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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2021
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                        to
 Commission File No. 001-36847
 
NVTA-20210630_G1.JPG
Invitae Corporation
(Exact name of the registrant as specified in its charter)
 
Delaware 27-1701898
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.)
 1400 16th Street, San Francisco, California 94103
(Address of principal executive offices, Zip Code)
 (415) 374-7782
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of exchange on which registered
Common Stock, $0.0001 par value per share
NVTA
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non 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.
Large accelerated filer
x
Accelerated filer
Non-accelerated filer Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No  
The number of shares of the registrant’s common stock outstanding as of July 30, 2021 was 217,339,666.





TABLE OF CONTENTS
 
Page No.
 
 
1
 
2
 
3
4
 
5
 
6
   






PART I — Financial Information
ITEM 1. Condensed Consolidated Financial Statements.
INVITAE CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
 
June 30,
2021
December 31,
2020
Assets    
Current assets:    
Cash and cash equivalents $ 1,107,745  $ 124,794 
Marketable securities 422,473  229,186 
Accounts receivable 55,714  47,722 
Inventory 29,982  32,030 
Prepaid expenses and other current assets 28,089  20,200 
Total current assets 1,644,003  453,932 
Property and equipment, net 82,760  66,102 
Operating lease assets 120,844  45,109 
Restricted cash 10,275  6,686 
Intangible assets, net 1,057,389  981,845 
Goodwill 2,060,889  1,863,623 
Other assets 19,303  13,188 
Total assets $ 4,995,463  $ 3,430,485 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 31,244  $ 25,203 
Accrued liabilities 88,045  86,058 
Operating lease obligations 11,930  8,789 
Finance lease obligations 2,422  1,695 
Total current liabilities 133,641  121,745 
Operating lease obligations, net of current portion 122,840  48,357 
Finance lease obligations, net of current portion 3,540  3,123 
Debt 108,920  104,449 
Convertible senior notes, net 1,460,873  283,724 
Deferred tax liability 50,998  51,538 
Other long-term liabilities 460,666  841,256 
Total liabilities 2,341,478  1,454,192 
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock 20  19 
Accumulated other comprehensive income 34 
Additional paid-in capital 3,973,479  3,337,120 
Accumulated deficit (1,319,548) (1,360,847)
Total stockholders’ equity 2,653,985  1,976,293 
Total liabilities and stockholders’ equity $ 4,995,463  $ 3,430,485 
See accompanying notes to unaudited condensed consolidated financial statements.
1





INVITAE CORPORATION
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(unaudited)
 
  Three Months Ended
June 30,
Six Months Ended June 30,
  2021 2020 2021 2020
Revenue:        
Test revenue $ 111,496  $ 45,099  $ 210,772  $ 108,177 
Other revenue 4,816  1,092  9,161  2,262 
Total revenue 116,312  46,191  219,933  110,439 
Cost of revenue 89,331  42,952  164,822  83,374 
Research and development 106,454  74,963  186,812  130,631 
Selling and marketing 56,964  39,520  108,204  81,640 
General and administrative 38,303  26,006  110,820  49,828 
Change in fair value of contingent consideration (303,349) 4,832  (366,970) 4,832 
Income (loss) from operations 128,609  (142,082) 16,245  (239,866)
Other income (expense), net 2,024  (21,436) 6,489  (16,728)
Interest expense (13,407) (5,485) (21,800) (10,936)
Net income (loss) before taxes 117,226  (169,003) 934  (267,530)
Income tax benefit (16,560) (2,600) (23,360) (2,600)
Net income (loss) $ 133,786  $ (166,403) $ 24,294  $ (264,930)
Net income (loss) per share, basic $ 0.66  $ (1.29) $ 0.12  $ (2.35)
Net income (loss) per share, diluted $ 0.53  $ (1.29) $ 0.11  $ (2.35)
Shares used in computing net income (loss) per share, basic 204,110  129,023  199,083  112,765 
Shares used in computing net income (loss) per share, diluted 264,921  129,023  216,595  112,765 

See accompanying notes to unaudited condensed consolidated financial statements. 
2





INVITAE CORPORATION
Condensed Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
(unaudited)
 
  Three Months Ended
June 30,
Six Months Ended June 30,
  2021 2020 2021 2020
Net income (loss) $ 133,786  $ (166,403) $ 24,294  $ (264,930)
Other comprehensive income (loss):
Unrealized income (loss) on available-for-sale marketable securities, net of tax (16) (722) 33  581 
Comprehensive income (loss) $ 133,770  $ (167,125) $ 24,327  $ (264,349)
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
3





INVITAE CORPORATION
Condensed Consolidated Statements of Stockholders' Equity
(in thousands)
(unaudited)

  Three Months Ended
June 30,
Six Months Ended June 30,
  2021 2020 2021 2020
Common stock:
Balance, beginning of period
$ 20  $ 10  $ 19  $ 10 
Common stock issued
— 
Balance, end of period
20  13  20  13 
Accumulated other comprehensive income (loss):
Balance, beginning of period 50  1,294  (9)
Unrealized income (loss) on available-for-sale marketable securities, net of tax (16) (722) 33  581 
Balance, end of period 34  572  34  572 
Additional paid-in capital:
Balance, beginning of period
3,829,553  1,182,033  3,337,120  1,138,316 
Common stock issued in connection with public offering, net
—  217,486  434,263  217,486 
Common stock issued on exercise of stock options, net
1,192  1,026  2,952  2,171 
Common stock issued pursuant to exercises of warrants
—  35  1,242  62 
Common stock issued pursuant to employee stock purchase plan
7,974  4,527  7,974  4,527 
Common stock issued or issuable pursuant to acquisitions 89,054  60,053  163,876  102,506 
Stock-based compensation expense
45,706  22,057  101,540  32,536 
Reclassification of equity component of convertible senior notes —  —  (75,488) — 
Reclassification of stock payable liabilities —  —  —  (10,387)
Balance, end of period
3,973,479  1,487,217  3,973,479  1,487,217 
Accumulated deficit:
Balance, beginning of period
(1,453,334) (857,204) (1,360,847) (758,677)
Cumulative effect of adoption of ASU 2020-06 —  —  17,005  — 
Net income (loss) 133,786  (166,403) 24,294  (264,930)
Balance, end of period
(1,319,548) (1,023,607) (1,319,548) (1,023,607)
Total stockholders' equity
$ 2,653,985  $ 464,195  $ 2,653,985  $ 464,195 

See accompanying notes to unaudited condensed consolidated financial statements.
4





INVITAE CORPORATION
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)

  Six Months Ended June 30,
  2021 2020
Cash flows from operating activities:    
Net income (loss) $ 24,294  $ (264,930)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization 35,262  14,500 
Stock-based compensation 106,337  81,124 
Amortization of debt discount and issuance costs 6,492  7,337 
Remeasurements of liabilities associated with business combinations (372,722) 26,749 
Benefit from income taxes (23,360) (2,600)
Post-combination expense for acceleration of unvested equity 2,959  — 
Other 5,273  (536)
Changes in operating assets and liabilities, net of businesses acquired:
Accounts receivable (6,953) 4,939 
Inventory 2,048  (4,432)
Prepaid expenses and other current assets (8,346) 1,383 
Other assets (2,165) 942 
Accounts payable 3,781  9,185 
Accrued expenses and other long-term liabilities 8,255  3,585 
Net cash used in operating activities (218,845) (122,754)
Cash flows from investing activities:
Purchases of marketable securities (325,957) (115,350)
Proceeds from sales of marketable securities —  12,532 
Proceeds from maturities of marketable securities 127,738  89,965 
Acquisition of businesses, net of cash acquired (134,006) (57,576)
Purchases of property and equipment (20,154) (10,854)
Other (1,880) (1,334)
Net cash used in investing activities (354,259) (82,617)
Cash flows from financing activities:
Proceeds from public offerings of common stock, net 434,263  217,489 
Proceeds from issuance of common stock 11,717  6,760 
Proceeds from issuance of convertible senior notes, net 1,116,850  — 
Other (3,186) (1,904)
Net cash provided by financing activities 1,559,644  222,345 
Net increase in cash, cash equivalents and restricted cash 986,540  16,974 
Cash, cash equivalents and restricted cash at beginning of period 131,480  157,572 
Cash, cash equivalents and restricted cash at end of period $ 1,118,020  $ 174,546 
Supplemental cash flow information of non-cash investing and financing activities:
Equipment acquired through finance leases $ 2,578  $ — 
Purchases of property and equipment in accounts payable and accrued liabilities $ 5,016  $ 1,570 
Common stock issued for acquisition of businesses $ 163,876  $ 75,682 
Consideration payable for acquisition of businesses $ —  $ 16,813 
Operating lease assets obtained in exchange for lease obligations, net $ 80,157  $ 4,046 

See accompanying notes to unaudited condensed consolidated financial statements.
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INVITAE CORPORATION
Notes to Condensed Consolidated Financial Statements

1. Organization and description of business
Invitae Corporation ("Invitae," “the Company," "we," "us," and "our") was incorporated in the State of Delaware on January 13, 2010, as Locus Development, Inc. and we changed our name to Invitae Corporation in 2012. We offer high-quality, comprehensive, affordable genetic testing across multiple clinical areas, including hereditary cancer, cardiology, neurology, pediatrics, personalized oncology, metabolic conditions and rare diseases. To augment our offering and realize our mission, we have acquired multiple assets and businesses that further expanded our test menu and suite of genome management offerings and accelerated our entry into key genomics markets. Invitae operates in one segment.
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020. The results for the three and six months ended June 30, 2021 are not necessarily indicative of the results expected for the full fiscal year or any other periods.   
2. Summary of significant accounting policies
Principles of consolidation
Our unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base these estimates on current facts, historical and anticipated results, trends and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. Actual results could differ materially from those judgments, estimates and assumptions. We evaluate our estimates on an ongoing basis.
Concentrations of credit risk and other risks and uncertainties
Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, restricted cash, marketable securities and accounts receivable. Our cash and cash equivalents are primarily held by financial institutions in the United States. Such deposits may exceed federally insured limits.
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Cash, cash equivalents and restricted cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statements of cash flows (in thousands):
June 30, 2021 December 31, 2020
Cash and cash equivalents $ 1,107,745  $ 124,794 
Restricted cash 10,275  6,686 
Total cash, cash equivalents and restricted cash $ 1,118,020  $ 131,480 
Fair value of financial instruments
Our financial instruments consist principally of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities, finance leases and liabilities associated with business combinations. The carrying amounts of certain of these financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued and other current liabilities approximate their current fair value due to the relatively short-term nature of these accounts. Based on borrowing rates available to us, the carrying value of our finance leases approximate their fair values. Liabilities associated with business combinations are recorded at their estimated fair value.
Prior period reclassifications
We have reclassified certain amounts in prior periods to conform with current presentation. During the current period, we have disclosed the change in fair value of our contingent consideration separately in our statements of operations; these amounts are general and administrative in nature and were disclosed in general and administrative expense previous periods.
Recent accounting pronouncements
We evaluate all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board ("FASB") for consideration of their applicability. ASUs not included in the disclosures in this report were assessed and determined to be either not applicable or are not expected to have a material impact on our consolidated financial statements.
Recently adopted accounting pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share calculations as a result of these changes. This new standard is effective for our interim and annual periods beginning January 1, 2022, and earlier adoption is permitted. We elected to adopt the amendments on a modified retrospective basis effective January 1, 2021, which required a cumulative-effect adjustment to retained earnings. The cumulative-effect adjustment resulted in a decrease in accumulated deficit of $17.0 million related to the reversal of the equity component and associated issuance costs as well as adjustment of the related amortization costs of our existing convertible senior notes due in 2024. Reporting periods beginning on or after January 1, 2021 are presented under this new guidance while prior periods have not been adjusted and continue to be reported in accordance with our historic accounting under GAAP. See further information about our Senior Convertible Notes in Note 8, “Commitments and contingencies.”
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3. Revenue, accounts receivable and deferred revenue
Test revenue is generated from sales of diagnostic tests and precision oncology products to four groups of customers: biopharmaceutical partners, patients who pay directly, patients' insurance carriers, and other business-to-business customers (e.g., hospitals, clinics, medical centers). Test revenue is generated in two ways: through a centralized lab and decentralized through the shipment of reactions to biopharmaceutical partners and other business-to-business customers. We refer to the set of reagents needed to perform a next-generation sequencing test as a "reaction." Amounts billed and collected, and the timing of collections, vary based on the type of payer. Other revenue consists principally of revenue recognized under contracts for biopharmaceutical development services and other collaboration and genome network agreements and is accounted for under the provisions provided in Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers.
Our revenue as disaggregated by payer category and revenue subtype was as follows (in thousands):
Three Months Ended June 30, 2021
  Patient Biopharma partner Other business-to-business Total
  Insurance Direct
Test revenue:
Centralized $ 71,254  $ 10,523  $ 8,688  $ 12,172  $ 102,637 
Decentralized —  —  214  8,645  8,859 
 Total test revenue 71,254  10,523  8,902  20,817  111,496 
Other revenue —  —  1,768  3,048  4,816 
Total revenue $ 71,254  $ 10,523  $ 10,670  $ 23,865  $ 116,312 
Three Months Ended June 30, 2020
  Patient Biopharma partner Other business-to-business Total
  Insurance Direct
Test revenue:
Centralized $ 31,270  $ 4,298  $ 4,289  $ 5,242  $ 45,099 
 Total test revenue 31,270  4,298  4,289  5,242  45,099 
Other revenue —  —  477  615  1,092 
Total revenue $ 31,270  $ 4,298  $ 4,766  $ 5,857  $ 46,191 
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Six Months Ended June 30, 2021
  Patient Biopharma partner Other business-to-business Total
  Insurance Direct
Test revenue:
Centralized $ 132,145  $ 19,472  $ 19,260  $ 22,348  $ 193,225 
Decentralized —  —  596  16,951  17,547 
 Total test revenue 132,145  19,472  19,856  39,299  210,772 
Other revenue —  —  4,830  4,331  9,161 
Total revenue $ 132,145  $ 19,472  $ 24,686  $ 43,630  $ 219,933 
Six Months Ended June 30, 2020
  Patient Biopharma partner Other business-to-business Total
  Insurance Direct
Test revenue:
Centralized $ 75,061  $ 10,089  $ 8,600  $ 14,427  $ 108,177 
 Total test revenue 75,061  10,089  8,600  14,427  108,177 
Other revenue —  —  929  1,333  2,262 
Total revenue $ 75,061  $ 10,089  $ 9,529  $ 15,760  $ 110,439 

