 | 5,427 | ||||||||||||||
| Changes in assets and liabilities, net of effects of acquisition: | |||||||||||||||||
| Accounts receivable, net | 25,150 | (100,526) | (27,633) | ||||||||||||||
| Inventory, net | (9,221) | (30,310) | (19,041) | ||||||||||||||
| Operating lease liabilities | (16,685) | (8,784) | (4,114) | ||||||||||||||
| Accounts payable and accrued liabilities | 169,800 | 55,165 | 3,469 | ||||||||||||||
| Other assets and liabilities | (57,935) | 42,186 | (6,237) | ||||||||||||||
| Net cash provided by (used in) operating activities | (102,236) | 136,482 | (111,655) | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Purchases of marketable securities | (1,164,050) | (1,089,953) | (634,117) | ||||||||||||||
| Maturities of marketable securities | 794,322 | 886,675 | 1,657,204 | ||||||||||||||
| Purchases of property, plant and equipment | (135,766) | (65,078) | (172,654) | ||||||||||||||
| Investment in privately held companies | (18,044) | (15,947) | — | ||||||||||||||
| Business combination, net of cash acquired | (499,730) | (6,658) | (973,861) | ||||||||||||||
| Asset acquisitions, net of cash acquired | (58,073) | (411,421) | — | ||||||||||||||
| Other investing activities | (744) | 345 | (1,000) | ||||||||||||||
| Net cash used in investing activities | (1,082,085) | (702,037) | (124,428) | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from issuance of convertible notes, net | — | 1,125,547 | 729,477 | ||||||||||||||
| Proceeds from exercise of common stock options | 14,437 | 27,077 | 8,787 | ||||||||||||||
| Proceeds from sale of common stock, net of issuance costs | — | 861,701 | — | ||||||||||||||
| Proceeds in connection with the Company's employee stock purchase plan | 23,070 | 18,355 | 8,396 | ||||||||||||||
| Payments on settlement of convertible notes | — | (150,054) | (493,356) | ||||||||||||||
| Payments on construction loan | (23,749) | (1,250) | — | ||||||||||||||
| Other financing activities | (5,286) | (1,755) | (123) | ||||||||||||||
| Net cash provided by financing activities | 8,472 | 1,879,621 | 253,181 | ||||||||||||||
| Effects of exchange rate changes on cash and cash equivalents | 23 | — | — | ||||||||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | (1,175,826) | 1,314,066 | 17,098 | ||||||||||||||
| Cash, cash equivalents and restricted cash at the beginning of period | 1,491,594 | 177,528 | 160,430 | ||||||||||||||
| Cash, cash equivalents and restricted cash at the end of period | $ | 315,768 | $ | 1,491,594 | $ | 177,528 | |||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | 2019 | |||||||||||||||
| Supplemental disclosure of non-cash investing and financing activities: | |||||||||||||||||
| Property, plant and equipment acquired but not paid | $ | 33,177 | $ | 2,685 | $ | 10,265 | |||||||||||
| Unrealized (loss) gain on available-for-sale investments | $ | (2,162) | $ | 771 | $ | 1,322 | |||||||||||
| Issuance of 162,606, 136,559, and 86,532 shares of common stock to fund the Company’s 401(k) matching contribution for 2020, 2019, and 2018, respectively | $ | 22,934 | $ | 12,007 | $ | 7,409 | |||||||||||
| Issuance of 2,159,716 shares of common stock upon settlement of convertible notes | $ | — | $ | — | $ | (182,435) | |||||||||||
| Issuance of 10,581,429, 386,293, and 17,046,159 shares of common stock in 2021, 2020, and 2019, respectively, for business combination | $ | (1,355,170) | $ | (28,847) | $ | (1,407,080) | |||||||||||
| Business acquisition contingent consideration liability | $ | 350,348 | $ | — | $ | — | |||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||||||||
| Interest paid | $ | 10,735 | $ | 9,384 | $ | 5,128 | |||||||||||
64
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
References to “Exact”, “we”, “us”, “our”, or the “Company” refer to Exact Sciences Corporation and its wholly owned subsidiaries.
These estimates include revenue recognition, valuation of intangible assets and goodwill, and accounting for income taxes among others.
At December 31, 2018 and 2017, the Company’s marketable securities were comprised of fixed income, investments, and all were deemed available‑for‑sale. The objectives of the Company’s investment strategy are to provide liquidity and safety of principal while striving to achieve the highest rate of return consistent with these two objectives. net.
65
investment grade credit ratings and places restrictions on maturities and concentration by type and issuer. Investments in which the Company has the ability and intent, if necessary, to liquidate in order to support its current operations (including those with a contractual term greater than one year from the date of purchase) are classified as current. All of the Company’s investments are considered current. Realized gains were $0.4 million, $23,000, and $24,000, net of insignificant realized losses, for the years ended December 31, 2018, 2017, and 2016, respectively and are included in investment income.
Available‑for‑sale securities at December 31, 2018 consistpayment structure of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2018 | ||||||||||
|
|
|
|
| Gains in Accumulated |
| Losses in Accumulated |
|
|
| ||
|
|
|
|
| Other Comprehensive |
| Other Comprehensive |
| Estimated Fair | |||
(In thousands) |
| Amortized Cost |
| Income (Loss) |
| Income (Loss) |
| Value | ||||
Corporate bonds |
| $ | 392,973 |
| $ | 33 |
| $ | (719) |
| $ | 392,287 |
Asset backed securities |
|
| 277,537 |
|
| 30 |
|
| (568) |
|
| 276,999 |
U.S. government agency securities |
|
| 250,606 |
|
| 43 |
|
| (178) |
|
| 250,471 |
Commercial paper |
|
| 12,158 |
|
| — |
|
| (7) |
|
| 12,151 |
Certificates of deposit |
|
| 31,875 |
|
| — |
|
| (31) |
|
| 31,844 |
Total available-for-sale securities |
| $ | 965,149 |
| $ | 106 |
| $ | (1,503) |
| $ | 963,752 |
Available‑for‑sale securities at December 31, 2017 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 | ||||||||||
|
|
|
|
| Gains in Accumulated |
| Losses in Accumulated |
|
|
| ||
|
|
|
|
| Other Comprehensive |
| Other Comprehensive |
| Estimated Fair | |||
(In thousands) |
| Amortized Cost |
| Income (Loss) |
| Income (Loss) |
| Value | ||||
Corporate bonds |
| $ | 181,639 |
| $ | 10 |
| $ | (344) |
| $ | 181,305 |
Asset backed securities |
|
| 94,700 |
|
| — |
|
| (185) |
|
| 94,515 |
U.S. government agency securities |
|
| 54,974 |
|
| — |
|
| (162) |
|
| 54,812 |
Commercial paper |
|
| 9,953 |
|
| — |
|
| (7) |
|
| 9,946 |
Certificates of deposit |
|
| 6,647 |
|
| 1 |
|
| (2) |
|
| 6,646 |
Total available-for-sale securities |
| $ | 347,913 |
| $ | 11 |
| $ | (700) |
| $ | 347,224 |
66
Changes in Accumulated Other Comprehensive Income (Loss)
The amount recognized in accumulated other comprehensive income (loss) (“AOCI”) for the years ended December 31, 2018, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated | |
|
| Cumulative |
| Unrealized |
| Other | |||
|
| Translation |
| Gain (Loss) |
| Comprehensive | |||
(In thousands) |
| Adjustment |
| on Securities |
| Income (Loss) | |||
Balance at January 1, 2016 |
| $ | 11 |
| $ | (444) |
| $ | (433) |
Other comprehensive income (loss) before reclassifications |
|
| (215) |
|
| 117 |
|
| (98) |
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
|
| 113 |
|
| 113 |
Net current period change in accumulated other comprehensive income (loss) |
|
| (215) |
|
| 230 |
|
| 15 |
Balance at December 31, 2016 |
| $ | (204) |
| $ | (214) |
| $ | (418) |
Other comprehensive income (loss) before reclassifications |
|
| 143 |
|
| (530) |
|
| (387) |
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
|
| 55 |
|
| 55 |
Net current period change in accumulated other comprehensive income (loss) |
|
| 143 |
|
| (475) |
|
| (332) |
Balance at December 31, 2017 |
| $ | (61) |
| $ | (689) |
| $ | (750) |
Other comprehensive income (loss) before reclassifications |
|
| 36 |
|
| (1,025) |
|
| (989) |
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
|
| 317 |
|
| 317 |
Net current period change in accumulated other comprehensive income (loss) |
|
| 36 |
|
| (708) |
|
| (672) |
Balance at December 31, 2018 |
| $ | (25) |
| $ | (1,397) |
| $ | (1,422) |
Amounts reclassified from accumulated other comprehensive loss for the years ended December 31, 2018, 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Affected Line Item in the |
| Year Ended December 31, | |||||||
Details about AOCI Components (In thousands) |
| Statements of Operations |
| 2018 |
| 2017 |
| 2016 | |||
Change in value of available-for-sale investments |
|
|
|
|
|
|
|
|
|
|
|
Sales and maturities of available-for-sale investments |
| Investment income |
| $ | 317 |
| $ | 55 |
| $ | 113 |
Total reclassifications |
|
|
| $ | 317 |
| $ | 55 |
| $ | 113 |
Allowance for Doubtful Accounts
67
certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, the Company records a charge to cost of sales to write down such unmarketable inventory to its estimated realizable value.
Direct and indirect manufacturing costs incurred during process validation andwith probable future economic benefit are capitalized. Validation costs incurred for other research and development activities, which are not permitted to be sold, have been expensed to research and development in the Company’s consolidated statements of operations.
Inventory consisted of the following:
|
|
|
|
|
|
|
|
| December 31, |
| December 31, | ||
(In thousands) |
| 2018 |
| 2017 | ||
Raw materials |
| $ | 12,761 |
| $ | 10,344 |
Semi-finished and finished goods |
|
| 26,387 |
|
| 15,683 |
Total inventory |
| $ | 39,148 |
| $ | 26,027 |
Property, Plant and Equipment
Estimated December 31, December 31, (In thousands) Useful Life 2018 2017 Property, plant and equipment Land (1) $ 4,466 $ 4,466 Leasehold and building improvements (2) 38,895 17,629 Land improvements 15 years 1,530 1,419 Buildings 30 years 7,928 7,928 Computer equipment and computer software 3 years 36,969 30,148 Laboratory equipment 3 - 10 years 37,518 23,296 Furniture and fixtures 3 years 8,353 4,531 Assets under construction (3) 167,462 28,655 Property, plant and equipment, at cost 303,121 118,072 Accumulated depreciation (57,862) (38,086) Property, plant and equipment, net $ 245,259 $ 79,986 December 31, December 31, (In thousands) 2018 2017 Finite-lived intangible assets Finite-lived intangible assets $ 33,058 $ 23,726 Less: Accumulated amortization (4,107) (1,500) Finite-lived intangible assets, net 28,951 22,226 Internally developed technology in process 51 — Total finite-lived intangible assets, net 29,002 22,226 Goodwill 17,279 1,979 Goodwill and intangible assets, net $ 46,281 $ 24,205 Weighted Net Balance at Average December 31, Remaining (In thousands) 2018 Life (Years) Trade name $ 689 14.8 Customer relationships 2,666 14.8 Patents 18,979 9.6 Acquired developed technology 6,086 13.8 Internally developed technology 531 2.7 Total $ 28,951 (In thousands) 2019 $ 3,193 2020 3,193 2021 3,092 2022 2,956 2023 2,953 Thereafter 13,564 $ 28,951 as an operating activity in the consolidated statement of cash flows. (In thousands) Balance, December 31, 2016 $ — Sampleminded acquisition 1,979 Balance, December 31, 2017 1,979 Biomatrica acquisition 15,300 Balance, December 31, 2018 $ 17,279 Net Loss Per Share December 31, (In thousands) 2018 2017 2016 Shares issuable upon exercise of stock options 2,532 3,360 3,505 Shares issuable upon the release of restricted stock awards 6,246 6,149 5,601 Shares issuable upon conversion of convertible notes 12,044 — — 20,822 9,509 9,106 Forfeitures of any share-based awards are recognized as they occur. vesting period. Year Ended December 31, (In thousands) 2018 2017 2016 Medicare Parts B & C $ 254,431 $ 172,255 $ 81,976 Commercial 184,538 84,842 16,017 Other 15,493 8,892 1,383 Total $ 454,462 $ 265,989 $ 99,376 cash flows. 2019, respectively, which is recorded in sales and marketing expenses on the Company's consolidated statements of operations. information used to develop those assumptions. Under that standard, fair value measurements are separately disclosed by level within the fair value hierarchy. The fair value hierarchy establishes and prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. the Company determines are within the scope of ASC 606, Revenue from Contracts with Customers, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Fair Value Measurement at December 31, 2018 Using: Quoted Prices Significant in Active Other Significant Markets for Observable Unobservable Fair Value at Identical Assets Inputs Inputs (In thousands) December 31, 2018 (Level 1) (Level 2) (Level 3) Cash and cash equivalents Cash and money market $ 86,375 $ 86,375 $ — $ — U.S. government agency securities 49,985 — 49,985 — Commercial paper 24,070 — 24,070 — Available-for-sale Marketable securities Corporate bonds 392,287 — 392,287 — Asset backed securities 276,999 — 276,999 — U.S. government agency securities 250,471 — 250,471 — Certificates of deposit 31,844 — 31,844 — Commercial paper 12,151 — 12,151 — Contingent consideration (3,060) — — (3,060) Total $ 1,121,122 $ 86,375 $ 1,037,807 $ (3,060) Fair Value Measurement at December 31, 2017 Using: Quoted Prices Significant in Active Other Significant Markets for Observable Unobservable Fair Value at Identical Assets Inputs Inputs (In thousands) December 31, 2017 (Level 1) (Level 2) (Level 3) Cash and cash equivalents Cash and money market $ 61,297 $ 61,297 $ — $ — Commercial paper 10,995 — 10,995 — Certificates of deposit 1,499 — 1,499 — U.S. government agency securities 3,700 — 3,700 — Available-for-sale Marketable securities Corporate bonds 181,305 — 181,305 — Asset backed securities 94,515 — 94,515 — U.S. government agency securities 54,812 — 54,812 — Commercial paper 9,946 — 9,946 — Certificates of deposit 6,646 — 6,646 — Total $ 424,715 $ 61,297 $ 363,418 $ — the context of some of the Company’s agreements, the satisfaction of the performance obligation occurs when a specimen sample is not returned to the laboratory for processing before the end of the allotted testing window. The Company The December 31, 2018 Less than 12 months 12 months or greater Total (In thousands) Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Marketable securities Corporate bonds $ 340,287 $ (638) $ 35,773 $ (81) $ 376,060 $ (719) U.S. government agency securities 201,036 (178) — — 201,036 (178) Asset backed securities 243,846 (501) 18,335 (67) 262,181 (568) Certificates of deposit 31,843 (31) — — 31,843 (31) Commercial paper 12,151 (7) — — 12,151 (7) Total $ 829,163 $ (1,355) $ 54,108 $ (148) $ 883,271 $ (1,503) December 31, 2017 Less than 12 months 12 months or greater Total (In thousands) Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Marketable Securities Corporate bonds $ 158,790 $ (340) $ 4,715 $ (4) $ 163,505 $ (344) Asset backed securities 85,906 (179) 8,609 (6) 94,515 (185) U.S. government agency securities 24,878 (90) 29,934 (72) 54,812 (162) Commercial paper 19,944 (7) — — 19,944 (7) Certificates of deposit 2,997 (2) — — 2,997 (2) Total $ 292,515 $ (618) $ 43,258 $ (82) $ 335,773 $ (700) Due one year or less Due after one year through four years (In thousands) Cost Fair Value Cost Fair Value Marketable securities Corporate bonds $ 282,910 $ 282,437 $ 110,062 $ 109,850 U.S. government agency securities 201,116 200,961 49,491 49,510 Asset backed securities 70,859 70,681 206,678 206,318 Certificates of deposit 25,485 25,471 6,390 6,373 Commercial paper 12,158 12,151 — — Total $ 592,528 $ 591,701 $ 372,621 $ 372,051 % Revenue for the years ended December 31, % Accounts Receivable at December 31, Major Payer 2018 2017 2016 2018 2017 2016 Centers for Medicare and Medicaid Services 36% 44% 60% 32% 39% 63% UnitedHealthCare 13% 11% (1) 10% 10% (1) Tax Positions 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 10. disclosure of the WEDC tax credits earned during fiscal year 2021 and the funding received as part of the CARES Act in 2020. 2020. AND COLLABORATION AGREEMENTS Consolidated Financial Statements (Continued) agreement. operations. stockholders at the Company’s 2020 annual meeting in July 2020. may include incentive stock options, as defined under the Internal Revenue Code, non-qualified options, restricted stock awards and other stock awards in amounts and with terms and conditions determined by the human capital committee of the Company’s Board of Directors, subject to the provisions of the 2019 Stock Plan. The 2019 Stock Plan will expire on July 25, 2029 and after such date no further awards may be granted under the plan. Options granted under the 2019 Stock Plan expire ten years from the date of grant. Grants made from the 2019 Stock Plan generally vest over a period of three to four years. At December 31, 2021, options to purchase 395,584 shares were outstanding under the 2019 Stock Plan and 3,573,014 shares of restricted stock and restricted stock units were outstanding. At December 31, 2021, there were 8,491,176 shares available for future grant under the 2019 Stock Plan. Weighted Average Offering period ended Number of Shares price per Share April 30, 2018 285,013 $ 9.32 October 31, 2018 61,596 $ 36.35 December 31, (In thousands) 2018 2017 2016 Cost of sales $ 3,531 $ 1,783 $ 1,064 Research and development 10,189 6,836 4,014 General and administrative 34,181 20,221 14,597 Sales and marketing 12,363 6,672 4,057 Total stock-based compensation $ 60,264 $ 35,512 $ 23,732 Year Ended December 31, 2018 2017 2016 Option Plan Shares Risk-free interest rates 2.73% - 2.79% 2.1% - 2.2% 1.5% - 1.7% Expected term (in years) 5.45 - 6.44 6.51 - 6.59 6.25 - 6.74 Expected volatility 61.8% - 66.2% 62.1% - 62.9% 58.9% - 59.4% Dividend yield 0 % 0 % 0 % Weighted average fair value per share of options granted during the period $ 24.55 $ 25.23 $ 3.17 Market Measure-Based Shares Risk-free interest rates (1) (1) 0.8% - 0.9% Expected term (in years) (1) (1) 2.43 - 2.84 Expected volatility (1) (1) 68.3% - 79.6% Dividend yield (1) (1) 0 % Weighted average fair value per share of stock purchase rights granted during the period (1) (1) $ 3.77 ESPP Shares Risk-free interest rates 2.1% - 2.8% 1% - 1.6% 0.4% - 0.8% Expected term (in years) 0.5 - 2.0 0.5 - 2.0 0.5 - 2.0 Expected volatility 51.7% - 65.4% 45% - 85.5% 70.1% - 92.7% Dividend yield 0 % 0 % 0 % Weighted average fair value per share of stock purchase rights granted during the period $ 20.47 $ 17.87 $ 3.30 Weighted Weighted Average Average Remaining Aggregate Exercise Contractual Intrinsic Options Shares Price Term (Years) Value(1) (Aggregate intrinsic value in thousands) Outstanding, January 1, 2016 4,936,594 $ 4.80 Granted 883,889 5.48 Exercised (2,255,959) 1.52 Forfeited (59,043) 9.75 Outstanding, December 31, 2016 3,505,481 $ 7.00 Granted 953,097 21.97 Exercised (1,067,120) 4.78 Forfeited (30,997) 13.90 Outstanding, December 31, 2017 3,360,461 $ 11.89 6.4 Granted 343,566 44.37 Exercised (1,033,012) 6.42 Forfeited (139,454) 24.07 Outstanding, December 31, 2018 2,531,561 $ 17.86 6.6 $ 114,524 Exercisable, December 31, 2018 1,147,872 $ 12.10 5.2 $ 58,536 A summary of restricted stock and restricted stock unit activity Weighted Restricted Average Grant Shares Date Fair Value Outstanding, January 1, 2016 3,444,694 $ 14.19 Granted 3,960,583 6.90 Released (796,168) 16.95 Forfeited (1,007,793) 9.57 Outstanding, December 31, 2016 5,601,316 $ 9.19 Granted 2,035,679 33.04 Released (1,132,265) 14.24 Forfeited (355,952) 19.68 Outstanding, December 31, 2017 6,148,778 $ 15.76 Granted 1,686,385 50.49 Released (1,277,727) 21.66 Forfeited (311,262) 24.39 Outstanding, December 31, 2018 6,246,174 $ 23.16 Outstanding Exercisable Weighted Average Weighted Weighted Remaining Average Average Number of Contractual Exercise Number of Exercise Exercise Price Options Life (Years) Price Options Price $0.00 - $10.00 973,527 5.4 $ 6.16 604,168 $ 6.57 $10.01 - $15.00 228,032 4.5 12.28 228,032 12.28 $15.01 - $20.00 18,477 5.6 16.52 18,477 16.52 $20.01 - $25.00 980,551 7.5 22.03 281,220 22.45 $25.01 - $30.00 12,608 6.1 26.98 12,608 26.98 $30.01 - $40.00 — — — — — $40.01 - $45.00 308,266 8.9 44.37 — — $45.01- $49.33 10,100 8.8 49.33 3,367 49.33 2,531,561 6.6 $ 17.86 1,147,872 $ 12.10 Employee Stock Purchase Plan ("ESPP") Shares reserved for issuance 2010 Purchase Plan (15) COMMITMENTS AND CONTINGENCIES Year Ending December 31, 2019 $ 3,861 2020 5,135 2021 4,995 2022 5,027 2023 5,146 Thereafter 44,286 Total lease obligations $ 68,450 As of December 31, 2021 and 2020, the December 31, (In thousands) 2018 2017 Compensation $ 37,133 $ 26,399 Assets under construction 32,021 8,797 Professional fees 19,143 5,304 Research and trial related expenses 6,245 3,466 Other 4,052 3,872 Licenses 2,050 1,288 $ 100,644 $ 49,126 Year ending December 31, 2019 $ 8 2020 96 2021 105 2022 24,051 $ 24,260 (In thousands) Principal $ 908,500 Debt discount, net (227,403) Deferred financing costs (16,348) Net carrying amount $ 664,749 million in capital investments and establishes and maintains 758 full-time positions over a seven-year period. cumulative job requirements. intangible assets. other advisors incurred to complete the merger. rate. following: December 31, (In thousands) 2018 2017 2016 Current $ 92 $ 106 $ — Deferred — (293) — Total Tax Expense (Benefit) $ 92 $ (187) $ — The components of the net deferred tax asset with the approximate income tax effect of each type of carryforward, credit and temporary differences are as follows: December 31, (In thousands) 2018 2017 Deferred tax assets: Operating loss carryforwards $ 226,276 $ 186,963 Tax credit carryforwards 21,417 13,818 Other temporary differences 24,368 13,799 Tax assets before valuation allowance 272,061 214,580 Less - Valuation allowance (209,868) (214,250) Total deferred tax assets $ 62,193 $ 330 Deferred tax liabilities Convertible notes $ (55,698) $ — Amortization (2,182) (126) Fixed assets (3,966) — Other temporary differences (347) (204) Total deferred tax liabilities (62,193) (330) Net deferred taxes $ — $ — Company recorded a decrease to the valuation allowance of $239.2 million related to the Thrive Merger offset against goodwill. December 31, 2018 2017 2016 U.S. Federal statutory rate 21.0 % 35.0 % 35.0 State taxes 3.4 2.4 2.4 Federal and state tax rate changes — (99.2) 0.5 Foreign tax rate differential — 0.1 (0.4) Research and development tax credits 1.9 (1.9) 0.9 Stock-based compensation expense 9.1 16.7 (0.6) Non-deductible executive compensation (4.9) (10.7) (5.1) Other adjustments 1.1 (2.6) (0.6) Valuation allowance (31.7) 60.4 (32.1) Effective tax rate (0.1) % % December 31, (In thousands) 2018 2017 January 1, $ — $ — Increase due to current year tax positions 392 — Increase due to prior year tax positions 1,534 — Decrease due to prior year tax positions — — Settlements — — December 31, $ 1,926 $ — Quarter Ended March 31, June 30, September 30, December 31, (Amounts in thousands, except per share data) 2018 Revenue $ 90,296 102,894 118,291 142,981 Cost of revenue 22,914 26,888 30,020 38,160 Gross margin 67,382 76,006 88,271 104,821 Research and development 14,935 14,712 17,631 20,932 General and administrative 35,567 39,565 46,729 56,432 Sales and marketing 53,408 54,431 64,836 76,773 Loss from operations (36,528) (32,702) (40,925) (49,316) Investment income 3,673 4,917 6,292 6,321 Interest expense (6,510) (8,603) (10,704) (10,972) Net loss before tax (39,365) (36,388) (45,337) (53,967) Income tax benefit (expense) (59) 1 (27) (7) Net loss $ (39,424) $ (36,387) $ (45,364) $ (53,974) Net loss per share—basic and diluted $ (0.33) $ (0.30) $ (0.37) $ (0.44) Weighted average common shares outstanding—basic and diluted 121,016 122,129 122,671 122,981 2017 Revenue $ 48,363 57,646 72,574 87,406 Cost of revenue 16,981 17,991 20,729 23,495 Gross margin 31,382 39,655 51,845 63,911 Research and development 8,002 9,737 11,725 12,675 General and administrative 20,070 24,609 30,763 33,598 Sales and marketing 38,801 36,728 37,768 40,627 Loss from operations (35,491) (31,419) (28,411) (22,989) Investment income 595 683 1,334 1,320 Interest expense (50) (54) (51) (51) Net loss before tax (34,946) (30,790) (27,128) (21,720) Income tax benefit (expense) — — 231 (44) Net loss $ (34,946) (30,790) (26,897) (21,764) Net loss per share—basic and diluted $ (0.32) $ (0.27) $ (0.23) $ (0.18) Weighted average common shares outstanding—basic and diluted 110,582 112,847 119,215 119,950 Exhibit Exhibit Description Filed with this Report Incorporated by Filing Date SEC File/ Registration Number Agreement and Plan of Merger, dated July 28, 2019, by and among the Registrant, Spring Acquisition Corp. and Genomic Health, Inc. S-1 12/4/ 333-48812 8-K 001-35092 8-K 001-35092 S-1 12/26/ 333-48812 8-K 1/17/ 001-35092 8-K 1/17/ 001-35092 10-Q 8/2/ 001-35092 Third Amendment to Lease Agreement, dated November 11, 2015, by and between Metropolitan Life Insurance Company and Genomic Health, Inc. 8-K 3/18/ 000-32179 Employment Agreement, dated November 8, 2016, by and between Jeffrey T. Elliott and the Registrant 10-K 2/21/ 001-35092 001-35092 DEF 14A 4/30/ 000-32179 DEF 14A 6/20/ 001-35092 DEF 14A 4/29/ 001-35092 10-Q 5/3/ 001-35092 S-8 5/3/ 333-211099 10-Q 10/30/ 001-35092 The Registrant's 2019 Omnibus Long-Term Incentive Plan 10-K 3/12/ 000-32179 10-K 3/1/ 001-35092 10-Q 001-35092 X X X X X X EXACT SCIENCES CORPORATION Date: February By: /s/ Kevin T. Conroy Name Title /s/ Jeffrey T. Elliott /s/ James E. Doyle /s/ Director /s/ Director Kathleen Sebeliusstraight‑linestraight-line method over the assets’ estimated useful lives. Land is stated at cost and does not depreciate. MaintenanceAdditions and improvements are capitalized, including direct and indirect costs incurred to validate equipment and bring to working conditions. Revalidation costs, including maintenance and repairs are expensed when incurred; additions and improvements are capitalized. The estimated useful lives of property and equipment are as follows:
