EXAS EXACT Sciences Corporation

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(608) 535-8815 (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

EXAS

The Nasdaq Stock Market LLC

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, if any, 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			☒			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 ☒

As of July 27, 2021, the registrant had 171,948,769 shares of common stock outstanding.

EXACT SCIENCES CORPORATION

INDEX

						Page Number
			Part I - Financial Information
Item 1.			Financial Statements
			Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2021 and December 31, 2020			3
			Condensed Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2021 and 2020			4
			Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the Three and Six Months Ended June 30, 2021 and 2020			5
			Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three and Six Months Ended June 30, 2021 and 2020			6
			Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2021 and 2020			8
			Notes to Condensed Consolidated Financial Statements (unaudited)			10
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			44
Item 3.			Quantitative and Qualitative Disclosures About Market Risk			54
Item 4.			Controls and Procedures			55
			Part II - Other Information
Item 1.			Legal Proceedings			56
Item 1A.			Risk Factors			56
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			63
Item 3.			Defaults Upon Senior Securities			64
Item 4.			Mine Safety Disclosures			64
Item 5			Other Information			64
Item 6.			Exhibits			65
			Signatures			66

Part I — Financial Information

			June 30, 2021						December 31, 2020
ASSETS
Current Assets:
Cash and cash equivalents			$	363,715					$	1,491,288
Marketable securities			943,864						348,699
Accounts receivable, net			226,539						233,185
Inventory			89,809						92,265
Prepaid expenses and other current assets			45,284						33,157
Total current assets			1,669,211						2,198,594
Long-term Assets:
Property, plant and equipment, net			501,908						451,986
Operating lease right-of-use assets			166,914						125,947
Goodwill			2,242,535						1,237,672
Intangible assets, net			2,089,108						847,123
Other long-term assets, net			54,658						63,770
Total assets			$	6,724,334					$	4,925,092
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable			$	36,592					$	35,709
Accrued liabilities			265,997						233,604
Operating lease liabilities, current portion			16,599						11,483
Debt, current portion			1,319						1,319
Convertible notes, net, current portion			312,961						312,716
Other current liabilities			42,230						38,265
Total current liabilities			675,698						633,096
Long-term Liabilities:
Convertible notes, net, less current portion			1,864,312						1,861,685
Long-term debt, less current portion			21,740						22,342
Other long-term liabilities			439,175						51,342
Operating lease liabilities, less current portion			164,308						121,075
Total liabilities			3,165,233						2,689,540
Commitments and contingencies (Note 14)
Stockholders’ Equity:
Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—no shares at June 30, 2021 and December 31, 2020			—						—
Common stock, $0.01 par value Authorized—400,000,000 shares issued and outstanding—171,855,305 and 159,423,410 shares at June 30, 2021 and December 31, 2020			1,720						1,595
Additional paid-in capital			5,811,286						4,279,327
Accumulated other comprehensive income			67						526
Accumulated deficit			(2,253,972)						(2,045,896)
Total stockholders’ equity			3,559,101						2,235,552
Total liabilities and stockholders’ equity			$	6,724,334					$	4,925,092

The accompanying notes are an integral part of these condensed consolidated financial statements.

EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Operations

(Amounts in thousands, except per share data - unaudited)

			Three Months Ended June 30,												Six Months Ended June 30,
			2021						2020						2021						2020
Revenue			$	434,819					$	268,868					$	836,896					$	616,689
Operating expenses
Cost of sales (exclusive of amortization of acquired intangible assets)			113,968						77,892						223,961						159,498
Research and development			106,235						32,673						221,802						76,182
Sales and marketing			194,827						118,862						380,968						286,611
General and administrative			167,629						106,685						435,356						220,676
Amortization of acquired intangible assets			23,824						23,430						47,014						46,769
Total operating expenses			606,483						359,542						1,309,101						789,736
Other operating income			—						23,665						—						23,665
Loss from operations			(171,664)						(67,009)						(472,205)						(149,382)
Other income (expense)
Investment income, net			3,429						2,912						34,617						3,009
Interest expense			(4,652)						(4,300)						(9,268)						(58,904)
Total other income (expense)			(1,223)						(1,388)						25,349						(55,895)
Net loss before tax			(172,887)						(68,397)						(446,856)						(205,277)
Income tax benefit (expense)			(4,025)						305						238,780						2,542
Net loss			$	(176,912)					$	(68,092)					$	(208,076)					$	(202,735)
Net loss per share—basic and diluted			$	(1.03)					$	(0.45)					$	(1.22)					$	(1.36)
Weighted average common shares outstanding—basic and diluted			171,494						149,727						170,469						148,938

The accompanying notes are an integral part of these condensed consolidated financial statements.

EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Comprehensive Loss

(Amounts in thousands - unaudited)

			Three Months Ended June 30,												Six Months Ended June 30,
			2021						2020						2021						2020
Net loss			$	(176,912)					$	(68,092)					$	(208,076)					$	(202,735)
Other comprehensive income (loss), before tax:
Unrealized gain (loss) on available-for-sale investments			(297)						3,206						(629)						1,564
Foreign currency adjustment			—						—						—						25
Comprehensive loss, before tax			(177,209)						(64,886)						(208,705)						(201,146)
Income tax expense related to items of other comprehensive loss			—						—						170						—
Comprehensive loss, net of tax			$	(177,209)					$	(64,886)					$	(208,535)					$	(201,146)

The accompanying notes are an integral part of these condensed consolidated financial statements.

EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity

(Amounts in thousands, except share data - unaudited)

			Common Stock												Additional Paid-In Capital						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Stockholders’ Equity
			Number of Shares						$0.01 Par Value
Balance, January 1, 2021			159,423,410						$	1,595					$	4,279,327					$	526					$	(2,045,896)					$	2,235,552
Conversion of convertible notes, net of tax			344						—						26						—						—						26
Exercise of common stock options			967,107						10						8,749						—						—						8,759
Issuance of common stock to fund the Company’s 2020 401(k) match			162,606						2						22,932						—						—						22,934
Compensation expense related to issuance of stock options and restricted stock awards			1,355,435						13						158,239						—						—						158,252
Issuance of common stock for business combination and asset acquisition			9,384,410						94						1,254,704						—						—						1,254,798
Net loss			—						—						—						—						(31,164)						(31,164)
Other comprehensive loss			—						—						—						(162)						—						(162)
Balance, March 31, 2021			171,293,312						$	1,714					$	5,723,977					$	364					$	(2,077,060)					$	3,648,995
Conversion of convertible notes, net of tax			197						—						14						—						—						14
Exercise of common stock options			140,478						1						2,857						—						—						2,858
Compensation expense related to issuance of stock options and restricted stock awards			121,575						2						56,283						—						—						56,285
Issuance of common stock for business combinations			126,026						1						16,119						—						—						16,120
Purchase of employee stock purchase plan shares			173,717						2						12,036						—						—						12,038
Net loss			—						—						—						—						(176,912)						(176,912)
Other comprehensive loss			—						—						—						(297)						—						(297)
Balance, June 30, 2021			171,855,305						$	1,720					5,811,286						$	67					(2,253,972)						$	3,559,101

The accompanying notes are an integral part of these condensed consolidated financial statements.

EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity

(Amounts in thousands, except share data - unaudited)

			Common Stock												Additional Paid-In Capital						Accumulated Other Comprehensive Income (Loss)						Accumulated Deficit						Total Stockholders’ Equity
			Number of Shares						$0.01 Par Value
Balance, January 1, 2020			147,625,696						$	1,477					$	3,178,552					$	(100)					$	(1,222,290)					$	1,957,639
Exercise of common stock options			160,286						2						4,298						—						—						4,300
Issuance of common stock to fund the Company’s 2019 401(k) match			136,559						1						12,006						—						—						12,007
Compensation expense related to issuance of stock options and restricted stock awards			1,141,376						11						29,549						—						—						29,560
Issuance of common stock for business combinations			382,947						4						28,593						—						—						28,597
Net loss			—						—						—						—						(134,643)						(134,643)
Other comprehensive loss			—						—						—						(1,617)						—						(1,617)
Balance, March 31, 2020			149,446,864						$	1,495					$	3,252,998					$	(1,717)					$	(1,356,933)					$	1,895,843
Exercise of common stock options			208,434						2						6,636						—						—						6,638
Compensation expense related to issuance of stock options and restricted stock awards			157,579						2						40,037						—						—						40,039
Purchase of employee stock purchase plan shares			167,921						2						9,797						—						—						9,799
Net loss			—						—						—						—						(68,092)						(68,092)
Other comprehensive income			—						—						—						3,206						—						3,206
Balance, June 30, 2020			149,980,798						$	1,501					$	3,309,468					$	1,489					$	(1,425,025)					$	1,887,433

The accompanying notes are an integral part of these condensed consolidated financial statements.

			Six Months Ended June 30,
			2021						2020
Cash flows from operating activities:
Net loss			$	(208,076)					$	(202,735)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			42,007						33,632
Loss on disposal of property, plant and equipment			639						650
Unrealized gain on equity investments			(2,486)						333
Deferred tax benefit			(244,509)						(3,165)
Stock-based compensation			133,577						69,599
Post-combination expense for acceleration of unvested equity			80,960						—
Realized gain on preferred stock investment			(30,500)						—
Loss on settlement of convertible notes			—						50,819
Amortization of deferred financing costs, convertible note debt discount and issuance costs, and other liabilities			3,282						(32)
Amortization of premium on short-term investments			1,616						503
Amortization of acquired intangible assets			47,014						46,769
Asset acquisition IPR&D expense			85,337						—
Remeasurement of contingent consideration			9,201						—
Non-cash lease expense			11,837						6,860
Changes in assets and liabilities:
Accounts receivable, net			8,995						(30,644)
Inventory, net			4,267						(20,260)
Operating lease liabilities			(7,095)						(4,997)
Accounts payable and accrued liabilities			27,138						(47,587)
Other assets and liabilities			(94)						43,558
Net cash used in operating activities			(36,890)						(56,697)
Cash flows from investing activities:
Purchases of marketable securities			(915,289)						(640,085)
Maturities and sales of marketable securities			325,380						268,483
Purchases of property, plant and equipment			(37,504)						(34,244)
Business combination, net of cash acquired			(415,549)						(6,654)
Asset acquisition			(58,073)						—
Investments in privately held companies			(10,000)						—
Other investing activities			(244)						273
Net cash used in investing activities			(1,111,279)						(412,227)
Cash flows from financing activities:
Proceeds from issuance of convertible notes, net			—						1,125,547
Proceeds from exercise of common stock options			11,617						10,938
Proceeds in connection with the Company’s employee stock purchase plan			12,038						9,799
Payments on settlement of convertible notes			—						(150,054)
Other financing activities			(3,068)						(626)
Net cash provided by financing activities			20,587						995,604
Net increase (decrease) in cash, cash equivalents and restricted cash			(1,127,582)						526,680
Cash, cash equivalents and restricted cash, beginning of period			1,491,594						177,528
Cash, cash equivalents and restricted cash, end of period			$	364,012					$	704,208

EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands - unaudited)

			Six Months Ended June 30,
			2021						2020
Supplemental disclosure of non-cash investing and financing activities
Property, plant and equipment acquired but not paid			$	15,139					$	8,684
Unrealized gain (loss) on available-for-sale investments, before tax			$	(629)					$	1,564
Issuance of 162,606 and 136,559 shares of common stock to fund the Company’s 401(k) matching contribution for 2020 and 2019, respectively			$	22,934					$	12,007
Issuance of 9,510,436 and 382,947 shares of common stock for business combinations and asset acquisition for 2021 and 2020, respectively			$	1,271,022					$	28,597
Business combination contingent consideration liability			$	350,348					$	—
Supplemental disclosure of cash flow information:
Interest paid			$	5,414					$	3,908

The accompanying notes are an integral part of these condensed consolidated financial statements.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Exact Sciences Corporation (together with its subsidiaries, “Exact,” or the “Company”) was incorporated in February 1995. Exact is a leading global cancer diagnostics company. It has developed some of the most impactful brands in cancer screening and diagnostics, including Cologuard® and Oncotype DX®. Exact is currently working on the development of additional tests, with the goal of bringing new, innovative cancer tests to patients throughout the world.

