Business combinations | Business combinations AltaVoice On January 6, 2017, the Company acquired AltaVoice (formerly PatientCrossroads, Inc.), a privately-owned patient-centered data company with a global platform for collecting, curating, coordinating and delivering safeguarded data from patients and clinicians. The acquisition, complemented by several other strategic partnerships, expanded the Company's genome network, designed to connect patients, clinicians, advocacy organizations, researchers and therapeutic developers to accelerate the understanding, diagnosis, and treatment of hereditary disease. Pursuant to the terms of the Stock Purchase Agreement, the Company acquired all of the outstanding shares of AltaVoice for total purchase consideration of $12.4 million , payable in the Company’s common stock, as follows: (a) payment of $5.5 million through the issuance of 641,126 shares of the Company’s common stock; (b) payment of $5.0 million in the Company’s common stock, payable on March 31, 2018, with the common shares deliverable equal to $5.0 million divided by the trailing average share price of the Company’s common stock for the 30 days preceding March 31, 2018. This payment was made in April 2018 through the issuance of 716,332 shares of the Company's common stock; (c) payment of $5.0 million in the Company’s common stock, which was contingently payable on March 31, 2018 if a milestone based on a certain threshold of revenue was achieved during 2017, with the shares deliverable equal to $5.0 million divided by the trailing average share price of the Company’s common stock for the 30 days preceding March 31, 2018. As the foregoing milestone was not achieved, there was a new contingent milestone based on achieving a revenue target during 2017 and 2018. Since this new contingent milestone was achieved, on March 31, 2019, a payment of $5.0 million in the Company’s common stock will be payable. The actual payout is dependent upon meeting the 2017 and 2018 revenue targets (capped at $14.0 million ) times 75% less $5.5 million . This formula in effect caps the possible payout amount at $5.0 million in the Company’s common shares. The number of shares to be issued will be equal to the payout amount divided by the trailing average share price of the Company’s common stock for the 30 days preceding March 31, 2019. The first payment of $5.5 million was classified as equity. The second payment was discounted to $4.7 million as of the acquisition date, recorded as a liability, and was accreted to fair value at each reporting date until the extinguishment of the liability in April 2018. The third payment, representing contingent consideration, was determined to have a fair value of $2.2 million as of the acquisition date and was recorded as a liability. In accordance with ASC Topic 805, Business Combinations, the contingent consideration of $2.2 million was remeasured to fair value at each reporting date until the contingency was resolved, with changes in fair value recognized in earnings. For the second payment, the acquisition-date fair value was $4.7 million , and the Company recorded accretion gains (losses) of $1.6 million and $(0.2) million in other income (expense), net, for the years ended December 31, 2018 and 2017 , respectively. The accretion gains in 2018 resulted from an adjustment to the value of the second payment as of March 31, 2018, and principally reflected the difference between the value of the common shares deliverable, based upon the closing price of the Company’s stock on March 29, 2018, and the value per share used to calculate the number of common shares deliverable. The accretion losses in 2017 resulted from adjustments to the discounted value of the second payment, reflecting the passage of time. For the third payment, the acquisition-date fair value was $2.2 million , and the Company recorded remeasurement losses of $1.2 million and $1.6 million in general and administrative expense for the years ended December 31, 2018 and 2017 , respectively. The remeasurement losses in 2018 reflect updated estimations of fair value of the third payment, based upon achieving a revenue target during 2017 and 2018, as the milestone based on a certain threshold of revenue to be achieved during 2017 was not met. The principal inputs affecting those estimations have been updates to the Company’s revenue forecasts and the passage of time. Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. While the Company believes that its estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different valuations assigned to the individual assets acquired and liabilities assumed, and the resulting amount of goodwill. The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition (in thousands): Cash $ 54 Accounts receivable 274 Prepaid expense and other assets 52 Non-compete agreement 286 Developed technology 570 Customer relationships 3,389 Total identifiable assets acquired 4,625 Accounts payable (28 ) Deferred revenue (202 ) Accrued expenses (21 ) Deferred tax liability (1,422 ) Total liabilities assumed (1,673 ) Net identifiable assets acquired 2,952 Goodwill 9,432 Net assets acquired $ 12,384 Acquisition-related intangibles included in the above table are finite-lived. Customer relationships are being amortized on an accelerated basis, utilizing free cash flows, over a period of ten years . All other acquisition-related intangibles are being amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized, as follows (in thousands): Gross