incurred.(1)Not depreciated.
Software Development Costs(2)Lesser of remaining lease term, building life, or useful life.(3)Not depreciated until placed into service.Depreciation expense for the years ended December 31, 2018, 2017, and 2016 was $20.5 million, $14.5 million, and $11.3 million, respectively.At December 31, 2018, the Company had $167.5 million of assets under construction which consisted of $130.8 million related to building and leasehold improvements, $5.2 million of capitalized costs related to software projects, and $31.5 million of costs related to laboratory equipment under construction. Depreciation will begin on these assets once they are placed into service. The Company expects to incur an additional $184.9 million to complete the building projects and leasehold improvements, $7.5 million of costs to complete the computer software projects, $7.2 million to complete the laboratory equipment, and minimal costs to complete the computer equipment. These projects are expected to be completed in 2019 and 2020. The Company assesses its long-lived assets, consisting primarily of68property and equipment, for impairment when material events and changes in circumstances indicate that the carrying value may not be recoverable. There were no impairment losses for the years ended December 31, 2018, 2017 or 2016.Software Capitalization PolicySoftware development costsCosts related to internal use software, including hosted arrangements, are incurred in three stages of development:stages: the preliminary project stage, the application development stage, and the post‑implementationpost-implementation stage. Costs incurred during the preliminary project and post‑implementationpost-implementation stages are expensed as incurred. Costs incurred during the application development stage that meet the criteria for capitalization are capitalized and amortized, when the software is ready for its intended use, using the straight‑line basis over the estimated useful life of the software.Patent Costs, Intangible Assets and GoodwillGoodwill and intangible assets consistedsoftware, or the duration of the following:Finite-Lived Intangible AssetsThe following table summarizes the net-book-value and estimated remaining life of the Company’s finite-lived intangible assets as of December 31, 2018:69
hosting agreement.AsInvestments in Privately Held Companies2018,2021, 2020 and 2019 should be expensed and not capitalized as the future economic benefit derived from the patent costs incurred cannot be determined.future amortization expenseuseful life. If a project is abandoned, all remaining capitalized amounts are written off immediately. There are often major risks and uncertainties associated with IPR&D projects as the Company is required to obtain regulatory approvals in order to be able to market the resulting products. Such approvals require completing clinical trials that demonstrate the products effectiveness. Consequently, the eventual realized value of the IPR&D project may vary from its fair value at the date of acquisition, and IPR&D impairment charges may occur in future periods.for each of the five succeeding fiscal years is as follows:The Company reviews long-lived assets, including property and equipment and identifiable intangiblesinvestments in privately held companies, for impairment whenever events or changes in circumstances indicate that the carrying amountamounts of an assetthe assets may not be fully recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.wereis no impairment lossesGAAP that specifically addresses the accounting by business entities for government assistance and tax credits. Absent authoritative accounting standards, interpretative guidance issued and commonly applied by financial statement preparers allows for the years ended December 31, 2018, 2017,selection of accounting policies amongst acceptable alternatives. Based on the facts and 2016.Patent costs, which have historically consistedcircumstances of related legal fees, are capitalized as incurred, only if the Company determines that there is some probable future economic benefit derived from the transaction. A capitalized patent is amortized over its estimated useful life, beginning when such patent is approved. Capitalized patent costs are expensed upon disapproval, upon a decisiongovernment assistance and tax credits received by the Company to no longer pursue the patent or when the related intellectual property is either sold or deemed to be no longer of value to the Company. Other than the transactionsas discussed below, the Company determined that all patent costsit most appropriate to account for the these transactions by analogy to International Accounting Standards 20 (“IAS 20”), 2018, 20172020, due to lost revenue attributable to COVID-19. The Company has elected to recognize government grant income separately to present a clearer distinction in its consolidated financial statements between its operating income and 2016 should be expensed and not capitalized as the future economic benefit derivedamount of income resulting from the transactions cannot be determined.Under a technology license and royalty agreement entered into with MDx Health (“MDx”), dated July 26, 2010 (as subsequently amended,CARES Act grant received. The Company believes this presentation method promotes greater comparability amongst all periods presented. Accordingly, the “MDx License Agreement”),$23.7 million grant recognized during the Company was required to pay MDx milestone-based royalties on sales of products or services covered by the licensed intellectual property. Once the achievement of a milestone occurred or was considered probable, an intangible asset and corresponding liability was reported in goodwill and intangible assets and accrued liabilities, respectively. The liability was relieved once the milestone was achieved and payment made. The intangible asset is being amortized over the estimated ten-year useful life of the licensed intellectual property through 2024, and such amortization is reported in cost of sales. Payment for all remaining milestones under the License Agreement was made as part of the Royalty Buy-Out agreement outlined below.Effective April 2017, the Company and MDx entered into a royalty buy-out agreement (“Royalty Buy-Out Agreement”), which terminated the MDx License Agreement. Pursuant to the Royalty Buy-Out Agreement, the Company paid MDx a one-time fee of $8.0 million in exchange for an assignment of certain patents covered by the MDx License Agreement and the elimination of all ongoing royalties and other payments by the Company to MDx under the MDx License Agreement. Also included in the Royalty Buy-Out Agreement is a mutual release of liabilities, which includes all amounts previously accrued under the MDx License Agreement. Concurrently with entering into the Royalty Buy-Out Agreement, the Company entered into a patent purchase agreement (“Patent Purchase Agreement”) with MDx under which it paid MDx an additional $7.0 million in exchange for the assignment of certain other patent rights that were not covered by the MDx License Agreement. The total $15.0 million paid by the Company pursuant to the Royalty Buy-Out Agreement and Patent Purchase Agreement, net of liabilities relieved of $6.6 million, was recorded as an intangible asset and is being amortized over the estimated remaining useful life of the licensed intellectual property70through 2024, and such amortization is reported in cost of sales. The $6.6 million of liabilities relieved were related to historical milestones and accrued royalties under the License Agreement. As of December 31, 2018 and 2017, an intangible asset of $7.7 million and $9.0 million, respectively, related to historical milestone payments made under the MDx License Agreement and intangible assets acquired as part of the Royalty Buy-Out Agreement and Patent Purchase Agreement is reported in intangible assets. Amortization expense for the yearsyear ended December 31, 2018, 2017,2020 was reflected in other operating income in the consolidated statement of operations and 2016 was $1.3 million, $1.0 million, and $0.2 million, respectively.2017,2021 the Company entered into an asset purchase agreement (the “Armune Purchase Agreement”) with Armune BioScience, Inc. (“Armune”), pursuant to which the Company acquired intellectual property and certain other assets underlying Armune’s APIFINY®, APIFINY® PRO and APIFINY® ACTIVE SURVEILLANCE prostate cancer diagnostic tests. The portfolio of Armune assets the Company acquired is expected to complement its product pipeline. The total consideration was comprised of an up-front cash payment of $12.0 million and $17.5 million in contingent payment obligations that will become payable upon the Company’s achievement of development and commercial milestones using the acquired intellectual property. The satisfaction of these milestones is subject to many risks and is therefore uncertain. The Company will not record the contingent consideration until it is probable that the milestones will be met. There is no other consideration due to Armune beyond the milestone payments and the Company is not subject to future royalty obligations should a product be developed and commercialized. In connection with the Armune Purchase Agreement, Armune terminated a license agreement pursuant to which it licensed certain patent rights and know-how from the Regents of the University of Michigan (“University of Michigan”), and the Company entered into a licenseamended agreement with the UniversityWisconsin Economic Development Corporation (“WEDC”) to earn refundable tax credits on the condition of Michigan with respectcertain capital investment and job creation requirements. The Company has elected to such patent rights and know-how,recognize the tax credits as wella reduction of the related expenses, as certain additional intellectual property rights. Pursuant tothey are earned through the performance of the Company’s agreement with the University of Michigan, it is required to pay the University of Michigan a low single-digit royalty on its net sales of products using the licensed intellectual property.The Company accounted for the transaction as an asset acquisition under GAAP. The asset is comprised of a portfolio of biomarkers, related technology and know-how, which is a group of complementary assets concentrated in a single identifiable asset. The transaction costs directly related to the asset acquisition were added to the asset in accordance with GAAP. As such, the collective asset value from the acquisition resulted in an intangible asset of $12.2 million. The intellectual property asset, which includes related transaction costs, is being amortized on a straight-line basis over the period the Company expects to be benefited, which is consistent with the legal life of the patents acquired. The Company capitalized these costs as there is a reasonable expectation that the assets acquired will be used in an alternative manner in the future, that is not contingent on future development subsequent to acquisition, and the Company anticipates there to be economic benefit from these alternative uses. For the years ended December 31, 2018 and 2017, the Company recorded amortization expense of $0.9 million and $40,000, respectively. At December 31, 2018 and 2017, the net balances of $11.3 million and $12.2 million, respectively are reported in net goodwill and intangible assets in the Company’s consolidated balance sheet.As a result of the Sampleminded, Inc. (“Sampleminded”) acquisition discussed in Note 14, the Company recorded an intangible asset of $1.0 million which was comprised of acquired developed technology of $0.9 million, customer relationships of $0.1 million, and non-compete agreements of $32,000. The intangible assets acquired are being amortized over the remaining useful life which was determined to be eight years for acquired developed technology, three years for customer relationships, and five years for non-compete agreements. For the years ended December 31, 2018 and 2017, the Company recorded amortization expense of $0.1 million and $52,000, respectively, and the net balances of $0.8 million and $0.9 million, respectively, are reported in net goodwill and intangible assets in the Company’s consolidated balance sheet. As a result of the Biomatrica Acquisition discussed in Note 14, the Company recorded an intangible asset of $8.8 million which was comprised of acquired developed technology of $5.4 million, customer relationships of $2.7 million, and trade names of $0.7 million. The intangible assets acquired are being amortized over the remaining useful life which was determined to be fifteen years for the acquired developed technology, fifteen years for the customer relationships,71and fifteen years for the trade names. For the year ended December 31, 2018, the Company recorded amortization expense of $0.1 million and the net balance of $8.7 million is reported in net goodwill and intangible assets in the Company’s consolidated balance sheet.In 2017, the Company recognized goodwill of $2.0 million from the acquisition of Sampleminded, Inc. During the fourth quarter of 2018, the Company recognized goodwill of $15.3 million from the acquisition of Biomatrica, Inc. Goodwill is reported in net goodwill and intangible assets in the Company’s consolidated balance sheet. The Company will evaluate goodwill impairment on an annual basis or more frequently should an event or change in circumstance occur that indicates that the carrying amount is in excess of the fair value. There were no impairment losses for the years ended December 31, 2018, 2017, and 2016. Refer to Note 14 for further discussion of the goodwill recorded.The change in the carrying amount of goodwill for the years ended December 31, 2018 and 2017 is as follows:anti‑dilutiveanti-dilutive as a result of the Company’s losses.anti‑dilutiveanti-dilutive effect due to net losses for each period:December 31, (In thousands) 2021 2020 2019 Shares issuable in connection with acquisitions Shares issuable in connection with acquisitions 45 157 — Shares issuable upon exercise of stock options 2,284 2,231 2,700 Shares issuable upon the release of restricted stock awards 4,321 3,968 3,801 Shares issuable upon the release of performance share units Shares issuable upon the release of performance share units 878 619 583 Shares issuable upon conversion of convertible notes 20,309 20,309 12,196 27,837 27,284 19,280 Stock‑BasedStock-Based Compensationshare‑basedshare-based payments to employees, including grants of employee stock options, restricted stock, restricted stock units, and shares purchased under an employee stock purchase plan (if certain parameters are not met), and performance share units to be recognized in the financial statements based on their grant date fair values.Revenue RecognitionCompany’s revenue is primarily generated by screening services using its Cologuard test,fair values and recognition of the service is completed upon delivery of a patient’s test result to the ordering physician. The Company accounts for revenue in accordance with Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), which it adopted on January 1, 2018, using the modified retrospective method, which it elected72
Company's share-based payment awards are determined as follows:to apply to all contracts. ApplicationThe fair value of each service-based option award is estimated on the modified retrospective method did not impact amounts previously reported bydate of grant using the Company, nor did it require a cumulative effect adjustment upon adoption, asBlack-Scholes option-pricing model. The Black-Scholes pricing model utilizes the Company’s methodfollowing assumptions:recognizing revenue under ASC 606 was analogous toan option award is the method utilized immediately prior to adoption. Accordingly, there is no need for the Company to disclose the amount by which each financial statement line item was affected as a resultaverage length of applying the new standard and an explanation of significant changes.The core principle of ASC 606 is that the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration totime over which the Company expects to be entitled in exchange for those goods or services. employees will exercise their options, which is based on historical experience with similar grants.recognizes revenue from its Cologuard test in accordancebases the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent expected term.core principle, and key aspects considered byday. The estimated fair value of these awards is recognized to expense using the Company includestraight-line method over the following:ContractsCompany’s customerfair value of performance-based equity awards is determined on the patient. However,date of grant using the Company does not enter into a formal reimbursement contract with a patient, as formal reimbursement contracts, including national coverage determination for Cologuard, are established with payers. Accordingly,closing stock price on that day. The expense recognized each period is also dependent on the Company establishes a contract with a patient in accordance with other customary business practices.·Approval of a contract is established via the order submitted by the patient’s physician and the return of a sample by the patient.·The Company is obligated to perform its laboratory services upon receipt of a sample from a patient, and the patient and/or applicable payer are obligated to reimburse the Company for services rendered based on the patient’s insurance benefits.·Payment terms are a function of a patient’s existing insurance benefits, including the impact of coverage decisions with CMS and applicable reimbursement contracts established between the Company and payers, unless the patient is a self-pay patient, whereby the Company requires payment from the patient prior to the Company shipping a collection kit to the patient.·Once the Company delivers a patient’s test result to the ordering physician, the contract with a patient has commercial substance, as the Company is legally able to collect payment and bill an insurer and/or patient, depending on payer contract status or patient insurance benefit status.