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements, which include the accounts of Exact Sciences Corporation and those of its wholly owned subsidiaries and variable interest entities, are unaudited and have been prepared on a basis substantially consistent with the Company’s audited financial statements and notes as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K (the “2020 Form 10-K”). All intercompany transactions and balances have been eliminated upon consolidation. These condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair statement of its financial position, operating results and cash flows for the periods presented. The condensed consolidated balance sheet at December 31, 2020 has been derived from audited financial statements, but does not contain all of the footnote disclosures from the 2020 Form 10-K. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year. The statements should be read in conjunction with the audited financial statements and related notes included in the 2020 Form 10-K.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are those that affect the Company’s financial statements materially and involve difficult, subjective or complex judgments by management, and actual results could differ from those estimates. These estimates include revenue recognition, valuation of intangible assets and goodwill, and accounting for income taxes among others. The Company’s critical accounting policies and estimates are explained further in the notes to the condensed consolidated financial statements in this Quarterly Report and the 2020 Form 10-K.

The spread of the coronavirus (“COVID-19”) has affected many segments of the global economy, including the cancer screening and diagnostics industry. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of June 30, 2021 and through the date of the filing of this Quarterly Report on Form 10-Q. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, equity investments, software, and the carrying value of the goodwill and other long-lived assets. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in additional material impacts to the Company’s consolidated financial statements in future reporting periods.

The pandemic and related precautionary measures began to materially disrupt the Company's operations in March 2020 and may continue to disrupt the business for an unknown period of time. As a result, the pandemic impacted the Company's revenues and operating results for the three and six months ended June 30, 2021.

The ultimate impact of COVID-19 depends on factors beyond the Company’s knowledge or control, including the duration and severity of the outbreak, as well as third-party actions taken to contain its spread and mitigate its public health effects. As a result, the Company is unable to estimate the extent to which COVID-19 will negatively impact its financial results or liquidity.

Significant Accounting Policies

During the six months ended June 30, 2021, there were no changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, except as described in the Recently Adopted Accounting Pronouncements section below.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation in the condensed consolidated financial statements and accompanying notes to the condensed consolidated financial statements.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In August 2020, The Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2020-06, Debt – Debt with Conversion and Other Options (subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This update simplifies the accounting for convertible debt instruments by removing the beneficial conversion and cash conversion separation models for convertible instruments. Under the update, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives or that do not result in substantial premiums accounted for as paid-in capital. The update also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will no longer be available. This standard may be adopted through either a modified retrospective method of transition or a full retrospective method of transition. The amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

The Company adopted the standard on January 1, 2021 through application of the full retrospective method of transition. This method of adoption was applied to enhance comparability between the periods presented in the Company’s financial statements. The Company applied the standard to convertible notes outstanding as of the date of the first offering of the Company’s outstanding convertible notes as discussed in Note 9.

The Company’s convertible debt instruments will be accounted for as a single liability measured at its amortized cost. The notes are no longer bifurcated between debt and equity, rather accounted for entirely as debt at face value net of any discount or premium and issuance costs. Interest expense is comprised of (1) cash interest payments, (2) amortization of any debt discounts or premiums based on the original offering, and (3) amortization of any debt issuance costs. Gain or loss on extinguishment of convertible notes is calculated as the difference between the (i) fair value of the consideration transferred and (ii) the sum of the carrying value of the debt at the time of repurchase.

As of January 1, 2019, the cumulative effect of adoption resulted in a decrease in additional-paid-in-capital of $260.2 million, a decrease in accumulated deficit of $26.6 million, and an increase to net deferred tax assets of $55.7 million offset by a corresponding increase of $55.7 million in the valuation allowance. As of January 1, 2020, the cumulative effect of adoption resulted in a decrease in additional-paid-in-capital of $227.8 million, an increase in accumulated deficit of $102.6 million, and an increase to the net deferred tax assets of $83.2 million offset by a corresponding increase of $74.7 million in the valuation allowance resulting in a net decrease of $8.5 million in recorded deferred tax liabilities. As of December 31, 2020, the cumulative effect of adoption resulted in an increase in the net carrying amount of convertible notes, net, current portion of $57.3 million and convertible notes, net, less current portion of $540.9 million, a decrease in additional-paid-in-capital of $510.3 million, an increase in accumulated deficit of $77.7 million, and an increase to net deferred tax assets of $146.0 million offset by a corresponding increase of $135.8 million in the valuation allowance resulting in a net decrease of $10.2 million in recorded deferred tax liabilities. For the three months ended June 30, 2020, interest expense in the condensed consolidated statement of operations decreased by $18.6 million as a result of a decrease in amortization of debt discounts, premiums, and issuance costs, income tax benefit decreased by $0.6 million and net loss per share, basic and diluted, decreased by $0.12 per share. For the six months ended June 30, 2020, interest expense in the condensed consolidated statement of operations increased by $10.8 million as a result of an increase in loss on extinguishment of $42.9 million in connection with the extinguishment of $100.0 million face value of 2025 Notes, which was offset by a decrease in cash interest and amortization of debt discounts, premiums, and issuance costs of $32.1 million. Income tax benefit decreased by $0.1 million and net loss per share, basic and diluted, increased by $0.07 per share.

Net Loss Per Share

Basic net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average common shares outstanding during the period. Basic and diluted net loss per share is the same because all outstanding common stock equivalents have been excluded, as they are anti-dilutive as a result of the Company’s losses.

The following potentially issuable common shares were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses for each period:

(2) REVENUE

The Company’s revenue is primarily generated by its laboratory testing services utilizing its Cologuard, Oncotype DX, and COVID-19 tests. The services are completed upon release of a patient’s test result to the ordering healthcare provider.

EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Disaggregation of Revenue

The following table presents the Company’s revenues disaggregated by revenue source:

						Three Months Ended June 30,												Six Months Ended June 30,
(In thousands)						2021						2020						2021						2020
Screening
Medicare Parts B & C						$	111,387					$	59,583					$	212,946					$	157,742
Commercial						140,149						65,080						268,023						174,449
Other						12,401						6,670						23,296						18,593
Total Screening						263,937						131,333						504,265						350,784
Precision Oncology
Medicare Parts B & C						$	47,705					$	33,994					$	90,822					$	81,028
Commercial						49,722						45,420						102,977						99,810
International						26,848						19,018						52,903						39,980
Other						13,534						4,524						20,514						10,508
Total Precision Oncology						137,809						102,956						267,216						231,326
COVID-19 Testing						$	33,073					$	34,579					$	65,415					$	34,579
Total						$	434,819					$	268,868					$	836,896					$	616,689

Screening revenue primarily includes laboratory service revenue from the Cologuard test while Precision Oncology revenue primarily includes laboratory service revenue from global Oncotype DX products.