We recognize revenue related to billings based on estimates of the amount that will ultimately be realized. Cash collections for certain tests delivered may differ from rates originally estimated. We update our estimate of the amounts to be recognized based on new information evaluated on a quarterly basis. Updates to our estimates resulted in the following changes to revenue, income (loss) from operations and basic and diluted net income (loss) per share (in millions, except per share amounts):
  Three Months Ended June 30, Six Months Ended June 30,
  2021 2020 2021 2020
Revenue $ 4.2  $ 0.9  $ 8.5  $ 2.3 
Income (loss) from operations $ 4.2  $ (0.9) $ 8.5  $ (2.3)
Net income (loss) per share, basic $ 0.02  $ (0.01) $ 0.04  $ (0.02)
Net income (loss) per share, diluted $ 0.02  $ (0.01) $ 0.04  $ (0.02)
Impact of COVID-19
Our billable volumes decreased significantly in the second half of March 2020 as compared to the first few months of 2020 as a result of COVID-19 and related limitations and priorities across the healthcare system. Our daily test volumes have consistently increased from the low in March 2020, although the current COVID-19 pandemic continues to impact our business operations and practices. While we expect that it may continue to impact our business, we experienced limited disruption during the second quarter of 2021. We have reviewed and adjusted, when necessary, for the impact of COVID-19 on our estimates related to revenue recognition and expected credit losses.
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law as a stimulus bill intended to bolster the economy, among other things, and provide assistance to qualifying businesses and individuals. The CARES Act included an infusion of funds into the healthcare system; in April 2020, we received $3.8 million as a part of this initiative, and in January 2021, we received an additional $2.3 million. These payments were recognized as other income, net in our consolidated statement of operations in the periods received. At this time, we are not certain of the availability, extent or impact of any future relief provided under the CARES Act.
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Accounts receivable
The majority of our accounts receivable represents amounts billed to biopharmaceutical partners and other business-to-business customers for test and other revenue recognized, and estimated amounts to be collected from third-party insurance payers for genetic testing revenue recognized. Also included are amounts due under the terms of collaboration and genome network agreements for diagnostic testing and data aggregation reporting services provided and proprietary platform access rights transferred.
We also record unbilled revenue for revenue recognized but yet to be billed for services provided to biopharmaceutical companies related to companion diagnostic development. This contract receivable was $3.7 million and $4.3 million as of June 30, 2021 and December 31, 2020, respectively, and was included in prepaid expenses and other current assets on the consolidated balance sheets.
Deferred revenue
We record a contract liability when cash payments are received or due in advance of our performance related to one or more performance obligations. The deferred revenue balance primarily consists of advanced billings for biopharmaceutical development services, including billings at the initiation of performance-based milestones, and recognized as revenue in the applicable future period when the revenue is earned. Also included are prepayments related to our consumer direct channel. During the three and six months ended June 30, 2021, we recognized revenue from deferred revenue recorded in prior periods of $2.3 million and $2.6 million, respectively.
4. Business combinations
Singular Bio
In June 2019, we acquired 100% of the fully diluted equity of Singular Bio, Inc. ("Singular Bio"), a privately held company developing single molecule detection technology, for approximately $57.3 million, comprised of $53.9 million in the form of 2.5 million shares of our common stock and the remainder in cash.
In June 2019, we granted approximately $90.0 million of restricted stock units ("RSU") under our 2015 Stock Incentive Plan as inducement awards to new employees who joined Invitae in connection with our acquisition of Singular Bio. $45.0 million of the RSUs are time-based and vested in three equal installments in December 2019, June 2020, and December 2020, subject to the employee's continued service with us ("Time-based RSUs") and $45.0 million of the RSUs are performance-based RSUs ("PRSUs") that vest upon the achievement of certain performance conditions. Since the number of awards granted is based on a 30-day volume weighted-average share price with a fixed dollar value, these Time-based RSUs and PRSUs are liability-classified and the fair value is estimated at each reporting period based on the number of shares that are expected to be issued at each reporting date and our closing stock price, which combined are categorized as Level 3 inputs. Therefore, fair value of these awards and the number of shares issued are not fixed until the awards vest.
During the three and six months ended June 30, 2021, we recorded research and development stock-based compensation expense of nil related to the Time-based RSUs, and income of $0.5 million and expense of $1.9 million, respectively, related to the PRSUs based on our evaluation of the probability of achieving performance conditions, primarily due to the change in value of our common stock. During the three and six months ended June 30, 2020, we recorded research and development stock-based compensation expense of $10.9 million and $18.5 million, respectively, related to the Time-based RSUs and $18.9 million and $30.1 million, respectively, related to the PRSUs. As of June 30, 2021, the Time-based RSUs and PRSUs had a total fair value of $43.9 million and $45.7 million, respectively, based on a total estimated issuance of 3.6 million shares and expectation of the achievement of the performance conditions. As of June 30, 2021, all of the Time-based RSUs and 1.5 million of the PRSUs had vested with a total fair value of $84.3 million, which was recorded in common stock issued or issuable pursuant to business combinations in the consolidated statements of stockholders' equity upon issuance.
Jungla
In July 2019, we acquired 100% of the equity interest of Jungla Inc. ("Jungla"), a privately held company developing a platform for molecular evidence testing in genes, for approximately $59.0 million, comprised of $44.9 million in the form of shares of our common stock and the remainder in cash.
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We may be required to pay contingent consideration based on achievement of post-closing development milestones. As of the acquisition date, the fair value of this contingent consideration was $10.7 million including cash and common stock. The material factors that may impact the fair value of the contingent consideration, and therefore, this liability, are the probabilities and timing of achieving the related milestones and the discount rate used to estimate the fair value. Significant changes in any of the probabilities of success would result in a significant change in the fair value, which is estimated at each reporting date with changes reflected as a general and administrative expense. As of June 30, 2021, the fair value of this contingent consideration was $3.6 million representing the fair value of the remaining milestone, which was achieved in July 2021.
Diploid
In March 2020, we acquired 100% of the equity interest of Orbicule BV ("Diploid"), a developer of artificial intelligence software capable of diagnosing genetic disorders using sequencing data and patient information, for approximately $82.3 million in cash and shares of our common stock. Of the stock purchase price consideration issued, approximately 0.4 million shares are subject to a hold-back to satisfy indemnification obligations that may arise.
As of June 30, 2021, we had a stock payable liability related to our acquisition of Diploid of $14.2 million, which represents the hold-back obligation to issue 0.4 million shares subject to indemnification claims that may arise. This liability is adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input, with the change recorded in other income (expense), net.
Genelex and YouScript
In April 2020, we acquired 100% of the equity interest of Genelex Solutions, LLC ("Genelex") and YouScript Incorporated ("YouScript") to bring pharmacogenetic testing and integrated clinical decision support to Invitae. We acquired Genelex for approximately $13.2 million, primarily in shares of our common stock. Of the stock purchase price consideration issued, approximately 0.1 million shares were subject to a hold-back to satisfy indemnification obligations that may arise. We acquired YouScript for approximately $52.7 million, including cash consideration of $24.5 million and the remainder in shares of our common stock. Of the purchase price consideration for YouScript, approximately $1.4 million and 0.5 million shares of our common stock were subject to a hold-back to satisfy indemnification obligations that may arise.
As of the acquisition date, we recorded stock payable liabilities of $6.2 million to represent the hold-back obligation to issue shares subject to indemnification claims that may arise. These liabilities are adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input. As of June 30, 2021, the value of this liability was $7.8 million with the change recorded in other income (expense), net. In April 2021, the amounts held back to satisfy indemnification obligations for Genelex were released in full to the former shareholders.
We may be required to pay contingent consideration in the form of additional shares of our common stock in connection with the acquisition of Genelex if, within a specified period following the closing, we achieve a certain product milestone, in which case we would issue shares of our common stock with a value equal to a portion of the gross revenues actually received by us for a pharmacogenetic product reimbursed through certain payers during an earn-out period of up to four years. As of the acquisition date, the fair value of this contingent consideration was $2.0 million. The material factors that may impact the fair value of the contingent consideration, and therefore, this liability, are the probabilities and timing of achieving the related milestone, the estimated revenues achieved for a pharmacogenetic product and the discount rate used to estimate the fair value. Significant changes in any of the probabilities of success would result in a significant change in the fair value, which is estimated at each reporting date. As of June 30, 2021, the fair value of this contingent consideration was $1.6 million.
ArcherDX
In October 2020, we acquired ArcherDX, Inc. ("ArcherDX"), a genomics analysis company democratizing precision oncology. Under the terms of the agreement, we acquired ArcherDX for upfront consideration consisting of 30.0 million shares of our common stock and $325.0 million in cash, plus up to an additional 27.0 million shares of our common stock payable in connection with the achievement of certain milestones. During the three months ended March 31, 2021, Invitae and the sellers of ArcherDX reached an agreement to reduce the purchase price by $1.2 million based on the final acquired net working capital. This adjustment was recorded during the three months ended March 31, 2021 and reduced the contingent consideration liability and goodwill by approximately $1.2 million.
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Our purchase price allocation for the acquisition is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to our deferred tax liability assumed in connection with the acquisition. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
We may be required to pay contingent consideration based on achievement of post-closing development and revenue milestones. As of the acquisition date, the total fair value of the contingent consideration was $945.2 million. Of the five milestones, one milestone was achieved in November 2020, which resulted in the issuance of 5.0 million shares of our common stock and a cash payment of $1.9 million, and three milestones were achieved or deemed to be achieved during the three months ended June 30, 2021, which resulted in the issuance of 13.8 million shares of our common stock and a cash payment of $3.3 million in July 2021. The remaining milestone is based upon receiving U.S. Food and Drug Administration ("FDA") clearance or approval of STRATAFIDE, which per the terms of the acquisition agreement, must be completed by March 31, 2022, subject to certain extensions (the "ArcherDX Final Milestone"). The material factors that may impact the fair value of the contingent consideration, and therefore the liability, are (i) the estimated number of shares to be issued, (ii) the volatility of our common stock, (iii) the probabilities of achievement of milestones within the timeframes prescribed in the acquisition agreement and (iv) discount rates, all of which are Level 3 inputs not supported by market activity. Significant changes in any of these inputs may result in a significant change in fair value, which is estimated at each reporting date. As of December 31, 2020, the fair value of the contingent consideration related to ArcherDX was $788.3 million. As of June 30, 2021, the fair value of the contingent consideration representing the remaining milestones was $423.9 million, which includes the three milestones achieved or deemed to be achieved during the three months ended June 30, 2021 and paid in July 2021 discussed above. With respect to the ArcherDX Final Milestone, the liability has been reduced to zero as of June 30, 2021 from $262.5 million as of March 31, 2021 and $287.7 million as of December 31, 2020, with the offsetting change recorded as changes in fair value of contingent consideration in our consolidated statements of operations. The removal of the liability balance and the associated change in fair value of contingent consideration was a result of our reassessment of the steps necessary to achieve clearance or approval based on FDA feedback received principally in the three months ended June 30, 2021. As a result of our reassessment, we do not believe achievement of the conditions will occur prior to the expiry date for achievement under the timeframe prescribed in the acquisition agreement. We expect FDA clearance or approval of STRATAFIDE at a later date upon resolution of the necessary steps.
In connection with the acquisition, we granted awards of Invitae common stock to new employees who joined Invitae in connection with our acquisition of ArcherDX that vest upon the achievement of the contingent consideration milestones discussed above and are subject to the employee’s continued service with us, unless terminated without cause in which case vesting is only dependent on milestone achievement. As the number of shares that are expected to be issued are fixed, the awards are equity-classified. During the three months ended June 30, 2021, we recorded a net $1.2 million in stock-based compensation expense related to the ArcherDX milestones, which includes $28.3 million related to milestones achieved in the three months ended June 30, 2021, $2.6 million due to an accounting modification of certain awards whereby the employees' continued substantive services were no longer required, offset by a reversal of $29.7 million recognized in prior periods related to the determination that the ArcherDX Final Milestone will not be achieved within the specified timeframe prescribed in the acquisition agreement. During the six months ended June 30, 2021, we recorded a net $41.8 million in stock-based compensation expense related to the ArcherDX milestones, which includes $38.5 million related to milestones achieved in the three months ended June 30, 2021, $33.0 million due to an accounting modification of certain awards whereby the employees' continued substantive services were no longer required, offset by a reversal of $29.7 million recognized in prior periods related to the determination that the ArcherDX Final Milestone will not be achieved within the specified timeframe prescribed in the acquisition agreement.
One Codex
In February 2021, we acquired 100% of the equity interest of Reference Genomics, Inc. d/b/a One Codex ("One Codex"), a company developing and commercializing products and services relating to microbiome sequencing, analysis and reporting, for upfront consideration consisting of $17.3 million in cash and 1.4 million shares of our common stock, of which approximately 0.2 million shares are subject to a hold-back to satisfy indemnification obligations that may arise following the closing. These shares subject to a hold-back were issued to a third-party at the closing date to hold in escrow until the escrow period is complete, and as such were classified as equity. We included the financial results of One Codex in our consolidated financial statements from the acquisition date, which were not material.
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The following table summarizes the purchase price and post-combination expense recorded as a part of the acquisition of One Codex (in thousands):
Purchase Price Post-combination Expense
Cash transferred $ 16,504  $ 783 
Hold-back consideration - common stock 8,113  359 
Common stock transferred 58,774  2,600 
Total $ 83,391  $ 3,742 
Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by us. While we believe that our 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 through our acquisition of One Codex at the date of acquisition (in thousands):
Cash $ 1,549 
Accounts receivable 684 
Developed technology 23,841 
Customer relationships 440 
Total identifiable assets acquired 26,514 
Other liabilities (415)
Deferred tax liability (6,150)
Net identifiable assets acquired 19,949 
Goodwill 63,442 
Total purchase price $ 83,391 
Based on the guidance provided in ASC 805, Business Combinations, we accounted for the acquisition of One Codex as a business combination and determined that 1) One Codex was a business which combines inputs and processes to create outputs, and 2) substantially all of the fair value of gross assets acquired was not concentrated in a single identifiable asset or group of similar identifiable assets.
Our purchase price allocation for the acquisition is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to our deferred tax liability assumed in connection with the acquisition. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
We measured the identifiable assets and liabilities assumed at their acquisition date fair values separately from goodwill. The intangible assets acquired were developed technology related to One Codex's microbiome and infectious disease platform and its customer relationships in place at time of acquisition. The fair value of the intangible assets was estimated using an income approach with an estimated useful life of nine years.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of One Codex resulted in the recognition of $63.4 million of goodwill, which we believe relates primarily to expansion of the acquired technology to apply to new areas of genetic testing. The goodwill created as a result of the acquisition of One Codex is not deductible for tax purposes.
Genosity
In April 2021, we acquired 100% of the fully diluted equity of Genosity Inc. ("Genosity"), a company providing genomic laboratory services, for approximately $196.0 million, consisting of approximately $120.0 million in cash and the remainder in shares of our common stock. In connection with this transaction, we granted RSUs having a value of up to $5.0 million to certain continuing employees. We included the financial results of Genosity in our consolidated financial statements from the acquisition date, which were not material.
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The following table summarizes the purchase price recorded as a part of the acquisition of Genosity (in thousands):
Purchase Price
Cash transferred $ 119,959 
Liabilities assumed and other consideration 8,774 
Common stock transferred 67,308 
Total $ 196,041 
Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by us. While we believe that our 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 through our acquisition of Genosity at the date of acquisition (in thousands):
Cash $ 906 
Accounts receivable 355 
Developed technology 76,500 
Other assets 3,732 
Total identifiable assets acquired 81,493 
Other liabilities (2,852)
Deferred tax liability (17,600)
Net identifiable assets acquired 61,041 
Goodwill 135,000 
Total purchase price $ 196,041 
Based on the guidance provided in ASC 805, Business Combinations, we accounted for the acquisition of Genosity as a business combination and determined that 1) Genosity was a business which combines inputs and processes to create outputs, and 2) substantially all of the fair value of gross assets acquired was not concentrated in a single identifiable asset or group of similar identifiable assets. Pursuant to the terms of the acquisition, we incorporated a provision to provide additional shares in the event that our common stock share price decreased after the acquisition, but prior to filing a resale registration statement. At acquisition we estimated this provision to be $7.0 million. On filing the resale registration statement the fair value was $3.2 million; the difference of $3.8 million was recorded as an expense in general and administrative expense during the three months ended June 30, 2021.
Our purchase price allocation for the acquisition is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to certain aspects of our asset valuations and our deferred tax liability assumed in connection with the acquisition. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.
We measured the identifiable assets and liabilities assumed at their acquisition date fair values separately from goodwill. The intangible assets acquired were developed technology related to Genosity's genomic laboratory services and sequencing software in place at time of acquisition. The fair value of the intangible assets was estimated using an income approach with an estimated useful life of twelve years.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of Genosity resulted in the recognition of $135.0 million of goodwill, which we believe relates primarily to expansion of the acquired technology to apply to new areas of genetic testing. The goodwill created as a result of the acquisition of Genosity is not deductible for tax purposes.
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5. Goodwill and intangible assets
Goodwill
The changes in the carrying amounts of goodwill were as follows (in thousands):
Balance as of December 31, 2020 $ 1,863,623 
Goodwill adjustment (1,176)
Goodwill acquired 198,442 
Balance as of June 30, 2021 $ 2,060,889 
Intangible assets
The following table presents details of our intangible assets (amounts in thousands, useful lives in years):
June 30, 2021 December 31, 2020
 