·The Company’s consideration is deemed to be variable, and the Company considers collection of such consideration to be probable to the extent that it is unconstrained.Performance obligationsAprobability of what performance obligation is a promise in a contract to transfer a distinct good or service (or a bundle of goods or services) to the customer. The Company’s contracts have a single performance obligation,conditions will be met which is satisfied upon renderingdetermined by management's evaluation of services, which culminates ininternal and external factors. Determining the deliveryappropriate amount to expense based on the anticipated achievement of a patient’s Cologuard test result to the ordering physician.stated goals requires judgment, including forecasting future financial results. The duration of time between sample receipt and delivery of a valid test result to the ordering physician is typically less than two weeks. Accordingly, the Company elects the practical expedient and therefore, the Company does not disclose the value of unsatisfied performance obligations.Transaction priceThe transaction price is the amount of consideration that the Company expects to collect in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration expected from a contract with a customer may include fixed amounts, variable amounts, or both.The consideration derived from the Company’s contracts is deemed to be variable, though the variability is not explicitly stated in any contract. Rather, the implied variability is due to several factors, such as the amount of73contractual adjustments, any patient co-payments, deductibles or patient compliance incentives, the existence of secondary payers and claim denials. The Company estimates the amount of variable consideration using the expected value method, which represents the sum of probability-weighted amounts in a range of possible consideration amounts. When estimating the amount of variable consideration, the Company considers several factors, such as historical collections experience, patient insurance eligibility and payer reimbursement contracts. The Company limits the amount of variable consideration included in the transaction price to the unconstrained portion of such consideration. In other words, the Company recognizes revenue up to the amount of variable consideration that is not subject to a significant reversal until additional information is obtained or the uncertainty associated with the additional payments or refunds is subsequently resolved. Differences between original estimates and subsequent revisions, including final settlements, represent changes in the estimate of variable considerationthe timing of the expense recognition is revised periodically based on the probability of achieving the goals and adjustments are includedmade as appropriate. The cumulative impact of any revision is reflected in the period in which such revisions are made. Revenue recognized from changes in transaction prices was $15.0 million forof the year ended December 31, 2018.The Company monitors its estimates of transaction price to depict conditions that exist at each reporting date.change. If the Company subsequently determines that it will collect more consideration than it originally estimated for a contract with a patient, it will account forfinancial performance targets and operational milestones are not achieved, the changeaward would not vest resulting in no stock-based compensation being recognized and any previously recognized stock-based compensation expense being reversed.an increase inincurred. These expenses include the estimatecosts of the transaction price (i.e.,Company's proprietary research and development efforts, as well as costs of IPR&D projects acquired as part of an upward revenue adjustment)asset acquisition that have no alternative future use. Upfront and milestone payments due to third parties in connection with research and development collaborations prior to regulatory approval are expensed as incurred. Milestone payments due to third parties upon, or subsequent to, regulatory approval are capitalized and amortized into research and development costs over the period identified. Similarly, if the Company subsequently determines that the amount it expects to collect from a patient is less than it originally estimated, it will generally account for the change as a decrease in the estimateshorter of the transaction price (i.e., a downward revenue adjustment), provided that such downward adjustment does not result in a significant reversal of cumulative revenue recognized. When the Company does not have significant historical experienceremaining license or that experience has limited predictive value, the constraint over estimates of variable consideration may result in no revenue being recognized upon delivery of a patient’s Cologuard test result to the ordering physician, with recognition, generally occurring at the date of cash receipt. Since the first quarter of 2017, the Company has determined that its historical experience has sufficient predictive value, such thatproduct patent life, when there are no longer any contracts for which no revenue is recognized upon delivery of a Cologuard test result to an ordering physician. Of the revenue recognized in the twelve months ended December 31, 2017, approximately $4.3 million relatescorresponding revenues related to the one-time impact of certain payers meetinglicense or product. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the Company’s revenue recognition criteria for accrual-basis revenue recognition beginning withactivity has been performed or when the period ended March 31, 2017. Approximately $1.0 million of this one-time impact relates to tests completed ingoods have been received, rather than when the prior year and for which the Company’s accrual revenue recognition criteria were not met until 2017.Allocate transaction priceThe entire transaction pricepayment is allocated entirely to the performance obligation contained within the contract with a patient.Point in time recognitionThe Company’s single performance obligation is satisfied at a point in time, and that point in time is defined as the date a patient’s successful test result is delivered to the patient’s ordering physician. made.considers this date to be the time at which the patient obtains controlincurred research and development expenses of the promised Cologuard test service. 74Disaggregation of RevenueThe following table presents our revenues disaggregated by revenue source for$385.6 million, $554.1 million, and $139.7 million during the years ended December 31, 2018, 20172021, 2020, and 2016, respectively:Contract BalancesThe timing2019, respectively, including IPR&D of revenue recognition, billings and cash collections results in billed accounts receivable and deferred revenue on the consolidated balance sheets. Generally, billing occurs subsequent to delivery of a patient’s test result to the ordering physician, resulting in an account receivable. However, the Company sometimes receives advance payment from a patient, particularly a self-pay patient, before a Cologuard test result is completed, resulting in deferred revenue. The deferred revenue balance is relieved upon delivery of the applicable patient’s test result to the ordering physician. Changes in accounts receivable and deferred revenue were not materially impacted by any other factors.Deferred revenue balances are reported in other short-term liabilities in the Company’s consolidated balance sheets and were $0.5$85.3 million and $0.2$412.6 million as of December 31, 2018 and 2017, respectively.Revenue recognized forthat was acquired in asset acquisitions that had no alternative future use during the years ended December 31, 20182021 and 2017,2020, respectively. The value of the acquired IPR&D that was expensed was determined by identifying those acquired specific IPR&D projects that would be continued and which was included(a) were incomplete and (b) had no alternative future use. Acquired IPR&D assets that are acquired in the deferred revenue balance at the beginning of each period was $0.1 millionan asset acquisition and $44,000, respectively.Practical ExpedientsThe Company does not adjust the transaction price for the effects of a significant financing component,which have no alternative future use are classified as at contract inception, the Company expects the collection cycle to be one year or less.The Company expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expensesan investing cash outflow in the Company’s consolidated statements of operations. The Company incurs certain other costs that are incurred regardless of whether a contract is obtained. Such costs are primarily related to legal services and patient communications (e.g. compliance reminder letters). These costs are expensed as incurred and recorded within general and administrative expenses in the Company’s consolidated statements of operations.$93.7$144.0 million, $58.0$97.6 million, and $38.1$90.5 million of media advertising during the years ended December 31, 2018, 2017,2021, 2020, and 2016, respectively.FASBFinancial Accounting Standards Board (“FASB”) has issued authoritative guidance that requires fair value to be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the75three levelsCompany acts as lessee in its lease agreements, which include operating leases for corporate offices, laboratory space, warehouse space, vehicles and certain laboratory and office equipment, and finance leases for certain equipment and vehicles.faircompany adopted ASC 842. The Company records the present value hierarchy established areof lease payments as follows:Level 1Quoted 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 2Pricing 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 3Unobservable 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.Fixed‑income securities are valued using a third-party pricing agency. The valuationright-of-use (“ROU”) assets and lease liabilities on the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments based on the present value of lease payments over the lease term. Classification of lease liabilities as either current or non-current is based on observable inputs including pricingthe expected timing of payments due under the Company’s obligations.similarspecific lease terms, used to discount future lease payments, as a function of the US. Treasury rate and an indicative Moody's rating for operating leases or finance leases.and other observable market factors. There has been no material pricing change from period to period. are recognized on a straight-line basis over the lease term as an operating expense. Finance lease interest expense is recorded as interest expense on the Company’s consolidated statements of operations.estimated fairCompany accounts for leases acquired in business combinations by measuring the lease liability at the present value of the Company’s long-term debt representsremaining lease payments as if the acquired lease were a Level 2 measurement. When determiningnew lease for the estimated fair valueCompany. This measurement includes recognition of a lease intangible for any below-market terms present in the leases acquired. The below-market lease intangible is included in the ROU asset on the consolidated balance sheets and are amortized over the remaining lease term. The Company has not acquired any leases with above-market terms.Company’s long-term debt,performance obligation occurs, in an amount that reflects the consideration the Company used market-based risk measurements, such as credit risk. See Note 9expects to collect in exchange for those services. The Company’s revenue is primarily generated by its laboratory testing services utilizing its Cologuard, Oncotype DX, and Note 10 for further detail on the Company’s long-term debt.COVID-19 tests. The fair valueservices are completed upon release of contingent consideration relateda patient’s test result to the Biomatrica Acquisition was categorized as a Level 3 liability, asordering healthcare provider. To determine revenue recognition for the measurement amount is based primarily on significant inputs not observable in the market. The Company assesses the fair value of expected contingent consideration and the corresponding liability each reporting period using the Monte Carlo Method, which is consistent with the initial measurement of the expected earn out liability. This fair value measurement is considered a Level 3 measurement because the Company estimates projections during the earn out period utilizing various potential pay-out scenarios. Probabilities were applied to each potential scenario and the resulting values were discounted using a ratearrangements that considers weighted average cost of capital as well as a specific risk premium associated with the riskiness of the earn out itself, the related projections, and the overall business. The contingent earn out liability is classified as a component of other long-term liabilities in the Company’s consolidated balance sheets. There were no changes in the fair value assessed between the acquisition date and December 31, 2018. See Note 14 for further detail on the Biomatrica Acquisition.76following table presentskey aspects considered by the Company include the following:fair value measurements asperformance obligations. The Company’s consideration can be deemed variable or fixed depending on the structure of December 31, 2018 along withspecific payer contracts, and the level withinCompany considers collection of such consideration to be probable to the fair value hierarchy in which the fair value measurements, in their entirety, fall.extent that it is unconstrained.The following table presentsUnder the Company’s fair value measurements asLaboratory Service Agreements (“LSA”) and Laboratory Reference Agreements (“LRA”) the Company contracts with a direct bill payer who is the customer for an agreed upon amount of December 31, 2017 along withlaboratory testing services for a specified amount of time at a fixed reimbursement rate, and certain of the level withinCompany’s agreements obligate the fair value hierarchycustomer to pay for testing services prior to result.fair value measurements,release of a patient’s test result to the ordering healthcare provider. Or, in their entirety, fall.monitors investmentselects the practical expedient related to the disclosure of unsatisfied performance obligations, as the duration of time between providing testing supplies, the receipt of a sample, and the release of a test result to the ordering healthcare provider is far less than one year.other-than-temporary impairment. It was determinedtransferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration expected to be collected from a contract with a customer may include fixed amounts, variable amounts, or both.unrealized gainsexist between the Company and losses at December 31, 2018 and 2017 are temporary in nature because the change in market value for those securities has resulted from fluctuating interest rates rather than a deterioration of the credit worthiness of the issuers. So longdirect bill payers. The contracted reimbursement rate is deemed to be fixed as the Company holdsexpects to fully collect all amounts billed under these securitiesrelationships. Variable consideration is primarily derived from payer and patient billing and can result due to maturity, it is unlikely to experience gainsseveral factors such as the amount of contractual adjustments, any patient co-payments, deductibles or losses. Inpatient adherence incentives, the event thatexistence of secondary payers, and claim denials.disposesconsiders several factors, such as historical collections experience, patient insurance eligibility and payer reimbursement contracts.these securities before maturity, itvariable consideration included in the transaction price to the unconstrained portion of such consideration. In other words, the Company recognizes revenue up to the amount of variable consideration that is expected that realized gainsnot subject to a significant reversal until additional information is obtained or losses, if any, will be immaterial.77
the uncertainty associated with the additional payments or refunds is subsequently resolved. Differences between original estimates and subsequent revisions, including final settlements, represent changes in the estimate of variable consideration and are included in the period in which such revisions are made.following table summarizesCompany monitors its estimates of transaction price to depict conditions that exist at each reporting date. If the gross unrealized lossesCompany subsequently determines that it will collect more or less consideration than it originally estimated for a contract with a patient, it will account for the change as an increase or decrease in the estimate of the transaction price (i.e., an upward or downward revenue adjustment) in the period identified.fair valuescash collections results in billed accounts receivable and deferred revenue on the consolidated balance sheets. Generally, billing occurs subsequent to the release of investmentsa patient’s test result to the ordering healthcare provider, resulting in an unrealized loss positionaccount receivable. However, the Company sometimes receives advance payment from a patient or a direct bill payer before a test result is completed, resulting in deferred revenue. The deferred revenue recorded is recognized as revenue at the point in time results are released to the patient’s healthcare provider. Or, in the context of December 31, 2018, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:The following table summarizes the gross unrealized losses and fair value of investments in an unrealized loss position as of December 31, 2017, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:The following table summarizes contractual underlying maturitiessome of the Company’s available‑for‑sale investmentsagreements, the satisfaction of the performance obligation occurs when a specimen sample is not returned to the laboratory for processing before the end of the allotted testing window.December 31, 2018:contract inception, the Company expects the collection cycle to be one year or less.In accordance with GAAP, the Company is required to disclose any significant off‑balance‑sheet risk and credit risk concentration. The Company has no significant off‑balance‑sheet risk, such as foreign exchange contracts or other78hedging arrangements. Financial instruments that subject the Company to credit risk consist of cash, cash equivalents and marketable securities. As of December 31, 2018,2021, the Company had cash and cash equivalents deposited in financial institutions in which the balances exceed the federal government agency insured limit of $250,000 by approximately $43.6$234.9 million. The Company has not experienced any losses in such accounts and management believes it is not exposed to any significant credit risk.2018,2021, the Company’s revenues have been primarily derived from the sale of Cologuard.Cologuard, Oncotype DX, and COVID-19 tests. The following is a breakdown of revenue and accounts receivable from major payers:% Revenue for the years ended December 31, % Accounts Receivable at December 31, Major Payer 2021 2020 2019 2021 2020 2019 Centers for Medicare and Medicaid Services 20% 21% 29% 11% 14% 19% UnitedHealthcare UnitedHealthcare 11% 10% 13% 8% 7% 7% State of Wisconsin State of Wisconsin 8% 12% —% 9% 22% —% (1)Payer was less than 10 percent of revenue for the year.As the number of payers reimbursing for Cologuard increases, the percentage of revenue derived from major payers will continue to change as a percentage of revenue and accounts receivable.$209.9$262.2 million and $214.3$293.4 million valuation allowance at December 31, 20182021 and 20172020 is necessary to reduce the tax assets to the amount that is more likely than not to be realized. The change in valuation allowance as of December 31, 20182021 and 20172020 was a decrease of $4.4$31.2 million and $45.8an increase of $98.0 million, respectively. An income tax benefit of $246.9 million was recorded primarily as a result of the change in the deferred tax asset valuation allowance resulting from the acquisition of Thrive Earlier Detection Corporation (“Thrive”). Due to the existence of the valuation allowance, future changes in the Company’sCompany's unrecognized tax benefits will not impact the Company’sCompany's effective tax rate.Subsequent EventsCompany evaluates events that occur throughFASB 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 filing dateaccounting for convertible debt instruments by removing the beneficial conversion and discloses those events or transactions that provide additional evidence with respect to conditions that existed atcash conversion separation models for convertible instruments. Under the date ofupdate, the balance sheet. In addition, the financial statementsembedded conversion features are adjusted for any changes in estimates resultingno longer separated from the use of such evidence.Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09, Revenue from Contractshost contract for convertible instruments with Customers (Topic 606). The Company adopted this guidance on January 1, 2018. See Note 2conversion features that are not required to be accounted for additional discussion. In January 2016, the Financial Accounting Standards Board issued ASU No. 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“Update 2016-01”). Update 2016-01 modifies how entities will have to measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investmentsas derivatives or that do not result in consolidation and are notsubstantial premiums accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do not have readily determinable fair value and do not qualify for the practical expedient to estimate fair value under ASC 820, “Fair Value Measurements,” and as such these investments may be measured at cost. Update 2016-01 will be effective for the Company’s fiscal year beginning January 1, 2018, and subsequent interim periods. Update 2016-01 was further amended in February 2018 by ASU No. 2018-03, Technical Corrections and Improvements79to Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, (“Update 2018-03”). Update 2018-03 clarifies certain aspects of the guidance issued in Update 2016-01. Public business entities with fiscal years beginning between December 15, 2017 and June 15, 2018, are not required to adopt these amendments until the interim period beginning after June 15, 2018.paid-in capital. The Company adopted Update 2016-01 on January 1, 2018, and it did not have an impact on its consolidated financial statements.In February 2016, the Financial Accounting Standards Board issued ASU No. 2016-02, Leases (Topic 842) (“Update 2016-02”), to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. The most noteworthy change in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases under current U.S. GAAP. The standard requires disclosures to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.The Company will adopt the standard on January 1, 2019 with initial application on the effective date as permitted under ASU No. 2018-11. The Company will recognize and measure leases existing at the initial application date of January 1, 2019 through a cumulative-effect adjustment recorded at the beginning of fiscal year 2019. The Company intends to elect the package of practical expedients and accordingly, the Company will not reassess the lease classification or whether expired or existing contracts contain leases under the new definition of a lease. Additionally, we will elect not to separate the lease components from the non-lease components for all classes of underlying assets. The Company’s ability to adopt the new standards depends on system readiness, including software procured from a third-party provider. The Company remains on schedule and have implemented key system functionality to enable preparation of financial statements in accordance with the new standard.The Company anticipates this standard will have a material impact on its consolidated balance sheets; however, the Company does not expect adoption to have a material impact on its consolidated statements of operations. The Company expects the most significant impact to be the recognition of ROU assets and lease liabilities for operating leases. Adoption of the standard is expected to result in the recognition of ROU assets of approximately $17.0 million to $18.0 million and lease liabilities of $19.5 million to $20.5 million as of December 31, 2018. The Company is not party to any capital lease agreements as of December 31, 2018.Based on the Company’s analysis, the sale-lease back transaction detailed within Note 9, the buyer-lessor has not obtained control of the underlying asset as the present value of the lease payments is substantially all of the fair value of the underlying asset. As such, the underlying asset and related financing obligation will continue to be included in the Company’s consolidated balance sheets upon adoption.At December 31, 2018, the Company included $7.3 million as an asset under construction, including $2.1 million that is funded by the landlord, with a corresponding financing obligation related to a build-to-suit construction project. See Note 9 to the Company’s consolidated financial statements for further information. Based on the Company’s analysis, upon adoption of Topic 842, the Company does not control the asset under construction and as such, the asset and corresponding financing obligation will be de-recognized at adoption of ASC 842 on January 1, 2019.In August 2016, the Financial Accounting Standards Board issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, (“Update 