The downward adjustment to revenue from a change in transaction price was $14.7 million for the three months ended June 30, 2021 and revenue recognized from changes in transaction price was $3.2 million for the three months ended June 30, 2020. The downward adjustment to revenue from changes in transaction prices was $13.0 million for the six months ended June 30, 2021 and revenue recognized from changes in transaction price was $8.6 million for the six months ended June 30, 2020. At each reporting period end, the Company conducts an analysis of the estimates used to calculate the transaction price to determine whether any new information available impacts those estimates made in prior reporting periods. For the period ending June 30, 2021, the Company identified new constraints on variable consideration that had not previously existed resulting in an adjustment to revenue.

Deferred revenue balances are reported in other current liabilities in the Company’s condensed consolidated balance sheets and were $28.7 million and $25.0 million as of June 30, 2021 and December 31, 2020, respectively. As of June 30, 2021, $27.6 million of the Company’s deferred revenue balance is a result of the billing terms pursuant to the existing COVID-19 laboratory service agreements (“LSAs”) with customers.

Revenue recognized for the three months ended June 30, 2021 and 2020, which was included in the deferred revenue balance at the beginning of each period was $10.4 million and $19,000, respectively. Of the $10.4 million of revenue recognized for the three months ended June 30, 2021, which was included in the deferred revenue balance at the beginning of the period, $10.3 million related to COVID-19 testing. Revenue recognized for the six months ended June 30, 2021 and 2020, which was included in the deferred revenue balance at the beginning of each period was $24.4 million and $0.2 million, respectively. Of the $24.4 million of revenue recognized for the six months ended June 30, 2021, which was included in the deferred revenue balance at the beginning of the period, $24.1 million related to COVID-19 testing.

EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(3) MARKETABLE SECURITIES

The following table sets forth the Company’s cash, cash equivalents, restricted cash, and marketable securities at June 30, 2021 and December 31, 2020:

(In thousands)						June 30, 2021						December 31, 2020
Cash, cash equivalents, and restricted cash
Cash and money market						$	360,797					$	901,294
Cash equivalents						2,918						589,994
Restricted cash						297						306
Total cash, cash equivalents, and restricted cash						364,012						1,491,594
Marketable securities
Available-for-sale debt securities						936,331						347,178
Equity securities						7,533						1,521
Total marketable securities						943,864						348,699
Total cash and cash equivalents, restricted cash and marketable securities						$	1,307,876					$	1,840,293

Available-for-sale debt securities at June 30, 2021 consisted of the following:

EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Available-for-sale debt securities at December 31, 2020 consisted of the following:

(In thousands)						Amortized Cost						Gains in Accumulated Other Comprehensive Income (Loss) (1)						Losses in Accumulated Other Comprehensive Income (Loss) (1)						Estimated Fair Value
Cash equivalents
U.S. government agency securities						$	589,986					$	8					$	—					$	589,994
Total cash equivalents						589,986						8						—						589,994
Marketable securities
U.S. government agency securities						207,119						52						—						207,171
Asset backed securities						7,070						24						—						7,094
Corporate bonds						132,301						612						—						132,913
Total marketable securities						346,490						688						—						347,178
Total available-for-sale securities						$	936,476					$	696					$	—					$	937,172

______________

(1)Gains and losses in AOCI are reported before tax impact.

The following table summarizes contractual underlying maturities of the Company’s available-for-sale debt securities at June 30, 2021:

EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the gross unrealized losses and fair values of available-for-sale debt securities in an unrealized loss position as of June 30, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

						Less than one year												One year or greater												Total
(In thousands)						Fair Value						Gross Unrealized Loss						Fair Value						Gross Unrealized Loss						Fair Value						Gross Unrealized Loss
Marketable securities
Corporate bonds						$	219,054					$	(80)					$	—					$	—					$	219,054					$	(80)
Certificates of deposit						10,501						(1)						—						—						10,501						(1)
Asset backed securities						40,335						(9)						—						—						40,335						(9)
U.S. government agency securities						268,964						(186)						—						—						268,964						(186)
Total marketable securities						538,854						(276)						—						—						538,854						(276)
Total available-for-sale securities						$	538,854					$	(276)					$	—					$	—					$	538,854					$	(276)

The Company evaluates investments, including investments in privately-held companies, that are in an unrealized loss position for impairment as a result of credit loss. It was determined that no credit losses exist as of June 30, 2021 and December 31, 2020, because the change in market value for those securities in an unrealized loss position has resulted from fluctuating interest rates rather than a deterioration of the credit worthiness of the issuers. The realized gain recorded on available-for-sale debt securities was not material to the condensed consolidated statements of income for the three and six months ended June 30, 2021 and 2020.

The Company recorded a gain of $2.5 million and $2.5 million from its equity securities for the three and six months ended June 30, 2021 as compared to a gain of $0.4 million and a loss of $0.3 million for the three and six months ended June 30, 2020.

The gains and losses recorded are included in investment income, net in the Company’s condensed consolidated statements of operations.

(4) INVENTORY

Inventory consisted of the following:

EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(5) PROPERTY, PLANT AND EQUIPMENT

The estimated useful lives of property, plant and equipment are as follows:

(In thousands)						Estimated Useful Life						June 30, 2021						December 31, 2020
Property, plant and equipment
Land						n/a						$	4,466					$	4,466
Leasehold and building improvements						(1)						140,314						117,865
Land improvements						15 years						4,910						4,864
Buildings						30 - 40 years						201,040						200,980
Computer equipment and computer software						3 years						93,912						75,417
Laboratory equipment						3 - 10 years						168,529						142,110
Furniture and fixtures						3 - 10 years						27,383						24,968
Assets under construction						n/a						35,080						18,854
Property, plant and equipment, at cost												675,634						589,524
Accumulated depreciation												(173,726)						(137,538)
Property, plant and equipment, net												$	501,908					$	451,986

______________

(1)Lesser of remaining lease term, building life, or estimated useful life.

Depreciation expense for the three months ended June 30, 2021 and 2020 was $21.5 million and $17.6 million, respectively. Depreciation expense for the six months ended June 30, 2021 and 2020 was $42.0 million and $33.6 million, respectively.

At June 30, 2021, the Company had $35.1 million of assets under construction which consisted of $8.4 million in laboratory equipment, $19.6 million related to building and leasehold improvements, and $7.1 million in capitalized costs related to software projects. Depreciation will begin on these assets once they are placed into service upon completion between 2021 and 2023.

EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(6) INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

The following table summarizes the net-book-value and estimated remaining life of the Company’s intangible assets as of June 30, 2021:

(In thousands)						Weighted Average Remaining Life (Years)						Cost						Accumulated Amortization						Net Balance at June 30, 2021
Finite-lived intangible assets
Trade name						14.4						$	100,700					$	(10,406)					$	90,294
Customer relationships						12.3						2,700						(494)						2,206
Patents						3.3						10,441						(6,092)						4,349
Acquired developed technology						8.7						853,171						(134,407)						718,764
Supply agreements						5.9						30,000						(6,505)						23,495
Total finite-lived intangible assets												997,012						(157,904)						839,108
In-process research and development						n/a						1,250,000						—						1,250,000
Total intangible assets												$	2,247,012					$	(157,904)					$	2,089,108

The following table summarizes the net-book-value and estimated remaining life of the Company’s intangible assets as of December 31, 2020:

As of June 30, 2021, the estimated future amortization expense associated with the Company’s finite-lived intangible assets for each of the five succeeding fiscal years is as follows:

(In thousands)
2021						$	47,880
2022						95,758
2023						95,755
2024						95,421
2025						94,373
Thereafter						409,921
						$	839,108

The Company’s acquired intangible assets are being amortized on a straight-line basis over the estimated useful life.

There were no impairment losses for the three and six months ended June 30, 2021 and 2020.

EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Goodwill

The change in the carrying amount of goodwill for the periods ended June 30, 2021 and December 31, 2020 is as follows:

(In thousands)
Balance, January 1, 2020						$	1,203,197
Paradigm & Viomics acquisition						30,431
Genomic Health acquisition adjustment (1)						4,044
Balance, December 31, 2020						$	1,237,672
Thrive acquisition						948,105
Ashion Acquisition						56,758
Balance June 30, 2021						$	2,242,535

______________

(1)The Company recognized a measurement period adjustment to goodwill related to an increase in Genomic Health’s pre-acquisition deferred tax liability due to finalization of certain income-tax related items.

There were no impairment losses for the three and six months ended June 30, 2021 and 2020.

(7) FAIR VALUE MEASUREMENTS

The three levels of the fair value hierarchy established are as follows:

Level 1    Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2    Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3    Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.

EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table presents the Company’s fair value measurements as of June 30, 2021 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.

(In thousands)						Fair Value at June 30, 2021						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Cash, cash equivalents, and restricted cash
Cash and money market						$	360,797					$	360,797					$	—					$	—
Corporate bonds						2,918						2,918						—						—
Restricted cash						297						297						—						—
Marketable securities
Corporate bonds						376,698						—						376,698						—
Certificates of deposit						212,903						—						212,903						—
Commercial paper						15,000						—						15,000						—
U.S. government agency securities						276,070						—						276,070						—
Asset backed securities						55,660						—						55,660						—
Equity securities (1)						7,533						—						7,533						—
Liabilities
Contingent consideration						(361,862)						—						—						(361,862)
Total						$	946,014					$	364,012					$	943,864					$	(361,862)

______________

(1)The equity securities held are classified as Level 2 as they are subject to a short-term lock-up restriction and have been discounted from the observable market prices of the similar unrestricted equity securities.

EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table presents the Company’s fair value measurements as of December 31, 2020 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.

(In thousands)						Fair Value at December 31, 2020						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)
Cash and cash equivalents
Cash and money market						$	901,294					$	901,294					$	—					$	—
U.S. government agency securities						589,994						—						589,994						—
Restricted cash						306						306						—						—
Marketable securities
U.S. government agency securities						207,171						—						207,171						—
Corporate bonds						132,913						—						132,913						—
Asset backed securities						7,094						—						7,094						—
Equity securities						1,521						1,521						—						—
Liabilities
Contingent consideration						(2,477)						—						—						(2,477)
Total						$	1,837,816					$	903,121					$	937,172					$	(2,477)

There have been no changes in valuation techniques or transfers between fair value measurement levels during the periods ended June 30, 2021 and December 31, 2020. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities are valued using a third-party pricing agency where the valuation is based on observable inputs including pricing for similar assets and other observable market factors. The Company’s marketable equity security investment in Biocartis held as of December 31, 2020 was classified as a Level 1 instrument prior to being sold in the first quarter of 2021.

Contingent Consideration

Certain of the Company’s business combinations involve potential payment of future consideration that is contingent upon the achievement of certain regulatory and product revenue milestones being achieved. A liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized within general and administrative expenses on the Company’s condensed consolidated statements of operations.

The fair value of contingent consideration as of June 30, 2021 and December 31, 2020 was $361.9 million and $2.5 million, respectively, which was recorded in other long-term liabilities in the condensed consolidated balance sheets.

The following table provides a reconciliation of the beginning and ending balances of contingent consideration:

(1)The increase in the contingent consideration liability is due to the contingent consideration associated with the acquisitions of Ashion Analytics, LLC (“Ashion”) and Thrive Earlier Detection Corporation (“Thrive”). Refer to Note 17 for further information.

This fair value measurement of contingent consideration is categorized as a Level 3 liability, as the measurement amount is based primarily on significant inputs not observable in the market.

The fair value of the contingent consideration liability recorded related to regulatory and product development milestones associated with the Thrive and Ashion acquisitions was $359.5 million as of June 30, 2021. The Company evaluates the fair value of the regulatory and product development milestones related expected contingent consideration and the corresponding liability using the probability-weighted scenario based discounted cash flow model, which is consistent with the initial measurement of the expected contingent consideration liabilities. Probabilities of success are applied to each potential scenario and the resulting values are discounted using a rate that considers a present-value factor. The passage of time in addition to changes in projected milestone achievement timing, present-value factor, the degree of achievement if applicable, and probabilities of success may result in adjustments to the fair value measurement. The fair value measurements of contingent consideration for which a liability is recorded include significant unobservable inputs. As of June 30, 2021, the fair value of the contingent consideration liability recorded related to regulatory and product development milestones was determined using a weighted average probability of success of 90.4% and a weighted average present-value factor of 2.2%. The projected fiscal year of payment range is from 2024 to 2027. Unobservable inputs were weighted by the relative fair value of the contingent consideration liability.

The fair value of the contingent consideration earnout liability related to certain revenue milestones associated with the Biomatrica acquisition was $2.3 million as of June 30, 2021. The revenue milestone associated with the Ashion acquisition is not expected to be achieved and therefore no liability has been recorded for this milestone.