Cost
Accumulated
Amortization
Net
Weighted-Average
Useful Life
Cost
Accumulated
Amortization
Net
Weighted-Average
Useful Life
Customer relationships $ 41,515  $ (10,696) $ 30,819  10.8 $ 41,075  $ (8,292) $ 32,783  10.8
Developed technology 498,259  (52,628) 445,631  10.7 397,563  (31,013) 366,550  10.6
Non-compete agreement 286  (258) 28  5.0 286  (229) 57  5.0
Tradename 21,085  (1,327) 19,758  12.0 21,085  (447) 20,638  12.0
Patent assets and licenses 496 (122) 374  15.0 496  (103) 393  15.0
Right to develop new technology 19,359  (968) 18,391  15.0 19,359  (323) 19,036  15.0
In-process research and development 542,388  —  542,388  n/a 542,388  —  542,388  n/a
  $ 1,123,388  $ (65,999) $ 1,057,389  10.9 $ 1,022,252  $ (40,407) $ 981,845  10.9
Acquisition-related intangibles included in the above table are generally finite-lived, other than in-process research and development, which has an indefinite life, and are carried at cost less accumulated amortization. Customer relationships related to our 2017 business combinations are being amortized on an accelerated basis in proportion to estimated cash flows. All other finite-lived 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. Amortization expense was $13.5 million and $5.7 million for the three months ended June 30, 2021 and 2020, respectively, and $25.6 million and $9.2 million for the six months ended June 30, 2021 and 2020, respectively. Amortization expense is recorded in cost of revenue, research and development, selling and marketing and general and administrative expense.
The following table summarizes our estimated future amortization expense of intangible assets with finite lives as of June 30, 2021 (in thousands):
2021 (remainder of year) $ 28,037 
2022 54,470 
2023 53,458 
2024 53,179 
2025 51,426 
Thereafter 274,076 
Total estimated future amortization expense $ 514,646 
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6. Balance sheet components
Inventory
Inventory consisted of the following (in thousands):
  June 30, 2021 December 31, 2020
Raw materials $ 23,381  $ 21,324 
Work in progress 5,752  8,847 
Finished goods 849  1,859 
Total inventory $ 29,982  $ 32,030 
While we have not experienced significant disruption in our supply chain and we do not yet know the full impact COVID-19 may have on our supply chain, we have increased our inventory on hand to respond to potential future disruptions that may occur. During the three and six months ended June 30, 2021, we recognized reductions in inventory of $5.3 million and $8.0 million, respectively, due to inventory determined to be obsolete.
Property and equipment, net
Property and equipment consisted of the following (in thousands):
June 30, 2021 December 31, 2020
Leasehold improvements $ 30,199  $ 26,516 
Laboratory equipment 55,072  45,342 
Computer equipment 12,734  10,939 
Software 930  566 
Furniture and fixtures 1,996  1,967 
Automobiles 58  58 
Construction-in-progress 21,185  12,061 
Total property and equipment, gross 122,174  97,449 
Accumulated depreciation and amortization (39,414) (31,347)
Total property and equipment, net $ 82,760  $ 66,102 
Depreciation expense was $4.3 million and $2.3 million for the three months ended June 30, 2021 and 2020, respectively, and $8.1 million and $4.4 million for the six months ended June 30, 2021 and 2020, respectively.
Accrued liabilities
Accrued liabilities consisted of the following (in thousands):
  June 30, 2021 December 31, 2020
Accrued compensation and related expenses $ 32,024  $ 25,221 
Accrued interest 6,263  2,333 
Compensation and other liabilities associated with business combinations 15,545  25,600 
Deferred revenue 5,559  6,378 
Other 28,654  26,526 
Total accrued liabilities $ 88,045  $ 86,058 
Other long-term liabilities
Other long-term liabilities consisted of the following (in thousands):
  June 30, 2021 December 31, 2020
Deferred revenue, non-current 1,146  1,380 
Compensation and other liabilities associated with business combinations, non-current 444,222  825,976 
Other 15,298  13,900 
Total other long-term liabilities $ 460,666  $ 841,256 
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7. Fair value measurements
 Financial assets and liabilities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The authoritative guidance establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity.
The three-level hierarchy for the inputs to valuation techniques is summarized as follows:
Level 1—Observable inputs such as quoted prices (unadjusted) for identical instruments in active markets.
Level 2—Observable inputs such as quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-derived valuations whose significant inputs are observable.
Level 3—Unobservable inputs that reflect the reporting entity’s own assumptions.
The following tables set forth the fair value of our financial instruments that were measured at fair value on a recurring basis (in thousands):
  June 30, 2021
 
Amortized
Cost
Unrealized
Estimated
Fair Value
     
  Gains Losses Level 1 Level 2 Level 3
Financial assets:              
Money market funds $ 1,092,689  $ —  $ —  $ 1,092,689  $ 1,092,689  $ —  $ — 
U.S. Treasury notes 371,298  34  —  371,332  371,332  —  — 
U.S. government agency securities 51,139  —  —  51,139  —  51,139  — 
Total financial assets $ 1,515,126  $ 34  $ —  $ 1,515,160  $ 1,464,021  $ 51,139  $ — 
Financial liabilities:
Stock payable liability $ 22,010  $ —  $ —  $ 22,010 
Contingent consideration 429,068  —  —  429,068 
Total financial liabilities $ 451,078  $ —  $ —  $ 451,078 
  June 30, 2021
Reported as:  
Cash equivalents $ 1,082,412 
Restricted cash 10,275 
Marketable securities 422,473 
Total cash equivalents, restricted cash, and marketable securities $ 1,515,160 
Accrued liabilities $ 6,856 
Other long-term liabilities 444,222 
Total liabilities $ 451,078 