2016-15”). Current GAAP either is unclear or does not include specific guidance on the eight cash flow classification issues included in the amendments in Update 2016-15. The amendments are an improvement to GAAP because they provide guidance for each of the eight issues, thereby reducing the current and potential future diversity in practice. The Company adopted this guidance on January 1, 2018, and it did not have an impact on its consolidated statements of cash flows.In October 2016, the Financial Accounting Standards Board issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, (“Update 2016-16”). This amendment improvesupdate 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 income tax consequencesapplication of intra-entity transfersthe 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 assets other than inventory.transition or a full retrospective method of transition. The Company adoptedamendments in this guidance80on January 1, 2018, and it did not have an impact on its consolidated financial statements.In November 2016, the Financial Accounting Standards Board issued ASU No. 2016-18, Statement of Cash Flows: Restricted Cash, (“Update 2016-18”). Update 2016-18 provides guidance on the classification of restricted cash in the statement of cash flows. The Company adopted this guidance on January 1, 2018, and it did not have an impact on its consolidated financial statements, as we do not have restricted cash.In May 2017, the Financial Accounting Standards Board issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting, (“Update 2017-09”). Update 2017-09 provides guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The Company adopted this guidance on January 1, 2018, and it did not have an impact on its consolidated financial statements.In June 2018, the Financial Accounting Standards Board issued ASU No. 2018-07 (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, (“Update 2018-07”). Update 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for certain exemptions specified in the amendment. The guidance isupdate are effective for fiscal years beginning after December 15, 2018,2021, including interim reporting periods within thatthose fiscal year.years. Early adoption is permitted, but no earlier than an entity’s adoption of Topic 606. fiscal years beginning after December 15, 2020.will adopt this guidanceadopted the standard on January 1, 2019, and it does not anticipate it will have an impact on its consolidated2021 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.July 2018,November 2021, the Financial Accounting Standards BoardFASB issued ASU 2018-09, Codification Improvements, ("Update 2018-09")No. 2021-10, Government Assistance (Topic 832). Update 2018-09 provided various minor codification updates and improvements to address commentsThis update requires certain annual disclosures about transactions with a government that the FASB had received regarding unclearare accounted for by applying a grant or vague accounting guidance.contribution model by analogy. The guidance isamendments in this update are effective for fiscal years beginning after December 15, 2018, including interim reporting periods within that fiscal year.2021. Early application of the amendments is permitted. The Company will adopt this guidance on January 1, 2019,early adopted these disclosure requirements and it does not anticipate it will have an impact onapplied them to its consolidated financial statements.August 2018, the Financial Accounting Standards BoardOctober 2021, The FASB issued ASU 2018-13, Fair Value MeasurementNo. 2021-08, Business Combinations (Topic 820); Disclosure Framework - Changes805). This update requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606. This differs from the current requirement to the Disclosure Requirements for Fair Value Measurement, ("Update 2018-13"). Update 2018-13 provided anmeasure contract assets and contract liabilities acquired in a business combination at fair value. The amendments in this update to the disclosure requirements for fair value measurements under the scope of ASC 820. The guidance isshould be applied prospectively, and are effective for fiscal years beginning after December 15, 2019. 2022, including interim periods within those fiscal years. Early adoption is permitted, Including adoption in an interim period. This ASU will only impact the Company if it acquires another entity through a business combination.currently evaluatingor was serving at the impactCompany’s request in such capacity. The term of the guidance onindemnification period is for the officer’s or director’s lifetime. The maximum amount of potential future indemnification is unlimited; however, the Company has a directors and officers insurance policy that limits its consolidated financial statements.In August 2018, the Financial Accounting Standards Board issued ASU 2018-15, Intangibles – Goodwillexposure and Other – Internal-Use Software, (“Update 2018-15”). Update 2018-15 provided guidance for evaluating the accounting for fees paid bymay enable it to recover a customer in a cloud computing arrangement that is a service contract. The guidance is effective for fiscal years beginning after December 15, 2019.portion of any future amounts paid. The Company is currently evaluatingbelieves the impact of the guidance on its consolidated financial statements.In November 2018, the Financial Accounting Standards Board issued ASU 2018-18, Collaborative Arrangements (Topic 808), (“Update 2018-18”). Update 2018-18 provided additional guidance regarding the interaction between Topic 808 on Collaborative Arrangements and Topic 606 on Revenue Recognition. The guidance is effective for fiscal years beginning after December 15, 2019. The Company is currently evaluating the impact of the guidance on its consolidated financial statements.81Foreign Currency TranslationFor the Company’s international subsidiaries, the local currency is the functional currency. Assets and liabilitiesfair value of these subsidiaries are translated into United States dollars atindemnification agreements is minimal. Accordingly, the period-end exchange rate or historical rates,Company has not recorded any liabilities for these agreements as appropriate. Consolidated statements of operations amounts are translated at average exchange rates for the period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheet as a component of accumulated other comprehensive loss in total Exact Sciences Corporation’s shareholders’ equity. Transaction gainsDecember 31, 2021 and losses are included in the consolidated statements of operations.Year Ended December 31, (In thousands) 2021 2020 2019 Screening Medicare Parts B & C $ 438,646 $ 365,471 $ 404,331 Commercial 569,944 409,671 368,006 Other 53,718 39,925 37,783 Total Screening 1,062,308 815,067 810,120 Precision Oncology Medicare Parts B & C $ 195,069 $ 157,166 $ 24,325 Commercial 189,198 186,043 29,976 International 109,913 77,484 11,444 Other 67,496 19,800 428 Total Precision Oncology 561,676 440,493 66,173 COVID-19 Testing $ 143,103 $ 235,831 $ — Total $ 1,767,087 $ 1,491,391 $ 876,293 MAYOMARKETABLE SECURITIES
_________________________________December 31, (In thousands) 2021 2020 Cash, cash equivalents, and restricted cash Cash and money market $ 247,335 $ 901,294 Cash equivalents 68,136 589,994 Restricted cash (1) 297 306 Total cash, cash equivalents and restricted cash 315,768 1,491,594 Marketable securities Available-for-sale debt securities $ 711,669 $ 347,178 Equity securities 3,336 1,521 Total marketable securities 715,005 348,699 Total cash and cash equivalents, restricted cash and marketable securities $ 1,030,773 $ 1,840,293
_________________________________(In thousands) Amortized Cost Gains 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 $ 3,543 $ — $ — $ 3,543 Commercial paper 64,593 — — 64,593 Total cash equivalents 68,136 — — 68,136 Marketable securities Corporate bonds $ 313,634 $ 13 $ (493) $ 313,154 U.S. government agency securities 250,793 — (873) 249,920 Asset backed securities 94,565 2 (107) 94,460 Certificates of deposit 47,147 2 (10) 47,139 Commercial paper 6,996 — — 6,996 Total marketable securities 713,135 17 (1,483) 711,669 Total available-for-sale debt securities $ 781,271 $ 17 $ (1,483) $ 779,805
_________________________________(In thousands) Amortized Cost Gains 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 $ 8 $ — $ 589,994 Total cash equivalents 589,986 8 — 589,994 Marketable securities Corporate bonds $ 132,301 $ 612 $ — $ 132,913 U.S. government agency securities 207,119 52 — 207,171 Asset backed securities 7,070 24 — 7,094 Total marketable securities 346,490 688 — 347,178 Total available-for-sale debt securities $ 936,476 $ 696 $ — $ 937,172 Due one year or less Due after one year through five years (In thousands) Cost Fair Value Cost Fair Value Cash equivalents Commercial paper $ 64,593 $ 64,593 $ — $ — U.S. government agency securities 3,543 3,543 — — Total cash equivalents 68,136 68,136 — — Marketable securities U.S. government agency securities $ 48,113 $ 48,046 $ 202,680 $ 201,874 Corporate bonds 180,114 180,008 133,520 133,146 Asset backed securities — — 94,565 94,460 Certificates of deposit 47,147 47,139 — — Commercial paper 6,996 6,996 — — Total marketable securities 282,370 282,189 430,765 429,480 Total available-for-sale securities $ 350,506 $ 350,325 $ 430,765 $ 429,480 Less than 12 months 12 months or greater Total (In thousands) Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Fair Value Gross Unrealized Loss Marketable securities Corporate bonds $ 299,448 $ (493) $ — $ — $ 299,448 $ (493) U.S. government agency securities 249,921 (873) — — 249,921 (873) Asset backed securities 89,990 (107) — — 89,990 (107) Certificates of deposit 24,137 (10) — — 24,137 (10) Total available-for-sale securities $ 663,496 $ (1,483) $ — $ — $ 663,496 $ (1,483) December 31, (In thousands) 2021 2020 Raw materials $ 51,321 $ 43,083 Semi-finished and finished goods 53,673 49,182 Total inventory $ 104,994 $ 92,265
_________________________________December 31, (In thousands) Estimated Useful Life 2021 2020 Property, plant and equipment Land n/a $ 4,716 $ 4,466 Leasehold and building improvements (1) 147,083 117,865 Land improvements 15 years 5,206 4,864 Buildings 30 - 40 years 210,560 200,980 Computer equipment and computer software 3 years 109,119 75,519 Laboratory equipment 3 - 10 years 189,748 142,110 Furniture and fixtures 3 - 10 years 28,293 24,968 Assets under construction n/a 100,339 18,751 Property, plant and equipment, at cost 795,064 589,523 Accumulated depreciation (214,816) (137,537) Property, plant and equipment, net $ 580,248 $ 451,986 (In thousands) Weighted Average Remaining Life (Years) Cost Accumulated Amortization Net Balance at December 31, 2021 Finite-lived intangible assets Trade name 13.4 $ 104,700 $ (13,554) $ 91,146 Customer relationships 9.6 6,700 (1,577) 5,123 Patents and licenses 3.6 10,942 (6,763) 4,178 Supply agreement 5.4 2,295 (101) 2,194 Acquired developed technology 8.6 918,171 (176,402) 741,769 Total finite-lived intangible assets 1,042,808 (198,397) 844,411 In-process research and development n/a 1,250,000 — 1,250,000 Total intangible assets $ 2,292,808 $ (198,397) $ 2,094,411 (In thousands) Weighted Average Remaining Life (Years) Cost Accumulated Amortization Net Balance at December 31, 2020 Finite-lived intangible assets Trade name 14.9 $ 100,700 $ (7,258) $ 93,442 Customer relationships 12.8 2,700 (404) 2,296 Patents 3.7 10,441 (5,422) 5,019 Supply agreement 6.5 30,000 (4,527) 25,473 Acquired developed technology 9.0 814,171 (93,278) 720,893 Total intangible assets $ 958,012 $ (110,889) $ 847,123 (In thousands) 2022 $ 98,614 2023 98,611 2024 98,277 2025 97,230 2026 96,169 Thereafter 355,510 $ 844,411
_________________________________(In thousands) Balance, January 1, 2020 (1) $ 1,203,197 Paradigm & Viomics acquisition 30,431 Genomic Health acquisition adjustment (2) 4,044 Balance, December 31, 2020 1,237,672 Thrive acquisition 948,105 Ashion acquisition 56,758 PreventionGenetics acquisition 92,637 Balance, December 31, 2021 $ 2,335,172 (In thousands) Fair value at December 31, 2021 Quoted 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 $ 247,335 $ 247,335 $ — $ — Commercial paper 64,593 — 64,593 — U.S. government agency securities 3,543 — 3,543 — Restricted cash 297 297 — — Marketable securities Corporate bonds $ 313,154 $ — $ 313,154 $ — U.S. government agency securities 249,920 — 249,920 — Asset backed securities 94,460 — 94,460 — Certificates of deposit 47,139 — 47,139 — Commercial paper 6,996 — 6,996 — Equity securities 3,336 3,336 — — Non-marketable securities $ 3,090 $ — $ — $ 3,090 Liabilities Contingent consideration $ (359,021) $ — $ — $ (359,021) Total $ 674,842 $ 250,968 $ 779,805 $ (355,931) (In thousands) Fair Value at December 31, 2020 Quoted 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 securities 589,994 — 589,994 — Restricted cash 306 306 — — Marketable securities Corporate bonds $ 132,913 $ — $ 132,913 $ — Asset backed securities 7,094 — 7,094 — U.S. government agency securities 207,171 — 207,171 — Equity securities 1,521 1,521 — — Liabilities Contingent consideration $ (2,477) $ — $ — $ (2,477) Total $ 1,837,816 $ 903,121 $ 937,172 $ (2,477)
_________________________________(In thousands) Contingent consideration Balance, January 1, 2020 (1) $ (2,879) Changes in fair value 325 Payments 77 Balance, December 31, 2020 (2,477) Purchase price contingent consideration (2) (350,348) Changes in fair value (6,359) Payments 163 Balance, December 31, 2021 $ (359,021) December 31, (In thousands) 2021 2020 Compensation $ 183,517 $ 124,654 Pfizer Promotion Agreement related costs 91,436 46,937 Professional fees 50,077 36,203 Other 32,116 13,064 Assets under construction 22,611 2,118 Research and trial related expenses 15,534 6,111 Licenses 3,265 4,517 $ 398,556 $ 233,604 Fair Value (2) (In thousands) Principal Amount Unamortized Debt Discount and Issuance Costs Net Carrying Amount Amount Leveling 2028 Convertible notes - 0.375% $ 1,150,000 $ (18,826) $ 1,131,174 $ 1,139,650 2 2027 Convertible notes - 0.375% 747,500 (11,691) 735,809 771,794 2 2025 Convertible notes - 1.000% (1) 315,005 (1,756) 313,249 415,473 2
____________________________Fair Value (2) (In thousands) Principal Amount Unamortized Debt Discount and Issuance Costs Net Carrying Amount Amount Leveling 2028 Convertible notes - 0.375% $ 1,150,000 $ (21,879) $ 1,128,121 $ 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 (In thousands) January 2025 Notes $ 10,284 June 2025 Notes 7,362 2027 Notes 14,285 2028 Notes 24,453 Year Ended December 31, (In thousands) 2021 2020 2019 Debt issuance costs amortization $ 5,727 $ 5,303 $ 2,891 Debt discount amortization 147 131 (131) Loss on settlement of convertible notes — 50,819 187,698 Coupon interest expense 10,266 9,631 6,611 Total interest expense on convertible notes 16,140 65,884 197,069 Other interest expense 2,466 2,057 2,123 Total interest expense $ 18,606 $ 67,941 $ 199,192 AGREEMENT February 2015 and further amended in January 2016, October 2017 and December 2018.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,non-exclusive, worldwide license with regard to certain Mayo know‑how.know-how. The scope of the license as amended, covers any screening, surveillance or diagnostic test or tool for use in connection with any type of cancer, pre-cancer, disease or condition. markers, 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. In addition to granting the Company a license to the covered Mayo intellectual property, Mayo agreed to make available personnel to provide the Company product development and research and development assistance. 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.Mayo has agreedmake available personnel through January 2020 to provide the Company product development and research and development assistance.low single digitsingle-digit royalty on the Company’s net sales of current and future products using the licensed Mayo intellectual property with minimum annual royalty fees of $25,000 each year through 2033,during the year the last patent expires. The January 2016 amendment toterm of the Mayo license agreement established various low-single-digit royalty rates on net sales of current and future products and clarified how net sales will be calculated. As part of the amendment, the royalty rate on the Company’s net sales of Cologuard increased and, if in the future, improvements are made to the Cologuard product, the royalty rate may further increase, but, pursuant to the terms of the January 2016 and October 2017 amendment, the rate remains a low-single-digit percentage of net sales.February 2015most recent amendment, and restatement of the license agreement, the Company agreed to pay Mayo an additional $5.0$6.3 million, payable in five5 equal annual installments, through 2019.2024. The Company paid Mayo the annual installment of $1.0 millioninstallments are recorded in the first quarter of each of 2015 through 2018.82In addition, the Company is paying Mayo for research and development efforts. As part of the Company’s research collaboration with Mayo, the Company has incurred charges of $4.5 million and has made payments of $4.4 million for the year ended December 31, 2018. The Company has recorded an estimated liabilityexpenses in the amountCompany's consolidated statements of $1.9 million for research and development efforts as of December 31, 2018. The Company incurred charges of $3.8 million and made payments of $2.9 million for the year ended December 31, 2017. The Company recorded an estimated liability in the amount of $1.8 million for research and development efforts at December 31, 2017. The Company incurred charges of $3.6 million and made payments of $3.9 million for the year ended December 31, 2016.The Mayo license agreement required, among other things, a $0.5 million milestone payment upon FDA approval of the Company’s Cologuard test. The Company received this FDA approval, and paid the milestone payment, in August 2014.Pursuant to the license agreement, the Company granted Mayo two common stock purchase warrants with an exercise price of $1.90 per share covering 1,000,000 and 250,000 shares of common stock, respectively. The warrant covering 1,000,000 shares was fully exercised as of September 2011. The warrant covering 250,000 shares was exercised at various dates in 2013 and 2014 and became fully exercised as of June 2014. 20332039 (or later, if certain licensed patent applications are issued). However, if the Company is still using the licensed Mayo know‑howknow-how or certain Mayo‑providedMayo-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‑howknow-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.(4)(“(the “Original Promotion Agreement”) with Pfizer, Inc. (“Pfizer”), which was amended and restated in October 2020 (the “Restated Promotion Agreement”). Under the terms of theThe Restated Promotion Agreement Pfizer will promote Cologuard and provide certain sales, marketing, analytical and other commercial operations support services. Theextended the relationship between the Company and Pfizer committedand restructured the manner in which the Company compensated 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 included fixed and performance-related fees, some of which retroactively went into effect on April 1, 2020. In November 2021, the Company and Pfizer entered into an amendment to invest specified amountsthe Restated Promotion Agreement (the “November 2021 Amendment”), which provides that after November 30, 2021, Pfizer will no longer promote the Cologuard test to healthcare providers. The November 2021 Amendment provides that the Company will pay Pfizer a total of $35.9 million in three installments during the advertisingsecond, third, and promotionfourth quarters of Cologuard.2022. The Company agreedNovember 2021 Amendment eliminates the Company's obligation to pay Pfizer royalties or other fees except for promotion,certain media fees, advertising fees, and any detail fees owed to Pfizer for promoting the Cologuard test prior to November 30, 2021. The $35.9 million fee incurred as a result of the November 2021 Amendment was recognized in full during the fourth quarter of 2021. All payments to Pfizer are recorded in sales and marketing costs incurred on behalfexpenses in the Company's consolidated statements of operations.Company, aOriginal Promotion Agreement, the service fee was calculated based on incremental gross profits over specified baselines during the term. Under the Restated Promotion Agreement (and prior to giving effect to the November 2021 Amendment), the service fee provided a fee-for-service model that included certain fixed fees and royalties for Cologuard related revenues for a specified period afterperformance-related bonuses. The performance-related bonuses were contingent upon the expiration or terminationachievement of certain annual performance criteria with any applicable expense being recognized ratably upon achievement of the Promotion Agreement. These costs are recorded in sales and marketing in the consolidated statements of operations. The initial term of the Promotion Agreement runs through December 31, 2021.payment becoming probable. The Company incurred charges of $5.8$81.3 million, $51.2 million, and made payments$68.5 million for the service fee during the years ended December 31, 2021, 2020 and 2019, respectively. The Company incurred charges of $5.3$121.0 million, $85.3 million, and $68.9 million for promotion, sales and marketing services performed by Pfizer on behalf of the Company in 2018. Theduring the years ended December 31, 2021, 2020 and 2019, respectively.recordedfiled a liabilityCertificate of $0.5 million for promotion, salesAmendment (the “Certificate of Amendment”) to its Sixth Amended and marketing services performed by Pfizer on behalfRestated Certificate of Incorporation with the Secretary of State of the Company in accrued liabilities inState of Delaware to increase the number of authorized shares of the Company’s consolidated balance sheet ascommon stock from 200 million to 400 million shares. The Certificate of December 31, 2018. The Company recorded a liability of $4.8 million for the promotion fee earnedAmendment was approved by Pfizer as of December 31, 2018 in accrued liabilities in the Company’s consolidated balance sheet.(5) ISSUANCES OF EQUITYUnderwritten Public OfferingsAugust 2016December 2021, the Company completed an underwritten publicits acquisition of PreventionGenetics. In connection with the acquisition, which is further described in Note 19, the Company issued 1.1 million shares of the Company's common stock that had a fair value of $84.2 million.9.88.6 million shares of common stock at a price of $15.50$101.00 per share to the public.share. The Company received, in the aggregate, approximately $144.2$861.7 million of net proceeds from the offering, after deducting $7.3$7.5 million for the underwriting discount and commissionsoffering expenses and other stock issuance costs paid by the Company.83
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 December 31, 2021, and the remainder was withheld and may become issuable as additional merger consideration subject to the terms and conditions of the acquisition agreements.
