The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Notes to Unaudited Condensed Consolidated Financial Statements
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
CareDx, Inc. (“CareDx” or the “Company”) together with its subsidiaries, is a global transplant diagnostics company with product offerings along the pre- and post-transplant continuum. The Company’s headquarters are in Brisbane, California. The primary operations are in Brisbane, U.S., Stockholm, Sweden and Fremantle, Australia.
The Company focuses on discovery, development and commercialization of clinically differentiated, high-value diagnostic solutions for transplant patients. In diagnostic testing services, the Company offers AlloMap®, which is a gene expression solution for heart transplant patients and AlloSure®, which is a donor-derived cell-free DNA (“dd-cfDNA”) solution initially used for kidney transplant patients. The Company also offers high quality products that increase the chance of successful transplants by facilitating a better match between a donor and a recipient of stem cells and organs.
Testing Services
AlloMap is a covered service for Medicare beneficiaries since January 1, 2006. In 2018, the Medicare reimbursement rate for AlloMap was set at $3,240, which remains applicable for 2019. AlloMap has also received positive coverage decisions from many of the largest U.S. private payers.
In October 2017, the Company commercially launched AlloSure, its proprietary next generation sequencing-based test that measures dd-cfDNA in kidney transplant recipients. The Medicare reimbursement rate for AlloSure is currently $2,841. AlloSure has also received payments from private payers on a case-by-case basis. However, no positive coverage decisions have yet been made for AlloSure. In September 2018, the Company initiated the Surveillance HeartCare® Outcomes Registry (“SHORE”). SHORE is a prospective, multi-center, observational, registry of patients receiving HeartCare for surveillance. HeartCare combines the gene expression profiling technology of AlloMap with the dd-cfDNA analysis of AlloSure-Heart® in one surveillance solution. AlloSure-Heart has not yet received positive coverage decisions from Medicare or other private payers. The Company has not yet made any applications to payers for reimbursement coverage of AlloSure-Heart.
In February 2019, AlloSure-Lung® became available for lung transplant patients through a compassionate use program while the test is undergoing further studies. The Company has not yet made any applications to payers for reimbursement coverage of AlloSure-Lung.
Products
Olerup SSP® is used to type Human Leukocyte Antigen (“HLA”) alleles, based on the sequence specific primer (“SSP”) technology. Olerup SBT
TM
is a complete product range for sequence-based typing of HLA alleles. QTYPE® enables speed and precision in HLA typing at a low to intermediate resolution for samples that require a fast turn-around-time and uses real-time polymerase chain reaction, or PCR methodology. The Company received CE mark certification for QTYPE in April 2018.
In May 2018, the Company entered into a License and Commercialization Agreement (the “License Agreement”) with Illumina, Inc. (“Illumina”), which provides the Company with worldwide distribution, development and commercialization rights to Illumina’s next generation sequencing (“NGS”) product line for use in transplantation diagnostic testing. Pursuant to the License Agreement, the Company is the exclusive worldwide distributor of Illumina’s TruSight
®
HLA v1 and v2 product line. TruSight HLA is a NGS-based high resolution typing solution that provides NGS-level resolution to HLA typing. The Company’s suite of AlloSeq products are development-stage NGS-based kitted solutions that the Company acquired as a result of its License Agreement. These products include: AlloSeq Tx, a high-resolution HLA typing solution, AlloSeq cfDNA, a surveillance solution designed to measure dd-cfDNA in blood to detect active rejection in transplant recipients, and AlloSeq BMT, a solution for chimerism testing for stem cell transplant recipients.
Business Combination
On April 25, 2019, the Company announced that it agreed to acquire OTTR Complete Transplant Management (“OTTR”). See Note 16 for further details.
Liquidity
The Company has incurred significant losses and negative cash flows from operations since its inception and had an accumulated deficit of $319.4 million at March 31, 2019. As of March 31, 2019, the Company had cash and cash
equivalents of $57.4 million.
8
The Company may req
uire additional financing in the future to fund working capital and pay its obligations as they come due. Additional financing might include issuance of equity securities, debt, cash from collaboration agreements or a combination of these. However, there c
an be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its operations or on terms favorable to the Company.
The Company believes its existing cash balance and expected revenues will be sufficient
to meet its anticipated cash requirements for at least the next 12 months.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies and estimates used in preparation of the unaudited condensed consolidated financial statements are described in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2018, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K. Material changes to the significant accounting policies previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 are reflected below.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and follow the requirements of the Securities and Exchange Commission (the “SEC”) for interim reporting. As permitted under those rules, certain footnotes and other financial information that are normally required by U.S. GAAP can be condensed or omitted. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of the Company’s financial information. The condensed consolidated balance sheet as of December 31, 2018 has been derived from audited consolidated financial statements as of that date but does not include all of the financial information required by U.S. GAAP for complete financial statements. Operating results for the three months ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany transactions have been eliminated.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation, including separate presentation of debt extinguishment expenses from other expense, net. These reclassifications had no effect on the reported results of operations.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses in the unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to transaction price estimates used for testing services revenue; accrued expenses for clinical studies; inventory valuation; the fair value of issued common stock warrants and embedded derivatives; the fair value of assets and liabilities acquired in a business combination or an assets acquisition (including identifiable intangible assets acquired); the fair value of contingent consideration recorded in connection with a business combination; the grant date fair value assumptions used to estimate stock-based compensation expense; income taxes; impairment of long-lived assets and indefinite-lived assets (including goodwill); and legal contingencies. Actual results could differ from those estimates.
Concentrations of Credit Risk and Other Risks and Uncertainties
For the three months ended March 31, 2019 and 2018, approximately 55% and 42%, respectively, of total revenue was derived from Medicare.
No other payers or customers represented more than 10% of total revenue for these periods.
As of March 31, 2019 and December 31, 2018, approximately 34% and 27%, respectively, of accounts receivable was due from Medicare. No other payer or customer represented more than 10% of accounts receivable on either March 31, 2019 or December 31, 2018.