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  December 31, 2020
 
Amortized
Cost
Unrealized
Estimated
Fair Value
     
  Gains Losses Level 1 Level 2 Level 3
Financial assets:              
Money market funds $ 83,109  $ —  $ —  $ 83,109  $ 83,109  $ —  $ — 
U.S. Treasury notes 164,894  (15) 164,886  164,886  —  — 
U.S. government agency securities 64,291  —  64,300  —  64,300  — 
Total financial assets $ 312,294  $ 16  $ (15) $ 312,295  $ 247,995  $ 64,300  $ — 
Financial liabilities:
Stock payable liability $ 39,237  $ —  $ —  $ 39,237 
Contingent consideration 796,639  —  —  796,639 
Total financial liabilities $ 835,876  $ —  $ —  $ 835,876 
  December 31, 2020
Reported as:  
Cash equivalents $ 76,423 
Restricted cash 6,686 
Marketable securities 229,186 
Total cash equivalents, restricted cash, and marketable securities $ 312,295 
Accrued liabilities $ 10,592 
Other long-term liabilities 825,284 
Total liabilities $ 835,876 
There were no transfers between Level 1, Level 2 and Level 3 during the periods presented. The total fair value of investments with unrealized losses at June 30, 2021 was $34.9 million. Our debt securities of U.S. government agencies are classified as Level 2 as they are valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to benchmark yields, interest rate curves, reported trades, broker/dealer quotes and reference data.
Stock payable liabilities relate to certain indemnification hold-backs resulting from business combinations that are settled in shares of our common stock. We elected to account for these liabilities using the fair value option due to the inherent nature of the liabilities and the changes in value of the underlying shares that will ultimately be issued to settle the liabilities. The estimated fair value of these liabilities is classified as Level 3 and determined based upon the number of shares that are issuable to the sellers and the quoted closing price of our common stock as of the reporting date. The number of shares that will ultimately be issued is subject to adjustment for indemnified claims that existed as of the closing date for each acquisition. Changes in the number of shares issued and share price can significantly affect the estimated fair value of the liabilities. The change in fair value related to stock payable liabilities recorded to other income (expense), net during the three months ended June 30, 2021 and 2020 was income of $2.4 million and expense of $25.4 million, respectively, and income of $5.8 million and expense of $21.7 million during the six months ended June 30, 2021 and 2020, respectively.
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8. Commitments and contingencies
Leases
In 2015, we entered into an operating lease agreement for our headquarters and main production facility in San Francisco, California, which commenced in 2016. This lease expires in 2026 and we may renew the lease for an additional ten years. This optional period was not considered reasonably certain to be exercised and therefore we determined the lease term to be a ten-year period expiring in 2026. In connection with the execution of the lease, we provided a security deposit of approximately $4.6 million, which is included in restricted cash in our consolidated balance sheets. We also have other operating leases for office and laboratory space domestically and internationally. We expect to enter into new leases and modify existing leases as we support continued growth of our operations.
We have entered into various finance lease agreements to obtain laboratory equipment. The terms of our finance leases are generally three years and are typically secured by the underlying equipment. The portion of the future payments designated as principal repayment and related interest was classified as a finance lease obligation on our consolidated balance sheets. Finance lease assets are recorded within other assets on our consolidated balance sheets.
Debt financing
In October 2020, we entered into a credit agreement with a financial institution under which we borrowed $135.0 million (the "2020 Term Loan") concurrent with the closing of the ArcherDX acquisition. The 2020 Term Loan is secured by a first priority lien on all of our and our subsidiaries' assets, and is guaranteed by us and our subsidiaries. The 2020 Term Loan bears interest at an annual rate equal to three-month LIBOR, subject to a 2.00% LIBOR floor, plus a margin of 8.75%. If three-month LIBOR can no longer be determined or if the applicable governmental authority ceases to supervise or sanction such rates, then we shall endeavor to agree with the administrative agent, an alternate rate of interest that gives due consideration to the then prevailing market convention for determining interest for comparable loans in the United States; provided that until such alternative rate of interest is agreed, the 2020 Term Loan shall bear interest at the Wall Street Journal Prime Rate. The 2020 Term Loan will mature on (i) June 1, 2024 if at such time our 2024 Notes (defined below) are outstanding and are due to mature on September 1, 2024 (provided that if, prior to such date, the maturity date of at least 80% of the 2024 Notes is extended to a date that is prior to September 1, 2025, the maturity date for the 2020 Term Loan will be automatically extended to a date that is 90 days prior to such 2024 Notes maturity date as extended), or (ii) otherwise, on June 1, 2025. The full amount of the 2020 Term Loan is due upon maturity. Debt discounts, including debt issuance costs, related to the 2020 Term Loan of $32.8 million were recorded as a direct deduction from the debt liability and are being amortized to interest expense over the term of the 2020 Term Loan. Interest expense related to our debt financings, excluding the impact of our convertible senior notes, was $5.9 million and nil for the three months ended months ended June 30, 2021 and 2020, respectively, and $11.8 million and nil for the six months ended June 30, 2021 and 2020, respectively.
Convertible senior notes
Convertible senior notes due 2024
In September 2019, we issued, at par value, $350.0 million aggregate principal amount of 2.00% convertible senior notes due 2024 (the "2024 Notes") in a private offering. The 2024 Notes are our senior unsecured obligations and will mature on September 1, 2024, unless earlier converted, redeemed or repurchased. The 2024 Notes bear cash interest at a rate of 2.0% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020.
Upon conversion, the 2024 Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The initial conversion rate for the 2024 Notes is 33.6293 shares of our common stock per $1,000 principal amount of the 2024 Notes (equivalent to an initial conversion price of approximately $29.74 per share of common stock).
If we undergo a fundamental change (as defined in the indenture governing the 2024 Notes), the holders of the 2024 Notes may require us to repurchase all or any portion of their 2024 Notes for cash at a repurchase price equal to 100% of the principal amount of the 2024 Notes to be repurchased plus accrued and unpaid interest to, but excluding, the redemption date.
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The 2024 Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding March 1, 2024, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2024 Notes on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call any or all of the 2024 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after March 1, 2024 until the close of business on the business day immediately preceding the maturity date, holders may convert their 2024 Notes at any time, regardless of the foregoing circumstances. These notes were convertible at the option of the holders during the quarters beginning on January 1, 2021 and April 1, 2021 due to the sale price of our common stock during the quarters ended December 31, 2020 and March 31, 2021, respectively. No holders converted their notes during the six months ended June 30, 2021.
We may not redeem the 2024 Notes prior to September 6, 2022. We may redeem for cash all or any portion of the 2024 Notes, at our option, on or after September 6, 2022 and on or before the 30th scheduled trading day immediately before the maturity date if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.
Convertible senior notes due 2028
In April 2021, we issued, at 99% of par value, $1.2 billion aggregate principal amount of 1.5% convertible senior notes due 2028 (the "2028 Notes") in a private offering. The 2028 Notes are our senior unsecured obligations and will mature on April 1, 2028, unless earlier converted, redeemed or repurchased. The 2028 Notes bear cash interest at a rate of 1.5% per year, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021. Upon conversion, the 2028 Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election.
The 2028 Notes will be convertible at the option of the holder at any time until the second scheduled trading day prior to the maturity date, including in connection with a redemption by us. The 2028 Notes will be convertible into shares of our common stock based on an initial conversion rate of 23.1589 shares of common stock per $1,000 principal amount of the 2028 Notes (which is equal to an initial conversion price of $43.18 per share), in each case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions.
We may not redeem the 2028 Notes prior to April 6, 2025. On or after April 6, 2025, the 2028 Notes will be redeemable by us in the event that the closing sale price of our common stock has been at least 150% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide the redemption notice at a redemption price of 100% of the principal amount of such 2028 Notes, plus accrued and unpaid interest to, but excluding, the redemption date.
With certain exceptions, upon a change of control of the Company or the failure of our common stock to be listed on certain stock exchanges, the holders of the 2028 Notes may require that we repurchase all or part of the principal amount of the Notes at a repurchase price of 100% of the principal amount of the 2028 Notes to be repurchased, plus unpaid interest to, but excluding, the maturity date.
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Convertible senior notes
We adopted the provisions of ASU 2020-06 on January 1, 2021; see further information in Note 2, "Summary of significant accounting policies." Our 2024 Notes and 2028 Notes (collectively, our "convertible senior notes") consisted of the following (in thousands):
June 30, 2021 December 31, 2020
Outstanding principal $ 1,500,000  $ 350,000 
Unamortized debt discount and issuance costs (39,127) (66,276)
Net carrying amount, liability component $ 1,460,873  $ 283,724 
As of June 30, 2021, the fair value of the 2024 Notes and 2028 Notes was $481.3 million and $1.2 billion, respectively. The estimated fair value of the 2024 Notes and 2028 Notes, which are classified as Level 2 financial instruments, was determined based on the estimated or actual bid prices in an over-the-counter market and/or market conditions including the price and volatility of our common stock and comparable company information. We recognized $7.2 million and $5.5 million of interest expense related to our convertible senior notes during the three months ended June 30, 2021 and 2020, respectively, and $9.4 million and $10.9 million during the six months ended June 30, 2021 and 2020, respectively. Of the interest expense recognized during the three and six months ended June 30, 2021, $1.5 million and $2.0 million, respectively, was related to amortization of issuance costs and the remainder was related to contractual interest incurred.
Other commitments
In the normal course of business, we enter into various purchase commitments primarily related to service agreements and laboratory supplies. At June 30, 2021, our total future payments under noncancelable unconditional purchase commitments having a remaining term of over one year were $73.1 million.
Guarantees and indemnifications
As permitted under Delaware law and in accordance with our bylaws, we indemnify our directors and officers for certain events or occurrences while the officer or director is or was serving in such capacity. The maximum amount of potential future indemnification is unlimited; however, we maintain director and officer liability insurance. This insurance allows the transfer of the risk associated with our exposure and may enable us to recover a portion of any future amounts paid. We believe the fair value of these indemnification agreements is minimal. Accordingly, we did not record any liabilities associated with these indemnification agreements at June 30, 2021 or December 31, 2020.
Contingencies
We were not a party to any material legal proceedings at June 30, 2021, or at the date of this report except for matters listed below. We cannot currently predict the outcome of these actions. We are and may from time to time become involved in various legal proceedings and claims arising in the ordinary course of business. While we believe any such claims are unsubstantiated, and we believe we are in compliance with applicable laws and regulations applicable to our business, the resolution of any such claims could be material.
21