_________________________________(In thousands) Cumulative Translation Adjustment Unrealized Gain (Loss) on Securities Accumulated Other Comprehensive Income (Loss) Balance at January 1, 2019 $ (25) $ (1,397) $ (1,422) Other comprehensive income (loss) before reclassifications — 681 681 Amounts reclassified from accumulated other comprehensive income (loss) — 641 641 Net current period change in accumulated other comprehensive income (loss) (1) — 1,322 1,322 Balance at December 31, 2019 $ (25) $ (75) $ (100) Other comprehensive income (loss) before reclassifications — 771 771 Amounts reclassified from accumulated other comprehensive income (loss) 25 — 25 Net current period change in accumulated other comprehensive income (loss) 25 771 796 Income tax expense related to items of other comprehensive income (loss) — (170) (170) Balance at December 31, 2020 $ — $ 526 $ 526 Other comprehensive income (loss) before reclassifications 23 (1,648) (1,625) Amounts reclassified from accumulated other comprehensive income (loss) — (514) (514) Net current period change in accumulated other comprehensive income (loss) 23 (2,162) (2,139) Income tax expense related to items of other comprehensive income (loss) — 170 170 Balance at December 31, 2021 $ 23 $ (1,466) $ (1,443) In June 2017, the Company completed an underwritten public offering of 7.0 million shares of common stock at a price of $35.00 per share to the public. On June 26, 2017, the underwriters partially exercised their over-allotment option in connection with the offering and purchased an additional 450,000 shares of common stock at $35.00 per share to the public. The Company received, in the aggregate, approximately $253.4 million of net proceedsAmounts reclassified from the offering, after deducting $7.3 millionaccumulated other comprehensive income (loss) for the underwriting discountyears ended December 31, 2021, 2020 and commissions and other stock issuance costs paid by the Company.Year Ended December 31, Details about AOCI Components (In thousands) Affected Line Item in the
Statements of Operations2021 2020 2019 Change in value of available-for-sale investments Sales and maturities of available-for-sale investments Investment income $ (514) $ — $ 641 Foreign currency adjustment General and administrative — 25 — Total reclassifications $ (514) $ 25 $ 641 Stock‑BasedLong‑TermLong-Term Incentive Plan (As Amended and Restated Effective July 27, 2017), the 2019 Omnibus Long-Term Incentive Plan, the 2010 Employee Stock Purchase Plan, the 2015 Inducement Award Plan,and the 2016 Inducement Award Plan and the 2000 Stock Option and Incentive Plan (collectively,Plan. These plans are collectively referred to as the “Stock Plans”).2000Option and Incentive Plan. The Company adopted the 2000 Stock Option and Incentive Plan (the “2000 Option Plan”) on October 17, 2000. The 2000 Option Plan expired October 17, 2010 and after such date no further awards could be granted under the plan. Under the terms of the 2000 Option Plan, the Company was authorized to grant incentive stock options, as defined under the Internal Revenue Code, non‑qualified options, restricted stock awards and other stock awards to employees, officers, directors, consultants and advisors. Options granted under the 2000 Option Plan expire ten years from the date of grant. Grants made from the 2000 Option Plan generally vest over a period of three to four years.The 2000 Option Plan wasPlans are administered by the compensation committeeHuman Capital Committee of the Company’s boardBoard of directors, which selected the individuals to whom equity‑based awards would be granted and determined the option exercise price and other terms of each award, subject to the provisions of the 2000 Option Plan.Directors. The 2000 Option Plan provides that upon an acquisition of the Company, all options to purchase common stock will accelerate by a period of one year. In addition, upon the termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all options then outstanding under the 2000 Option Plan held by that employee will immediately become exercisable. At December 31, 2018, options to purchase 7,055 shares were outstanding under the 2000 Option Plan. There were no shares of restricted stock outstanding under the 2000 Option Plan.20102019 Omnibus Long‑TermLong-Term Incentive Plan. The Company adopted the 2010 Omnibus Long‑Term Incentive Plan (the “2010 Stock Plan”) on July 16, 2010. The 2010 Stock Plan will expire on July 16, 2020 and after such date no further awards may be granted under the plan. Under the terms of the 2010 Stock Plan, the Company is authorized to grant incentive stock options, as defined under the Internal Revenue Code, non‑qualified options, restricted stock awards and other stock awards to employees, officers, directors, consultants and advisors. Options granted under the 2010 Stock Plan expire ten years from the date of grant. Grants made from the 2010 Stock Plan generally vest over a period of three to four years.The 2010 Stock Plan is administered by the compensation committee of the Company’s board of directors, which selects the individuals to whom equity‑based awards will be granted and determines the option exercise price and other terms of each award, subject to the provisions of the 2010 Stock Plan. The 2010 Stock Plan provides that upon an acquisition of the Company, all equity will accelerate by a period of one year. In addition, upon the termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all equity awards then outstanding under the 2010 Stock Planrespective plan held by that employee will immediately vest. At December 31, 2018, options to purchase 2,524,506 shares were outstanding under the 2010 Stock Plan and 5,789,721 shares of restricted stock and restricted stock units were outstanding. At December 31, 2018, there were 9,071,346 shares available for future grant under the 2010 Stock2015 Inducement Award Plan. 2015 Inducement Award2019 Omnibus Long-Term Incentive Plan (the “2015 Inducement“2019 Stock Plan”) on February 9, 2015. The 2015 Inducement Plan expired on July 27, 201525, 2019 to grant share-based awards to employees, officers, directors, consultants and after such date no further awards could beadvisors. Awards granted under the plan. Under the terms of the 2015 Inducement2019 Stock Plan the Company was authorized to grant84OptionsAwards granted under the 20152016 Inducement Plan expire ten years frommay include grant incentive stock options, as defined under the date of grant. Grants made from the 2015 Inducement Plan generally vest over a period of three to four years.The 2015 Inducement Plan is administeredInternal Revenue Code, non-qualified options, restricted stock awards and other stock awards in amounts and with terms and conditions determined by the compensationHuman Capital committee of the Company’s boardBoard of directors, which selects the individuals to whom equity-based awards would be granted and determines the option exercise price and other terms of each award,Directors, subject to the provisions of the 20152016 Inducement Plan. The 2015 Inducement Plan provides that upon an acquisition of the Company, all equity will accelerate by a period of one year. In addition, upon termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all equity awards then outstanding under the 2015 Inducement Plan held by that employee will immediately vest. At December 31, 2018, there were 38,572 shares of restricted stock and restricted stock units outstanding under the 2015 Inducement Award Plan. At December 31, 2018, there were no shares available for future grant under the 2015 Inducement Plan.2016 Inducement Award Plan. The Company adopted the 2016 Inducement Award Plan (the “2016 Inducement Plan”) on January 25, 2016. The 2016 Inducement Plan expired on July 27, 2017, and after such date no further awards could be granted under the plan. Under the terms of the 2016 Inducement Plan, the Company was authorized to grant incentive stock options, as defined under the Internal Revenue Code, non-qualified options, restricted stock awards and other stock awards to employees who were not previously an employee of the Company or any of its Subsidiaries. Options granted under the 2016 Inducement Plan expire ten years from the date of grant. Grants made from the 2016 Inducement Plan generally vest over a period of three to four years.The 2016 Inducement Plan is administered by the compensation committee of the Company’s board of directors, which selected the individuals to whom equity-based awards would be granted and determines the option exercise price and other terms of each award, subject to the provisions of the 2016 Inducement Plan. The 2016 Inducement Plan provides that upon an acquisition of the Company, all equity will accelerate by a period of one year. In addition, upon termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all equity awards then outstanding under the 2016 Inducement Plan held by that employee will immediately vest. At December 31, 2018,2021, there were 417,881no shares of restricted stock and restricted stock units outstanding under the 2016 Inducement Award Plan. At December 31, 2018,2021, there were no shares available for future grant under the 2016 Inducement Plan.2010. The 2010 Purchase Plan providesto provide participating employees the right to purchase shares of common stock at a discount through a series of offering periods. The 2010 Purchase Plan will expire on October 31, 2020. On July 24, 2014, the2030. The Company’s stockholders approved an amendmentamendments to the 2010 Employee Stock Purchase Plan to increase the number of shares available for purchase thereunder by 500,000 shares. Onshares and 2,000,000 shares on July 24, 2014 and July 28, 2016, the Company’s stockholders approved an amendment to the 2010 Employee Stock Purchase Plan to increase the number of shares available for purchase thereunder by 2,000,000 shares.respectively. At December 31, 2018,2021, there were 1,236,537427,246 shares of common stock available for purchase by participating employees under the 2010 Purchase Plan.85The compensation committee of the Company’s board of directors administers the 2010 Purchase Plan. Generally, all employees whose customary employment is more than 20 hours per week and more than five months in any calendar year are eligible to participate in the 2010 Purchase Plan. Participating employees authorize an amount, between 1 percent1% and 15 percent15% of the employee’s compensation, to be deducted from the employee’s pay during the offering period. On the last day of the offering period, the employee is deemed to have exercised the employee’s option to purchase shares of Company common stock, at the option exercise price, to the extent of accumulated payroll deductions. Under the terms of the 2010 Purchase Plan, the option exercise price is an amount equal to 85 percent85% of the fair market value, as defined under the 2010 Purchase Plan, and no employee can purchase more than $25,000 of Company common stock under the 2010 Purchase Plan in any calendar year. Rights granted under the 2010 Purchase Plan terminate upon an employee’s voluntary withdrawal from the 2010 Purchase Plan at any time or upon termination of employment. At December 31, 2018,2021, there were 1,563,4632,372,754 cumulative shares issued under the 2010 Purchase Plan, and 346,609 shares were issued in the year ended December 31, 2018, as follows:Stock‑BasedStock-Based Compensation Expenserecorded approximately $60.3 million, $35.5 million, and $23.7 million in stock‑basedrecords stock-based compensation expense during the years ended December 31, 2018, 2017, and 2016, respectively, 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‑employeenon-employee consultants and non‑employeenon-employee directors. Non‑cash stock‑basedA summary of non-cash stock-based compensation expense by expense category included in the Company's consolidated statements of operations for the years ended December 31, 2018, 2017,2021, 2020, and 2016 are2019 is as follows:Year Ended December 31, (In thousands) 2021 2020 2019 Cost of sales $ 16,835 $ 12,852 $ 5,799 Research and development 49,723 19,976 17,196 General and administrative 216,952 75,999 64,222 Sales and marketing 55,716 44,079 21,266 Total stock-based compensation $ 339,226 $ 152,906 $ 108,483 November 2016 retirementacquisition of the Company’s former Chief Financial Officer, the Company modified the vesting of 118,341 shares of his previously unvested restricted stock units whereby such restricted stock units vested on January 1, 2017. He forfeited all other unvested restricted stock units and stock option awards. In the fourth quarter of 2016, the Company recorded $1.5 million of non-cash stock-based compensation expense for the modified award.In connection with the April 2018 transition of the Company’s former Chief Operating Officer,Thrive, the Company accelerated the vesting of 69,950 shares under hisof previously unvested stock options and 54,350 shares under his previously unvested restricted stock units whereby such unvested stock options and unvested restricted stock units vest on December 31, 2018. It was determined that the continuing service to be provided by the Company’s Chief Operating Officer to the Company through December 31, 2018 was substantive and, as a result, the Company recognized the additional non-cash stock-based compensation expense for the modified awards evenly over the transition term of April 25, 2018 to December 31, 2018.employees with qualifying termination events. During the year ended December 31, 2018,2021, the Company accelerated 139,096 shares of previously unvested stock options and 58,171 shares of previously unvested restricted stock awards and restricted stock units and recorded $3.9$19.0 million of non-cash stock-based compensation expense for the modifiedaccelerated awards.Determining Fair ValueValuation As further discussed in Note 19, 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.Recognition—restricted stock units for employees with qualifying termination events. During the year ended December 31, 2020, the Company accelerated 83,593 shares of previously unvested stock options and 93,770 shares of previously unvested restricted stock units and recorded $9.7 million of non-cash stock-based compensation for the accelerated awards. During the year ended December 31, 2019, the Company accelerated 364,281 shares of previously unvested stock options and 70,138 shares of previously unvested restricted stock units and recorded $21.6 million of non-cash stock-based compensation for the accelerated awards. There was an immaterial amount of accelerated unvested stock options and restricted stock during the year ended December 31, 2021. is estimated on the date of grant using the Black‑Scholes option‑pricing model.Black-Scholes option-pricing model, which utilizes several key assumptions which are disclosed in the following table:
_________________________________Year Ended December 31 2021 2020 2019 Option Plan Shares Risk-free interest rates (1) 1.26% - 1.47% 2.54% - 2.59% Expected term (in years) (1) 6.15 6.28 Expected volatility (1) 65.67% - 65.71% 64.95% - 64.99% Dividend yield (1) 0% 0% Options Shares Weighted Average Exercise Price (1) Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (2) (Aggregate intrinsic value in thousands) Outstanding, January 1, 2021 2,231,059 $ 39.67 6.0 Granted — — Assumed through acquisition 1,393,748 5.51 Exercised (1,295,400) 11.17 Forfeited (45,131) 56.66 Outstanding, December 31, 2021 2,284,276 $ 34.65 5.5 $ 107,586 Vested and expected to vest, December 31, 2021 2,284,276 $ 34.65 5.5 $ 107,586 Exercisable, December 31, 2021 1,780,838 $ 25.59 4.8 $ 96,789 each market measure-based award is estimated onoptions granted during the years ended December 31, 2020 and 2019 was $58.57 and $57.11, respectively.86
The Company received approximately $14.4 million, $27.1 million, and $8.8 million from stock option exercises during the years ended December 31, 2021, 2020 and 2019, respectively.grant using a Monte Carlo simulation pricing model. Restricted Stock and Restricted Stock Unitsservice-based awards for each restricted stock unit awardand restricted stock units is determined on the date of grant using the closing stock price on that day. The estimated fair value of these awards is recognized to expense using the straight‑line method over the vesting period. For awards issued to non-employees, the measurement date is the date when the performance is complete or when the award vests, whichever is earliest. Accordingly, non-employee awards are re-measured at each reporting period until the final measurement date. The fair value of the award is recognized as stock-based compensation expense over the requisite service period, generally the vesting period. The Black-Scholes and Monte Carlo pricing models utilize the following assumptions:Expected Term—Expected life of an option award is the average length of time over which the Company expects employees will exercise their options, which is based on historical experience with similar grants. Expected life of a market measure-based award is based on the applicable performance period.Expected Volatility—Expected volatility is based on the Company’s historical stock volatility data over the expected term of the awards.Risk‑Free Interest Rate—The Company bases the risk‑free interest rate used in the Black‑Scholes and Monte Carlo valuation models on the implied yield currently available on U.S. Treasury zero‑coupon issues with an equivalent expected term.Forfeitures—Effective January 1, 2017, the Company adopted Accounting Standards Update (“ASU”) No. 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“Update 2016-09”). With the adoption of Update 2016-09, forfeiture estimates are no longer required, and the effects of actual forfeitures are recorded at the time they occur. The impact on the consolidated balance sheet was a cumulative-effect adjustment of $0.4 million, increasing opening accumulated deficit and additional paid-in capital.The fair value of each option and market measure-based award is based on the assumptions in the following table:(1)The Company did not issue market measure-based shares during the respective period.87Stock Option, Restricted Stock, and Restricted Stock Unit ActivityA summary of stock option activity under the Stock Plans during the years ended December 31, 2018, 2017 and 2016 is as follows:4.5 5.5 (1)The aggregate intrinsic value of options outstanding at December 31, 2018 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for the 2,531,561 options that had exercise prices that were lower than the $63.10 market price of our common stock at December 31, 2018. The aggregate intrinsic value of options exercisable at December 31, 2018 is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for the 1,147,872 options that had exercise prices that were lower than the $63.10 market price of our common stock at December 31, 2018. The total intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was $53.0 million, $47.0 million, and $30.5 million, respectively, determined as of the date of exercise.88underis as follows:
_________________________________Restricted Shares Weighted Average Grant Date Fair Value (2) Outstanding, January 1, 2021 3,968,214 $ 79.38 Granted 2,333,213 129.16 Assumed through acquisition 242,123 127.79 Released (1) (1,697,643) 73.18 Forfeited (524,997) 101.20 Outstanding, December 31, 2021 4,320,910 $ 108.84 Stock PlansCompany's common stock was $219.4 million, $152.4 million, and $173.8 million for the years ended December 31, 2021, 2020, and 2019, respectively.2018, 20172020 and 20162019 was $92.55 and $93.20, respectively.
_________________________________Performance Share Units (2) Weighted Average Grant Date Fair Value (3) Outstanding, January 1, 2021 618,515 $ 93.22 Granted 270,665 138.09 Released (1) — — Forfeited (11,066) 83.15 Outstanding, December 31, 2021 878,114 $ 107.18 As2018, there was approximately $120.8 million2019. There were no performance share units vested and converted to shares of total unrecognized compensation cost related to non‑vested share‑based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in forfeitures. The Company expects to recognize that cost over a weighted average period of 2.8 years.The Company received approximately $6.6 million, $5.1 million, and $3.4 million fromthe Company's common stock option exercises during the years ended December 31, 2018, 20172021 and 2016, respectively. During2020.2018, 20172020 and 2016, 346,609, 423,423,2019 was $90.17 and 356,823 shares of common stock, respectively, were issued under the Company’s 2010 Purchase Plan, resulting in proceeds to the Company of $4.9 million, $2.8 million, and $2.1 million,$93.40, respectively.The following table summarizes information relating to currently outstanding and exercisable stock options as of December 31, 2018:89Year Ended December 31, (in thousands, except share and per share amounts) 2021 2020 2019 Shares issued under the 2010 Purchase Plan 331,769 301,064 176,458 Cash received under the 2010 Purchase Plan $ 23,070 $ 18,355 $ 8,396 Weighted average fair value per share of stock purchase rights granted during the period $ 34.93 $ 32.57 $ 29.21 Offering period ended Number of Shares Weighted Average price per Share April 30, 2021 173,717 $ 69.31 November 1, 2021 158,052 $ 69.71 Year Ended December 31, 2021 2020 2019 ESPP Shares Risk-free interest rates 0.04% - 0.16% 0.11% - 0.20% 1.60% - 2.40% Expected term (in years) 0.5 - 2 0.5 - 2 0.4 - 2 Expected volatility 43.00% - 68.51% 61.59% - 89.00% 43.20% - 57.60% Dividend yield 0% 0% 0% stock optionequity plans, including all outstanding stock option grants noted above at December 31, 2018,2021, as follows:20102019 Stock Plan9,071,3461,236,53710,307,883(7) COMMITMENTS AND CONTINGENCIESOperating LeasesThe Company leases a 35,000 square foot manufacturing and office facility in Madison, Wisconsin. This lease has been in effect since 2010. During September 2018, the Company entered into an amended lease agreement. The amended agreement extended the initial term of the lease and is subject to periodic rent escalation adjustments. The Company has two options to extend the term of the lease for one year each. The lease is in effect until February 2025 and is subject to periodic rent escalation adjustments.The Company leases a 55,000 square foot facility which houses its commercial lab operations in Madison, Wisconsin. This lease has been in effect since 2013. The lease has been amended numerous times with the most recent amendment taking place in March 2018. The amended agreement extended the initial term of the lease and is subject to periodic rent escalation adjustments. The Company has two options to extend the term of the lease for five years each. As part of the lease agreements, the landlord agreed to pay for a portion of leasehold improvements constructed. These payments are recorded as a lease incentive obligation and are amortized over the remaining term of the lease as a reduction of rent expense. The lease is in effect until November 2027 and is subject to periodic rent escalation adjustments. As of December 31, 2018 and 2017, the lease incentive obligation was $0.1 million and $0.7 million, respectively.The Company leases a 45,000 square foot facility in Madison, Wisconsin for administration purposes. This lease has been in effect since 2014. The lease has been amended several times with the most recent amendment taking place in June 2018. The amended agreement extended the initial term of the lease and is subject to periodic rent escalation adjustments. The Company has six options to extend the lease for up to three months each. The Company has already exercised three of those options. The lease is in effect until June 2020 and is subject to periodic rent escalation adjustments.The Company leases a 66,000 square foot warehouse facility in Madison, Wisconsin. The lease has been in effect since 2015. The lease has been amended several times with the most recent amendment taking place in October 2017. The amended agreement increased the square footage of leased space and the landlord agreed to pay for a portion of leasehold improvements constructed. The lease is effective until May 2025 and is subject to periodic rent escalation adjustments. The lease includes an option to extend the lease to November 2027. As of December 31, 2018, the lease incentive obligation was $0.9 million.The Company leases a 26,000 square foot facility which houses a portion of its sales operations in Middleton, Wisconsin. This lease has been in effect since February 2018. The lease is effective until March 2020 and is subject to periodic rent escalation adjustments.90Companycomponents of lease expense were as follows:Year Ended December 31, (In thousands) 2021 2020 2019 Finance lease cost Amortization of right-of-use assets $ 5,731 $ 1,935 $ 27 Interest on lease liabilities 1,018 383 2 Operating lease cost 31,730 22,551 9,200 Short-term lease cost 628 356 219 Variable lease cost 5,212 2,703 896 Total lease Cost $ 44,319 $ 27,928 $ 10,344 a 48,000 square foot facility in Madison, Wisconsin for research and development purposes. The lease has been in effect since September 2018. The lease is effective until March 2035 and is subject to periodic rent escalation adjustments. See Note 9 for further detail regardingare as follows:
_________________________________Year Ended December 31, (In thousands) 2021 2020 2019 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 27,461 $ 17,531 $ 9,641 Operating cash flows from finance leases 938 381 1 Finance cash flows from finance leases 5,290 1,756 15 Non-cash investing and financing activities: Right-of-use assets obtained in exchange for new operating lease liabilities (1) 74,369 13,261 51,030 Right-of-use assets obtained in exchange for new finance lease liabilities 5,460 20,349 237 Weighted-average remaining lease term - operating leases (in years) 8.33 8.75 9.80 Weighted-average remaining lease term - finance leases (in years) 2.95 3.68 1.20 Weighted-average discount rate - operating leases 6.11 % 6.80 % 6.80 % Weighted-average discount rate - finance leases 5.36 % 5.67 % 5.60 % leased facility.The Company leases a 5,000 square foot office facility in Salt Lake City, Utah. This lease wasincludes right-of-use assets acquired as part of the Company’s acquisitionbusiness combinations described in Note 19 of Sampleminded. The lease is effective until February 2022 and is subject to periodic rent escalation adjustments.The Company leases a 10,000 square foot facility in San Diego, California. This lease was acquired as part$39.6 million. For the year ended December 31, 2019, this includes right-of-use assets obtained from the initial adoption of the Company’s acquisitionASC 842 of Biomatrica. The lease has been in effect since November 2017. The lease is effective until November 2024 and is subject to periodic rent escalation adjustments. As part of the lease agreement, the landlord agreed to pay for a portion of leasehold improvements constructed. These payments are recorded as a lease incentive obligation and are amortized over the remaining term of the lease as a reduction of rent expense. $17.9 million.2018, the lease incentive obligation was $0.6 million. There is currently a building being constructed in Madison, Wisconsin which will serve as2021 and 2020, the Company’s corporate headquarters. The building is expected to be completedright-of-use assets from operating leases are $174.2 million and $125.9 million, respectively, which are reported in 2020, at which point the Company will begin leasing it from the landlord with an expected initial term from March 2020 to February 2035. Theoperating lease is subject to periodic rent escalation adjustments. See Note 9 for further detail regarding this lease andright-of-use assets in the Company’s accounting considerations under build-to-suit lease accounting.Future minimum payments under operating leases asconsolidated balance sheet. As of December 31, 2018 are as follows. Amounts included2021, the Company has outstanding operating lease obligations of $201.9 million, of which $19.7 million is reported in operating lease liabilities, current portion and $182.2 million is reported in operating lease liabilities, less current portion in the table areCompany’s consolidated balance sheet. As of December 31, 2020, the Company had outstanding operating lease obligations of $132.6 million, of which $11.5 million is reported in thousands.Rent expense includedoperating lease liabilities, current portion and $121.1 million is reported in operating lease liabilities, less current portion in the accompanyingCompany’s consolidated statements of operations was approximately $3.6 million, $2.6 million, and $2.1 million for the years ended December 31, 2018, 2017 and 2016, respectively.License AgreementsThe Company licenses certain technologies that are, or may be, incorporated into its technology under several license agreements. Generally, the license agreements require the Company to pay royalties based on net revenues received using the technologies and may require minimum royalty amounts or maintenance fees.Mayo. See Note 3 for information related to the Mayo license agreement.Hologic. In October 2009, the Company entered into a technology license agreement with Hologic, Inc. (“Hologic”). Under the license agreement, Hologic granted the Company an exclusive, worldwide license within the field of human stool based colorectal cancer and pre‑cancer detection or identification with regard to certain Hologic patents, patent applications and improvements, including Hologic’s Invader detection chemistry (the “Covered Hologic IP”). The licensed patents and patent applications contain both method and composition‑of‑matter claims. The jurisdictions covered by these patents