9
Leases
Effective January 1, 2019, the Company adopted ASC Topic 842,
Leases
(“ASC 842”). The Company determines if an arrangement is or contains a lease at contract inception. The Company leases office space and equipment primarily through operating leases with a limited number of finance leases. A right-of-use (“ROU”) asset, representing the underlying asset during the lease term, and a lease liability, representing the payment obligation arising from the lease, are recognized on the condensed consolidated balance sheet at lease commencement based on the present value of the payment obligation. For operating leases, expense is recognized on a straight-line basis over the lease term. For finance leases, interest expense on the lease liability is recognized using the effective interest method and amortization of the ROU asset is recognized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term. Short-term leases with an initial term of 12 months or less are not recorded on the balance sheet.
The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its incremental borrowing rate. The incremental borrowing rate is determined by using the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment.
The Company's leases have remaining terms of less than 1 year to 2.33 years, some of which include options to extend the lease term. The Company's lease terms may include renewal options that are reasonably certain to be exercised and termination options that are reasonably certain not to be exercised. Certain finance leases also include bargain purchase options of the leased equipment.
Recent Accounting Pronouncements
Effective January 1, 2019, the Company adopted ASC 842 using the optional transition method and applied the standard only to leases that existed at that date. Under the optional transition method, the Company does not need to restate the comparative periods in transition and will continue to present financial information and disclosures for periods before January 1, 2019 in accordance with ASC Topic 840.
The Company has also chosen to apply the package of practical expedients for existing leases, which provides relief from reassessing: (i) whether a contract is or contains a lease, (ii) lease classification, and (iii) whether initial direct costs (IDCs) can be capitalized. The Company has also made some accounting policy elections to: (i) allow the Company not to separate nonlease components from lease components, and instead to account for those as a single lease component, and (ii) elect not to recognize a ROU asset and a lease liability for leases with a term of 12 months or less (“short-term leases”).
Upon adoption of ASC 842 on January 1, 2019, the Company recorded a ROU asset of approximately $3.0 million and a lease liability of approximately $3.8 million. The lease liability was determined based on the present value of the remaining minimum lease payments. The ROU asset was determined based on the value of the lease liability, adjusted for the deferred rent balances of approximately $0.8 million, which were previously included in accrued and other liabilities as well as deferred rent, net of current portion. See Note 8 for further details.
The standard did not have a material impact on the condensed consolidated statement of cash flows or the condensed consolidated statement of operations.
In February 2018, the FASB issued ASU No. 2018-02,
Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
(“ASU 2018-02”)
.
The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for certain tax effects resulting from the Tax Cuts and Jobs Act (the “Tax Act”). ASU 2018-02 will become effective for all interim and annual reporting periods beginning after December 15, 2018 and may be applied retrospectively or as of the beginning of the period of adoption. The adoption of the new standard did not have a material impact on the Company’s unaudited condensed consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-07,
Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share Based Payment Accounting
(“ASU 2018-07”). ASU 2018-07 is effective for all interim and annual reporting periods beginning on or after December 15, 2018. The Company adopted ASU 2018-07 on January 1, 2019 applying a modified retrospective approach. On transition, the Company only had nonemployee equity-classified awards with an established measurement date. Accordingly, the Company did not record a cumulative-effect adjustment to retained earnings.
In August 2018, the FASB issued ASU No. 2018-15,
Intangibles – Goodwill and Other – Internal – Use Software
(Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
(“ASU 2018-15”). ASU 2018-15 is effective for fiscal years beginning after December 15, 2019 and interim periods therein. Early adoption of ASU 2018-15 is permitted including adoption in any interim period
.
The Company plans to adopt the standard during 2019. The Company expects the new standard will impact its prospective unaudited condensed consolidated financial statements after adoption related to implementation costs in a cloud computing arrangement if and when entered by the Company.
10
In August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820)
, which modifies, removes and adds certain disclosure requirements on fair value measurements based on the FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements. The ASU is effective for the Company’
s interim and annual reporting periods during the year ending December 31, 2020, and all annual and interim reporting period thereafter. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable in
puts used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amen
dments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted upon issuance of ASU 2018-13. An entity is permitted to early adopt any removed or modified disclosures upon issuance of ASU 2018-13 an
d delay adoption of the additional disclosures until their effective date. The Company is in the process of assessing the impact that the ASU will have in its
unaudited condensed
consolidated financial
statements and disclosures. The Company does not belie
ve adoption of the guidance will have a significant impact on its condensed consolidated financial statements.
3. NET LOSS PER SHARE
Basic and diluted net loss per share have been computed by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration of common share equivalents as their effect would have been antidilutive.
The following tables set forth the computation of the Company’s basic and diluted net loss per share (in thousands, except shares and per share data):
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net loss attributable to CareDx, Inc. used to compute basic
and diluted net loss per share
|
|
$
|
(7,531
|
)
|
|
$
|
(8,969
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted-average shares used to compute basic and diluted
net loss per share attributable to CareDx, Inc.
|
|
|
41,611,399
|
|
|
|
29,615,441
|
|
Net loss per share attributable to CareDx, Inc.:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.18
|
)
|
|
$
|
(0.30
|
)
|
The following potentially dilutive securities have been excluded from diluted net loss per share as at March 31, 2019 because their effect would be antidilutive:
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Shares of common stock subject to outstanding options
|
|
|
2,536,412
|
|
|
|
1,940,010
|
|
Shares of common stock subject to outstanding common
stock warrants
|
|
|
530,627
|
|
|
|
3,633,565
|
|
Restricted stock units
|
|
|
1,034,484
|
|
|
|
441,804
|
|
Shares of common stock subject to contingent consideration
|
|
|
—
|
|
|
|
227,848
|
|
Total common stock equivalents
|
|
|
4,101,523
|
|
|
|
6,243,227
|
|
4. FAIR VALUE MEASUREMENTS
The Company records its financial assets and liabilities at fair value. The carrying amounts of certain financial instruments of the Company, including cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. 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 accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:
|
•
|
Level 1: Inputs which include quoted prices in active markets for identical assets and liabilities.