Purchased Intangible Assets Estimated Useful Life (in Years) Non-compete agreement $ 286 5 Developed technology 570 6 Customer relationships 3,389 10 $ 4,245 Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of AltaVoice resulted in $9.4 million of goodwill which the Company believes consists principally of expected synergies to be realized by combining capabilities, technology and data to accelerate the use of genetic information for the diagnosis and treatment of hereditary diseases. In accordance with ASC 350, goodwill will not be amortized but will be tested for impairment at least annually. Goodwill created as a result of the acquisition is not deductible for tax purposes. The Company has finalized its assessment of fair value of the assets and liabilities assumed at the acquisition date. Ommdom On June 11, 2017, the Company acquired Ommdom, Inc. (“Ommdom”), a privately held company that develops, commercializes and sells hereditary risk assessment and management software, including CancerGene Connect, a cancer genetic counseling platform. The acquisition expanded Invitae’s suite of genome management offerings designed to help patients and clinicians use genetic information as part of mainstream medical care. CancerGene Connect is a platform for collecting and managing genetic family histories. Pursuant to the terms of a Stock Exchange Agreement, the Company acquired all of the outstanding shares of Ommdom for consideration of $6.1 million , payable entirely in the Company’s common stock. There was no cash consideration nor any contingent payments associated with the acquisition, other than a hold-back amount of $0.6 million . Per the terms of the agreement, the Company was obligated to issue shares of its common stock as follows: (a) payment of $5.5 million through the issuance of 600,108 shares of the Company’s common stock on the acquisition date; and (b) payment of $0.6 million through the issuance of 66,582 shares of the Company’s common stock, representing a hold-back amount, and payable on the twelve-month anniversary of the acquisition date. The first payment of $5.5 million was classified as equity. The second payment of $0.6 million was recorded as a stock payable liability on the acquisition date and was reclassified to equity upon the issuance of 66,582 shares of the Company’s common stock in June 2018. Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. While the Company believes that its estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different valuations assigned to the individual assets acquired and liabilities assumed, and the resulting amount of goodwill. The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition (in thousands): Cash $ 53 Accounts receivable 10 Prepaid expense and other assets 4 Trade name 13 Developed technology 2,335 Customer relationships 147 Total identifiable assets acquired 2,562 Accounts payable (16 ) Accrued expenses (17 ) Deferred tax liability (434 ) Total liabilities assumed (467 ) Net identifiable assets acquired 2,095 Goodwill 4,045 Net assets acquired $ 6,140 Finite-lived intangibles included in the above table are being amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized, as follows (in thousands): Gross Purchased Intangible Assets Estimated Useful Life (in Years) Trade name $ 13 5 Developed technology 2,335 5 Customer relationships 147 5 $ 2,495 Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of Ommdom resulted in the recognition of $4.0 million of goodwill which the Company believes consists principally of expected synergies to be realized by expanding the Company’s suite of genome management offerings. In accordance with ASC 350, goodwill will not be amortized but rather will be tested for impairment at least annually. Goodwill created as a result of the acquisition is not deductible for tax purposes. The Company has finalized its assessment of fair value of the assets and liabilities assumed at the acquisition date. Good Start Genetics On August 4, 2017, the Company acquired 100% of the fully diluted equity of Good Start, a privately held molecular diagnostics company focused on preimplantation and carrier screening for inherited disorders. The acquisition of Good Start was intended to further Invitae’s plan to create a comprehensive genetic information platform providing high-quality, affordable genetic information coupled with world-class clinical expertise to inform healthcare decisions throughout every stage of an individual’s life. The purchase consideration for the Good Start acquisition consisted of the assumption of the net liabilities of Good Start of $24.4 million at the acquisition date. Immediately subsequent to the acquisition of Good Start, the Company paid $18.4 million in cash to settle outstanding notes payable, accrued interest and related costs. In addition, and immediately subsequent to the acquisition, the Company settled outstanding convertible promissory notes payable through: (a) payment of $11.9 million through the issuance of 1,148,283 shares of the Company’s common stock; and (b) payment of $3.6 million through the issuance of 343,986 shares of the Company’s common stock, representing a hold-back amount payable on the one-year anniversary of the acquisition date. In September 2018, the Company issued 212,260 shares in partial payment of the hold-back amount payable. The remainder of the hold-back amount payable, approximately $1.3 million as of December 31, 2018, will be settled upon resolution of outstanding