and patent applications include the U.S., Australia, Canada, China, the European Union, Japan and Korea. The license agreement also provided the Company with non‑exclusive, worldwide licenses to the Covered Hologic IP within the field of clinical diagnostic purposes relating to colorectal cancer (including cancer diagnosis, treatment, monitoring or staging) and91
balance sheet.fieldCompany’s right-of-use assets from finance leases are $18.2 million and $18.6 million, respectively, which are reported in other long-term assets, net in the Company’s consolidated balance sheets. As of detection or identification of colorectal cancer and pre‑cancers through means other than human stool samples. In December 2012,31, 2021, the Company entered into an amendment to this license agreement with Hologic pursuant tohas outstanding finance lease obligations of $18.7 million, of which Hologic granted the Company a non‑exclusive worldwide license to the Covered Hologic IP within the field of any disease or condition within, related to or affecting the gastrointestinal tract and/or appended mucosal surfaces. The Company received FDA approval for its Cologuard test in August 2014 and was required to make a milestone payment of $0.1$6.2 million to Hologic, which was expensed to research and development in August 2014. The Company is required to pay Hologic a low single-digit royalty on the Company’s net sales of products using the Covered Hologic IP.MDx Health. In July 2010, the Company entered into a technology license and royalty agreement (“MDx License Agreement”) with MDx Health (formerly Oncomethylome Sciences, S.A.) (“MDx”). Under the MDx License Agreement, MDx granted the Company a royalty bearing, exclusive, worldwide license to certain patents. Under the MDx License Agreement, the Company was obligated to make commercially reasonable efforts to bring products covered by the license agreement to market. The MDx License Agreement required the Company to pay MDx a low single-digit royalty fee based on a certain percentage of the Company’s net sales of the licensed products, including a minimum royalty fee of $0.1 million on each anniversary of the agreement for the life of the contract. The Company also agreed to pay various milestone payments:·$0.1 million upon the first commercial sale of a licensed product after the receipt of the FDA approval, which the Company paid in 2014;·$0.2 million after the Company has reached net sales of $10 million of a licensed product after receipt of the FDA approval, which the Company paid in 2015;·$0.8 million after the Company reached cumulative net sales of $50 million, which the Company paid in 2016;·$1.0 million after the Company reached net sales of $50 million in a single calendar year, which the Company paid in 2016.Effective April 2017, the Company and MDx entered into a Royalty Buy-Out Agreement, which terminated the MDx License Agreement. Pursuant to the Royalty Buy-Out Agreement, the Company paid MDx a one-time fee of $8.0 million in exchange for an assignment of certain patents covered by the MDx License Agreement and the elimination of all ongoing royalties and other payments by the Company to MDx under the MDx License Agreement. Also included in the Royalty Buy-Out Agreement is a mutual release of liabilities, which includes all amounts previously accrued under the MDx License Agreement. Concurrently with entering into the Royalty Buy-Out Agreement, the Company entered into a Patent Purchase Agreement with MDx under which it paid MDx an additional $7.0 million in exchange for the assignment of certain other patent rights that were not covered by the MDx License Agreement. The total $15.0 million paid by the Company pursuant to the Royalty Buy-Out Agreement and Patent Purchase Agreement, net of liabilities relieved of $6.6 million, was recorded as an intangible asset and is being amortized over the estimated remaining useful life of the licensed intellectual property through 2024, and such amortization is reported in costother current liabilities and $12.5 million is reported in other long-term liabilities in the Company’s consolidated balance sheets. As of sales. The $6.6December 31, 2020, the Company had outstanding finance lease obligations of $18.7 million, of which $4.7 million is reported in other current liabilities relievedand $14.0 million is reported in other long-term liabilities in the Company’s consolidated balance sheets.relatedas follows:(In thousands) 2022 $ 30,706 2023 31,793 2024 32,209 2025 30,446 2026 29,890 Thereafter 106,967 Total minimum lease payments 262,011 Imputed interest (60,135) Total $ 201,876 (In thousands) 2022 $ 7,040 2023 6,930 2024 5,253 2025 911 2026 51 Thereafter — Total minimum lease payments 20,185 Imputed interest (1,449) Total $ 18,736 historical milestonesthe extent that it determines an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. While such reserves and accrued royalties under the MDx License Agreement. Armune BioScience & the University of MichiganIn December 2017, the Company entered into the Armune Purchase Agreement with Armune, pursuant to which the Company acquired intellectual property and certain other assets underlying Armune’s APIFINY®, APIFINY® PRO and APIFINY® ACTIVE SURVEILLANCE prostate cancer diagnostic tests. The portfolio of Armune assets the Company acquired is expected to complement its product pipeline. The total consideration was comprised of an up-front cash payment of $12.0 million and $17.5 million in contingent payment obligations that will become payable uponcosts reflect the Company’s achievementbest estimate of development and commercial milestones using the acquired intellectual property. The ability to meet these events is subject to many risks and is therefore uncertain. The Company will not recordprobable loss for such matters, the contingent consideration until it is probable that the milestones will be met. There is no other consideration due to Armune beyond the milestone payments and the Company is not subject to future royalty obligations should a product be developed and commercialized. In connection with the Armune Purchase Agreement, Armune terminated a license agreement pursuant to which it licensed certain patent rights and know-howrecorded amounts may differ materially from the Regentsactual amount of any such losses. In some cases, no estimate of the Universitypossible loss or range of92
loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal and regulatory proceedings, which may be exacerbated by various factors, including but not limited to, they may involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; involve a large number of parties, claimants or regulatory bodies; are in the early stages of the proceedings; involve a number of separate proceedings and/or a wide range of potential outcomes; or result in a change of business practices.MichiganAs of the date of this Annual Report on Form 10-K, amounts accrued for legal proceedings and regulatory matters were not material except for the amounts accrued related to the Medicare Date of Service Rule Investigation (the “DOS Rule Investigation”) discussed below. However, it is possible that in a particular quarter or annual period the Company’s financial condition, results of operations, cash flow and/or liquidity could be materially adversely affected by an ultimate unfavorable resolution of, or development in, legal and/or regulatory proceedings, including as described below. Except for the proceedings discussed below, the Company believes that the ultimate outcome of any of the regulatory and legal proceedings that are currently pending against it should not have a material adverse effect on financial condition, results of operations, cash flow or liquidity.UniversityDOJ”) concerning Genomic Health’s compliance with the Medicare Date of Michigan”),Service billing regulations. The Company has been cooperating with these inquiries and has produced documents in response thereto.entered into a license agreement withregarding the UniversityDOS Rule Investigation, the DOJ presented an estimate of Michigan with respect to such patent rights and know-how, as well as certain additional intellectual property rights. Pursuant to the Company’s agreement with the University of Michigan, it is required to pay the University of Michigan a low single-digit royalty on its net sales of products using the licensed intellectual property. (8) ACCRUED LIABILITIESAccrued liabilities at December 31, 2018 and 2017 consisted of the following:Building Purchase MortgageDuring June 2015, the Company entered into a $5.1 million credit agreement with a third-party financial institution to finance the purchase of a research and development facility located in Madison, Wisconsin. The credit agreement was collateralized by the acquired building.In September 2018, the Company entered into a Purchase and Sale Agreement with a third-party to sell its research and development facility. The Company also simultaneously entered into a Master Lease Agreement with the third-party to lease the facility back. The sale-leaseback arrangement is recorded under the financing method of accounting, as the Company has continuing involvement in planned expansions of the facility and construction of the adjacent corporate headquarters facility. Under the financing method, the Company does not recognize the proceeds received from the third-party as a sale of the facility. The facility remains in property, plant and equipment on the Company’s consolidated balance sheet, and the consideration of $6.8 million received in the sale is recorded as a financing obligation in other long-term liabilities on the Company’s consolidated balance sheet as of December 31, 2018. A portion of the proceeds received from the sale were used to repay the mortgage on the facility, and as of December 31, 2018, the $4.5 million outstanding balance of the mortgage had been fully repaid in connection with the termination of the credit agreement. The remaining proceeds were utilized to fund the initial construction of the Company’s corporate headquarters discussed in more detail below.Prior to the repayment, borrowings under the credit agreement bore interest at 4.15 percent. The Company made interest-only payments on the outstanding principal balance for the period between July 12, 2015 and September 12, 2015. The credit agreement required the Company to make, beginning on October 12, 2015 and continuing through May 12, 2019, monthly principal and interest payments of $31,000, and a final principal and interest payment of $4.4 million would have been due on the maturity date of June 12, 2019.Additionally, the Company previously recorded $73,000 in deferred financing costs, which were recorded as a direct deduction from the mortgage liability. The issuance costs were being amortized through June 12, 2019. The Company recorded $13,000, $18,000 and $18,000 in amortization of mortgage issuance costs during the years ended December, 31, 2018, 2017, and 2016, respectively. As of December 31, 2018, the outstanding balance of the mortgage issuance costs was written down to $0 due to the sale of the facility and the payoff of the mortgage.93During December 2017 the Company entered into a revolving loan agreement (the “Revolving Loan Agreement”) with MB Financial Bank, N.A. (“MB Bank”). The Revolving Loan Agreement provides the Company with a 24-month secured revolving credit facility of up to $15.0 million (the “Revolver”). The Revolver is collateralized by the Company’s accounts receivable and inventory. The Revolver is available for general working capital purposes and all other lawful corporate purposes; provided that the Company may not use the Revolver to purchase or carry margin stock.Borrowings under the Revolving Loan Agreement accrue interest at one of the following per annum rates, as elected by the Company (i) the sum of the 1-month LIBOR rate plus 2.00 percent, (ii) the sum of the 3-month LIBOR rate plus 2.00 percent, or (iii) the MB Bank Reference Rate minus 0.5 percent. Loans under the Revolving Loan Agreement may be prepaid at any time without penalty. The Revolver’s maturity date is December 10, 2019.The Company has agreed in the Revolving Loan Agreement to various financial covenants including minimum liquidity and minimum tangible net worth. At December 31, 2018, the Company is in compliance with all covenants.As of December 31, 2018, the Company has not drawn funds from, nor are any amounts outstanding under, the Revolving Loan Agreement.Construction Loan AgreementDuring December 2017, the Company entered into a loan agreement with MB Bank (the “Construction Loan Agreement”), which provides the Company with a non-revolving construction loan (the “Construction Loan”) of $25.6 million. The Company will use 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, MB Bank, on behalf of the Company, issued an Irrevocable Standby Letter of Creditcivil damages in the amount of $0.6$48.2 million in favor of the City of Madison, Wisconsin (the “City Letter of Credit”). The City Letter of Credit is deemedrelating 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 MB 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 accordancealleged non-compliance with the Construction Loan Agreement,Medicare Date of Service billing regulations from 2007 to 2020. The civil damages estimate does not include potential treble damages, civil or criminal penalties or other remedies that the Company will make monthly interest-only payments through November 2019. Starting in December 2019,DOJ could seek against the Company will make monthly payments towards the outstanding principal balance due plus accrued interest. As of December 31, 2018, the Company has drawn $24.7 million from the Construction Loan, including $0.4 million of interest incurred, which is included in accrued interestCompany. Based on the Company’s consolidated financial statements. The Company capitalizedreview and analysis of the $0.4 million toDOJ presentation, ongoing discussions held with the construction project. Additionally,DOJ, the civil damages estimate, and range of potential exposure, the Company has recorded deferred financing costsan accrual of $0.2approximately $10 million related to the Construction Loan. These deferred financing costs are recorded as a reduction to long-term debt in the consolidated balance sheets. The deferred financing costs are being amortized through December 10, 2022. The Company has recorded $45,000 in94amortization of deferred financing costs related to the Construction Loan for the year ended December 31, 2018. There was no amortization expense2021.2017.The2021 is based on several factors, considerations, and judgments, and the ultimate resolution of this matter could result in a loss in excess of the recorded accrual. has agreed in the Construction Loan AgreementUnited States District Court for the Middle District of Florida, that alleged a violation of the Federal Anti-Kickback Statute and False Claims Act for offering gift cards to various financial covenants including minimum liquiditypatients in exchange for returning the Cologuard screening test (the “Qui Tam Suit”). Dr. Rosen seeks on behalf of the U.S. government and minimum tangible net worth. Ashimself an award of December 31, 2018,civil penalties, treble damages and fees and costs. On February 25, 2020, the Company is in compliance with all covenants.The table below represents the future principal obligations as of December 31, 2018. Amounts included in the table are in thousands:Build-to-Suit LeasesThe Company evaluates whether it is the accounting owner of leased assets during the construction period when the Company is involved in the construction of the leased asset. Due to funding providedreceived a civil investigative demand by the Company for costsDOJ related to the constructionCompany’s gift card program. The Company produced documents in response thereto. On March 25, 2021, the DOJ filed a notice of its election to decline intervention in the Qui Tam Suit. This election does not prevent Dr. Rosen from continuing the Qui Tam Suit. On April 12, 2021, Dr. Rosen filed an amended complaint against the Company, alleging violations of the Federal Anti-Kickback Statute and False Claims Act. The Company first learned of the Qui Tam Suit and the DOJ’s election to decline intervention in July 2021. The Company intends to vigorously defend itself against Dr. Rosen's claims and seek, among other things, the Company’s new Madison, WI, headquarters, as of December 31, 2018,attorneys' fees and costs incurred in defending this action. Although the Company is considered, for accounting purposes only,denies Dr. Rosen's allegations and believes that it has meritorious defenses to his False Claims Act claims, neither the owneroutcome of the construction project in accordancelitigation nor can a reasonable estimate or an estimated range of loss associated with build-to-suit accounting. As of December 31, 2018,the litigation be determined at this time.has contributed $4.5 million towardsbeing required to pay treble damages, incur civil and criminal penalties, paying attorneys’ fees, entering into a corporate integrity agreement, being excluded from participation in government healthcare programs, including Medicare and Medicaid, and other adverse actions that could materially affect the project. All project construction costs incurred over that amount are to be paidCompany’s business, financial condition, and results of operation.landlord, thoughpurported controlling group; and (v) aiding and abetting breach of fiduciary duty against Exact Sciences, Spring Acquisition and Goldman Sachs & Co. LLC, Genomic Health's financial advisor in the Company will account for those costs as assets under construction with a corresponding liability. As of December 31, 2018,combination. The amended complaint sought, among other things, declaratory relief, unspecified monetary damages and attorneys' fees and costs. All defendants moved to dismiss the Company recorded a total of $7.3 millionamended complaint. Oral argument on defendants’ motions to dismiss the amended complaint occurred in construction costs related to this project, including $2.1 million fundedMay 2021, and in September 2021 the case was officially dismissed by the landlord, which is included as a financing obligation and recorded in other long-term liabilities. An additional $0.7 million has been funded by the Company for leasehold improvements which are not considered part of the build-to-suit lease. The construction project is expected to be completed in 2020.(10) CONVERTIBLE NOTESIn January 2018, the Company issued and sold $690.0 million in aggregate principal amount of 1.0% Convertible Notes (the “January 2018 Notes”) with a maturity date of January 15, 2025 (the “Maturity Date”). The January 2018 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 2018 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 2018 Notes”). The June 2018 Notes were issued under the same indenture pursuant to which the Company previously issued the January 2018 Notes (the “Indenture”). The January 2018 Notes and the June 2018 Notes (collectively, the “Notes”) have identical terms and will be treated as a single series of securities. The net proceeds from the issuance of the June 2018 Notes were approximately $225.3 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.95Prior to July 15, 2024, the Notes are convertible only upon the occurrence of certain events and during certain periods, as set forth in the Indenture, and thereafter, until the close of business on the second scheduled trading day immediately preceding the Maturity Date. 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. On or after July 15, 2024, until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert their Notes at any time.It is the Company’s intent and policy to settle all conversions through combination settlement. The initial conversion rate for the Notes is 13.2569 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $75.43 per share of the Company’s common stock. The conversion rate is subject to adjustment upon the occurrence of certain specified events 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.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; equal in right of payment to all of the Company’s future liabilities that are not so subordinated, unsecured indebtedness; (ii) are effectively junior to all of our 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 (iii) are structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries.While the Notes are currently classified on the Company’s consolidated balance sheets at December 31, 2018 as long-term, the future convertibility and resulting balance sheet classification of this liability will be monitored at each quarterly reporting date and will be analyzed dependent upon market prices of the Company’s common stock during the prescribed measurement periods. In the event that the holders of the Notes have the election to convert the Notes at any time during the prescribed measurement period, the Notes would then be considered a current obligation and classified as such.Under current accounting guidance, an entity must separately account for the liability and equity components of convertible debt instruments (such as the January 2018 Notes and June 2018 Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The liability component of the instrument was valued in a manner that reflects the market interest rate for a similar nonconvertible instrument at the date of issuance. On the January 2018 Notes, the initial carrying value of the liability component of $495.1 million was calculated using a 6.0% assumed borrowing rate. The equity component of $194.9 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the January 2018 Notes and is recorded in additional paid-in capital on the Company’s consolidated balance sheet at the issuance date. That equity component is treated as a discount on the liability component of the January 2018 Notes, which is amortized over the seven-year term of the January 2018 Notes using the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. On the June 2018 Notes, the initial carrying value of the liability component of $159.7 million was calculated using a 6.0% assumed borrowing rate. The equity component of $73.0 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the June 2018 Notes and adding in the premium at which the June 2018 Notes were sold. This is recorded in additional paid-in capital on the Company’s consolidated balance sheet at the issuance date. That equity component, prior to adding in the premium, is treated as a discount on the liability component of the June 2018 Notes, which is amortized over the remaining term of six-and-a-half years of the June 2018 Notes using the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. 96The Company allocated the total transaction costs of approximately $18.8 million related to the issuance of the January 2018 Notes to the liability and equity components of the January 2018 Notes based on their relative values, with $13.1 million being allocated to the liability component of the January 2018 Notes. Transaction costs attributable to the liability component are amortized to interest expense over the seven-year term of the January 2018 Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity.The Company allocated the total transaction costs of approximately $7.4 million related to the issuance of the June 2018 Notes to the liability and equity components of the June 2018 Notes based on their relative values, with $5.1 million being allocated to the liability component of the June 2018 Notes. Transaction costs attributable to the liability component are amortized to interest expense over the remaining six-and-a-half-year term of the June 2018 Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity.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.Convertible notes, net of discounts and deferred financing costs at December 31, 2018, consisted of the following:(11)(16) EMPLOYEE BENEFIT PLAN“401(k) Plan”"401(k) Plan") covering all employees.. The Company also maintains additional retirement savings plans that are acquired as a result of business combinations. These plans are maintained for a period of time before being merged into the 401(k) Plan. Under the terms of the 401(k) Plan, participants may elect to defer a portion of their compensation into the 401(k) Plan, subject to certain limitations. Company matching contributions may be made at the discretion of the Board of Directors.2018, 20172021, 2020 and 20162019 in the form of Company common stock equal to 100 percent100% up to 6 percent6% of the participant’s eligible compensation for that year. The Company recorded compensation expense of approximately $7.4$30.0 million, $3.0$22.8 million, and $2.2$12.5 million, respectively, in the statements of operations for the years ended December 31, 2018, 20172021, 2020 and 2016 in connection with 401(k) Plan matching contributions.(12)2019.one1 of its Madison, Wisconsin facilities. This financing arrangement was structured with an unrelated third-party financial institution (the “Investor”), an investment fund, and its majority owned community development entity in connection with the Company’s participation in transactions qualified under the federal New Markets Tax Credit (“NMTC”) program, pursuant to Section 45D of the Internal Revenue Code of 1986, as amended. Through its participation in this program, the Company has secured low interest financing and the potential for future debt forgiveness related to certain of the Company's Madison, Wisconsin facility. Upon closing of this transaction, the Company provided an aggregate of approximately $5.1 million to the Investor, in the form of a loan receivable, with a term of seven years, bearing an interest rate of 2.74 percent per annum. This $5.1 million in proceeds plus $2.4 million of capital from the Investor was used to make an aggregate $7.5 million loan to a subsidiary of the Company. This financing arrangement is not secured by any assets of the Company. On December 1, 2021, the Company would receive a repayment of its approximately $5.1 million loan. The $5.1 million is eliminated in the consolidation of the financial statements. This transaction also includes a put/call feature97that becomes enforceable at the end of the seven-year compliance period. The Investor may exercise its put option or the Company can exercise the call, both of which will serve to trigger forgiveness of the debt. The value attributable to the put/call is nominal. The $2.4 million was recorded in other long-term liabilities on the Company’s balance sheet. The benefit of this net $2.4 million contribution will be recognized as a decrease in expenses, included in cost of sales, as the Company amortizes the contribution liability over the seven-year compliance period as it is being earned through the Company’s on-going compliance with the conditions of the NMTC program.facilities. The Company recorded $0.3 million as a decrease of expenses for the years ended December 31, 2018, 2017, and 2016. At December 31, 2018, the remaining balance of $1.0 million is included in other long-term liabilities. The Company incurred approximately $0.2 million of debt issuance costs related to the above transactions, which are being amortized over the life of the agreements.The Investor is subject to 100 percent recapture of the NMTC it receives for a period of seven years as provided in the Internal Revenue Code and applicable U.S. Treasury regulations. The Company iswas required to be in compliance through December 2021 with various regulations and contractual provisions that apply to the NMTC arrangement. Noncompliance with applicable requirements could resulthave resulted in the Investor’s projected tax benefits not being realized and, therefore, require the Company to indemnify the Investor for any loss or recapture of NMTC related to the financing until such time as the recapture provisions have expired under the applicable statute of limitations. The Company does not anticipate any credit recapture will be required in connection with this financing arrangement. arewere considered Variable Interest Entities (“VIEs”) and the Company iswas the primary beneficiary of the VIEs. This conclusion was reached based on the following:·the ongoing activities of the VIEs—collecting and remitting interest and fees and NMTC compliance—were all considered in the initial design and are not expected to significantly affect performance throughout the life of the VIE;
•the ongoing activities of the VIEs—collecting and remitting interest and fees and NMTC compliance—were all considered in the initial design and are not expected to significantly affect performance throughout the life of the VIE;·contractual arrangements obligate the Company to comply with NMTC rules and regulations and provide various other guarantees to the Investor and community development entity;
•contractual arrangements obligate the Company to comply with NMTC rules and regulations and provide various other guarantees to the Investor and community development entity;·the Investor lacks a material interest in the underling economics of the project; and