|
11
|
•
|
Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted price
s for similar assets or liabilities, quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
•
|
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis, as of March 31, 2019 and December 31, 2018 (in thousands):
|
|
March 31, 2019
|
|
|
|
Fair Value Measured Using
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
Balance
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
20,543
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
20,543
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,521
|
|
|
$
|
10,521
|
|
|
|
December 31, 2018
|
|
|
|
Fair Value Measured Using
|
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
Balance
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
59,471
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
59,471
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
10,003
|
|
|
$
|
10,003
|
|
The following table presents the issuances, exercises, changes in fair value and reclassifications of the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis (in thousands):
|
|
(Level 3)
|
|
|
|
|
Common
Stock Warrant Liability
|
|
Balance as of December 31, 2018
|
|
|
$
|
10,003
|
|
Exercise of warrants
|
|
|
|
(2,491
|
)
|
Change in estimated fair value
|
|
|
|
3,009
|
|
Balance as of March 31, 2019
|
|
|
$
|
10,521
|
|
The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers between Level 1, Level 2 and Level 3 categories during the periods presented.
In determining fair value, the Company uses various valuation approaches within the fair value measurement framework. The valuation methodologies used for the Company’s instruments measured at fair value and their classification in the valuation hierarchy are summarized below:
|
•
|
Money market funds
- Investments in money market funds are classified within Level 1. At March 31, 2019 and December 31, 2018, money market funds were included on the balance sheets in cash and cash equivalents.
|
12
|
•
|
Common stock warrant liability
– The Company utilizes a binomial-lattice pricing model (the “Monte Carlo Simulation Model”) that involves a market condition simulation to estimate the fair value of the warrants. The application of the Monte Carlo Simulation Model requires the use of a
number of complex assumptions including the Company’s stock price, expected life of the warrants, stock price volatility determined from the Company’s historical stock prices and stock prices of peer companies in the diagnostics industry, and risk-free ra
tes based on the implied yield currently available in the U.S. Treasury zero-coupon issues with a remaining term equal to the expected life of the warrants. Increases (decreases) in the assumptions discussed above result in a directionally similar impact
to the fair value of the common stock warrant liability.
|
Common Stock Warrant Liability Valuation Assumptions
|
|
March 31, 2019
|
|
|
|
December 31, 2018
|
|
|
Private Placement Common Stock Warrant Liability
|
|
|
|
|
|
|
|
|
|
|
Stock Price
|
|
$
|
31.52
|
|
|
|
$
|
25.14
|
|
|
Exercise Price
|
|
$
|
1.12
|
|
|
|
$
|
1.12
|
|
|
Remaining term (in years)
|
|
|
4.04
|
|
|
|
|
4.29
|
|
|
Volatility
|
|
|
81.00
|
|
%
|
|
|
79.00
|
|
%
|
Risk-free interest rate
|
|
|
2.20
|
|
%
|
|
|
2.46
|
|
%
|
Placement Agent Common Stock Warrant Liability
|
|
|
|
|
|
|
|
|
|
|
Stock Price
|
|
$
|
31.52
|
|
|
|
$
|
25.14
|
|
|
Exercise Price
|
|
$
|
1.12
|
|
|
|
$
|
1.12
|
|
|
Remaining term (in years)
|
|
2.04
|
|
|
|
|
2.29
|
|
|
Volatility
|
|
|
85.00
|
|
%
|
|
|
86.00
|
|
%
|
Risk-free interest rate
|
|
|
2.24
|
|
%
|
|
|
2.44
|
|
%
|
5. BUSINESS COMBINATIONS AND ASSET ACQUISITIONS
Asset Acquisition
Illumina License and Commercialization Agreement
On May 4, 2018, the Company entered into the License Agreement with Illumina, which provides the Company with certain worldwide distribution, development and commercialization rights to Illumina’s NGS product line for use in the field of bone marrow and solid organ transplantation diagnostic testing (the “Field”).
As a result,
from June 1, 2018, the Company is the exclusive worldwide distributor of Illumina’s TruSight HLA v1 and v2 product line. In addition, the Company was also granted the exclusive right to develop and commercialize other NGS product lines for use in the Field.
The License Agreement required the Company to make a $5.0 million initial cash payment to Illumina and further requires the Company to
pay royalties in the mid-single to low-double digits on sales of future commercialized products. Pursuant to the License Agreement, the Company is obligated to complete timely development and commercialization of other NGS product lines for use in the Field, and has agreed to minimum purchase commitments of finished products and raw materials from Illumina through 2023.
As the License Agreement did not meet the definition of a business combination under ASC Topic 805,
Business Combinations,
the Company accounted for the transaction as an asset acquisition. In an asset acquisition goodwill is not recognized, but rather any excess consideration transferred over the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable assets acquired.
Costs relating to the assets acquired were $5.2 million, comprising of the cash consideration of $5.0 million and associated transaction costs of $0.2 million.
A deferred tax balance was not required to be established on the License Agreement date as the book and tax basis of the intangible assets was equivalent to the amount paid.
The allocation of the purchase price to identified intangible assets acquired was based on the Company’s best estimate of the fair value of such assets as of the acquisition date.
Significant assumptions utilized in the valuation of identified intangible assets were based on company-specific information and projections, which are not observable in the market and are thus considered Level 3 measurements as defined by U.S. GAAP.
The Company determined the estimated fair values using Level 3 inputs after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management.
13
Customer relationships represent the fair value of future projected revenue that is expected to be derived from sales of TruSight HLA pro
ducts to existing customers of Illumina. The customer contracts and related relationships value has been estimated utilizing a multi-period excess earnings method under income approach, which reflects the present value of the projected cash flows that are
expected to be generated by the customer relationships less charges representing the contribution of other assets to those cash flows that use projected cash flows with and without the intangible asset in place. The economic useful life was determined base
d on the life of the products, assuming that the existing customers will remain with the Company until the products becomes obsolete. The Company utilized a discount rate of 18% in estimating the fair value of the customer relationships.
