| Business combinations | 3. Business combinations AltaVoice In January 2017, the Company acquired AltaVoice (formerly Patient Crossroads, 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, will expand 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 entered into on January 6, 2017, 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;
(c)
payment of $5.0 million in the Company’s common stock, contingently payable on March 31, 2018 if a milestone based on a certain threshold of revenue is 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; or should the foregoing milestone not be achieved, then there is a new contingent milestone based on achieving a revenue target during 2017 and 2018. Should the new milestone revenue target be achieved, then on March 31, 2019, a payment of up to $5.0 million in the Company’s common stock would be payable. The actual payout is dependent upon the 2017 and 2018 revenue target (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 and recorded as a liability, and will be accreted to fair value at each reporting date until the extinguishment of the liability on March 31, 2018. The third payment, representing contingent consideration, was determined to have a fair value of $2.2 million and was recorded as a liability. In accordance with ASC Topic 805, Business Combinations, For the second payment, whose acquisition-date fair value was $4.7 million, the Company recorded accretion losses of $60,000 and $171,000 in other income (expense), net, for the three and nine months ended September 30, 2017, respectively. These accretion losses resulted from adjustments to the discounted value of the second payment, reflecting the passage of time. For the third payment, whose contingent acquisition-date fair value was $2.2 million, the Company recorded remeasurement losses of $114,000 and $385,000 in operating expense for the three and nine months ended September 30, 2017. These remeasurement losses reflected an updated estimation of fair value of the third payment. The principal input affecting that estimation was 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 and 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. The Company believes this goodwill 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. Concurrent with the acquisition, the Company recorded additional goodwill of $1.4 million relating to the tax consequence of recognizing the fair value of the acquisition-related intangibles, with an equal offset to deferred tax liability. The results of operations of AltaVoice for the period from the acquisition date through September 30, 2017 are included in the accompanying consolidated statements of operations. Pursuant to ASC 805, the Company incurred and expensed approximately $159,000 in acquisition and transitional costs associated with the acquisition of AltaVoice during the year ended December 31, 2016 and the three months ended March 31, 2017, which were primarily general and administrative related. Ommdom In June 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 expands 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. The platform uses a cloud-based, mobile friendly patient interface to gather family history information from patients prior to a clinician appointment. Then, analysis tools analyze patients’ predisposition to disease and provide actionable analysis to inform therapeutic decisions, such as genetic testing or treatment approaches. In addition, the platform provides clinicians with the ability to look beyond the individual to understand trends across all of their patients. Pursuant to the terms of the Stock Exchange Agreement entered into on June 11, 2017, 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 $613,000. Per the terms of the agreement, the Company will 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; and
(b)
payment of $0.6 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 $613,000 was recorded as a stock payable liability and will be reclassified to equity upon the issuance of the Company’s common stock on the twelve-month anniversary of 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
$
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. The Company believes this goodwill consists principally of expected synergies to be realized by expanding the Company’s suites of genome management offerings designed to help patients and clinicians use genetic information as part of mainstream medical care. 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. Concurrent with the acquisition, the Company recorded additional goodwill of $434,000 relating to the tax consequence of recognizing the fair value of the acquisition-related intangibles, with an equal offset to deferred tax liability. The results of operations of Ommdom for the period from the acquisition date through September 30, 2017 are included in the accompanying consolidated statements of operations. Pursuant to ASC 805, during the three and nine months ended September 30, 2017, the Company incurred and expensed approximately $0 and $164,000, respectively, in acquisition and transitional costs associated with the acquisition of Ommdom, which were primarily general and administrative related. Good Start Genetics In August, 2017 the Company acquired 100% of the fully diluted equity of Good Start Genetics, Inc. (“Good Start”), a privately-held molecular diagnostics company focused on preimplantation and carrier screening for inherited disorders. The acquisition of Good Start is intended to further Invitae’s intention 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 $33.7 million at the acquisition date, August 4, 2017. Immediately subsequent to the acquisition of Good Start, the Company paid $18.4 million in cash to settle the outstanding notes payable, accrued interest and related costs. In addition, and immediately subsequent to the acquisition, the Company settled the 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 $3.9 million through the issuance of 380,116 shares of the Company’s common stock, representing a hold-back amount payable on the one-year anniversary of the acquisition date. 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 41,333 shares of the Company’s common stock, representing a hold-back amount payable on the one-year anniversary of the acquisition date. 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. The amount recorded as accounts receivable is provisional as the Company expects to receive future cash collections pertaining to Good Start revenue activities completed but not recognized at the acquisition date. The amount recorded as deferred tax liability is provisional because certain information and analysis related to Good Start’s historical net operating losses that may affect the Company’s initial valuation is still being obtained or reviewed. Thus, the provisional measurements of fair value discussed above are subject to change. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date. 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
$
1,381
Accounts receivable
2,904
Prepaid expense and other assets
1,579
Property and equipment
1,491
Trade name
460
Developed technology
5,896
Customer relationships
7,830
Total identifiable assets acquired
21,541
Accounts payable
(5,418
)
Accrued expenses
(6,802
)
Deferred tax liability
(4,757
)
Notes payable
(17,904
)
Convertible promissory notes payable
(15,804
)
Other liabilities
(222
)
Total liabilities assumed
(50,907
)