•the Investor lacks a material interest in the underlying economics of the project; and·the Company is obligated to absorb losses of the VIEs.iswas the primary beneficiary of the VIEs, they have beenwere included in the Company's consolidated financial statements.statements as of December 31, 2020. There are no other assets, liabilities or transactions in these VIEs outside of the financing transactions executed as part of the NMTC arrangement.Also in December 2014, in connection with the NMTC transaction, the Company entered into a land purchase option agreement with the owner of certain real property (land) adjacent to certain of the Company’s current Madison, Wisconsin facilities. The option is renewable annually in exchange for a fee. If the Company exercises its land purchase option, it will pay a fixed amount for the land. That fixed amount approximates the then-current fair value of the land. If the Company decides not to exercise its option, then on December 31, 2021 (which is after the seven-year compliance period of the NMTC program), the Company must pay $1.2$2.4 million to the community development entity. As discussed below, the community development entity is a variable interest entity consolidated into the Company. The community development entity would then distribute this money to its members. The majority member of the community development entity is also the owner of the land subject to the land purchase option. The Company haswas recorded the obligation and the land purchase option asset for $1.2 million to reflect the Company’s assessment that it is probable that at least $1.2 million will be paid in the future based on resolution of the land purchase option. The asset is included in other long-term assets and the liability is included in other long-term liabilities on the consolidatedCompany's balance sheet.(13) The benefit of this net $2.4 million contribution was recognized as a decrease in expenses, included in cost of sales, as the Company amortized the contribution liability over the seven-year compliance period as it was being earned through the Company's on-going compliance with the conditions of the NMTC program. The seven-year term ended in December 2021, at which point the Company entered into a loan forgiveness agreement with the Investor, which forgives, cancels, and terminates the debt from the original financing agreements. As of December 31, 2021, there are no outstanding balances related to the NMTC financing agreements.the first quarter ofFebruary 2015, the Company entered into an agreement with the Wisconsin Economic Development CorporationWEDC (“WEDC”Original WEDC Agreement”) to earn $9.0 million in refundable tax credits ifon the condition that the Company expends $26.3 98seven-year period.term of the agreement. Should the Company earn and receive the job creation tax credits but not maintain those full-time positions through the end of the agreement, the Company may be required to pay those credits back to the WEDC.occur. The amount of tax credits earned is recorded as a liability and amortized as a reduction of operating expenses over the expected period of benefit.occurs. The tax credits earned from capital investment are recognized as a reduction to capital expenditures at the time the costs are incurred, and then as an offset to depreciation expense over the expected life of the acquired capital assets. The tax credits earned related to job creation are recognized as an offset to operational expenses overin the life ofperiod in which the agreement, ascredits are earned. The credits recognized will be required to be repaid if the Company is required todoes not maintain the minimum level of full-time positions through the seven-year period.2018,2021, the Company has earned $9.0$8.0 million of the refundable tax credits and has received payment of $4.3 million fromunder the WEDC.Amended WEDC Agreement. The unpaid portion is $4.7$8.0 million as of December 31, 2021, of which $1.6$1.7 million is reported in prepaid expenses and other current assets and $3.1$6.3 million is reported in other long-term assets, reflecting when collection of the refundable tax credits is expected to occur. As of December 31, 2018, the Company also has recorded a $2.4 million liability in other short-term liabilities and a $2.2 million liability in other long-term liabilities, reflecting when the expected benefit of the tax credit amortization will reduce future operating expenses.2018,2021, the Company amortized $2.2recorded $7.0 million of the tax credits earned as a reduction of operating expenses. (14) ACQUISITIONSIn August 2017, the Company acquired all of the outstanding equity of Sampleminded, the primary operations of which were customized software development for laboratory information systemsto capital expenditures and clinical information systems, for cash consideration of $3.2 million and 86,357 of the Company’s restricted stock units. Prior to the acquisition, Sampleminded provided certain consulting and software support services to the Company, and it licensed certain software to the Company. The restricted stock units were recorded by the Company as employee stock-based compensation because their vesting is contingent upon continued employment with the Company of certain former stockholders of Sampleminded. The $3.2 million of cash consideration was allocated to the estimated fair market value of the net (current or tangible) assets acquired of $0.2 million, $1.0 million in identifiable intangible assets (comprised of developed technology, customer relationships and non-compete agreements) andas a residual amount of goodwill of $2.0 million. The purposes of acquisition werereduction to invest in a technology complementary to the Company’s core business, to reduce costs by bringing certain technology and expertise in-house and to prepare for anticipated future growth.In November 2017, the Company made a $3.0 million cash investment (the “2017 Biomatrica Investment”) in Biomatrica, Inc. (“Biomatrica”), then a privately held company specializing in the collection and preservation of biological materials. The Company made the 2017 Biomatrica Investment in connection with entering into an agreement for Biomatrica to supply certain products to the Company. Through the 2017 Biomatrica Investment, the Company acquired shares of Biomatrica’s Series E Preferred Stock representing 10 percent, of Biomatrica’s then-outstanding shares of capital stock on an as-converted basis. The 2017 Biomatrica Investment did not constitute a variable interest entity, as the Company did not have control over the supplier’s business. Additionally, as the ownership percentage was below 20 percent, the equity method was not used to accountoperational expenses for the investment. There were no quoted prices or observable pricing inputs availablecredits earned for Biomatrica’s stock. Therefore, the Company accounted for the 2017 Biomatrica Investment at cost, less any impairments, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment. The carrying value of the 2017 Biomatrica Investment was $3.0 million as ofcapital investments and job creation, respectively.2017 and was reported in other99long-term assets in the Company’s consolidated balance sheets.In October 2018,2021, the Company completed a full acquisition of Biomatrica. In the acquisition the Company acquired(the “PreventionGenetics Acquisition”) of all of the outstanding equity interests of PreventionGenetics, LLC. The PreventionGenetics Acquisition provided the Company a Clinical Laboratory Improvement Amendments (“CLIA”) certified and College of American Pathologist (“CAP”) accredited sequencing lab based in Marshfield, Wisconsin. PreventionGenetics provides more than 5,000 predefined genetic tests for an aggregatenearly all clinically relevant genes, additional custom panels, and comprehensive germline, whole exome (“PGxome®”), and whole genome (“PGnome®”) sequencing tests. The Company has included the financial results of PreventionGenetics in the consolidated financial statements from the date of the combination.(In thousands) Cash $ 101,255 Common stock issued 84,252 Total purchase price $ 185,507 (In thousands) Cash and cash equivalents $ 1,574 Accounts receivable 6,261 Inventory 1,697 Prepaid expenses and other current assets 30 Property, plant and equipment 12,793 Developed technology 65,000 Customer relationships 4,000 Trade name 4,000 Total identifiable assets acquired 95,355 Accounts payable (1,493) Accrued liabilities (992) Total liabilities assumed (2,485) Net identifiable assets acquired 92,870 Goodwill 92,637 Net assets acquired $ 185,507 $20.0 millionthe tangible net of cash received, debt repaidassets and certain other adjustments. Contingent considerationintangible assets acquired was recorded to goodwill, which is primarily attributed to the acquired workforce’s genetic sequencing, informatics, and counseling expertise, as well as expected sales force synergies. The total goodwill related to this combination is deductible for an additional $20.0 million could be earnedtax purposes.certain revenue milestones being met. The purpose ofestimates and assumptions that are subject to change within the acquisition was to secure a key suppliermeasurement period as additional information for the Company’s pipeline productsestimates is obtained. The measurement period remains open pending the completion of valuation procedures related to certain acquired assets and expandliabilities assumed, primarily in connection with the Company’s commercial offerings.2018,2021, the Company incurred approximately $0.6$2.7 million of acquisition-related costs associated with this transaction.recorded in general and administrative expenses in the consolidated statement of operations. These costs and expenses include fees associated with financial, legal, accounting and accounting advisors.(In thousands) Cash $ 74,775 Common stock issued 16,224 Contingent consideration 19,000 Total purchase price $ 109,999 (In thousands) Cash and cash equivalents $ 2,474 Accounts receivable 2,349 Inventory 1,811 Prepaid expenses and other current assets 425 Property, plant and equipment 9,947 Operating lease right-of-use assets 548 Developed technology 39,000 Total identifiable assets acquired 56,554 Accounts payable (1,477) Accrued liabilities (1,190) Operating lease liabilities, current portion (343) Other current liabilities (98) Operating lease liabilities, less current portion (205) Total liabilities assumed (3,313) Net identifiable assets acquired 53,241 Goodwill 56,758 Net assets acquired $ 109,999 considerationprice allocation is preliminary and based upon estimates and assumptions that are subject to change within the measurement period as additional information for the 2018 Biomatrica Acquisitionestimates is obtained. The measurement period remains open pending the completion of valuation procedures related to certain acquired assets and liabilities assumed, primarily in connection with the developed technology intangible asset.$24.5 million consistingapproximately $2.19 billion, which consisted of a cash payment at closing of $17.9 million including $0.1 million for a post-closing working capital adjustment, contingent consideration payable in cash and havingthe following:(In thousands) Common stock issued $ 1,175,431 Cash 584,996 Contingent consideration 331,348 Fair value of replaced equity awards 52,245 Previously held equity investment fair value 43,034 Total purchase price $ 2,187,054 $3.4$1.19 billion based on the average of the high and low market price of the Company's shares on the acquisition date, which was $127.79. Of the total consideration for common stock issued, $1.18 billion was allocated to the purchase consideration and $16.0 million exchangewas recorded as compensation within general and administrative expenses in the consolidated statement of Series E Preferredoperations on the acquisition date due to accelerated vesting of legacy Thrive restricted stock awards (“RSA”) and RSU awards in connection with anthe acquisition.Option Plan Shares Assumed Risk-free interest rates 0.11% - 0.12% Expected term (in years) 1.26 - 1.57 Expected volatility 65.54% - 71.00% Dividend yield 0% Weighted average fair value per share of options assumed $109.74 - $124.89 $2.2 million and the reduction of a $1 million Senior Secured Promissory Note and Security Agreement previously providedCompany’s previous ownership in Thrive was determined based on the pro-rata share payout applied to Biomatrica and considered partthe Company’s interest combined with the fair value of the consideration transferred. The Company’s previously held Series E Preferred stock ownership andshare of the contingent consideration fair value were determined through a valuation using the income approach and involved significant unobservable inputs including revenue and operating margin forecasts, an applicable tax rate, a terminal growth rate and discount rate (Level 3). arrangement, as discussed above.valuation of the previously held investment indicated a loss on the investment of $0.8 million. The contingent consideration has been recognized in other long-term liabilities in the consolidated financial statements. The total purchase considerationprice was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values atas follows:(In thousands) Preliminary Allocation
January 5, 2021Measurement Period Adjustments Final Allocation
December 31, 2021Cash and cash equivalents $ 241,748 $ — $ 241,748 Prepaid expenses and other current assets 3,939 — 3,939 Property, plant and equipment 29,977 — 29,977 Operating lease right-of-use assets 39,027 — 39,027 Other long-term assets 67 — 67 In-process research and development (IPR&D) 1,250,000 — 1,250,000 Total identifiable assets acquired 1,564,758 — 1,564,758 Accounts payable (3,222) — (3,222) Accrued liabilities (6,218) (1,862) (8,080) Operating lease liabilities, current portion (2,980) — (2,980) Operating lease liabilities, less current portion (38,622) — (38,622) Deferred tax liability (272,905) — (272,905) Total liabilities assumed (323,947) (1,862) (325,809) Net identifiable assets acquired 1,240,811 (1,862) 1,238,949 Goodwill 946,243 1,862 948,105 Net assets acquired $ 2,187,054 $ — $ 2,187,054 Year Ended December 31, (In thousands) 2021 2020 Total revenues $ 1,767,087 $ 1,491,391 Net loss before tax $ (761,337) $ (1,014,352) (In thousands)Net operating assets2,168Goodwill15,300Trade name700Customer relationships and contracts2,700Developed technology5,400Net operating liabilities(1,754)Total purchase price24,514(In thousands) Preliminary Allocation
March 3, 2020Measurement Period Adjustments Final Allocation
March 3, 2021Net operating assets $ 6,133 $ (760) $ 5,373 Goodwill 29,695 736 30,431 Developed technology 7,800 — 7,800 Net operating liabilities (3,123) (80) (3,203) Total purchase price $ 40,505 $ (104) $ 40,401 required rateweighted average cost of returncapital and tax rate, as well as an estimated royalty rate in the cases of the developed technology and trade name intangibles. The developed technology and tradename intangibles are valued using a relief-from-royalty method. The customer relationships are valued using the multi-period excess earnings method.Trade names represent the value identified associated with the Biomatrica trade name in the market. The trade name intangible is amortized on a straight-line basis over its estimated useful life of 15 years.Biomatricadevelopment had substantiallybeen completed development as of the date of acquisition.acquisition date. Fair value was determined using future discounted cash flows related to the projected income stream of the developed technology for a discrete projection period. Cash flows were discounted to their present value as of the closing date. Developed technology is amortized on a straight-line basis over its estimated useful life of 15 years.Customer relationshipscontracts represent agreements with existing Biomatrica customers. Customer relationships and contracts are amortized on a straight-line basis over their estimated useful life of 15 years.100EXACT SCIENCES CORPORATIONNotesintangible assets acquired was recorded to Consolidated Financial Statements (Continued)The goodwill, generated from the acquisition of Biomatricawhich is primarily relatedattributed to the assembled workforce and expected synergies. The total goodwill related to this acquisition is not deductible for tax purposes.initial accountingCompany agreed to issue to the previous investors in Viomics equity interests with an acquisition-date fair value of up to $8.4 million in Viomics, vesting over 4 years based on certain retention arrangements. Payment is contingent upon continued employment with the Company over the four year vesting period and is recognized as stock-based compensation expense in general and administrative expense in the consolidated statement of operations.businessfinancial results of Genomic Health in the consolidated financial statements from the date of the combination.not completeapproximately $2.47 billion, which consisted of the following:(In thousands) Cash $ 1,061,489 Common stock issued 1,389,266 Fair value of replacement stock options and restricted stock awards 17,813 Total purchase price $ 2,468,568 timeacquisition date. The fair value of the financial statementsstock options assumed by the Company was determined using the Black-Scholes option pricing model. The share conversion ratio of 0.76534 was applied to convert Genomic Health’s outstanding equity awards for Genomic Health’s common stock into equity awards for shares of the Company’s common stock.issued. Limitationsbased on the useassumptions in the following table:Option Plan Shares Assumed Risk-free interest rates 0.88% - 2.90% Expected term (in years) 3.28 - 6.73 Expected volatility 63.54% - 69.09% Dividend yield 0% Weighted average fair value per share of options assumed $45.75 - $57.44 carryforwardadministrative expense. These costs include fees associated with financial, legal, accounting and other advisors incurred to complete the combination.the2019 and recorded $32.1 million in severance benefits charges.operating losses acquired from Biomatrica are being analyzed under IRS section 382.The partial year results for Biomatrica’s operations areloss before tax of Genomic Health included in the Company’s consolidated statement of operations from the combination date of November 8, 2019 to December 31, 2019.(In thousands) 2019 Total revenues $ 66,174 Net loss before tax $ (40,446) (In thousands) 2019 Total revenues $ 1,266,591 Net loss before tax $ (389,795) (In thousands) Consideration Cash paid for acquisition of PFS Genomics outstanding shares $ 33,569 Assets acquired and liabilities assumed Cash 496 IPR&D asset 33,074 Other assets and liabilities (1) Net assets acquired $ 33,569 (15)(In thousands) Consideration Cash paid for acquisition of Base Genomics outstanding shares $ 416,525 Transaction costs 4,600 Total consideration 421,125 Assets acquired and liabilities assumed Cash 9,704 IPR&D asset 412,568 Other assets and liabilities (1,147) Net assets acquired $ 421,125 Year Ended December 31, (In thousands) 2021 2020 2019 United States $ 1,657,174 $ 1,413,907 $ 864,849 Outside of United States 109,913 77,484 11,444 Total revenues $ 1,767,087 $ 1,491,391 $ 876,293 2018,2021, the Company had federal net operating loss, state net operating loss, and foreign net operating loss carryforwards of approximately $937.4 million, $403.5 million,$2.15 billion, $1.04 billion, and $7.8$15.9 million, respectively for financial reporting purposes, which may be used to offset future taxable income. The Tax Cuts and Jobs Act (H.R. 1) of 2017 limits the deduction for net operating losses to 80% of current year taxable income and provides for an indefinite carryover period for federal net operating losses. Both provisions are applicable for losses arising in tax years beginning after December 31, 2017. As of December 31, 2021 the Company has $1.32 billion of federal net operating loss carryovers incurred after December 31, 2017 with an unlimited carryover period and $835.6 million of federal net operating loss carryovers expiring at various dates through 2041. State and foreign net operating loss carryovers expire at various dates through 2041. All net operating loss carryforwards are subject to review and possible adjustment by federal, state and foreign taxing jurisdictions. The Company also had federal and state research tax credit carryforwards of $17.4$63.0 million and $7.5$39.8 million, respectively which may be used to offset future income tax liability. The federal credit carryforwards expire at various dates through 20382041 and are subject to review and possible adjustment by the Internal Revenue Service. A portion of theThe state credit carryforwards expired in 2018expire at various dates through 2036 with the exception of $23.5 million of Californiathe remainder begin to expire in 2019 through 2033 anddevelopment tax credits that have an indefinite carryforward period. All state tax credits are subject to review and possible adjustment by statelocal tax jurisdictions. In the event of a change of ownership, the federal and state net operating loss and research and development tax credit carryforwards may be subject to annual limitations provided by the Internal Revenue Code and similar state provisions.On December 22, 2017,U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code, including, but not limited to, the following that impacts the Company: (1) reducing the U.S. federal corporate income tax rate from 35 percent to 21 percent; (2) eliminating the corporate alternative minimum tax; (3) creating a new limitation on deductible interest expense; (4) limiting the deductibility of certain executive compensation; and (5) limiting certain other deductions.Year Ended December 31, (In thousands) 2021 2020 2019 Income (loss) before income taxes: Domestic $ (801,536) $ (423,025) $ (405,425) Foreign (40,970) (406,038) (1,019) Total income (loss) before income taxes $ (842,506) $ (829,063) $ (406,444) 101Year Ended December 31, (In thousands) 2021 2020 2019 Current expense (benefit): Federal $ — $ (3) $ — State 1,388 802 314 Foreign 4,898 933 (63) Deferred tax expense (benefit): Federal (222,693) (3,050) (173,521) State (30,528) (4,260) (20,099) Foreign 54 120 15 Total income tax expense (benefit) $ (246,881) $ (5,458) $ (193,354)
The Company recorded an income tax benefit for the year ended December 31, 2021 of $246.9 million primarily as a result of the change in the deferred tax asset valuation allowance resulting from the Thrive Merger.December 31, (In thousands) 2021 2020 Deferred tax assets: Operating loss carryforwards $ 516,344 $ 369,642 Tax credit carryforwards 72,959 64,760 Compensation related differences Compensation related differences 74,127 48,349 Lease liabilities Lease liabilities 48,201 31,938 Capitalized research and development Capitalized research and development 23,035 — Other temporary differences 20,087 6,136 Tax assets before valuation allowance 754,753 520,825 Less - Valuation allowance (262,238) (293,397) Total deferred tax assets 492,515 227,428 Deferred tax liabilities Amortization $ (464,748) $ (197,847) Property, plant and equipment Property, plant and equipment (4,756) (4,580) Lease assets Lease assets (45,781) (30,312) Other temporary differences (6,012) (3,995) Total deferred tax liabilities (521,297) (236,734) Net deferred tax liabilities Net deferred tax liabilities $ (28,782) $ (9,306) $209.9$262.2 million and $214.3$293.4 million at December 31, 20182021 and 2017,2020, respectively, is necessary to reduce the tax assets to the amount that is more likely than not to be realized. Given the future limitations on and expiration of certain federal and state deferred tax assets, the recording of a valuation allowance resulted in a deferred tax liability of approximately $28.8 million remaining at the end of 2021, which is included in other long-term liabilities on the Company's consolidated balance sheet. The overall change in valuation allowance for December 31, 20182021 and 20172020 was a decrease of $4.4$31.2 million and $45.8an increase of $98.0 million, respectively,respectively.revised forfollows:December 31, (In thousands) 2021 2020 2019 Balance as of January 1, $ (293,397) $ (195,401) $ (265,587) Valuation allowances established (206,574) (94,589) (113,522) Changes to existing valuation allowances (1,500) 2,151 (22) Acquisition and purchase accounting 239,233 (5,558) 183,730 Balance as of December 31, $ (262,238) $ (293,397) $ (195,401) correction ofyear ended December 31, 2021, the immaterial items described below. DueCompany recorded an increase to the existence of the valuation allowance future changes inof $206.6 million primarily related to losses from continuing operations. Offsetting the Company’s unrecognized tax benefits will not impactincrease, the Company’s effective tax rate.December 31, 2021 2020 2019 U.S. Federal statutory rate 21.0 % 21.0 % 21.0 % State taxes 3.6 1.7 3.4 Federal and state tax rate changes (0.3) — 0.1 Foreign tax rate differential (0.6) (1.0) 0.4 Acquired IPR&D asset expense Acquired IPR&D asset expense (0.8) (9.4) — Research and development tax credits 0.7 1.6 0.7 Stock-based compensation expense 1.1 1.1 14.6 Non-deductible executive compensation (0.2) (0.8) (2.7) Transaction costs Transaction costs (0.1) (0.1) (0.5) Loss on extinguishment - convertible notes Loss on extinguishment - convertible notes — — (9.2) Other adjustments 1.2 (2.2) (0.5) Valuation allowance 3.7 (11.3) 20.2 0.2 0.0 Effective tax rate 29.3 % 0.6 % 47.5 % During preparation of2018 financial statements,year ended December 31, 2021, the Company corrected the prior year balance of deferredrecognized an income tax assets relating to net operating loss carryovers and other temporary differences, as well as the valuation allowance related to those assets bybenefit, representing an equal and offsetting amount. The correction related to the application of §162(m) on the deductibility of executive compensation. At December 31, 2017, the deferred tax assets and related valuation allowance were adjusted by $19.6 million in the table above, as a result of these corrections. Additionally, non-deductible executive compensation has been added as a separate line item in the rate reconciliation, the federal and stateeffective tax rate changes were102decreased by 9.8% for 201729.3%. The difference between the expected statutory federal tax rate of 21.0% and the valuation allowance was decreased by 5.5% for 2016. The Company carries a full valuation allowance against net deferredeffective tax assets, therefore these immaterial adjustments to the disclosures had no effect on the consolidated balance sheets, statementsrate of operations and cash flows29.3% for the year ended December 31, 2018, 2017, and 2016.During 2018, the Company engaged in a research and development2021, was primarily attributable to an income tax credit study for its historical tax credit carryovers. Asbenefit of $239.2 million recorded as a result of this study,a change in the deferred tax asset valuation allowance resulting from the Thrive Merger.claimedrecognized an additional $5.0income tax benefit, representing an effective tax rate of 0.6%. The difference between the expected statutory federal tax rate of 21.0% and the effective tax rate of 0.6% for the year ended December 31, 2020, was primarily attributable to the valuation allowance established against the Company's current period losses generated and the non-deductible IPR&D expense related to the Base Genomics acquisition.federal and $2.2 million of state research and development credits. The credits are available to be carried forward. The study identified uncertaina change in the deferred tax asset valuation allowance resulting from the Genomic Health combination, as well as excess tax benefits of $1.9 millionon vested stock-based compensation awards.credits.credits of $21.8 million, $16.6 million, and $10.3 million as of December 31, 2021, 2020, and 2019, respectively. These amounts have been recorded as a reduction to ourthe Company's deferred tax assets. Aasset, if recognized they would not have an impact on the effective tax rate due to the existing valuation allowance was recorded against these attributes at December 31, 2017, therefore there was no impact to income tax expense as a resultallowance. Certain of recording the Company's unrecognized tax benefits during the year ended December 31, 2018. Includedcould change due to activities of various tax authorities, including possible settlement of audits, or through normal expiration of various statutes of limitations. The Company does not expect a material change in the balance of unrecognized tax benefits asin the next twelve months.December 31, (In thousands) 2021 2020 2019 January 1, $ 16,629 $ 10,276 $ 1,926 Increase due to current year tax positions 5,363 3,600 2,142 Increase due to prior year tax positions — 2,753 6,208 Decrease due to prior year tax positions (212) — — Settlements — — — December 31, $ 21,780 $ 16,629 $ 10,276 2018,2021, due to the carryforward of unutilized net operating losses and research and development credits, the Company is subject to U.S. Federalfederal income tax examinations for the tax years 19992002 through 2018,2021, and to state income tax examinations for the tax years 20032002 through 2018.2021. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2018, 20172021, 2020 and 2016.(16) RELATED PARTY TRANSACTIONSIn May 2017, the Company entered into a professional services agreement for recruiting and related services with a firm whose principal is a non-employee director. The Company incurred charges of $0.3 million and made payments of $0.3 million for the year ended December 31, 2018. The Company incurred charges of $0.2 million and made payments of $0.2 million for the year ended December 31, 2017.103(17)(22) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)20182021 and 2017.2020. In the opinion of management, this information has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this Form 10‑K, and contains all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairlyconsidered necessary for a fair statement of the unaudited quarterly results of operations.for the periods presented. The quarterly data should be read in conjunction with the Company’s audited consolidated financial statements and the notes to the consolidated financial statements appearing elsewhere in this Form 10‑K.