The acquired in-process technology represents the fair value of products in development that have not reached commercial production at the date of acquisition. The fair value of the products was also determined using the multi-period excess earnings method under income approach. A rate of 30% and 40% for the AlloSeq Tx acquired in-process technology and the AlloSeq BMT acquired in-process technology, respectively, was utilized to discount the cash flows to the present value. The acquired in-process technology will not be amortized until completion of the related products, which is determined to occur when the products commence commercial production. Upon completion, each acquired in-process technology product will be amortized over its estimated useful life.
The following table summarizes the fair values of the intangible assets acquired as of the closing date (in thousands):
|
|
Estimated Fair Value
|
|
|
Estimated Useful Lives (Years)
|
|
Customer relationships: TruSight HLA
|
|
$
|
380
|
|
|
2.6
|
|
Acquired in-process technology: AlloSeq Tx
|
|
|
2,719
|
|
|
|
—
|
|
Acquired in-process technology: AlloSeq BMT
|
|
|
2,103
|
|
|
|
—
|
|
Total
|
|
$
|
5,202
|
|
|
|
|
|
6. GOODWILL AND INTANGIBLE ASSETS
Goodwill
Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net tangible and identified intangible assets acquired. The Company reported $12.0 million of goodwill on the condensed consolidated balance sheet as of each of March 31, 2019 and December 31, 2018.
Goodwill is tested annually for impairment at the reporting unit level during the fourth quarter or earlier upon the occurrence of certain events or substantive changes in circumstances. There were no indicators of impairment in the three months ended March 31, 2019.
Intangible Assets
The following tables present details of the Company’s intangible assets as of March 31, 2019 (in thousands):
|
|
March 31, 2019
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Foreign
Currency
Translation
|
|
|
Net
Carrying
Amount
|
|
|
Weighted Average Remaining
Useful
Life
(In
Years)
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships: Allenex
|
|
$
|
12,650
|
|
|
$
|
(2,388
|
)
|
|
$
|
(1,454
|
)
|
|
$
|
8,808
|
|
|
|
11.8
|
|
Customer relationships: Conexio
|
|
|
28
|
|
|
|
(9
|
)
|
|
|
(1
|
)
|
|
|
18
|
|
|
|
1.8
|
|
Customer relationships: TruSight HLA
|
|
|
380
|
|
|
|
(123
|
)
|
|
|
—
|
|
|
|
257
|
|
|
|
1.8
|
|
Developed technology: Olerup SSP
|
|
|
11,650
|
|
|
|
(3,330
|
)
|
|
|
(1,256
|
)
|
|
|
7,064
|
|
|
|
6.8
|
|
Acquired technology: QTYPE
|
|
|
4,510
|
|
|
|
(741
|
)
|
|
|
(524
|
)
|
|
|
3,245
|
|
|
|
11.8
|
|
Acquired technology: Olerup SBT
|
|
|
127
|
|
|
|
(40
|
)
|
|
|
(5
|
)
|
|
|
82
|
|
|
|
1.8
|
|
Acquired technology: dd-cfDNA
|
|
|
6,650
|
|
|
|
(762
|
)
|
|
|
—
|
|
|
|
5,888
|
|
|
|
11.6
|
|
Trademarks
|
|
|
2,260
|
|
|
|
(488
|
)
|
|
|
(197
|
)
|
|
|
1,575
|
|
|
|
11.8
|
|
Total intangible assets with finite lives
|
|
$
|
38,255
|
|
|
$
|
(7,881
|
)
|
|
$
|
(3,437
|
)
|
|
$
|
26,937
|
|
|
|
|
|
Acquired in-process technology: AlloSeq Tx
|
|
|
2,719
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,719
|
|
|
|
—
|
|
Acquired in-process technology: AlloSeq BMT
|
|
|
2,103
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,103
|
|
|
|
—
|
|
Total intangible assets
|
|
$
|
43,077
|
|
|
$
|
(7,881
|
)
|
|
$
|
(3,437
|
)
|
|
$
|
31,759
|
|
|
|
|
|
14
The following tables present details of the Company’s intangible assets as of December 31, 2018 (in thousands):
|
|
December 31, 2018
|
|
|
|
Gross
Carrying
Amount
|
|
|
Accumulated
Amortization
|
|
|
Foreign
Currency
Translation
|
|
|
Net
Carrying
Amount
|
|
|
Weighted Average Remaining
Useful
Life
(In
Years)
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships: Allenex
|
|
$
|
12,650
|
|
|
$
|
(2,198
|
)
|
|
$
|
(1,129
|
)
|
|
$
|
9,323
|
|
|
|
12.0
|
|
Customer relationships: Conexio
|
|
|
28
|
|
|
|
(6
|
)
|
|
|
(2
|
)
|
|
|
20
|
|
|
|
2.0
|
|
Customer relationships: TruSight HLA
|
|
|
380
|
|
|
|
(86
|
)
|
|
|
—
|
|
|
|
294
|
|
|
|
2.0
|
|
Developed technology: Olerup SSP
|
|
|
11,650
|
|
|
|
(3,065
|
)
|
|
|
(998
|
)
|
|
|
7,587
|
|
|
|
7.0
|
|
Acquired technology: QTYPE
|
|
|
4,510
|
|
|
|
(671
|
)
|
|
|
(407
|
)
|
|
|
3,432
|
|
|
|
12.0
|
|
Acquired technology: Olerup SBT
|
|
|
127
|
|
|
|
(28
|
)
|
|
|
(6
|
)
|
|
|
93
|
|
|
|
2.0
|
|
Acquired technology: dd-cfDNA
|
|
|
6,650
|
|
|
|
(635
|
)
|
|
|
—
|
|
|
|
6,015
|
|
|
|
11.8
|
|
Trademarks
|
|
|
2,260
|
|
|
|
(454
|
)
|
|
|
(140
|
)
|
|
|
1,666
|
|
|
|
12.0
|
|
Total intangible assets with finite lives
|
|
$
|
38,255
|
|
|
$
|
(7,143
|
)
|
|
$
|
(2,682
|
)
|
|
$
|
28,430
|
|
|
|
|
|
Acquired in-process technology: AlloSeq Tx
|
|
|
2,719
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,719
|
|
|
|
—
|
|
Acquired in-process technology: AlloSeq BMT
|
|
|
2,103
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,103
|
|
|
|
—
|
|
Total intangible assets
|
|
$
|
43,077
|
|
|
$
|
(7,143
|
)
|
|
$
|
(2,682
|
)
|
|
$
|
33,252
|
|
|
|
|
|
Amortization expense was $0.6 million for each of the three months ended March 31, 2019 and 2018, respectively. For the three months ended March 31, 2019, expenses of $0.3 million and $0.3 million were amortized to cost of product and sales and marketing expense, respectively. For the three months ended March 31, 2018, expenses of $0.4 million and $0.2 million were amortized to cost of product and sales and marketing expense, respectively.