Non-Marketable Equity Investments

As of June 30, 2021 and December 31, 2020, the aggregate carrying amounts of the Company’s non-marketable equity securities without readily determinable fair values were $26.7 million and $29.1 million, respectively, which are classified as a component of other long-term assets in the Company’s condensed consolidated balance sheets. There have been no downward or upward adjustments made on these investments since initial recognition.

Derivative Financial Instruments

As of June 30, 2021 and December 31, 2020, the Company had open foreign currency forward contracts with notional amounts of $23.8 million and $22.4 million, respectively. The Company's foreign exchange derivative instruments are classified as Level 2 within the fair value hierarchy as they are valued using inputs that are observable in the market or can be derived principally from or corroborated by observable market data. The fair value of the foreign currency forward contracts was zero at June 30, 2021 and December 31, 2020, and there were no gains or losses recorded for the three and six months ended June 30, 2021 and 2020.

(8) LONG-TERM DEBT

Construction Loan Agreement

During December 2017, the Company entered into a loan agreement with Fifth Third Bank (formerly MB Financial Bank, N.A.) (the “Construction Loan Agreement”), which provides the Company with a non-revolving construction loan (the “Construction Loan”) of $25.6 million. The Company is using the Construction Loan proceeds to finance the construction of an additional clinical laboratory and related facilities in Madison, Wisconsin. The Construction Loan is collateralized by the additional clinical laboratory and related facilities.

Pursuant to the Construction Loan Agreement, funds drawn will bear interest at a rate equal to the sum of the 1-month LIBOR rate plus 2.25 percent. Regular monthly payments are interest-only for the first 24 months, with further payments based on a 20-year amortization schedule. Amounts borrowed pursuant to the Construction Loan Agreement may be prepaid at any time without penalty. The maturity date of the Construction Loan Agreement is December 10, 2022.

In November 2017, Fifth Third Bank, on behalf of the Company, issued an Irrevocable Standby Letter of Credit in the amount of $0.6 million in favor of the City of Madison, Wisconsin (the “City Letter of Credit”). The City Letter of Credit is deemed to have been issued pursuant to the Construction Loan Agreement. The amount of the City Letter of Credit will reduce, dollar for dollar, the amount available for borrowing under the Construction Loan Agreement.

As a condition to Fifth Third Bank’s initial advance of loan proceeds under the Construction Loan Agreement, the Company was required to first invest at least $16.4 million of its own cash into the construction project. The Company fulfilled its required initial investment and made its first draw on the Construction Loan in June 2018. In December 2019, the Company began making monthly payments towards the outstanding principal balance plus accrued interest. As of June 30, 2021 and December 31, 2020, the outstanding balance was $23.1 million and $23.8 million, respectively, from the Construction Loan, including $0.7 million of interest incurred, which is accrued for as an interest reserve and represents a portion of the loan balance. The Company capitalized the $0.7 million of interest to the construction project. The Company incurred approximately $0.2 million of debt issuance costs related to the Construction Loan, which are recorded as a direct deduction from the liability. The debt issuance costs are being amortized over the life of the Construction Loan.

The carrying amount of the Construction Loan approximates fair value due to the short maturity of this instrument. The Construction Loan is privately held with no public market for this debt and therefore is classified as a Level 3 fair value measurement. The change in the fair value during the three and six months ended June 30, 2021 was due to payments made on the loan resulting in a decrease in the liability.

The Construction Loan Agreement was amended effective June 30, 2020 to include a financial covenant to maintain a minimum liquidity of $250 million and remove the minimum tangible net worth covenant. As of June 30, 2021, the Company is in compliance with the covenant included in the amended agreement.

Tax Increment Financing Loan Agreements

The Company entered into two separate Tax Increment Financing Loan Agreements (“TIFs”) in February 2019 and June 2019 with the City of Madison, Wisconsin. The TIFs provide for $4.6 million of financing in the aggregate. In return for the loans, the Company is obligated to create and maintain 500 full-time jobs over a five-year period, starting on the date of occupancy of the buildings constructed. In the event that the job creation goals are not met, the Company would be required to pay a penalty.

The Company records the earned financial incentives as the full-time equivalent positions are filled. The amount earned is recorded as a liability and amortized as a reduction of operating expenses over a two-year period, which is the timeframe when the TIFs will be repaid through property taxes.

As of December 31, 2019, the Company had earned and received payment of the full $4.6 million from the City of Madison, and the corresponding liability became fully amortized in October 2020. In May 2021 the City of Madison confirmed that the Company had repaid the TIFs in full and released the Company from the loans and the related property lien.

(9) CONVERTIBLE NOTES

Convertible note obligations included in the condensed consolidated balance sheet consisted of the following as of June 30, 2021:

EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Convertible note obligations included in the condensed consolidated balance sheet consisted of the following as of December 31, 2020:

																								Fair Value (2)
(In thousands)						Principal Amount						Unamortized Debt Discount and Issuance Costs						Net Carrying Amount						Amount						Leveling
2028 Convertible notes - 0.375%						$	1,150,000					$	(21,878)					$	1,128,122					$	1,526,625					2
2027 Convertible notes - 0.375%						747,500						(13,937)						733,563						992,306						2
2025 Convertible notes - 1.000% (1)						315,049						(2,333)						312,716						601,744						2

______________

(1)Based on the Company’s share price on the days leading up to June 30, 2021 and December 31, 2020, holders of the 2025 Convertible Notes have the right to convert their debentures. As a result, the 2025 Convertible Notes are included within convertible notes, net, current portion on the condensed consolidated balance sheets.

(2)The fair values are based on observable market prices for this debt, which is traded in active markets and therefore is classified as a Level 2 fair value measurement.

Issuances and Settlements

In January 2018, the Company issued and sold $690.0 million in aggregate principal amount of 1.0% Convertible Notes (the “January 2025 Notes”) with a maturity date of January 15, 2025. The January 2025 Notes accrue interest at a fixed rate of 1.0% per year, payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The net proceeds from the issuance of the January 2025 Notes were approximately $671.1 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.

In June 2018, the Company issued and sold an additional $218.5 million in aggregate principal amount of 1.0% Convertible Notes (the “June 2025 Notes”). The June 2025 Notes were issued under the same indenture pursuant to which the Company previously issued the January 2025 Notes (the “Indenture”). The January 2025 Notes and the June 2025 Notes (collectively, the “2025 Notes”) have identical terms (including the same January 15, 2025 maturity date) and are treated as a single series of securities. The net proceeds from the issuance of the June 2025 Notes were approximately $225.3 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.