_________________________________Quarter Ended March 31, June 30, September 30, December 31, (Amounts in thousands, except per share data) 2021 Revenue $ 402,077 $ 434,819 $ 456,379 $ 473,812 Cost of sales (exclusive of amortization of acquired intangible assets) 109,993 113,968 115,738 119,058 Amortization of acquired intangible assets (1) 20,555 21,188 21,214 21,216 Gross profit 271,529 299,663 319,427 333,538 Operating expenses, net (2) 572,070 471,327 481,450 554,988 Interest income and interest expense 26,572 (1,223) (8,773) (3,404) Income tax benefit (expense) 242,805 (4,025) 3,858 4,243 Net loss $ (31,164) $ (176,912) $ (166,938) $ (220,611) Net loss per share—basic and diluted $ (0.18) $ (1.03) $ (0.97) $ (1.28) Weighted average common shares outstanding—basic and diluted 169,434 171,494 171,978 172,446 2020 Revenue $ 347,821 $ 268,868 $ 408,363 $ 466,339 Cost of sales (exclusive of amortization of acquired intangible assets) 81,606 77,892 95,061 99,765 Amortization of acquired intangible assets (1) 20,464 20,555 20,555 20,553 Gross profit 245,751 170,421 292,747 346,021 Operating expenses (2) 328,124 237,430 496,082 761,000 Interest income and interest expense (3) (54,507) (1,388) (1,955) (3,517) Income tax benefit (3) 2,237 305 2,752 164 Net loss $ (134,643) $ (68,092) $ (202,538) $ (418,332) Net loss per share—basic and diluted $ (0.91) $ (0.45) $ (1.35) $ (2.67) Weighted average common shares outstanding—basic and diluted 148,151 149,727 150,155 156,470 104theseour disclosure controls and procedures were effective as of December 31, 20182021 to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in Securities and Exchange Commission rules and forms and that material information relating to the Company is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosures.2018,2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.effectiveadequate internal control over financial reporting as defined in Rule 13a‑15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of published financial statements for external purposes in accordance with generally accepted accounting principles.Therefore, even those systems determinedAlso, projections of any evaluation of effectiveness to be effective can provide only reasonable assurancefuture periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with respect to financial statement preparation and presentation.Underthe policies or procedures may deteriorate. including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2018.2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013). Based on our assessment, wemanagement, including our principal executive officer and principal financial officer, concluded that, as of December 31, 2018,2021, our internal control over financial reporting was effective based on those criteria.Our independent registered public accounting firm, BDO USA, LLP, has issued an audit report on theourthe Company's internal control over financial reporting as of December 31, 2018,2021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is includedappears herein.None.10520192022 Annual Meeting of Stockholders: “Information Concerning Directors and Nominees for Director,” “Information Concerning Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance Principles and Board Matters,” and “The Board of Directors and Its Committees.”20192022 Annual Meeting of Stockholders: “Compensation and Other Information Concerning Directors and Officers,” “The Board of Directors and Its Committees,” and “Report of The CompensationHuman Capital Committee.”20192022 Annual Meeting of Stockholders: “Equity Compensation Plan Information” and “Securities Ownership of Certain Beneficial Owners and Management.”20192022 Annual Meeting of Stockholders: “Certain Relationships and Related Transactions” and “Corporate Governance Principles and Board Matters.”20192022 Annual Meeting of Stockholders: “Independent Registered Public Accounting Firm” and “Pre‑Approval“Pre-Approval Policies and Procedures.”106(a)The following documents are filed as part of this Form 10‑K:(1)Financial Statements (see “Consolidated Financial Statements and Supplementary Data” at Item 8 and incorporated herein by reference).(2)Financial Statement Schedules (Schedules to the Financial Statements have been omitted because the information required to be set forth therein is not applicable or is shown in the accompanying Financial Statements or notes thereto).(3)Exhibits
Number
Reference herein
from Form or
Schedule3.18-K
(Exhibit 2.1)7/30/2019 001-35092 Agreement and Plan of Merger, dated October 26, 2020, by and among the Registrant, certain subsidiaries of the Registrant, Thrive Earlier Detection Corp. and Shareholder Representative Services LLC 8-K
(Exhibit 2.1)10/27/2020 001-35092 First Amendment to Agreement and Plan of Merger, dated December 23, 2020, by and among the Registrant, certain subsidiaries of the Registrant, Thrive Earlier Detection Corp. and Shareholder Representative Services LLC 8-K
(Exhibit 2.1)1/5/2021 001-35092 Second Amendment to Agreement and Plan of Merger, dated January 4, 2021, by and among the Registrant, certain subsidiaries of the Registrant, Thrive Earlier Detection Corp. and Shareholder Representative Services LLC 8-K
(Exhibit 2.2)1/5/2021 001-35092 Sixth Amended and Restated Certificate of Incorporation of the Registrant
(Exhibit 3.3)003.2Amendment to Sixth Amended and Restated Certificate of Incorporation of the Registrant DEF 14A
(Appendix B)6/20/143.3Sixth Amended and Restated By-Laws of the Registrant 10-Q
(Exhibit 3.3)10/30/174.1Specimen certificate representing the Registrant’s Common Stock
(Exhibit 4.1)004.2Indenture, dated January 17, 2018, by and between the Registrant and U.S. Bank Trust Company, National Association (as successor to U.S. Bank National Association), as Trustee
(Exhibit 4.1)184.3First Supplemental Indenture, dated January 17, 2018, by and between the Registrant and U.S. Bank Trust Company, National Association (as successor to U.S. Bank National Association), as Trustee (including the form of 1.0% Convertible Senior Notes due 2025)
(Exhibit 4.2)18107Lease Agreements10.1Second Supplemental Indenture, dated March 8, 2019, by and between the Registrant and U.S. Bank Trust Company, National Association (as successor to U.S. Bank National Association), as Trustee (including the form of 0.3750% Convertible Senior Notes due 2027) 8-K
(Exhibit 4.2)3/8/2019 001-35092 Third Supplemental Indenture, dated February 27, 2020, by and between the Registrant and U.S. Bank Trust Company, National Association (as successor to U.S. Bank National Association), as Trustee (including the form of 0.3750% Convertible Senior Notes due 2028) 2/27/2020 001-35092 Description of Common Stock 10-K
(Exhibit 10.1)2/16/2021 001-35092 Lease Agreements Second Amended and Restated Lease Agreement, dated September 28, 2018, by and between University Research Park Incorporated and the Registrant X10-K
(Exhibit 10.1)2/21/2019 001-35092 10.2Lease Agreement, dated June 25, 2013, by and between Tech Building I, LLC and Exact Sciences Laboratories, Inc.
(Exhibit 10.2)13Lease Agreement, dated November 11, 2015, by and between Metropolitan Life Insurance Company and Genomic Health, Inc. 10-K
(Exhibit 10.3)2/21/2020 001-35092 First Amendment to Lease Agreement, dated October 4, 2019, by and between Metropolitan Life Insurance Company and Genomic Health, Inc. 10-K
(Exhibit 10.4)2/21/2020 001-35092 Lease Agreement, dated September 23, 2005, by and between Metropolitan Life Insurance Company and Genomic Health, Inc. 10-K
(Exhibit 10.5)2/21/2020 001-35092 First Amendment to Lease Agreement, dated September 5, 2006, by and between Metropolitan Life Insurance Company and Genomic Health, Inc. 10-K
(Exhibit 10.6)2/21/2020 001-35092 Second Amendment to Lease Agreement, dated November 30, 2010, by and between Metropolitan Life Insurance Company and Genomic Health, Inc. 10-K
(Exhibit 10.7)2/21/2020 001-35092 Agreements with Executive Officers and Directors10.3*10-K
(Exhibit 10.8)2/21/2020 001-35092 Fourth Amendment to Lease Agreement, dated October 4, 2019, by and between Metropolitan Life Insurance Company and Genomic Health, Inc. 10-K
(Exhibit 10.9)2/21/2020 001-35092 Agreements with Executive Officers and Directors Employment Agreement, dated March 18, 2009, by and between Kevin T. Conroy and the Registrant
(Exhibit 10.1)0910.4*Employment Agreement dated October 30, 2015 by and between Scott Coward and the Registrant10-K(Exhibit 10.7)2/24/16001-3509210.5*Employment Agreement dated August 1, 2009 by and between Graham Lidgard and the Registrant10-Q(Exhibit 10)11/12/09000-3217910.6*
(Exhibit 10.9)1710.7*Employment Agreement, dated April 2, 2018October 30, 2015, by and between Mark StenhouseScott Coward and the Registrant10-Q10.2)10.13)10/30/1810.8*Employment Agreement, dated September 11,February 18, 2019, by and between Jacob Orville and the Registrant2/21/2020 001-35092 Employment Agreement, dated August 22, 2017, by and between Scott JohnsonSarah Condella and the RegistrantX10-K
(Exhibit 10.16)2/16/2021 001-35092 10.9*Employment Agreement, dated April 25, 2018November 11, 2021, by and between Maneesh AroraEverett Cunningham and the RegistrantX 10-Q(Exhibit 10.4)4/26/18001-35092Equity Compensation Plans and Policies10.10*10-K(Exhibit 10.2)3/31/09000-3217910.11*The Registrant’s 2010 Employee Stock Purchase Plan
(Appendix B)1010810.12*First Amendment to the Registrant’s 2010 Employee Stock Purchase Plan
(Appendix A)1410.13*Second Amendment to the Registrant’s 2010 Employee Stock Purchase Plan
(Appendix A)1610.14*The Registrant’s 2016 Inducement Award Plan
(Exhibit 10.3)1610.15*The Registrant’s 2016 Inducement Award Plan Form Restricted Stock Unit Award Agreement
(Exhibit 4.7)1610.16*The Registrant’s 2010 Omnibus Long‑Term Incentive Plan (As Amended and Restated Effective July 27, 2017)
(Exhibit 10.1)1710.17*10-K(Exhibit 10.31)2/22/18001-3509210.18*10-K(Exhibit 10.32)2/22/18001-3509210.19*10-K(Exhibit 10.33)2/22/18001-3509210.20*The Registrant’s Non-Employee Director Compensation Policy dated January 29, 2019X10.21*The Registrant’sRegistrant's Non-Employee Director Compensation Policy dated October 25, 2018X10-K
(Exhibit 10.25)2/16/2021 001-35092 10.22*The Registrant’s Executive Deferred Compensation Plan dated January 1, 2019 X10-K
(Exhibit 10.22)2/21/2019 001-35092 Third Amendment to the Registrant's 2010 Employee Stock Purchase Plan 10-Q
(Exhibit 10.1)7/30/2019 001-35092 Credit Agreements10.238-K(Exhibit 10.1)12/18/17001-3509210.248-K(Exhibit 10.2)12/18/17001-35092109OtherS-8
(Exhibit 4.4)7/31/2019 333-23916 The Registrant's 2019 Omnibus Long-Term Incentive Plan Form Stock Option Award Agreement 2/21/2020 001-35092 The Registrant's 2019 Omnibus Long-Term Incentive Plan Form Restricted Stock Unit Award Agreement 2/21/2020 001-35092 The Registrant's 2019 Omnibus Long-Term Incentive Plan Form Restricted Stock Award Agreement 2/21/2020 001-35092 Genomic Health, Inc. Amended and Restated 2005 Stock Incentive Plan, as amended 11/8/2019 333-234608 Thrive Earlier Detection Corp. 2019 Stock Option and Grant Plan 1/5/2021 333-251900 Other Technology License Agreement dated as of October 14, 2009 by and among Hologic, Inc., Third Wave Technologies, Inc., and the Registrant
(Exhibit 10.39)1010.26**Amendment dated December 7, 2012 to Technology License Agreement dated October 14, 2009 by and among Hologic, Inc., Third Wave Technologies, Inc., and the Registrant
(Exhibit 10.37)1310.27**Second Amended and Restated License Agreement dated effective January 31, 2015,1, 2020, by and between the Registrant and Mayo Foundation for Medical Education and Research
(Exhibit 10.1)5/4/1510.28**10-Q/A(Exhibit 10.2)6/3/16001-3509210.29**10-K(Exhibit 10.21)2/22/18001-3509210.30**X10.31**License Agreement dated July 26, 2010 by and between MDx Health S.A. and the Registrant10-K(Exhibit 10.25)2/28/14001-3509210.32**10-K(Exhibit 10.26)2/28/14001-3509210.33Royalty Buy-Out Agreement by and between MDx Health S.A. and the Registrant, dated April 25, 20178-K(Exhibit 10.1)4/27/17001-3509211010.34Promotion Agreement dated August 21, 2018 between the Registrant and Pfizer, Inc.8-K(Exhibit 10.1)8/22/18001-350922123.1Consent of PricewaterhouseCoopers, LLP X Consent of BDO USA, LLP 24.124.1 Power of Attorney (included on signature page) 31.1Certification Pursuant to Rule 13a‑14(a) or Rule 15d‑14(a) of the Securities Exchange Act of 1934 31.2Certification Pursuant to Rule 13a‑14(a) or Rule 15d‑14(a) of the Securities Exchange Act of 1934 32Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101Interactive Data FilesX101 The following materials from the Annual Report on Form 10-K of Exact Sciences Corporation for the year ended December 31, 2021 filed with the Securities and Exchange Commission on February 22, 2022, formatted in Inline eXtensible Business Reporting Language (“iXBRL”): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statement of Changes in Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows and (v) related notes to these financial statements X 104 The cover page from the Annual Report on Form 10-K of Exact Sciences Corporation for the year ended December 31, 2021 filed with the Securities and Exchange Commission on February 22, 2022, formatted in Inline eXtensible Business Reporting Language (“iXBRL”) X 11121, 2019TitleDate /s/ Kevin T. ConroyKevin T. ConroyPresident and Chief Executive Officer (Principal Executive Officer) and Chairman of the Board February 21, 201922, 2022Kevin T. Conroy Jeffrey T. ElliottExecutive Vice President, Chief Financial Officer, and Chief Operating Officer (Principal Financial Officer and Principal Accounting Officer) February 21, 201922, 2022Jeffrey T. Elliott /s/ Thomas D. CareyThomas D. CareyDirectorFebruary 21, 2019/s/ Paul Clancy Director February 22, 2022 /s/ Eli CasdinEli CasdinDirectorFebruary 21, 2019 Lead Independent Director February 22, 2022 James E. Doyle DirectorFebruary 21, 2019John A. Fallon M.D.John A. FallonDirectorFebruary 21, 201922, 2022Freda Lewis-Hall /s/ Pierre Jacquet Director February 22, 2022 Pierre Jacquet /s/ Daniel J. Levangie Director February 22, 2022 Daniel J. Levangie DirectorFebruary 21, 2019David ThompsonDavid ThompsonLead Independent DirectorFebruary 21, 201922, 2022Shacey Petrovic /s/ Michael S. Wyzga Michael S. WyzgaDirectorFebruary 21, 2019/s/ Kathleen Sebelius Director February 22, 2022 /s/ Katherine S. Zanotti Director February 22, 2022 Katherine S. Zanotti DirectorFebruary 21, 2019112