The following table summarizes the Company’s estimated future amortization expense of intangible assets with finite lives as of March 31, 2019 (in thousands):
Years Ending December 31,
|
|
Cost of
Product
|
|
|
Sales and
Marketing
|
|
|
Total
|
|
Remainder of 2019
|
|
$
|
1,408
|
|
|
$
|
781
|
|
|
$
|
2,189
|
|
2020
|
|
|
1,878
|
|
|
|
1,042
|
|
|
|
2,920
|
|
2021
|
|
|
1,831
|
|
|
|
884
|
|
|
|
2,715
|
|
2022
|
|
|
1,831
|
|
|
|
884
|
|
|
|
2,715
|
|
2023
|
|
|
1,831
|
|
|
|
884
|
|
|
|
2,715
|
|
Thereafter
|
|
|
7,499
|
|
|
|
6,184
|
|
|
|
13,683
|
|
Total future amortization expense
|
|
$
|
16,278
|
|
|
$
|
10,659
|
|
|
$
|
26,937
|
|
The Company evaluates the carrying value of the intangible assets, not subject to amortization, related to acquired in-process technology assets, which are considered to be indefinite‑lived until the completion or abandonment of the associated research and development efforts. Accordingly, amortization of the acquired in-process technology assets will not occur until the products reach commercialization. During the period the assets are considered indefinite‑lived, they are tested for impairment on an annual basis, as well as between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate that the fair values of the acquired in-process technology assets are less than their carrying amounts. An impairment loss would be recorded when the fair value of an acquired in-process technology assets is less than its carrying value. If and when development is complete, which generally occurs when the products are made commercially available, the associated acquired in-process technology asset will be deemed definite‑lived and will then be amortized based on its estimated useful life.
15
7. BALANCE
SHEET COMPONENTS
Inventory
Inventory consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
|
December
31,
2018
|
|
Finished goods
|
|
$
|
2,412
|
|
|
$
|
2,506
|
|
Work in progress
|
|
|
811
|
|
|
|
651
|
|
Raw materials
|
|
|
1,954
|
|
|
|
1,786
|
|
Total inventory
|
|
$
|
5,177
|
|
|
$
|
4,943
|
|
Accrued and other liabilities
Accrued and other liabilities consisted of the following (in thousands):
|
|
March 31,
2019
|
|
|
December
31,
2018
|
|
Short-term lease liability
|
|
$
|
1,866
|
|
|
$
|
—
|
|
Clinical studies
|
|
|
1,791
|
|
|
|
1,815
|
|
Professional fees
|
|
|
926
|
|
|
|
822
|
|
Test sample processing fees
|
|
|
780
|
|
|
|
657
|
|
Accrued royalty
|
|
|
395
|
|
|
|
285
|
|
Finance leases – current portion
|
|
|
174
|
|
|
|
172
|
|
Customer overpayments and refunds
|
|
|
173
|
|
|
|
184
|
|
Deferred purchase consideration
|
|
|
143
|
|
|
|
190
|
|
Software implementation costs
|
|
|
75
|
|
|
|
58
|
|
Uninvoiced receipts
|
|
|
65
|
|
|
|
—
|
|
Deferred revenue
|
|
|
47
|
|
|
|
39
|
|
Deferred rent – current portion
|
|
|
—
|
|
|
|
432
|
|
Other accrued expenses
|
|
|
1,216
|
|
|
|
983
|
|
Total accrued and other liabilities
|
|
$
|
7,651
|
|
|
$
|
5,637
|
|
8. COMMITMENTS
Leases
The Company leases its operating and office facilities for various terms under long-term, non-cancelable operating lease agreements in Brisbane, California; West Chester, Pennsylvania; Fremantle, Australia; and Stockholm, Sweden. The lease for the Company’s facility in Vienna, Austria is on a month-to-month basis. The facility leases expire at various dates through 2020. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties.
The following table summarizes the lease cost for the three months ended March 31, 2019 (in thousands):
|
|
March 31,
2019
|
|
Operating lease cost
|
|
$
|
435
|
|
Finance lease cost
|
|
|
56
|
|
Total lease cost
|
|
$
|
491
|
|
Other information:
|
|
|
|
|
|
Weighted-average remaining lease term - Operating leases (in years)
|
|
|
1.74
|
|
|
Weighted-average remaining lease term - Finance leases (in years)
|
|
|
2.1
|
|
|
Weighted-average discount rate - Operating leases (%)
|
|
|
10.5
|
|
%
|
Weighted-average discount rate - Finance leases (%)
|
|
|
6.4
|
|
%
|
16
Rent expense under the non-cancelable operating leases was
$0.4
million for each of the three months ended
March 31, 2019
and
2018
, respectively
.
F
uture minimum lease commitments under these operating and
finance
leases on
March 31, 2019
, are as follows (in thousands):
Years Ending December 31,
|
|
Finance
Leases
|
|
|
Operating
Leases
|
|
Remainder of 2019
|
|
$
|
145
|
|
|
$
|
1,665
|
|
2020
|
|
|
193
|
|
|
|
2,160
|
|
2021
|
|
|
67
|
|
|
|
124
|
|
2022
|
|
|
—
|
|
|
|
55
|
|
Total future minimum lease payments
|
|
$
|
405
|
|
|
$
|
4,004
|
|
The current portion of obligations under finance leases is included in accrued and other liabilities on the condensed consolidated balance sheets. The long-term portion is included in other liabilities on the condensed consolidated balance sheets.