In March 2019, the Company issued and sold $747.5 million in aggregate principal amount of 0.375% Convertible Notes (the “2027 Notes”) with a maturity date of March 15, 2027. The 2027 Notes accrue interest at a fixed rate of 0.375% per year, payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2019. The net proceeds from the issuance of the 2027 Notes were approximately $729.5 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.

The Company utilized a portion of the proceeds from the issuance of the 2027 Notes to settle a portion of the 2025 Notes in privately negotiated transactions. In March 2019, the Company used cash of $494.1 million and an aggregate of 2.2 million shares of the Company’s common stock valued at $182.4 million for total consideration of $676.5 million to settle $493.4 million of the 2025 Notes, of which $0.7 million was used to pay off interest accrued on the 2025 Notes. The transaction resulted in a loss on settlement of convertible notes of $187.7 million, which is reflected in accumulated deficit in the Company’s condensed consolidated balance sheets. The loss represents the difference between (i) the fair value of the consideration transferred and (ii) the carrying value of the debt at the time of repurchase.

In February 2020, the Company issued and sold $1.15 billion in aggregate principal amount of 0.375% Convertible Notes (the “2028 Notes” and, collectively with the 2025 Notes and the 2027 Notes, the “Notes”) with a maturity date of March 1, 2028. The 2028 Notes accrue interest at a fixed rate of 0.375% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2020. The net proceeds from the issuance of the 2028 Notes were approximately $1.13 billion, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.

In February 2020, the Company used $150.1 million of the proceeds from the issuance of the 2028 Notes to settle $100.0 million of the 2025 Notes, of which $0.1 million was used to pay off interest accrued on the 2025 Notes. The transaction resulted in a loss on settlement of convertible notes of $50.8 million, which is recorded in interest expense in the Company’s condensed consolidated statement of operations. The loss represents the difference between (i) the fair value of the consideration transferred and (ii) the carrying value of the debt at the time of repurchase.

Summary of Conversion Features

Until the six-months immediately preceding the maturity date of the applicable series of Notes, each series of Notes is convertible only upon the occurrence of certain events and during certain periods, as set forth in the Indentures filed at the time of the original offerings. On or after the date that is six-months immediately preceding the maturity date of the applicable series of Notes until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert such Notes at any time. The Notes will be convertible into cash, shares of the Company’s common stock (plus, if applicable, cash in lieu of any fractional share), or a combination of cash and shares of the Company’s common stock, at the Company’s election.

It is the Company’s intent and policy to settle all conversions through combination settlement. The initial conversion rate is 13.26, 8.96, and 8.21 shares of common stock per $1,000 principal amount for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively, which is equivalent to an initial conversion price of approximately $75.43, $111.66, and $121.84 per share of the Company’s common stock for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively. The 2025 Notes, 2027 Notes, and 2028 Notes may be convertible in up to 4.2 million, 6.7 million, and 9.4 million shares, respectively. The conversion rate is subject to adjustment upon the occurrence of certain specified events as set forth in the Indentures filed at the time of the original offerings but will not be adjusted for accrued and unpaid interest. In addition, holders of the Notes who convert their Notes in connection with a “make-whole fundamental change” (as defined in the Indenture), will, under certain circumstances, be entitled to an increase in the conversion rate.

If the Company undergoes a “fundamental change” (as defined in the Indenture), holders of the Notes may require the Company to repurchase for cash all or part of their Notes at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest.

Based on the closing price of the Company’s common stock of $124.31 on June 30, 2021, the if-converted values exceed the principal amount by $204.1 million, $84.7 million, and $23.3 million for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively.

Ranking of Convertible Notes

The Notes are the Company’s senior unsecured obligations and (i) rank senior in right of payment to all of its future indebtedness that is expressly subordinated in right of payment to the Notes; (ii) rank equal in right of payment to each outstanding series thereof and to all of the Company’s future liabilities that are not so subordinated, unsecured indebtedness; (iii) are effectively junior to all of the Company’s existing and future secured indebtedness and other secured obligations, to the extent of the value of the assets securing that indebtedness and other secured obligations; and (iv) are structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries.

Issuance costs are amortized to interest expense over the term of the Notes. The following table summarizes the original issuance costs at the time of issuance for each set of Notes:

(In thousands)
January 2025 Notes						$	10,284
June 2025 Notes						7,363
2027 Notes						14,285
2028 Notes						24,453

The Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by the Company.

EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Interest expense includes the following:

						Three Months Ended June 30,												Six Months Ended June 30,
(In thousands)						2021						2020						2021						2020
Debt issuance costs amortization						$	1,428					$	1,428					$	2,840					$	2,416
Debt discount amortization						37						37						73						57
Loss on settlement of convertible notes						—						—						—						50,819
Coupon interest expense						2,566						2,567						5,133						4,498
Total interest expense on convertible notes						4,031						4,032						8,046						57,790
Other interest expense						621						268						1,222						1,114
Total interest expense						$	4,652					$	4,300					$	9,268					$	58,904

The effective interest rates on the 2025 Notes, 2027 Notes, and 2028 Notes for the three months ended June 30, 2021 and 2020 were 1.18%, 0.67%, and 0.64% and 1.18%, 0.67%, and 0.63%, respectively. The effective interest rates on the 2025 Notes, 2027 Notes, and 2028 Notes for the six months ended June 30, 2021 and 2020 were 1.18%, 0.67%, and 0.64% and 1.22%, 0.67%, and 0.64%, respectively. The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 3.55, 5.71, and 6.67 years for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively.

(10) LICENSE AND COLLABORATION AGREEMENTS

The Company licenses certain technologies that are, or may be, incorporated into its technology under several license agreements, as well as the rights to commercialize certain diagnostic tests through collaboration agreements. Generally, the license agreements require the Company to pay royalties based on net revenues received using the technologies and may require minimum royalty amounts or maintenance fees.

Mayo

In June 2009 the Company entered into a license agreement with Mayo Foundation for Medical Education and Research (“Mayo”). The Company’s license agreement with Mayo was most recently amended and restated in September 2020. Under the license agreement, Mayo granted the Company an exclusive, worldwide license to certain Mayo patents and patent applications, as well as a non-exclusive, worldwide license with regard to certain Mayo know-how. The scope of the license covers any screening, surveillance or diagnostic test or tool for use in connection with any type of cancer, pre-cancer, disease or condition.