Natera, Inc.
On January 27, 2020, Natera filed a lawsuit against ArcherDX (a subsidiary of Invitae effective October 2, 2020) in the United States District Court for the District of Delaware, alleging that ArcherDX’s products using AMP chemistry, and the manufacture, use, sale, and offer for sale of such products, infringe U.S. Patent No. 10,538,814. On March 25, 2020, ArcherDX filed an answer denying Natera’s allegations and asserting certain affirmative defenses and counterclaims, including that U.S. Patent No. 10,538,814 is invalid and not infringed. On April 15, 2020, Natera filed an answer denying ArcherDX’s counterclaims and filed an amended complaint alleging that ArcherDX’s products using AMP chemistry, including STRATAFIDE, PCM, LiquidPlex, ArcherMET, FusionPlex, and VariantPlex, and the manufacture, use, sale, and offer for sale of such products, infringe U.S. Patent No. 10,538,814, U.S. Patent No. 10,557,172, U.S. Patent No. 10,590,482, and U.S. Patent No. 10,597,708, each of which are held by Natera. Natera seeks, among other things, damages and other monetary relief, costs and attorneys’ fees, and an order enjoining ArcherDX from further infringement of such patents. On May 13, 2020, ArcherDX filed an answer to Natera’s amended complaint denying Natera’s allegations and asserting certain affirmative defenses and counterclaims, including that the asserted patents are invalid and not infringed. On June 3, 2020, Natera filed an answer denying ArcherDX’s counterclaims. On June 4, 2020, ArcherDX filed a motion seeking dismissal of Natera’s infringement claims against STRATAFIDE, PCM, and ArcherMET, and for a judgment that U.S. Patent No. 10,538,814, U.S. Patent No. 10,557,172, and U.S. Patent No. 10,590,482 are invalid. On August 6, 2020, Natera filed another complaint against ArcherDX in the United States District Court for the District of Delaware alleging that ArcherDX’s products using AMP chemistry, including STRATAFIDE, PCM, LiquidPlex, ArcherMET, and VariantPlex, and the manufacture, use, sale, and offer for sale of such products, infringe U.S. Patent No. 10,731,220. Natera seeks, among other things, damages and other monetary relief, costs and attorneys’ fees, and an order enjoining ArcherDX from further infringement of the patent. On October 13, 2020, the court issued an order denying ArcherDX's motion for dismissal of Natera’s infringement claims against STRATAFIDE, PCM, and ArcherMET, and declined to enter judgment that U.S. Patent No. 10,538,814, U.S. Patent No. 10,557,172, and U.S. Patent No. 10,590,482 are invalid. On January 12, 2021, the court issued an order granting Natera leave to amend its complaint to add Invitae as a co-defendant and plead allegations that ArcherDX and Invitae induce end-users to infringe the patents-in-suit. Natera filed its Second Amended Complaint on the same day, with service completed on January 15, 2021. ArcherDX and Invitae filed answers to the Second Amended Complaint on January 26, 2021 and February 5, 2021, respectively, denying Natera's allegations and restating certain affirmative defenses and counterclaims of non-infringement and invalidity. The litigations have now been consolidated for all purposes. A claim construction order was issued on June 28, 2021. Discovery is ongoing, and trial has been scheduled for May 2022.
In addition, on October 6, 2020, Natera filed a complaint against Genosity in the United States District Court for the District of Delaware, alleging that Genosity's use of its AsTra products, and the manufacture, use, sale, and offer for sale of such products, infringes U.S. Patent No. 10,731,220. Natera's complaint further alleges that Genosity's accused products use ArcherDX's ctDNA and region-specific primers. Genosity filed an answer to the complaint on February 15, 2021, denying Natera's allegations and setting forth affirmative defenses and counterclaims of non-infringement, invalidity and unenforceability due to inequitable conduct. On March 8, 2021, Natera filed a motion to dismiss and strike certain affirmative defenses and counterclaims brought by Genosity relating to inequitable conduct; the court has not yet issued a decision. No case schedule has been set.
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QIAGEN Sciences
On July 10, 2018, ArcherDX and the General Hospital Corporation d/b/a Massachusetts General Hospital, which we refer to as MGH, filed a lawsuit in the United States District Court for the District of Delaware against QIAGEN Sciences, LLC, QIAGEN LLC, QIAGEN Beverly, Inc., QIAGEN Gaithersburg, Inc., QIAGEN GmbH and QIAGEN N.V., which is collectively referred to herein as QIAGEN, and a named QIAGEN executive who was a former member of ArcherDX’s board of directors, alleging several causes of action, including infringement of the ’810 Patent, trade secret misappropriation, breach of fiduciary duty, false advertising, tortious interference and deceptive trade practices. The ’810 Patent relates to methods for preparing a nucleic acid for sequencing and aspects of ArcherDX’s AMP technology. On October 30, 2019, with the permission of the Court, ArcherDX amended ArcherDX’s complaint to add a claim for infringement of the ’597 Patent. The ’597 Patent relates to methods of preparing and analyzing nucleic acids, such as by enriching target sequences prior to sequencing, and aspects of ArcherDX’s AMP technology. The QIAGEN products that ArcherDX alleges infringe the ’810 Patent and the ’597 Patent include, but are not limited to, QIAseq Targeted DNA Panels, QIAseq Targeted RNAscan Panels, QIAseq Index Kits and QIAseq Immune Repertoire RNA Library Kits. ArcherDX is seeking, among other things, damages for ArcherDX’s lost profits due to QIAGEN’s infringement and a permanent injunction enjoining QIAGEN from marketing and selling the infringing products and from using ArcherDX’s trade secrets. On December 5, 2019, QIAGEN and the named QIAGEN executive submitted their answer denying the allegations in ArcherDX’s complaint and asserting affirmative defenses that, among other things, the ’810 Patent and ’597 Patent are not infringed by QIAGEN’s products, that both patents are invalid, and that the complaint fails to state any claim for which relief may be granted. On March 1, 2021, each of ArcherDX and QIAGEN moved for summary judgment on issues relating to infringement and validity of ArcherDX's patents, breach of fiduciary duty and trade secret misappropriation. On June 18, 2021, ArcherDX informed the court that it would not assert the following claims to streamline the issues for trial: trade secret misappropriation, false advertising, deceptive trade practices, and tortious interference. The court denied QIAGEN's motion for summary judgment on trade secret misappropriation as moot on June 21, 2021 and denied QIAGEN's motion for summary judgment on breach of fiduciary duty on July 26, 2021. The court has not yet issued a decision on the parties' motions relating to infringement and validity of ArcherDX's patents. Trial is currently scheduled for August 2021.
9. Stockholders’ equity
Shares outstanding
Shares of convertible preferred and common stock were as follows (in thousands):
  Three Months Ended June 30, Six Months Ended June 30,
  2021 2020 2021 2020
Convertible preferred stock:
Shares outstanding, beginning and end of period 125  125  125  125 
Common stock:
Shares outstanding, beginning of period 197,514  101,920  185,886  98,796 
Common stock issued in connection with public offering —  23,058  8,932  23,058 
Common stock issued on exercise of stock options, net 178  130  579  308 
Common stock issued pursuant to vesting of RSUs 2,671  3,055  3,383  3,481 
Common stock issued pursuant to exercises of warrants —  208  148 
Common stock issued pursuant to employee stock purchase plan 271  342  271  342 
Common stock issued pursuant to business combinations 2,384  2,778  3,759  5,156 
Shares outstanding, end of period 203,018  131,289  203,018  131,289 
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Convertible preferred stock
In August 2017, in a private placement to certain accredited investors, we issued shares of our Series A convertible preferred stock which are convertible into common stock on a one-for-one basis, subject to adjustment for events such as stock splits, combinations and the like. The Series A convertible preferred stock is a non-voting common stock equivalent with a par value of $0.0001 and has the right to receive dividends first or simultaneously with payment of dividends on common stock. In the event of any liquidation or dissolution of the Company, the Series A preferred stock is entitled to receive $0.001 per share prior to the payment of any amount to any holders of capital stock ranking junior to the Series A preferred stock and thereafter shall participate pari passu with the holders of our common stock (on an as-if-converted-to-common-stock basis).
Sales Agreements
In May 2021, we entered into a sales agreement (the "2021 Sales Agreement") with Cowen and Company, LLC (“Cowen”) under which we may offer and sell from time to time at our sole discretion shares of our common stock through Cowen as our sales agent, in an aggregate amount not to exceed $400.0 million. Per the terms of the agreement, Cowen will receive a commission of up to 3% of the gross proceeds of the sales price of all shares sold through it as sales agent under the 2021 Sales Agreement.
In August 2018, we entered into a common stock sales agreement (the “2018 Sales Agreement”) with Cowen under which we may have offered and sold from time to time at our sole discretion shares of our common stock through Cowen as our sales agent, in an aggregate amount not to exceed $75.0 million. Per the terms of the agreement, Cowen received a commission equal to 3% of the gross proceeds of the sales price of all shares sold through it as sales agent under the 2018 Sales Agreement. In March 2019, we amended the 2018 Sales Agreement to increase the aggregate amount of our common stock to be sold under this agreement not to exceed $175.0 million. During 2018, 2019 and 2020, we sold 8.7 million shares of our common stock for gross proceeds of the full $175.0 million under this agreement, and generated net proceeds of $169.1 million.
Public offering
In January 2021, we issued, in an underwritten public offering, an aggregate of 8.9 million shares of our common stock at a price of $51.50 per share, for gross proceeds of $460.0 million and net proceeds of $434.3 million after deducting underwriting discounts and commissions and offering expenses.
In April 2020, we sold, in an underwritten public offering, an aggregate of 20.4 million shares of our common stock at a price of $9.00 per share, for gross proceeds of $184.0 million and net proceeds of $173.0 million.
Private placement
In connection with our acquisition of ArcherDX, in June 2020 we entered into a definitive agreement to sell $275.0 million in common stock in a private placement at a price of $16.85 per share. We received net proceeds of $263.7 million after deducting underwriting discounts and commissions and offering expenses upon the closing of the private placement in October 2020, concurrently with our acquisition of ArcherDX.
10. Stock incentive plans
Stock incentive plans
In 2010, we adopted the 2010 Incentive Plan (the “2010 Plan”). The 2010 Plan provides for the granting of stock-based awards to employees, directors and consultants under terms and provisions established by our Board of Directors. Under the terms of the 2010 Plan, options may be granted at an exercise price not less than the fair market value of our common stock. For employees holding more than 10% of the voting rights of all classes of stock, the exercise prices for incentive and nonstatutory stock options must be at least 110% of fair market value of our common stock on the grant date, as determined by our Board of Directors. The terms of options granted under the 2010 Plan may not exceed ten years.
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In January 2015, we adopted the 2015 Stock Incentive Plan (the “2015 Plan”), which became effective upon the closing of our initial public offering. Shares outstanding under the 2010 Plan were transferred to the 2015 Plan upon effectiveness of the 2015 Plan. The 2015 Plan provides for automatic annual increases in shares available for grant, beginning on January 1, 2016 through January 1, 2025. In addition, shares subject to awards under the 2010 Plan that are forfeited or terminated will be added to the 2015 Plan. The 2015 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, stock units, stock appreciation rights and other forms of equity compensation, all of which may be granted to employees, including officers, non-employee directors and consultants. Additionally, the 2015 Plan provides for the grant of cash-based awards.
Options granted generally vest over a period of four years. Typically, the vesting schedule for options granted to newly hired employees provides that 1/4 of the award vests upon the first anniversary of the employee’s date of hire, with the remainder of the award vesting monthly thereafter at a rate of 1/48 of the total shares subject to the option. All other options typically vest in equal monthly installments over the four-year vesting schedule. Upon the acquisition of ArcherDX in October 2020, any option that was outstanding was converted into a fully vested option to purchase a share of our common stock, which resulted in the issuance of options to purchase 3.7 million shares of our common stock.
RSUs generally vest over a period of three years. Typically, the vesting schedule for RSUs provides that 1/3 of the award vests upon each anniversary of the grant date, with certain awards that include a portion that vests immediately upon grant. We also have certain awards granted in connection with our management incentive plan which vest over a period of two years. In June 2019, we granted Time-based RSUs in connection with the acquisition of Singular Bio which vested in three equal installments over a period of 18 months and PRSUs that vest based on the achievement of performance conditions; see further details in Note 4, "Business combinations."
Activity under the 2010 Plan and the 2015 Plan is set forth below (in thousands, except per share amounts and years):
  Shares Available For Grant Stock Options Outstanding Weighted-Average Exercise Price Per Share Weighted-Average Remaining Contractual Life (Years) Aggregate Intrinsic Value
Balances at December 31, 2020 7,447  4,877  $ 7.75  6.8 $ 166,130 
Additional shares reserved 8,498  — 
Options granted (244) 244  34.90 
Options cancelled 40  (40) 26.64 
Options exercised —  (579) 5.10 
RSUs and PRSUs granted (1)
(5,476) — 
RSUs and PRSUs cancelled 412  — 
Balances at June 30, 2021 10,677  4,502  $ 9.39  6.4 $ 109,835 
Options exercisable at June 30, 2021 4,003  $ 7.43  6.1 $ 105,304 
Options vested and expected to vest at June 30, 2021 4,466  $ 9.32  6.4 $ 109,280 
(1)     Includes the changes in RSUs and PRSUs granted as a part of the Singular Bio acquisition in June 2019 and awards granted in an asset acquisition in December 2020 which are based on a fixed dollar value. The estimated number of shares issued will be variable until the awards vest.
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of our common stock for stock options that were in-the-money.
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The following table summarizes RSU activity (in thousands, except per share data):
  Number of Shares Weighted- Average Grant Date Fair Value Per Share
Balance at December 31, 2020 6,602  $ 12.89 
RSUs and PRSUs granted (1)
5,476  $ 31.47 
RSUs and PRSUs vested (3,383) $ 20.86 
RSUs and PRSUs cancelled (412) $ 21.90 
Balance at June 30, 2021 8,283  $ 21.47 
 (1)     Includes the changes in RSUs and PRSUs granted as a part of the Singular Bio acquisition in June 2019 and awards granted in an asset acquisition in December 2020 which are based on a fixed dollar value. The estimated number of shares issued will be variable until the awards vest which are adjusted above. The weighted-average grant date fair value per share reflects the fair value pricing of the full award.
Stock-based compensation
The following table summarizes stock-based compensation expense included in the consolidated statements of operations (in thousands): 
  Three Months Ended June 30, Six Months Ended June 30,
  2021 2020 2021 2020
Cost of revenue $ 5,474  $ 2,356  $ 7,659  $ 3,217 
Research and development 30,803  41,565  46,338  63,769 
Selling and marketing 6,909  3,298  10,339  5,120 
General and administrative 4,376  4,627  42,001  9,018 
Total stock-based compensation expense $ 47,562  $ 51,846  $ 106,337  $ 81,124 
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11. Net income (loss) per share
The following table presents the calculation of basic and diluted net income (loss) per share (in thousands, except per share amounts):
  Three Months Ended June 30, Six Months Ended June 30,
  2021 2020 2021 2020
Numerator:
Basic:
Net income (loss) $ 133,786  $ (166,403) $ 24,294  $ (264,930)
Diluted:
Net income (loss) $ 133,786  $ (166,403) $ 24,294  $ (264,930)
Interest effect of convertible debt, net 7,201  —  —  — 
Total $ 140,987  $ (166,403) $ 24,294  $ (264,930)
Denominator:
Basic:
Shares used in computing net income (loss) per share, basic 204,110  129,023  199,083  112,765 
Diluted:
Shares used in computing net income (loss) per share, basic 204,110  129,023  199,083  112,765 
Dilutive effect of contingently issuable shares 10,804  —  5,394 
Dilutive effect of convertible notes 38,403  —  —  — 
Dilutive effect of Series A convertible preferred stock 125  —  125  — 
Dilutive effect of equity awards 11,479  —  11,993  — 
Shares used in computing net income (loss) per share, diluted 264,921  129,023  216,595  112,765 
Net income (loss) per share, basic $ 0.66  $ (1.29) $ 0.12  $ (2.35)
Net income (loss) per share, diluted $ 0.53  $ (1.29) $ 0.11  $ (2.35)
The following common stock equivalents have been excluded from diluted net income (loss) per share because their inclusion would be anti-dilutive (in thousands):
  Three Months Ended June 30, Six Months Ended June 30,
  2021 2020 2021 2020
Shares of common stock subject to outstanding options 181  3,416  100  3,447 
Shares of common stock subject to outstanding warrants —  369  —  429 
Shares of common stock subject to outstanding RSUs and PRSUs 984  8,782  122  8,302 
Shares of common stock pursuant to ESPP —  313  —  318 
Shares of common stock underlying Series A convertible preferred stock —  125  —  125 