Royalty Commitments
The Board of Trustees of the Leland Stanford Junior University (“Stanford”)
In June 2014, the Company entered into a license agreement with Stanford, or the Stanford License, which granted the Company an exclusive license to a patent relating to the diagnosis of rejection in organ transplant recipients using dd-cfDNA. Under the terms of the Stanford License, the Company is required to pay an annual license maintenance fee, six milestone payment amounts and royalties in the low single digits of net sales of products incorporating the licensed technology. The license maintenance fee may be offset against earned royalty payments due on net sales in that year. Company incurred royalties of $0.3 million in the three months ended March 31, 2019.
Illumina
On May 4, 2018, the Company entered into the License Agreement with Illumina. The License Agreement requires the Company to
pay royalties in the mid-single to low-double digits on sales of future commercialized products.
In the three months ended March 31, 2019, the Company paid no royalties to Illumina.
Other Commitments
Pursuant to the License Agreement with Illumina, the Company is obligated to complete timely development and commercialization of other NGS product lines for use in the Field, and has agreed to minimum purchase commitments of finished products and raw materials from Illumina through 2023.
Litigation
From time to time, the Company may become involved in litigation and other legal actions. The Company estimates the range of liability related to any pending litigation where the amount and range of loss can be estimated. The Company records its best estimate of a loss when the loss is considered probable. Where a liability is probable and there is a range of estimated loss with no best estimate in the range, the Company records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably estimated.
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for indemnification for certain liabilities. The exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. The Company also has indemnification obligations to its directors and executive officers for specified events or occurrences, subject to some limits, while they are serving at the Company’s request in such capacities. There have been no claims to date and the Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of March 31, 2019 and as of December 31, 2018.
17
9
. DEBT
The Company did not have any outstanding debt as of March 31, 2019 or December 31, 2018.
JGB Debt
In February and March 31, 2018, JGB converted the remaining $26.7 million of principal and accrued interest of the JGB Debt into an aggregate of 6,161,331shares of the Company’s common stock. In connection with these conversions in the three months ended March 31, 2018, the Company recognized $6,000 to common stock and $38.8 million to additional paid in capital; the unamortized debt discount of $2.7 million was extinguished; and the compound derivative liability of $12.1 million was also extinguished. The JGB Debt conversion resulted in a $2.8 million loss on debt extinguishment that was included in debt extinguishment expenses in the condensed consolidated statements of operations for the three months ended March 31, 2018.
Danske Bank Term Loan and Credit Facility
The Company repaid the full outstanding amount of SEK 47,000,000 (approximately $5.6 million) plus accrued interest of SEK 142,000 (approximately $17,000), under the Danske Term Loan and Credit Facility on April 17, 2018.
FastPartner Subordinated Promissory Notes
The Company repaid the full amount outstanding of SEK 21,300,000 (approximately $2.5 million), including accrued interest of SEK 1,600,000 (approximately $0.2 million), under the FastPartner Note Agreement on April 17, 2018.
Mohammed Al Amoudi Subordinated Promissory Note
The Company repaid the full amount outstanding of SEK 15,700,000 (approximately $1.9 million), including accrued interest of SEK 1,200,000 (approximately $0.1 million) under the Al Amoudi Note Agreement on April 17, 2018.
Loan Agreement with SSP Primers Aktieboulag
The Company repaid the full loan amount outstanding of SEK 10,000,000 (approximately $1.2 million), including accrued interest of SEK 650,000 (approximately $0.1 million) on February 26, 2018.
10. STOCKHOLDERS’ EQUITY
JGB Debt
In the three months ended March 31, 2018, JGB converted the remaining $26.7 million of outstanding debt principal and accrued interest for a total issuance of 6,161,331 shares of the Company’s common stock at a price per share of $4.33.
Contingent Consideration Liability
The Company had a contingent obligation to issue 227,845 shares of the Company’s common stock to the former owners of ImmuMetrix, Inc. (“IMX”), in conjunction with its acquisition of IMX in June 2014. The shares were issuable upon the Company completing 2,500 commercial tests involving the measurement of dd-cfDNA in organ transplant recipients in the United States by June 10, 2020. The Company achieved the contingent consideration milestone of 2,500 commercial tests and issued the 227,848 shares in May 2018.
2018 Public Offering
On November 16, 2018, the Company sold in the 2018 Public Offering an aggregate of 2,300,000 shares of its common stock, including 300,000 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares at a public offering price of $24.50 per share. Total net proceeds received were $52.9 million net of underwriter’s fees and issuance costs.
11. 401(K) PLAN
The Company sponsors a 401(k) defined contribution plan covering all U.S. employees under the Internal Revenue Code of 1986, as amended. Employee contributions are voluntary and are determined on an individual basis subject to the maximum allowable under federal tax regulations. On January 1, 2018, the Company began to make contributions to the employee plan. The Company incurred expenses related to contributions to the plan of $0.2 million and $0.1 million for the three months ended March 31, 2019 and 2018, respectively.
18
12. WARRANTS
The Company issues common stock warrants in connection with debt or equity financings to a lender, a placement agent or an investor. Issued warrants are considered standalone financial instruments and the terms of each warrant are analyzed for equity or liability classification in accordance with U.S. GAAP. Warrants that are classified as liabilities usually have various features that would require net-cash settlement by the Company. Warrants that are not liabilities, derivatives and/or meet the exception criteria are classified as equity. Warrants liabilities are remeasured at fair value at each period end with changes in fair value recorded in the condensed consolidated statements of operations until expired or exercised. The Company utilizes the Monte Carlo Simulation Model to estimate the fair value of its warrants. Refer to Note 4 for further details. Warrants that are classified as equity are valued at fair value on the date of issuance, recorded in additional paid in capital and not remeasured.
In the three months ended March 31, 2019, warrants to purchase approximately 70,000 shares of common stock were exercised for cash proceeds of less than $0.1 million. The warrant liability was remeasured prior to the exercise and a change in fair value of $0.5 million was recorded in the condensed consolidated statement of operations. During the three months ended March 31, 2019 approximately 56,000 warrants were exercised on cashless basis and approximately 25,000 shares were issued.