claims from Good Start customers, of which $0.6 million was settled in January 2019. Also in connection with the acquisition of Good Start and immediately subsequent to the acquisition, the Company paid bonuses to certain members of Good Start’s management team through: (a) payment of $0.9 million through the issuance of 83,025 shares of the Company’s common stock; and (b) payment of $0.4 million through the issuance of 37,406 shares of the Company’s common stock, representing a hold-back amount payable on the one-year anniversary of the acquisition date. In September 2018, the Company issued 27,784 shares in partial payment of the hold-back amount payable to settle bonuses to Good Start's management team. The remainder of the hold-back amount payable, approximately $0.2 million as of December 31, 2018, will be settled upon resolution of outstanding claims from Good Start customers, of which $0.1 million was settled in January 2019. These bonus payments were recorded as general and administrative expense. Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. While the Company believes that its estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different valuations assigned to the individual assets acquired and liabilities assumed, and the resulting amount of goodwill. At acquisition date, the Company also recorded $4.8 million as a provisional amount for a deferred tax liability because certain information and analysis related to Good Start’s historical net operating losses that could have affected the Company’s initial valuation was still being obtained or reviewed at that time. This provisional amount for the deferred tax liability was subsequently reversed during the fourth quarter of 2017 based on the results of further analysis of Good Start’s historical net operating losses. The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition (in thousands): Cash and restricted cash $ 1,381 Accounts receivable 2,246 Prepaid expense and other assets 1,579 Property and equipment 1,320 Trade name 460 Developed technology 5,896 Customer relationships 7,830 Total identifiable assets acquired 20,712 Accounts payable (5,418 ) Accrued expenses (6,802 ) Notes payable (17,904 ) Convertible promissory notes payable (15,430 ) Other liabilities (222 ) Total liabilities assumed (45,776 ) Net identifiable assets acquired (25,064 ) Goodwill 25,064 Net assets acquired $ — During the year ended December 31, 2018, the Company recorded adjustments to its accounting for the amount recorded as accounts receivable at acquisition. Accordingly, the fair value of accounts receivable was decreased by $0.7 million during the year ended December 31, 2018, with corresponding increases to goodwill. Customer relationships are being amortized on an accelerated basis, utilizing free cash flows, over a period of eight years . All other finite-lived intangibles included in the above table are being amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized, as follows (in thousands): Gross Purchased Intangible Assets Estimated Useful Life (in Years) Trade name $ 460 3 Developed technology 5,896 5 Customer relationships 7,830 8 $ 14,186 Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of Good Start resulted in the recognition of $25.1 million of goodwill which the Company believes consists principally of expected synergies to be realized by expanding the Company’s suite of genome management offerings. In accordance with ASC 350, goodwill will not be amortized but rather will be tested for impairment at least annually. Goodwill created as a result of the acquisition is not deductible for tax purposes. The Company has finalized its assessment of fair value of the assets and liabilities assumed at the acquisition date. CombiMatrix On November 14, 2017, the Company completed its acquisition of CombiMatrix in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of July 31, 2017 (the “Merger Agreement”), by and among the Company, Coronado Merger Sub, Inc., a wholly owned subsidiary of the Company (“Merger Sub”), and CombiMatrix, pursuant to which Merger Sub merged with and into CombiMatrix, with CombiMatrix surviving as a wholly owned subsidiary of the Company (the “Merger”). At the closing of the Merger, the Company issued shares of its common stock to (i) CombiMatrix’s common stockholders, at an exchange ratio of 0.8692 of a share of the Company’s common stock (the “Merger Exchange Ratio”) for each share of CombiMatrix common stock outstanding immediately prior to the Merger, (ii) CombiMatrix’s Series F preferred stockholders, at the Merger Exchange Ratio for each share of CombiMatrix common stock underlying Series F preferred stock outstanding immediately prior to the Merger, (iii) holders of outstanding and unexercised in-the-money CombiMatrix stock options, which were fully accelerated to the extent of any applicable vesting period and converted into the right to receive the number of shares of the Company’s common stock equal to the Merger Exchange Ratio multiplied by the number of shares of CombiMatrix common stock issuable upon exercise of such option, minus the number of shares of the Company’s common stock determined by dividing the aggregate exercise price for such option by $9.491 , and (iv) holders of outstanding and unsettled CombiMatrix restricted stock units, which were fully accelerated to the extent of any applicable vesting period and converted into the right to receive a number of shares of the Company’s common stock determined by multiplying