Shares of common stock subject to convertible senior notes conversion —  11,770  38,403  11,770 
Total shares of common stock equivalents 1,165  24,775  38,625  24,391 
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12. Geographic information
Revenue by country is determined based on the billing address of the customer. The following presents revenue by country (in thousands):
  Three Months Ended June 30, Six Months Ended June 30,
  2021 2020 2021 2020
United States $ 102,499  $ 43,334  $ 192,911  $ 103,140 
Rest of world 13,813  2,857  27,022  7,299 
Total revenue $ 116,312  $ 46,191  $ 219,933  $ 110,439 
13. Subsequent events
In July 2021, we acquired 100% of the fully diluted equity of Medneon LLC ("Medneon"), a genetics insights platform. Given the timing of the transaction with Medneon, we are currently in the process of finalizing the accounting recognition, including valuing the assets acquired and liabilities assumed. As a result, we are not yet able to provide the amounts to be recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed and other related disclosures.
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ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes included in Item 1 of Part I of this report, and together with our audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020. Historic results are not necessarily indicative of future results.
This report contains forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements in this report other than statements of historical fact, including statements identified by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions, are forward‑looking statements. Forward‑looking statements include, but are not limited to, statements about:
our views regarding the future of genetic testing and its role in mainstream medical practice;
the impact of COVID-19 on our business and the actions we have taken or may take in response thereto;
our mission and strategy for our business, products and technology, including our ability to expand our content and develop new content while maintaining attractive pricing, further enhance our genetic testing service and the related user experience, build interest in and demand for our tests and attract potential partners;
the implementation of our business model;
the expected benefits from and our ability to integrate our acquisitions;
our ability to obtain regulatory approvals for our tests;
the rate and degree of market acceptance of our tests and genetic testing generally;
our ability to scale our infrastructure and operations in a cost‑effective manner;
the timing of and our ability to introduce improvements to our genetic testing platform and to expand our assays to include additional genes;
the timing and results of studies with respect to our tests;
developments and projections relating to our competitors and our industry;
our competitive strengths;
the degree to which individuals will share genetic information generally, as well as share any related potential economic opportunities with us;
our commercial plans, including our sales and marketing expectations as well as our ability to expand internationally;
our ability to obtain and maintain adequate reimbursement for our tests;
regulatory developments in the United States and foreign countries;
our ability to attract and retain key scientific, sales, engineering or management personnel;
our expectations regarding our ability to obtain and maintain intellectual property protection and not infringe on the rights of others;
our ability to obtain funding for our operations and the growth of our business, including potential acquisitions;
our financial performance;
the impact of accounting pronouncements and our critical accounting policies, judgments, estimates and assumptions on our financial results;
our expectations regarding our future revenue, cost of revenue, operating expenses and capital expenditures, and our future capital requirements; and
the impact of tax laws on our business.
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Forward‑looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expected. These risks and uncertainties include, but are not limited to, those risks discussed in Item 1A of Part II of this report. Although we believe that the expectations and assumptions reflected in the forward‑looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward‑looking statements. Any forward‑looking statements in this report speak only as of the date of this report. We expressly disclaim any obligation or undertaking to update any forward‑looking statements.
In this report, all references to “Invitae,” “we,” “us,” “our,” or “the Company” mean Invitae Corporation.
Invitae and the Invitae logo are trademarks of Invitae Corporation. AMP™, STRATAFIDE™, LiquidPlex™, VariantPlex® and FusionPlex®, are the property of ArcherDX, LLC, a wholly owned subsidiary of Invitae Corporation. We also refer to trademarks of other companies and organizations in this report.
Summary of risk factors
Our business is subject to numerous risks and uncertainties that could affect our ability to successfully implement our business strategy and affect our financial results. You should carefully consider all of the information in this report and, in particular, the following principal risks and all of the other specific factors described in this Item 1A. before deciding whether to invest in our company.
We face risks related to health epidemics, including the recent COVID-19 pandemic, which could have a material adverse effect on our business and results of operations.
We expect to continue incurring significant losses, and we may not successfully execute our plan to achieve or sustain profitability.
Our inability to raise additional capital on acceptable terms in the future may limit our ability to develop and commercialize new tests and expand our operations.
We have acquired and may continue to acquire businesses or assets, form joint ventures or make investments in other companies or technologies that could harm our operating results, dilute our stockholders’ ownership, or cause us to incur debt or significant expense.
If third-party payers, including managed care organizations, private health insurers and government health plans do not provide adequate reimbursement for our tests or we are unable to comply with their requirements for reimbursement, our commercial success could be negatively affected.
We face intense competition, which is likely to intensify further as existing competitors devote additional resources to, and new participants enter, the market. If we cannot compete successfully, we may be unable to increase our revenue or achieve and sustain profitability.
We may not be able to manage our future growth effectively, which could make it difficult to execute our business strategy.
Security breaches, privacy issues, loss of data and other incidents could compromise sensitive or personal information related to our business or prevent us from accessing critical information and expose us to liability, which could adversely affect our business and our reputation.
We rely on highly skilled personnel in a broad array of disciplines and, if we are unable to hire, retain or motivate these individuals, or maintain our corporate culture, we may not be able to maintain the quality of our services or grow effectively.
We need to scale our infrastructure in advance of demand for our tests, and our failure to generate sufficient demand for our tests would have a negative impact on our business and our ability to attain profitability.
If we are not able to continue to generate substantial demand of our tests, our commercial success will be negatively affected.
If our STRATAFIDE and PCM products and related services do not perform as expected, we may not realize the expected benefits of our recent acquisition of ArcherDX.
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The future growth of our distributed products business is partially dependent upon regulatory approval and market acceptance of our IVD products, including STRATAFIDE and PCM.
Our success will depend on our ability to use rapidly changing genetic data to interpret test results accurately and consistently, and our failure to do so would have an adverse effect on our operating results and business, harm our reputation and could result in substantial liabilities that exceed our resources.
If the FDA regulates the tests we currently offer as LDTs as medical devices, we could incur substantial costs and our business, financial condition and results of operations could be adversely affected.
If we are unable to transition to the new European Union IVDR regulations, we could lose the ability to serve the European market.
We may not be able to obtain regulatory clearance or approval of our IVD products, or even if approved, such products may not be approved for guideline inclusion, which could adversely our ability to realize the intended benefits of our acquisition of ArcherDX.
One of ArcherDX’s competitors has alleged that its Anchored Multiplex PCR, or AMP, chemistry and products using AMP are infringing on its intellectual property, and ArcherDX may be required to redesign the technology, obtain a license, cease using the AMP chemistry altogether and/or pay significant damages, among other consequences, any of which would have a material adverse effect on ArcherDX’s business as well as our financial condition and results of operations, and the intended benefits of our acquisition of ArcherDX.
We have a large amount of debt, servicing our debt requires a significant amount of cash, and our debt service obligations may prevent us from taking actions that we would otherwise consider to be in our best interests.
Mission and strategy
Invitae’s mission is to bring comprehensive genetic information into mainstream medical practice to improve the quality of healthcare for billions of people. Our goal is to aggregate a majority of the world’s genetic information into a comprehensive network that enables sharing of data among network participants to improve healthcare and clinical outcomes.
We were founded on four core principles:
Patients should own and control their own genetic information;
Healthcare professionals are fundamental in ordering and interpreting genetic information;
Driving down the price of genetic information will increase its clinical and personal utility; and
Genetic information is more valuable when shared.
Our strategy for long-term growth centers on five key drivers of our business, which we believe work in conjunction to create a flywheel effect extending our leadership position in the new market we are building:
NVTA-20210630_G2.JPG
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Expanding our content offering.  We intend to continue steadily adding additional testing and analysis content to the Invitae platform, ultimately leading to affordable and ongoing access to the molecular information that enables personalized medicine. The breadth and depth of our offering is a core and central contribution to an improved user experience. 
Creating a unique user experience.  A state-of-the-art interactive platform will enhance our service offering, leverage the uniquely empowering characteristics of online sharing of genetic information and, we believe, enable a superior economic offering to clients. We intend to continue to expend substantial efforts developing, acquiring and implementing technology-driven improvements to our customers’ experience. We believe that an enhanced user experience and the resulting benefits to our brand and reputation will help draw customers to us over and above our direct efforts to do so.
Driving volume.  We intend to increase our brand equity and visibility through a commitment to precision testing results, excellent service and a variety of education, marketing and promotional techniques, including scientific publications and presentations, sales, marketing, public relations, social media and web technology vehicles. We believe that rapidly increasing the number of customers using our platform helps us to attract partners. 
Attracting partners.  As we add more customers to our platform, we believe our business becomes particularly attractive to potential partners that can help the patients in our network further benefit from their genetic information or that provide us access to new customers who may wish to join our network. We believe the cumulative effect of the increased volume brought by these strategic components will allow us to lower the cost of our service and expand patient access globally.
Lowering the cost and price of genetic information.  Our goal is to provide customers with a broad menu of genetic content at a reasonable price and rapid turn-around times in order to grow volume and, in turn, achieve greater economies of scale. As our customers and our business benefit from further cost savings, we expect that those cost savings will allow us to deliver still more comprehensive information at decreasing prices and further improve the customer experience, allowing us to reap the cumulative benefits from all of the efforts outlined above.
We seek to differentiate our service in the market by establishing an exceptional experience for our customers. To that end, we believe that elevating the needs of the customer over those of our other stakeholders is essential to our success. Thus, in our decision-making processes, we strive to prioritize, in order:
The needs of our customers;
Motivating our employees to serve our customers; and
Our long-term stockholder value.
We are certain that focusing on customers as our top priority rather than short-term financial goals is the best way to build and operate an organization for maximum long-term value creation.
Business overview
We offer high-quality, comprehensive, affordable genetic testing across multiple clinical areas, including hereditary cancer, cardiology, neurology, pediatrics, personalized oncology, metabolic conditions and rare diseases. To augment our offering and realize our mission, we have acquired multiple assets and businesses, which expanded our suite of genome management offerings and established a broader entry into key genomics markets.
This year we completed the acquisition of Reference Genomics, Inc. d/b/a One Codex, or One Codex, Genosity, Inc., or Genosity, and Medneon LLC, or Medneon. One Codex is a data platform for applied microbial genomics. Its acquisition adds capabilities across microbiome and infectious disease testing capabilities and allows us to deliver a high-quality, low-cost, end-to-end metagenomics product (sequencing and results) and enables the development of future offerings in infectious disease, preterm birth and wellness.
Genosity is a genomics and laboratory services company offering software and laboratory solutions that enable the deployment of complex sequencing-based cancer testing. The acquisition brings Genosity's specialized capabilities onto the Invitae platform to accelerate the time to market and decentralization of Invitae's personalized oncology offerings, including somatic and germline offerings used in screening, therapy selection and personalized cancer monitoring.
The Medneon digital platform combines AI and human insights with actionable information regarding an individual's cancer risk to inform precision prevention and management over time at the point-of-care or through telemedicine.
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In October 2020, we completed the acquisition of ArcherDX, Inc., or ArcherDX, a genomics company democratizing precision oncology by offering a suite of products and services that are accurate, personal, actionable and easy to use in local settings, thereby empowering clinicians to control the sample, data, patient care and economics. As part of the acquisition we agreed to pay contingent consideration based on the achievement of five post-closing development, regulatory and revenue milestones. The first milestone was achieved in November 2020, and in June 2021, three additional milestones were achieved or deemed to be achieved. The remaining milestone is based upon receiving FDA clearance or approval of STRATAFIDE, which per the terms of the acquisition agreement, must be completed by March 31, 2022, subject to certain extensions. Based on the current development timeline, during the three months ended June 30, 2021, we determined that this milestone will not be met by the required achievement date per the acquisition agreement, although we expect to receive FDA clearance or approval at a later date. The underlying assets related to this acquisition remain unchanged.
We have experienced rapid growth. For the years ended December 31, 2020, 2019 and 2018, our revenue was $279.6 million, $216.8 million, and $147.7 million, respectively, and we incurred net losses of $602.2 million, $242.0 million, and $129.4 million, respectively. For the six months ended June 30, 2021 and 2020, our revenue was $219.9 million and $110.4 million, respectively, and we recognized net income of $24.3 million and net loss of $264.9 million, respectively. At June 30, 2021, our accumulated deficit was $1.3 billion. To meet the demands of scaling our business, we increased our number of employees to approximately 2,600 at June 30, 2021 from approximately 1,500 on June 30, 2020. Our sales force grew to approximately 310 employees at June 30, 2021 from approximately 270 at June 30, 2020.
Sales of our tests have grown significantly. In 2020, 2019 and 2018, we generated 659,000, 469,000 and 292,000 billable units, respectively. In the six months ended June 30, 2021, we generated 546,000 billable tests compared to 264,000 billable tests in the same period in 2020. We calculate volume using billable units, which are billable events that include individual test reports released and individual reactions shipped. We refer to the set of reagents needed to perform an NGS test as a "reaction." Approximately 57% of the billable volume generated in the first six months of 2021 were billable to patients, biopharmaceutical partners and other business-to-business customers (e.g., hospitals, clinics, medical centers), and the remainder were billable to third-party payers. Many of the gene tests on our assays are tests for which insurers reimburse. However, when we do not have reimbursement policies or contracts with private insurers, our claims for reimbursement may be denied upon submission, and we must appeal the claims. The appeals process is time consuming and expensive, and may not result in payment. Even if we are successful in achieving reimbursement, we may be paid at lower rates than if we were under contract with the third-party payer. When there is not a contracted rate for reimbursement, there is typically a greater payment requirement from the patient that may result in further delay in payment for these tests.