As of March 31, 2019, outstanding warrants to purchase common stock were:
|
|
Classified as
|
|
Original Term
|
|
Exercise Price
|
|
|
Number of Shares
Underlying
Warrants
|
|
Original issue date:
|
|
|
|
|
|
|
|
|
|
|
|
|
August 2009
|
|
Equity
|
|
10 years
|
|
$
|
21.78
|
|
|
|
33,473
|
|
July 2010
|
|
Equity
|
|
9 years
|
|
$
|
21.78
|
|
|
|
6,694
|
|
August 2012
|
|
Equity
|
|
7 years
|
|
$
|
21.78
|
|
|
|
111,455
|
|
January 2015
|
|
Equity
|
|
5 years
|
|
$
|
6.96
|
|
|
|
34,483
|
|
April 2016
|
|
Liability
|
|
7 years
|
|
$
|
1.12
|
|
|
|
323,021
|
|
April 2016
|
|
Liability
|
|
5 years
|
|
$
|
1.12
|
|
|
|
21,501
|
|
|
|
|
|
|
|
|
|
|
|
|
530,627
|
|
13. STOCK INCENTIVE PLANS
Stock Options and Restricted Stock Units (“RSU”)
The following table summarizes option and unvested RSU activity under the Company’s 2014 Equity Incentive Plan and 2016 Inducement Equity Incentive Plan and related information:
|
|
Shares
Available
for Grant
|
|
|
Stock
Options
Outstanding
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Number of
RSU Shares
|
|
|
Weighted-
Average
Grant Date
Fair Value
|
|
Balance—December 31, 2018
|
|
|
322,178
|
|
|
|
2,501,057
|
|
|
$
|
9.10
|
|
|
|
968,364
|
|
|
$
|
11.49
|
|
Additional options authorized
|
|
|
1,655,398
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Common stock awards for services
|
|
|
(2,112
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
RSUs granted
|
|
|
(367,800
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
367,800
|
|
|
|
27.21
|
|
RSUs vested
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(276,954
|
)
|
|
|
13.53
|
|
Options granted
|
|
|
(341,900
|
)
|
|
|
341,900
|
|
|
|
27.52
|
|
|
|
—
|
|
|
|
—
|
|
Options exercised
|
|
|
—
|
|
|
|
(251,739
|
)
|
|
|
5.43
|
|
|
|
—
|
|
|
|
—
|
|
Repurchase of common stock under employee incentive plans
|
|
|
83,923
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
RSUs forfeited
|
|
|
24,726
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(24,726
|
)
|
|
|
15.24
|
|
Options forfeited
|
|
|
54,096
|
|
|
|
(54,096
|
)
|
|
|
11.53
|
|
|
|
—
|
|
|
|
—
|
|
Options expired
|
|
|
710
|
|
|
|
(710
|
)
|
|
|
4.37
|
|
|
|
—
|
|
|
|
—
|
|
Balance—March 31, 2019
|
|
|
1,429,219
|
|
|
|
2,536,412
|
|
|
$
|
11.89
|
|
|
|
1,034,484
|
|
|
$
|
16.41
|
|
The total intrinsic value of options exercised was $6.0 million in the three months ended March 31, 2019.
19
As of
March 31,
2019
, the total intrinsic value of outstanding RSUs was approximately $3
2
.
6
million and there were $
13.5
million of unrecognized compensation costs related to RSUs, which are expected to be recognized over a weighted-average period of
2.72
years
.
Options outstanding that have vested and are expected to vest at March 31, 2019 are as follows:
|
|
Number of
Shares
Issued
|
|
|
Weighted-Average
Exercise Price
|
|
|
Weighted-Average Remaining Contractual Life (Years)
|
|
|
Aggregate
Intrinsic
Value
(In
Thousands)
|
|
Vested
|
|
|
938,223
|
|
|
$
|
5.41
|
|
|
|
6.56
|
|
|
$
|
24,497
|
|
Expected to vest
|
|
|
1,491,586
|
|
|
|
15.70
|
|
|
|
9.17
|
|
|
|
23,598
|
|
Total
|
|
|
2,429,809
|
|
|
|
|
|
|
|
|
|
|
$
|
48,095
|
|
The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock at December 31, 2018 for stock options that were in-the-money.
The total fair value of options that vested during the three months period ended March 31, 2019 was $0.5 million. As of March 31, 2019, there were approximately $13.1 million of unrecognized compensation costs related to stock options, which are expected to be recognized over a weighted-average period of 3.47 years.
2014 Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (the “ESPP”), under which employees can purchase shares of its common stock based on a percentage of their compensation, but not greater than 15% of their earnings; provided, however, an eligible employee’s right to purchase shares of the Company’s common stock may not accrue at a rate which exceeds $25,000 of the fair market value of such shares for each calendar year in which such rights are outstanding. The ESPP has consecutive offering periods of approximately six months in length. The purchase price per share must be equal to the lower of 85% of the fair value of the common stock on the first day of the offering period or on the exercise date.
During the offering period in 2018 that ended on December 31, 2018, 31,184 shares were purchased for aggregate proceeds of $0.3 million from the issuance of shares, which occurred on January 2, 2019. During the offering period in 2018 that ended on June 30, 2018, 42,534 shares were purchased for aggregate proceeds of $0.3 million from the issuance of shares, which occurred on July 2, 2018.
Valuation Assumptions
The estimated fair values of employee stock options and ESPP shares were estimated using the Black-Scholes option-pricing model based on the following weighted-average assumptions:
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Employee stock options
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
|
|
6.0
|
|
|
|
6.0
|
|
Expected volatility
|
|
|
70.33
|
%
|
|
|
79.96
|
%
|
Risk-free interest rate
|
|
|
2.57
|
%
|
|
|
2.51
|
%
|
Expected dividend yield
|
|
|
—
|
%
|
|
|
—
|
%
|
Employee stock purchase plan
|
|
|
|
|
|
|
|
|
Expected term (in years)
|
|
|
0.5
|
|
|
|
0.5
|
|
Expected volatility
|
|
|
76.66
|
%
|
|
|
105.32
|
%
|
Risk-free interest rate
|
|
|
2.51
|
%
|
|
|
1.61
|
%
|
Expected dividend yield
|
|
|
—
|
%
|
|
|
—
|
%
|
Risk-free Interest Rate
:
The Company based the risk-free interest rate over the expected term of the award based on the constant maturity rate of U.S. Treasury securities with similar maturities as of the date of grant.
Volatility: The Company used an average historical stock price volatility of its own stock and those comparable public companies that were deemed to be representative of future stock price trends.
20
Expected Term: The expected term represents the period for which the Company’s stock-based compensation awards are ex
pected to be outstanding and is based on analyzing the vesting and contractual terms of the awards and the holders’ historical exercise patterns and termination behavior.
Expected Dividends: The Company has not paid and does not anticipate paying any dividends in the near future.
Stock-based Compensation Expense
The following table summarizes stock-based compensation expense relating to employee and nonemployee stock-based awards for the three months ended March 31, 2019 and 2018, included in the condensed consolidated statements of operations as follows (in thousands):
|
|
Three Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cost of testing services
|
|
$
|
776
|
|
|
$
|
61
|
|
Research and development
|
|
|
832
|
|
|
|
213
|
|
Sales and marketing
|
|
|
727
|
|
|
|
64
|
|
General and administrative
|
|
|
3,718
|
|
|
|
368
|
|
Total
|
|
$
|
6,053
|
|
|
$
|
706
|
|
No tax benefit was recognized related to share-based compensation expense since the Company has never reported taxable income and has established a full valuation allowance to offset all of the potential tax benefits associated with its deferred tax assets. In addition, no amounts of stock-based compensation expense were capitalized for the periods presented.
14. INCOME TAXES
The Company’s effective tax rate may vary from the U.S. federal statutory tax rate due to the change in the mix of earnings in tax jurisdictions with different statutory rates, benefits related to tax credits and the tax impact of non-deductible expenses and other permanent differences between income before income taxes and taxable income. For the three months ended March 31, 2019 and 2018, the Company recorded an income tax benefit of $0.6 million and $0.4 million, respectively. The income tax benefit of $0.6 million, is primarily attributable to the recognition of deferred tax assets from foreign losses and recognition of previous unrecognized tax benefits. The Company assesses the realizability of its net deferred tax assets by evaluating all available evidence, both positive and negative, including (i) cumulative results of operations in recent years, (ii) sources of recent losses, (iii) estimates of future taxable income, and (iv) the length of net operating loss carryforward periods. The Company believes that based on the history of its U.S. losses and other factors, the weight of available evidence indicates that it is more likely than not that it will not be able to realize its U.S. net deferred tax assets. Accordingly, the U.S. net deferred tax assets have been offset by a full valuation allowance.
Starting in 2018, companies may be subject to global intangible low tax income (“GILTI”), which is a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations as well as the new base erosion anti-abuse tax (“BEAT”) under the Tax Act. GILTI will be effectively taxed at a tax rate of 10.5%. Due to the complexity of the GILTI tax rules, companies are allowed to make an accounting policy choice of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred or (2) factoring such amounts into a company’s measurement of its deferred taxes under SAB 118. The Company has not yet made an election with respect to GILTI and does not believe GILTI will have an impact on the Company’s 2019 taxes. The Company will continue to review the GILTI and BEAT rules to determine their applicability to the Company as the rules become effective.
15. SEGMENT REPORTING
Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the Company’s Chief Operating Decision Maker (“CODM”), or decision making group, whose function is to allocate resources to and assess the performance of the operating segments. The Company has identified its Chief Executive Officer as the CODM. The Company operates in a single reportable segment.
21
R
evenue
s by geographic regions are based upon the customers’ ship-to address for product revenue and the region of testing for
testing
service
s
revenue. The following table summarizes reportable revenues by geographic regions (in thousands):
|
|
Three
Months Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Testing services revenue
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
21,386
|
|
|
$
|
10,460
|
|
Rest of the World
|
|
|
132
|
|
|
|
144
|
|
|
|
$
|
21,518
|
|
|
$
|
10,604
|
|
Product revenue
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,832
|
|
|
$
|
845
|
|
Europe
|
|
|
1,943
|
|
|
|
1,973
|
|
Rest of the World
|
|
|
658
|
|
|
|
489
|
|
|
|
$
|
4,433
|
|
|
$
|
3,307
|
|
License and other revenue
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
22
|
|
|
$
|
142
|
|
Europe
|
|
|
9
|
|
|
|
—
|
|
|
|
$
|
31
|
|
|
$
|
142
|
|
|
|
|
|
|
|
|
|
|
Total United States
|
|
$
|
23,240
|
|
|
$
|
11,447
|
|
Total Europe
|
|
$
|
1,952
|
|
|
$
|
1,973
|
|
Total Rest of the World
|
|
$
|
790
|
|
|
$
|
633
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,982
|
|
|
$
|
14,053
|
|
The following table summarizes long-lived assets, consisting of property and equipment, net, by geographic regions (in thousands):
|
|
March 31, 2019
|
|
|
December
31,
2018
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
2,985
|
|
|
$
|
3,235
|
|
Europe
|
|
|
548
|
|
|
|
625
|
|
Rest of the World
|
|
|
287
|
|
|
|
274
|
|
Total
|
|
$
|
3,820
|
|
|
$
|
4,134
|
|
16. SUBSEQUENT EVENTS
On May 7, 2019 (the “Closing Date”) the Company completed the acquisition of 100% of the outstanding equity of OTTR Complete Transplant Management (“OTTR”) for a cash consideration of $16 million.
OTTR is the leading provider of organ transplant patient tracking software. OTTR provides comprehensive solutions for transplant patient management, which are currently used in over 60 leading transplant centers in the US and Canada. OTTR’s solutions enable integration with electronic medical records (EMR) systems, including Cerner and Epic, providing patient surveillance management tools and outcomes data to transplant centers.
The Company plans to account for this transaction as a business combination effective as of the Closing Date.
22