the number of shares of CombiMatrix common stock that were subject to such restricted stock unit by the Merger Exchange Ratio. In addition, at the closing of the Merger, (a) all outstanding and unexercised out-of-the money CombiMatrix stock options were cancelled and terminated without the right to receive any consideration, (b) all CombiMatrix Series D Warrants and Series F Warrants outstanding and unexercised immediately prior to the closing of the Merger were assumed by the Company and converted into warrants to purchase the number of shares of the Company’s common stock determined by multiplying the number of shares of CombiMatrix common stock subject to such warrants by the Merger Exchange Ratio, and with the exercise price adjusted by dividing the per share exercise price of the CombiMatrix common stock subject to such warrants by the Merger Exchange Ratio, and (c) certain entitlements under CombiMatrix’s executive compensation transaction bonus plan (the “Transaction Bonus Plan”) were paid in shares of the Company’s common stock or RSUs to be settled in shares of the Company’s common stock. All outstanding and unexercised CombiMatrix Series A, Series B, Series C, Series E, and PIPE warrants were repurchased by CombiMatrix prior to closing pursuant to that certain CombiMatrix Common Stock Purchase Warrants Repurchase Agreement dated July 11, 2016. Pursuant to the Merger Agreement, the Company issued an aggregate of 2,703,389 shares of its common stock as follows: (a) payment of $20.5 million through the issuance of 2,611,703 shares of the Company’s common stock to holders of CombiMatrix common stock outstanding; (b) payment of $0.7 million through the issuance of 85,219 shares of the Company’s RSUs to holders of outstanding and unsettled CombiMatrix restricted stock units; (c) payment of $0.1 million through the issuance of 3,323 shares of the Company’s common stock to holders of outstanding and unexercised in-the-money CombiMatrix stock options; and (d) payment of $0.1 million through the issuance of 3,144 shares of the Company’s common stock to holders of CombiMatrix Series F preferred stock. In addition, and pursuant to the Merger Agreement, the Company issued warrants to purchase an aggregate of 2,077,273 shares of its common stock as follows: (a) payment of $7.4 million through the issuance of warrants to purchase a total of 1,739,689 shares of the Company’s common stock in exchange for all outstanding CombiMatrix Series F warrants; and (b) payment of $1,000 through the issuance of warrants to purchase a total of 337,584 shares of the Company’s common stock in exchange for all outstanding CombiMatrix Series D warrants. In connection with the acquisition of CombiMatrix, the Company paid bonuses to certain members of CombiMatrix’s management team through: (a) payment of $1.7 million through the issuance of common stock and RSUs totaling 214,976 shares of the Company’s common stock to settle payments pursuant to CombiMatrix’s executive compensation transaction bonus plan (the “Transaction Bonus Plan”), recorded as post-combination compensation expense and included in general and administrative expense; and (b) payment of $0.2 million through the issuance of 22,966 shares of the Company’s common stock to settle payments pursuant to the Transaction Bonus Plan, recorded as an assumed liability at the acquisition date. Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by the Company. While the Company believes that its estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different valuations assigned to the individual assets acquired and liabilities assumed, and the resulting amount of goodwill. The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition (in thousands): Cash and restricted cash $ 1,333 Accounts receivable 4,118 Prepaid expense and other assets 1,299 Property and equipment 437 Other assets - non current 30 Favorable leases 247 Trade name 103 Patent licensing agreement 496 Developed technology 3,162 Customer relationships 12,397 Total identifiable assets acquired 23,622 Accounts payable (276 ) Accrued expenses (3,925 ) Deferred tax liability (2,862 ) Other liabilities (180 ) Total liabilities assumed (7,243 ) Net identifiable assets acquired 16,379 Goodwill 11,554 Net assets acquired $ 27,933 During the year ended December 31, 2018, upon the completion of the Company's analysis of CombiMatrix's historical net operating losses, the Company recorded a deferred tax liability of $2.9 million with corresponding increases to goodwill. The $2.9 million net deferred tax liability represents the excess of the financial reporting over tax basis in acquired intangibles over the amount of CombiMatrix’s historical net operating loss carryovers that were determined to be available to offset future income due to change in ownership operating loss carryover limitation rules under Internal Revenue Code section 382. Customer relationships are being amortized on an accelerated basis, utilizing free cash flows, over a period of eleven years . All other finite-lived intangibles included in the above table are being amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized, as follows (in thousands): Gross Purchased Intangible Assets Estimated Useful Life (in Years) Favorable leases $ 247 2 Trade name 103 1 Patent licensing agreement 496 15 Developed technology 3,162 4 Customer relationships 12,397 11 $ 16,405 Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of CombiMatrix resulted in the recognition of $11.6 million |