Net identifiable assets acquired
(29,366
)
Goodwill
29,366
Net assets acquired
$
—
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
16
$
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 $29.4 million of goodwill. The Company believes this goodwill consists principally of expected synergies to be realized by expanding the Company’s suite of genome management offerings designed to help patients and clinicians use genetic information as part of mainstream medical care. 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. Concurrent with the acquisition, the Company recorded additional goodwill of $4.8 million relating to the tax consequence of recognizing the fair value of the acquisition-related intangibles, with an equal offset to deferred tax liability. The results of operations of Good Start for the period from the acquisition date through September 30, 2017 are included in the accompanying consolidated statements of operations. Pursuant to ASC 805, the Company incurred and expensed approximately $1.7 million in acquisition and transitional costs associated with the acquisition of Good Start during the three and nine months ended September 30, 2017, which were recorded as general and administrative expense. Of this total, approximately $1.2 million was incurred and expensed by Good Start and $0.5 million was incurred and expensed by Invitae. CombiMatrix In July 2017, the Company, Coronado Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub), and CombiMatrix Corporation, a Delaware corporation (“CombiMatrix”), entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), pursuant to which CombiMatrix will merge with and into Merger Sub with CombiMatrix surviving as a wholly-owned subsidiary of the Company (the “CombiMatrix Merger”). The CombiMatrix Merger is subject to certain closing conditions, including approval by the stockholders of CombiMatrix. The CombiMatrix Board of Directors has set the date for the special meeting of CombiMatrix stockholders to vote on the CombiMatrix Merger proposal and related proposals for November 10, 2017. If approved, the CombiMatrix Merger is expected to close in the fourth quarter of 2017. In connection with the CombiMatrix Merger, the Company commenced an offer to exchange (the “Warrant Exchange Offer”) each outstanding Series F warrant to acquire one share of common stock of CombiMatrix, validly tendered and not withdrawn in the offer, for 0.3056 of a share of the Company’s common stock. For purposes of calculating and satisfying the condition in the Merger Agreement that at least 90% of the CombiMatrix Series F warrants outstanding immediately prior to the date of the Merger Agreement shall have been validly tendered and not withdrawn prior to the expiration of the Warrant Exchange Offer, which is a condition to the Company’s obligation to consummate the CombiMatrix Merger, the Company will count towards such 90% requirement any and all CombiMatrix Series F warrants that are validly exercised prior to the expiration of the Warrant Exchange Offer (including, for this purpose, such exercises as are made contingent solely upon a closing of the CombiMatrix Merger). At the effective time of the CombiMatrix Merger, each share of CombiMatrix common stock will be converted into the right to receive a fraction of a share of the Company’s common stock (the “Exchange Ratio”). It is currently anticipated that, at the closing of the CombiMatrix Merger, the Exchange Ratio would be between approximately 0.925 and 0.855 shares of the Company’s common stock. The Exchange Ratio is determined pursuant to a formula in the Merger Agreement, and the estimate of the Exchange Ratio is subject to adjustment. In connection with the CombiMatrix Merger and the Warrant Exchange Offer, the Company expects to issue up to a maximum of 4,058,275 shares of common stock, including common stock underlying warrants and RSUs, to CombiMatrix securityholders who, immediately after the CombiMatrix Merger, are expected to own approximately 7% of the fully-diluted common stock of the combined company, with the Company’s securityholders, whose shares of the Company’s capital stock will remain outstanding after the CombiMatrix Merger, owning approximately 93% of the fully-diluted common stock of the combined company. These estimates are based on the assumption that 100% of the CombiMatrix Series F warrants are exchanged in the Warrant Exchange Offer and subject to adjustment. If, however, all of the CombiMatrix Series F warrants are exercised prior to expiration of the Warrant Exchange Offer, the maximum amount of the Company’s shares expected by the Company to be issued would increase to 5,100,457, with CombiMatrix securityholders owning 8.7% of the fully-diluted common stock of the combined company and the Company’s securityholders owning 91.3% of the fully-diluted common stock of the combined company. Pro-forma Financial Information The unaudited financial information in the table below summarizes the combined results of operations of the Company, AltaVoice, Ommdom and Good Start on a pro forma basis, as though the companies had been combined as of the beginning of each of the periods presented. The pro forma financial information has been calculated after adjusting the results of Invitae, AltaVoice, Ommdom and Good Start to reflect the business combination accounting effects resulting from the acquisitions. These accounting effects consist of income tax benefits relating to the tax consequences of recognizing fair value of acquired intangible assets, amortization expense from acquired intangible assets and stock-based compensation expense relating to acquisitions The pro forma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions had taken place at the beginning of each of the periods presented. The unaudited pro forma financial information for the three and nine months ended September 30, 2017 combines the adjusted results of the Company for the three and nine months ended September 30, 2017, which include the results of AltaVoice subsequent to January 6, 2017, the adjusted results of Ommdom subsequent to June 11, 2017 and the adjusted results of Good Start subsequent to August 4, 2017 (the acquisition dates for AltaVoice, Ommdom and Good Start, respectively), with the adjusted historical results for AltaVoice for the period from January 1, 2017 to January 6, 2017, the adjusted historical results for Ommdom for the period from January 1, 2017 to June 11, 2017, and the adjusted historical results of Good Start for the period from January 1, 2017 to August 4, 2017. The unaudited pro forma financial information for the three and nine months ended September 30, 2016 combines the adjusted historical results for the Company for those periods, with the adjusted historical results for AltaVoice, Ommdom and Good Start for the same periods. The following table summarizes the pro forma financial information for the three and nine months ended September 30, 2017 and 2016 (in thousands):
Three Months Ended September 30,
Nine Months Ended September 30,
2017
2016
2017
2016
Total revenue
$
19,925
$
13,121
$
54,924
$
34,738
Net loss
$
(37,170
)
$
(30,355
)
$
(106,896
)
$
(86,875
) Revenue attributable to Good Start since the acquisition date and recognized in the three months ended September 30, 2017 was $2.2 million. As the Company combined operations with Good Start at the acquisition date, net loss attributable to Good Start since the acquisition date cannot be practically calculated. |