We expect to incur operating losses for the near term as we continue to invest in our business to achieve our revenue growth objectives, including expansion of our platform to capture the broad potential of genetics across healthcare and expansion into new laboratory and production facilities, and may need to raise additional capital in order to fund our operations. If we are unable to achieve these objectives and successfully manage our costs, we may not be able to achieve profitability in the near term or at all.
We believe that the keys to our future growth will be to increase billable volume, achieve broad reimbursement coverage for our tests from third-party payers and increase our payment amounts from other types of payers, drive down the price for genetic analysis and interpretation, steadily increase the amount of genetic content we offer, consistently improve the client experience, drive physician and patient utilization of our website for ordering and delivery of results and increase the number of strategic partners working with us to add value for our clients. We also believe that providing a unique genetic testing platform that is agnostic to stage of life or disease category will deliver unique benefits to customers, payers and other institutions that are seeking to make genetic information a standard element of healthcare decisions in the future.
Impact of COVID-19
Our billable volumes decreased significantly in the second half of March 2020 as compared to the first few months of 2020 as a result of COVID-19 and related limitations and priorities across the healthcare system. Our daily test volumes have consistently increased from the low in March 2020, although the current COVID-19 pandemic continues to impact our business operations and practices. While we expect that it may continue to impact our business, we experienced limited disruption during the second quarter of 2021. We have reviewed and adjusted, when necessary, for the impact of COVID-19 on our estimates related to revenue recognition and expected credit losses.
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In response to the pandemic we have implemented measures to protect the health of all of our employees during this time with additional measures in place to better protect our on-site lab production and support teams. Our production facilities currently remain fully operational. While we have not experienced significant disruption in our supply chain, we have experienced supply delays as a result of the COVID-19 pandemic and have also had to obtain supplies from new suppliers. Although we do not yet know the full impact COVID-19 may have on our supply chain, we have increased our inventory on hand to respond to potential future disruptions that may occur.
Many announced healthcare guidelines call for a shift of regular physician visits and healthcare delivery activities to remote/telehealth formats. This is particularly important for patients who, despite the fall-out from COVID-19, continue to be diagnosed with critical diseases, like cancer, and for women who are pregnant or are trying to conceive. We believe our investments in new access platforms and technologies has and will continue to position us well to provide a range of testing to clinicians and patients using a “clinical care from afar” model. An example is our rollout in April 2020 of our Gia telehealth platform, which expands access to remote interaction between patients and clinicians as well as direct ordering of genetic tests. Such access helped to counteract some of the adverse in-office impacts of COVID-19, allowing continuation of key testing categories in a safe environment.
Given the unknown duration and extent of COVID-19’s impact on our business, and the healthcare system in general, we adapted our spending and investment levels in 2020 and continue to monitor evolving market conditions, including focusing commercial execution on workflows that support remote ordering, online support and telehealth.
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law as a stimulus bill intended to bolster the economy, among other things, and provide assistance to qualifying businesses and individuals. The CARES Act included an infusion of funds into the healthcare system; in April 2020, we received $3.8 million as a part of this initiative, and in January 2021, we received an additional $2.3 million. These payments were recognized as other income, net in our consolidated statement of operations in the periods received. At this time, we are not certain of the availability, extent or impact of any future relief provided under the CARES Act.
Factors affecting our performance
Number of billable units
Our centralized test revenue is tied to the number of tests which we bill third-party payers, biopharmaceutical partners, other business-to-business customers (e.g., hospitals, clinics, medical centers), or patients. Our decentralized product revenue is based upon the number of individual reactions we ship biopharmaceutical partners and other business-to-business customers. We refer to the set of reagents needed to perform an NGS test as a "reaction," and we refer to billable events that include individual test reports released and individual reactions shipped as billable units. We typically bill for our services following delivery of the billable report derived from testing samples and interpreting the results. For units manufactured for use by customers in distributed facilities, we typically bill customers upon shipment of those units. Test orders are placed under signed requisitions or contractual agreements, as we often enter into contracts with biopharmaceutical partners, other business-to-business customers and insurance companies that include pricing provisions under which such tests are billed. We incur the expenses associated with a unit in the period in which the unit is processed regardless of when payment is received with respect to that unit. We believe the number of billable units in any period is an important indicator of the growth in our testing business, and with time, this will translate into the number of customers accessing our platform.
Number and size of research and commercial partnerships
Pharma development services revenue, which we recognize within other revenue in our consolidated statements of operations, is generated primarily from services provided to biopharmaceutical companies and other partners and is related to companion diagnostic development, clinical research, and clinical trial services across the research, development and commercialization phases of collaborations. The result of these relationships may include the development of new targeted companion diagnostics, which underscore and expand the need for genetic testing and in some cases may lead to intellectual property and/or revenue sharing opportunities with third-party partners.
In addition to research partnerships, we also seek to grow the number of biopharmaceutical partners and other business-to-business customers for whom we provide testing technologies, analysis, supplies and expertise to institutions that provide independent testing services to customers in their respective regions.
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Success obtaining and maintaining reimbursement
Our ability to increase volume and revenue will depend in part on our success achieving broad reimbursement coverage and laboratory service contracts for our tests from third-party payers and agreements with institutions and partners. Reimbursement may depend on a number of factors, including a payer’s determination that a test is appropriate, medically necessary and cost-effective, as well as whether we are in contract, where we get paid more consistently and at higher rates. Because each payer makes its own decision as to whether to establish a policy or enter into a contract to reimburse for our testing services and specific tests, seeking these approvals is a time-consuming and costly process. In addition, clinicians and patients may decide not to order our tests if the cost of the test is not covered by insurance. Because we require an ordering physician to requisition a test, our revenue growth also depends on our ability to successfully promote the adoption of our testing services and expand our base of ordering clinicians. We believe that establishing coverage and obtaining contracts from third-party payers is an important factor in gaining adoption by ordering clinicians. Our arrangements for laboratory services with payers cover approximately 315 million lives, comprised of Medicare, all national commercial health plans, and Medicaid in most states, including California (Medi-Cal), our home state.
Ability to lower the costs associated with performing our tests
Reducing the costs associated with performing our genetic tests is both a focus and a strategic objective of ours. Over the long term, we will need to reduce the cost of raw materials by improving the output efficiency of our assays and laboratory processes, modifying our platform-agnostic assays and laboratory processes to use materials and technologies that provide equal or greater quality at lower cost, improve how we manage our materials, port some tests onto a next generation sequencing platform and negotiate favorable terms for our materials purchases. Our acquisition of Singular Bio, Inc. is a component of this objective, and we expect the technology acquired in this transaction, once developed, to help decrease the costs associated with our NIPS offering. We also intend to continue to design and implement hardware and software tools that are designed to reduce personnel-related costs for both laboratory and clinical operations/medical interpretation by increasing personnel efficiency and thus lowering labor costs per test. Finally, we plan to reduce the cost of providing test equipment and software to laboratories and other facilities in the United States. and internationally. Those efforts are designed to enable a more rapid expansion of genetic testing and patient access, enlarging our geographic footprint outside the United States while achieving lower costs.
Ability to expand our genetic content and create new pathways to test
We believe our focus on reducing the average cost per test will have a countervailing force — increasing the number of tests we offer, the content of each test and the means to connect our testing services with patients and physicians. We intend to continue to expand our test menus by steadily releasing additional genetic content for affordable prices, ultimately leading to affordable whole genome services. The breadth and flexibility of our offering will be a critical factor in our ability to address new markets, including internationally, for genetic testing services. Both of these, in conjunction with our continued focus on strategic partnerships, will be important to our ability to continue to grow the volume of billable tests we deliver. We have and will continue to identify new ways to connect our testing services and information to patients. These include direct patient outreach and ordering capacity, the use of automated assistants for physician customers to improve the ease of ordering and processing genetic tests and programs designed to reach underserved patient populations with genetic testing.
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Investment in our business and timing of expenses
We plan to continue to invest in our genetic testing and information management business. We deploy state-of-the-art technologies in our genetic testing services, and we intend to continue to scale our infrastructure, including our testing capacity and capabilities as well as our information systems. We plan to do this through the acquisition of assets and businesses and expansion of our workforce and facilities, such as our new laboratory and production facility in North Carolina which we expect to support our continued growth by significantly expanding our testing capacity. We also expect to incur software development costs as we seek to further automate our laboratory processes and our genetic interpretation and report sign-out procedures, scale our customer service capabilities to improve our customers' experience, and expand the functionality of our website. We also expect to incur costs as we seek to provide the testing equipment and software necessary to enable decentralized genetic and genomic testing in the United States and internationally. We will incur costs related to marketing and branding as we spread our initiatives beyond our current customer base and focus on providing access to customers through our website. We plan to hire additional personnel as necessary to support anticipated growth, including software engineers, sales and marketing personnel, billing personnel, research and development personnel, medical specialists, biostatisticians and geneticists. We will also incur additional costs related to the expansion of our production facilities to accommodate growth and as we expand domestically and internationally, including increased operating costs and capital expenditures related to the buildout of our new laboratory and production facility in North Carolina. In addition, we will incur ongoing expenses as a result of operating as a public company. The expenses we incur may vary significantly by quarter as we focus on building out different aspects of our business.
How we recognize revenue
We generally recognize revenue on an accrual basis, which is when a customer obtains control of the promised goods or services, typically a test report. Accrual amounts recognized are based on estimates of the consideration that we expect to receive, and such estimates are adjusted and subsequently recorded until fully settled. Changes to such estimates may increase or decrease revenue recognized in future periods. Revenue from our tests may not be equal to billed amounts due to a number of factors, including differences in reimbursement rates, the amounts of patient payments, the existence of secondary payers and claim denials. Some test orders are placed under signed requisitions or contractual agreements, and we often enter into contracts with biopharmaceutical partners, other business-to-business customers and insurance companies that include pricing provisions under which such tests are billed.
Pharma development service revenues are generated primarily from custom assay design services, sample processing activities and consultative inputs, which is separate from revenue generated by any related or unrelated product component. Revenue is recognized as samples are processed or scope of work is completed based on contracted agreements with those biopharmaceutical customer companies.
Under these collaborations, we also generate revenue from achievement of milestones, provision of on-going support, and related pass-through costs and fees. We generally have distinct performance obligations for development milestones related to our development of a companion diagnostic device. We use a cost plus a margin approach to estimate the standalone value of our companion diagnostic development service performance obligations. Revenue is recognized over time using input or output methods based on our assessments of performance completed to date toward each milestone.
Financial overview
Revenue
We primarily generate revenue from testing services and sales of distributed precision oncology products. Customers are typically billed upon delivery of test results or shipment of products. We also generate revenue from development agreements, access to data, data analytics and other related services provided for biopharmaceutical partners and other parties. Our ability to increase our revenue will depend on our ability to increase our market penetration, obtain U.S. Food and Drug Administration, or FDA, and other international regulatory authority approvals on future products and services offerings, obtain contracted reimbursement coverage from third-party payers, and grow our relationships with biopharmaceutical customers.
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Cost of revenue
Cost of revenue reflects the aggregate costs incurred in delivering our products and services and includes expenses for materials and supplies, personnel-related costs, freight, costs for lab services and clinical trial support, equipment and infrastructure expenses and allocated overhead including rent, information technology, equipment depreciation, amortization of acquired intangibles, and utilities. We expect cost of revenue to generally increase in line with the increase in billable volume, however, we expect a future increase in amortization of acquired intangible assets that is not dependent on billed volume. We anticipate our cost per unit for existing tests will generally decrease over time due to the efficiencies we expect to gain as volume increases and from automation and other cost reductions. These reductions in cost per unit will likely be offset by new offerings which often have a higher costs per unit during the introductory phases before we are able to gain efficiencies. The cost per unit may fluctuate significantly from quarter to quarter.
Operating expenses
Our operating expenses are classified into three categories: research and development, selling and marketing, and general and administrative. For each category, the largest component is generally personnel-related costs, which include salaries, employee benefit costs, bonuses, commissions, as applicable, and stock-based compensation expense.
Research and development
Research and development expenses represent costs incurred to develop our technology and future offerings. These costs are principally for process development associated with our efforts to expand the number of genes we can evaluate, our efforts to lower the costs per unit and our development of new products to expand our platform. We have and may continue to partner with other companies to develop new technologies and capabilities; we expect to invest capital and incur significant operating costs to support these development efforts. In addition, we incur process development costs to further develop the software we use to operate our laboratories, analyze generated data, process customer orders, validate clinical activities, enable ease of customer ordering, deliver reports and automate our business processes. These costs consist of personnel-related costs, laboratory supplies and equipment expenses, consulting costs, amortization of acquired intangible assets, and allocated overhead including rent, information technology, equipment depreciation and utilities.
We expense all research and development costs in the periods in which they are incurred. We expect our research and development expenses to significantly increase as we continue our efforts to develop additional offerings, make investments to reduce costs, streamline our technology to provide patients access to testing, scale our business domestically and internationally and acquire and integrate new technologies.
Selling and marketing
Selling and marketing expenses consist of personnel-related costs, including commissions, client service expenses, advertising and marketing expenses, educational and promotional expenses, market research and analysis, and allocated overhead including rent, information technology, equipment depreciation, amortization of acquired intangibles, and utilities. We expect our selling and marketing expenses to increase as we continue to build our brand and focus on advertising our products and services.
General and administrative
General and administrative expenses include executive, finance and accounting, billing and collections, legal and human resources functions as well as other administrative costs. These expenses include personnel-related costs; audit, accounting and legal expenses; consulting costs; allocated overhead including rent, information technology, equipment depreciation, and utilities; costs incurred in relation to our co-development agreements; and post-combination expenses incurred in relation to companies we acquire. We expect our general and administrative expenses to generally increase as we support continued growth of operations.
Change in fair value of contingent consideration
Changes in fair value of contingent consideration are adjustments related to contingent consideration acquired primarily through business combinations. We expect these expenses to fluctuate significantly period to period due to fair value adjustments that are dependent on many factors, including the value of our common stock and our assessment of the probability of meeting certain acquisition-related milestones within the terms of the respective acquisition agreements, including certain prescribed deadlines for achievement.
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Other income (expense), net
Other income (expense), net, primarily consists of adjustments to the fair value of our stock payable liabilities arising from business combinations, and we expect it to fluctuate significantly from period to period due to the volatility of our common stock. Other income (expense), net also includes income generated from our cash equivalents and marketable securities and amounts received under the CARES Act.
Interest expense
Interest expense is primarily attributable to interest incurred related to our debt and finance leases. See Note 8, “Commitments and contingencies” in Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report for more details.
Income tax benefit
Since we generally establish a full valuation allowance against our deferred tax balances, our income tax benefit primarily consists of tax impacts of our deferred income tax assessments resulting from our acquisitions.
Critical accounting policies and estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. We evaluate our estimates on an ongoing basis. Our estimates are based on current facts, our historical experience and on various other factors that we believe are reasonable 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 and any such differences may be material. We believe that our accounting policies are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. See Note 2, "Summary of significant accounting policies" in the Notes to Condensed Consolidated Financial Statements for information regarding recent accounting pronouncements.
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Results of operations
Three Months Ended June 30, 2021 and 2020
The following sets forth our consolidated statements of operations data for each of the periods indicated (in thousands, except percentage changes). Our historical results are not necessarily indicative of our results of operations to be expected for any future period.
  Three Months Ended June 30,
Dollar
Change
%
Change
  2021 2020
Revenue:        
Test revenue $ 111,496  $ 45,099  $ 66,397  147%
Other revenue 4,816  1,092  3,724  341%
Total revenue 116,312  46,191  70,121  152%
Cost of revenue 89,331  42,952  46,379  108%
Research and development 106,454  74,963  31,491  42%
Selling and marketing 56,964  39,520  17,444  44%
General and administrative 38,303  26,006  12,297  47%
Change in fair value of contingent consideration (303,349) 4,832  (308,181) N/M
Income (loss) from operations 128,609  (142,082) 270,691  (191)%
Other income (expense), net 2,024  (21,436) 23,460  (109)%
Interest expense (13,407) (5,485) (7,922) 144%
Net income (loss) before taxes 117,226  (169,003) 286,229  (169)%
Income tax benefit (16,560) (2,600) (13,960) 537%
Net income (loss) $ 133,786  $ (166,403) $ 300,189  (180)%
Revenue
The increase in total revenue of $70.1 million for the three months ended June 30, 2021 compared to the same period in 2020 was due primarily to increased billable volume as well as product mix and pricing due to growth in our business as well as due to businesses acquired. Billable volume increased to approximately 287,000 in the three months ended June 30, 2021 compared to 113,000 in the same period of 2020, an increase of 154 percent, due to growth in the business as well as the impact of COVID-19 on billable volume in the prior year period. Average revenue per unit decreased to $388 per unit in the three months ended June 30, 2021 compared to $399 per unit in the comparable prior period primarily due to changes in payer and product mix, the impact of business acquisitions and reductions in pricing for some payers as we focus on providing cost effective genetic testing.
Cost of revenue
The increase in the cost of revenue of $46.4 million for the three months ended June 30, 2021 compared to the same period in 2020 was primarily due to increased billable volume, the impact of business acquisitions, and an increase in certain inventory reserves, partially offset by the effect of cost efficiencies. Cost per unit was $310 in the three months ended June 30, 2021 compared to $380 for the same period in 2020. The cost per unit decreased primarily due to lower billable volume during the prior year period as a result of COVID-19. These decreases were partially offset by an increase in amortization of acquired intangible assets of $6.6 million, an increase in write downs of certain inventory items of $4.9 million, as well as changes in product mix.
Research and development
The increase in research and development expense of $31.5 million for the three months ended June 30, 2021 compared to the same period in 2020 was due to growth in the business as well as the impact of business acquisitions and primarily relates to increases in personnel-related expenses of $11.1 million largely due to increases in headcount, $6.7 million in professional fees, $6.6 million in lab-related expenses due primarily to increased costs related to lab services and supplies, $3.0 million in technology costs, $1.7 million in depreciation and amortization costs, and a $0.8 million decrease in allocations from research and development to cost of revenue.
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Selling and marketing
The increase in selling and marketing expense of $17.4 million for the three months ended June 30, 2021 compared to the same period in 2020 was due primarily to the growth of the business and principally consisted of increases in personnel-related costs of $12.5 million primarily reflecting increased headcount and includes an increase in sales commissions of $2.2 million, an increase in travel-related costs of $1.3 million, an increase in professional fees of $1.3 million, an increase in depreciation and amortization expense of $0.9 million and an increase in technology costs of $0.9 million.
General and administrative
The increase in general and administrative expense of $12.3 million for the three months ended June 30, 2021 compared to the same period in 2020 was due principally to growth in the business which resulted in an increase in personnel-related costs by $7.5 million, a $4.1 million increase in occupancy expense, a $2.7 million increase in legal and accounting services which was primarily due to increased acquisition-related transaction costs, a $2.6 million increase in information technology expenses for software licenses and related costs and a $0.8 million increase in professional fees. These increases in costs were partially offset by an increase of $6.5 million in allocations of technology and facilities-related expenses to other functional areas.
Change in fair value of contingent consideration
The increase in the change in fair value of contingent consideration of $308.2 million for the three months ended June 30, 2021 compared to the same period in 2020 was due principally to adjustments to decrease our contingent consideration liability related to ArcherDX resulting from a decrease in the value of our common stock and the removal of our contingent consideration liability relating to the outstanding milestone for FDA clearance or approval of STRATAFIDE due to our determination that this milestone will not be achieved in the timeframe prescribed in the acquisition agreement, although we expect to receive FDA clearance or approval at a later date.
Other income (expense), net
The increase in other income, net of $23.5 million for the three months ended June 30, 2021 compared to the same period in 2020 was primarily due to decreases in fair value adjustments related to our stock payable liabilities of $27.7 million due to the decrease in the price of our common stock, partially offset by a decrease of amounts received under the CARES Act.
Interest expense
The increase in interest expense of $7.9 million for the three months ended June 30, 2021 compared to the same period in 2020 was primarily due to increased debt outstanding compared to the prior year period, partially offset by the impact of the adoption of ASU 2020-06, which reduced the interest expense recognized related to our convertible senior notes during 2021.
Income tax benefit
The increase in income tax benefit of $14.0 million was primarily due to the net deferred tax liabilities assumed in connection with our acquisition of Genosity in April 2021 offset by the net deferred tax liabilities assumed in connection with our acquisition of YouScript in April 2020.
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Six Months Ended June 30, 2021 and 2020
The following sets forth our consolidated statements of operations data for each of the periods indicated (in thousands, except percentage changes). Our historical results are not necessarily indicative of our results of operations to be expected for any future period.
  Six Months Ended June 30,
Dollar
Change
%
Change
  2021 2020
Revenue:        
Test revenue $ 210,772  $ 108,177  $ 102,595  95%
Other revenue 9,161  2,262  6,899  305%
Total revenue 219,933  110,439  109,494  99%
Cost of revenue 164,822  83,374  81,448  98%
Research and development 186,812  130,631  56,181  43%
Selling and marketing 108,204  81,640  26,564  33%
General and administrative 110,820  49,828  60,992  122%
Change in fair value of contingent consideration (366,970) 4,832  (371,802) N/M
Loss from operations 16,245  (239,866) 256,111  (107)%
Other income (expense), net 6,489  (16,728) 23,217  (139)%
Interest expense (21,800) (10,936) (10,864) 99%
Net income (loss) before taxes 934  (267,530) 268,464  (100)%
Income tax benefit (23,360) (2,600) (20,760) 798%
Net income (loss) $ 24,294  $ (264,930) $ 289,224  (109)%
Revenue
The increase in total revenue of $109.5 million for the six months ended June 30, 2021 compared to the same period in 2020 was due primarily to increased billable volume as well as product mix and pricing due to growth in our business as well as due to businesses acquired. Billable volume increased to 546,000 in the six months ended June 30, 2021 compared to 264,000 in the same period of 2020, an increase of 107 percent, due to growth in the business as well as the impact of COVID-19 on billable volume in the prior year period. Average revenue per test decreased to $386 per test in the six months ended June 30, 2021 compared to $410 per test in the comparable prior period primarily due to changes in payer and product mix, as well as reductions in pricing for some payers as we focus on providing cost effective genetic testing.
Cost of revenue
The increase in the cost of revenue of $81.4 million for the six months ended June 30, 2021 compared to the same period in 2020 was primarily due to increased billable volume, the impact of business acquisitions, and an increase in certain inventory reserves, partially offset by the effect of cost efficiencies. Cost per unit was $300 in the six months ended June 30, 2021 compared to $316 for the same period in 2020. The decrease in cost per unit in the six months ended June 30, 2021 was primarily attributable to lower billable volume during the prior year period as a result of COVID-19 partially offset by an increase in amortization of acquired intangible assets of $13.7 million, an increase in write downs of certain inventory items of $7.5 million, as well as changes in product mix.
Research and development
The increase in research and development expense of $56.2 million for the six months ended June 30, 2021 compared to the same period in 2020 was due to the growth of the business as well as the impact of business acquisitions and primarily relates to increase in personnel-related expenses of $21.9 million, a $14.9 million increase in lab-related expenses due primarily to increased costs related to lab services and supplies, a $10.4 million increase in professional fees, a $5.0 million increase in technology costs, and a $3.5 million increase in depreciation and amortization costs.
These cost increases were partially offset by increased allocations of resources from research and development to cost of revenue to support the increase in production volumes, and allocations from other functional areas, which reduced research and development expense by $1.4 million.
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Selling and marketing
The increase in selling and marketing expense of $26.6 million for the six months ended June 30, 2021 compared to the same period in 2020 was due primarily to the growth of the business and our increased spending on sales initiatives subsequent to our cut backs in the second quarter of 2020 as a response to COVID-19. The increase in selling and marketing expenses principally consisted of the following elements: personnel-related costs increased by $23.0 million reflecting increased headcount and included an increase in sales commissions of $4.2 million; allocated technology and facilities-related expenses increased by $2.0 million; a $1.8 million increase in depreciation and amortization and an increase in technology expense by $1.1 million. These costs were partially offset by reductions in marketing expenses for branding initiatives and advertising by $1.8 million.
General and administrative
The increase in general and administrative expense of $61.0 million for the six months ended June 30, 2021 compared to the same period in 2020 was due primarily to increases in costs due to the growth of the business and the effect of our business acquisitions, including: an increase in personnel-related costs by $46.7 million which includes an increase in stock-based compensation of $33.0 million, which was primarily due to the acceleration of certain awards granted in our acquisition of ArcherDX offset by a reduction in stock-based compensation due to the reduction in likelihood of completing a development milestone within the timeframe prescribed in the acquisition agreement; an increase in legal and accounting services by $7.3 million; an increase in occupancy costs by $6.6 million; an increase in information technology costs by $4.7 million due to software licenses and related expenses; an increase in post-combination expense related to our acquisitions of $3.3 million; and an increase in professional fees by $1.3 million. These increases in costs were partially offset by an increase of $9.6 million in allocations of technology and facilities-related expenses to other functional areas.
Change in fair value of contingent consideration
The increase in the change in fair value of contingent consideration of $371.8 million for the six months ended June 30, 2021 compared to the same period in 2020 was due principally to adjustments to decrease our contingent consideration liability related to ArcherDX resulting from a decrease in the value of our common stock and the removal of our contingent consideration liability relating to the outstanding milestone for FDA clearance or approval of STRATAFIDE due to our determination that this milestone will not be achieved in the timeframe prescribed in the acquisition agreement, although we expect to receive FDA clearance or approval at a later date.
Other income (expense), net
The increase in other income, net of $23.2 million for the six months ended June 30, 2021 compared to the same period in 2020 was due principally to fair value adjustments related to our stock payable liabilities of $27.5 million due to the decrease in the price of our common stock, partially offset by amounts received under the CARES Act and the net changes in amounts recognized related to our marketable securities.
Interest expense
The increase in interest expense of $10.9 million for the six months ended June 30, 2021 compared to the same period in 2020 was due principally to increased debt outstanding as compared to the prior year period, partially offset by the impact of the adoption of ASU 2020-06, which reduced the interest expense recognized related to our convertible senior notes during 2021.
Income tax benefit
The increase in income tax benefit of $20.8 million was due to the net deferred tax liabilities assumed in connection with our acquisition of One Codex and Genosity in 2021 as compared to the YouScript of $2.6 million in April 2020.