The licensed Mayo patents and patent applications contain both method and composition claims that relate to sample processing, analytical testing and data analysis associated with nucleic acid screening for cancers and other diseases. The jurisdictions covered by these patents and patent applications include the U.S., Australia, Canada, the European Union, China, Japan and Korea. Under the license agreement, the Company assumed the obligation and expense of prosecuting and maintaining the licensed Mayo patents and is obligated to make commercially reasonable efforts to bring to market products using the licensed Mayo intellectual property.

Pursuant to the Company’s agreement with Mayo, the Company is required to pay Mayo a low-single-digit royalty on the Company’s net sales of current and future products using the licensed Mayo intellectual property each year during the term of the Mayo agreement.

As part of the most recent amendment, the Company agreed to pay Mayo an additional $6.3 million, payable in five equal annual installments through 2024. The annual installments are recorded in research and development expenses in the Company’s condensed consolidated statements of operations.

The license agreement will remain in effect, unless earlier terminated by the parties in accordance with the agreement, until the last of the licensed patents expires in 2038 (or later, if certain licensed patent applications are issued). However, if the Company is still using the licensed Mayo know-how or certain Mayo-provided biological specimens or their derivatives on such expiration date, the term shall continue until the earlier of the date the Company stops using such know-how and materials and the date that is five years after the last licensed patent expires. The license agreement contains customary termination provisions and permits Mayo to terminate the license agreement if the Company sues Mayo or its affiliates, other than any such suit claiming an uncured material breach by Mayo of the license agreement.

In addition to granting the Company a license to the covered Mayo intellectual property, Mayo provides the Company with product development and research and development assistance pursuant to the license agreement and other collaborative arrangements. In September 2020, Mayo also agreed to make available certain personnel to provide such assistance through January 2025. In connection with this collaboration, the Company incurred charges of $1.0 million and $1.0 million for the three months ended June 30, 2021 and 2020, respectively. The Company incurred charges of $2.2 million and $1.9 million for the six months ended June 30, 2021 and 2020, respectively. The charges incurred in connection with this collaboration are recorded in research and development expenses in the Company’s condensed consolidated statements of operations.

Johns Hopkins University (“JHU”)

Through the acquisition of Thrive, the Company acquired a worldwide exclusive license agreement with JHU for use of several JHU patents and licensed know-how. The license is designed to enable the Company to leverage JHU proprietary data in the development and commercialization of a blood-based, multi-cancer screening test. The agreement terms include single-digit sales-based royalties and sales-based milestone payments of $10.0 million, $15.0 million, $20.0 million and upon achieving calendar year licensed product revenue using JHU proprietary data of $0.50 billion, $1.00 billion, and $1.50 billion, respectively.

(11) PFIZER PROMOTION AGREEMENT

In August 2018, the Company entered into a Promotion Agreement (the “Original Promotion Agreement”) with Pfizer Inc. (“Pfizer”), which was amended and restated in October 2020 (the “Restated Promotion Agreement”). The Restated Promotion Agreement extends the relationship between the Company and Pfizer and restructures the manner in which the Company compensates Pfizer for promotion of the Cologuard test through a service fee, and provision of certain other sales and marketing services related to the Cologuard test. The Restated Promotion Agreement includes fixed and performance-related fees, some of which retroactively went into effect on April 1, 2020. All payments to Pfizer are recorded in sales and marketing expenses in the Company’s condensed consolidated statements of operations.

Under the Original Promotion Agreement, the service fee was calculated based on incremental gross profits over specified baselines during the term. Under the Restated Promotion Agreement, the service fee provides a fee-for-service model that includes certain fixed fees and performance-related bonuses. The performance-related bonuses are contingent upon the achievement of certain annual performance criteria with any applicable expense being recognized ratably upon achievement of the payment becoming probable. The Company incurred charges of $24.1 million and $2.1 million for the service fee for the three months ended June 30, 2021 and 2020, respectively. The Company incurred charges of $46.8 million and $21.7 million for the service fee for the six months ended June 30, 2021 and 2020, respectively. The Company incurred charges of $31.1 million and $21.1 million for promotion, sales and marketing services performed by Pfizer on behalf of the Company during the three months ended June 30, 2021 and 2020, respectively. The Company incurred charges of $57.7 million and $40.5 million for promotion, sales and marketing services performed by Pfizer on behalf of the Company during the six months ended June 30, 2021 and 2020, respectively. During 2022, and contingent upon the achievement of certain Cologuard test revenue metrics during 2021, the Company will pay Pfizer a royalty based on a low single-digit royalty rate applied to actual 2022 Cologuard test revenues. The term of the Restated Promotion Agreement runs through December 31, 2022.

(12) STOCKHOLDERS’ EQUITY

Ashion Acquisition Stock Issuance

In April 2021 the Company completed its acquisition of Ashion. In connection with the acquisition, which is further described in Note 17, the Company issued 0.1 million common shares that had a fair value of $16.2 million.

Thrive Acquisition Stock Issuance

In January 2021, the Company completed its acquisition of Thrive. In connection with the acquisition, which is further described in Note 17, the Company issued 9.3 million common shares that had a fair value of $1.19 billion.

Targeted Digital Sequencing (“TARDIS”) License Acquisition Stock Issuance

In January 2021, the Company acquired a worldwide exclusive license to the TARDIS technology from The Translational Genomics Research Institute (“TGen”), which is further described in Note 17. As part of the consideration transferred, the Company issued 0.2 million shares that had a fair value of $27.3 million.

Paradigm Diagnostics, Inc. (“Paradigm”) and Viomics, Inc. (“Viomics”) Acquisition Stock Issuance

In March 2020, the Company completed the acquisitions of Paradigm and Viomics. The purchase price for these acquisitions consisted of cash and stock with a fair value of $40.4 million. Of the $40.4 million purchase price, $32.2 million is expected to be settled through the issuance of 0.4 million shares of common stock. Of the $32.2 million that will be settled through the issuance of common stock, $28.8 million was issued as of June 30, 2021, and the remainder was withheld and may become issuable as additional merger consideration subject to the terms and conditions of the acquisition agreements.

Changes in Accumulated Other Comprehensive Income (Loss)

The amount recognized in AOCI for the six months ended June 30, 2021 were as follows: