UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________
FORM 10-K
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended: December 31, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 001-35092
_____________________________________________________________________________
EXACT SCIENCES CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
5505 Endeavor Lane, Madison, Wisconsin
(Address of principal executive offices)
02-0478229
(IRS Employer
Identification No.)
53719
(Zip Code)
Registrant’s telephone number, including area code: (608) 284‑5700
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $0.01 Par Value
EXAS
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes x 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. (Check one):
Large accelerated filer x
Accelerated filer ¨
Non‑accelerated filer ¨ Smaller reporting compan
y
(Do not check if a 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. x
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b‑2 of the Act). Yes ☐ No x
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, as of the last business day of the
Registrant’s most recently completed second fiscal quarter was approximately 12,901,152,054 (based on the closing price of the Registrant’s Common Stock on
June 30, 2020 of $86.94 per share).
The number of shares outstanding of the Registrant’s $0.01 par value Common Stock as of February 15, 2021 was 169,093,162.
DOCUMENT INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days after the end of the fiscal year ended December 31,
2020. Portions of such proxy statement are incorporated by reference into Part III of this Form 10‑K.
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EXACT SCIENCES CORPORATION
ANNUAL REPORT ON FORM 10‑K
YEAR ENDED DECEMBER 31, 2020
TABLE OF CONTENTS
Part I
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Legal Proceedings
Item 3.
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Item 8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security and Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
Part IV
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
SIGNATURES
2
PART I
This Annual Report on Form 10‑K contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are
intended to be covered by the “safe harbor” created by those sections. Forward-looking statements, which are based on
certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of
forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “would,” “could,” “seek,” “intend,” “plan,”
“goal,” “project,” “estimate,” “anticipate” or other comparable terms. All statements other than statements of historical
facts included in this Annual Report on Form 10‑K regarding our strategies, prospects, expectations, financial
condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking
statements include, among others, statements we make regarding expected future operating results; our strategies,
positioning, resources, capabilities and expectations for future events or performance; and the anticipated benefits of
our acquisitions, including estimated synergies and other financial impacts. Forward-looking statements are neither
historical facts nor assurances of future performance or events. Instead, they are based only on current beliefs,
expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated
events and trends, the economy and other future conditions. Because forward-looking statements relate to the future,
they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of
which are outside of our control. Actual results, conditions and events may differ materially from those indicated in the
forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important
factors that could cause actual results, conditions and events to differ materially from those indicated in the forward-
looking statements include, among others, the following: uncertainties associated with the coronavirus (COVID-19)
pandemic, including its possible effects on our operations, including our supply chain and clinical studies, and the
demand for our products and services; our ability to efficiently and flexibly manage our business amid uncertainties
related to COVID-19; our ability to successfully and profitably market our products and services; the acceptance of our
products and services by patients and healthcare providers; our ability to meet demand for our products and services;
the willingness of health insurance companies and other payers to cover our products and services and adequately
reimburse us for such products and services; the amount and nature of competition for our products and services; the
effects of any judicial, executive or legislative action affecting us or the healthcare system; recommendations, guidelines
and quality metrics issued by various organizations regarding cancer screening or our products and services; our ability
to successfully develop new products and services and assess potential market opportunities; our ability to effectively
enter into and utilize strategic partnerships and acquisitions; our success establishing and maintaining collaborative,
licensing and supplier arrangements; our ability to maintain regulatory approvals and comply with applicable
regulations; our ability to manage an international business and our expectations regarding our international expansion
and opportunities; the potential effects of foreign currency exchange rate fluctuations and our efforts to hedge such
effects; the possibility that the anticipated benefits from our business acquisitions will not be realized in full or at all or
may take longer to realize than expected; the possibility that costs or difficulties related to the integration of acquired
businesses’ operations will be greater than expected and the possibility that integration efforts will disrupt our business
and strain management time and resources; the outcome of any litigation, government investigations, enforcement
actions or other legal proceedings, including in connection with acquisitions; our ability to retain and hire key personnel
including employees at businesses we acquire; and the other risks and uncertainties described in the Risk Factors and in
Management's Discussion and Analysis of Financial Condition and Results of Operations sections in this Annual Report
on Form 10-K and our subsequently filed Quarterly Reports on Form 10-Q. You are further cautioned not to place
undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise
required by the federal securities laws, we undertake no obligation to publicly update any forward-looking statement,
whether written or oral, that may be made from time to time, whether as a result of new information, future
developments or otherwise.
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Item 1. Business
Overview
Exact Sciences Corporation (together with its subsidiaries, “Exact,” “we,” “us,” “our” or the “Company”) is a leading
global cancer screening and diagnostics company. We have developed some of the most impactful brands in cancer diagnostics,
and we are currently working on the development of additional tests, with the goal of bringing new, innovative cancer tests to
patients throughout the world.
We are committed to providing earlier answers and life-changing treatment guidance to help people face the most
challenging decisions with confidence. From earlier cancer detection to treatment guidance, we seek to help people get the
answers they need to make more informed decisions across the cancer continuum. Our revenues are primarily generated by our
laboratory testing services, from our Cologuard® colorectal cancer screening test, our Oncotype IQ® cancer diagnostic tests and
services, and our COVID-19 test.
We recently executed several significant and transformative projects and acquisitions to enhance shareholder value and
bring new, innovative cancer tests to patients.
Significant recent developments include:
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Acquisition of Thrive—In January 2021, we acquired Thrive Earlier Detection Corp. (“Thrive”), a healthcare company
dedicated to developing a blood-based, multi-cancer screening test. An early version of Thrive’s test achieved
promising results with very few false positives in a 10,000-patient, prospective, interventional study detecting 10
different types of cancer, including seven with no recommended screening guidelines.
Exclusive License of TARDIS Technology —In January 2021, we acquired an exclusive license to The Translational
Genomics Research Institute’s (“TGen”) proprietary Targeted Digital Sequencing (“TARDIS”) technology for use in
minimal residual disease (“MRD”). We are currently seeking to utilize TARDIS’s compelling and technically distinct
approach to develop a test to detect small amounts of tumor DNA that may remain in patients’ blood after they have
undergone initial treatment.
Acquisition of Base Genomics—In October 2020, we acquired Base Genomics Limited (“Base”), an epigenetics
company working to set a new standard in DNA methylation analysis, one of the most promising approaches to
detecting cancer in its earliest stages.
Extension of Mayo Collaboration—In September 2020, we amended and restated our license agreement with Mayo
Foundation for Medical Education and Research (“Mayo”), extending our productive collaboration with Mayo through
January 2025. Pursuant to the agreement, Mayo dedicates personnel to provide us product development and research
and development assistance.
Launch of Covid-19 Testing—In March 2020, responding to the emergent public health crisis, we began providing
Covid-19 testing. Since launch, we have provided more than 2 million results for residents in all 50 states.
Acquisition of Paradigm—In March 2020, we acquired Paradigm Diagnostics, Inc., a commercial stage cancer
diagnostic company. Leveraging Paradigm’s technology and laboratory, in October 2020 we launched the Oncotype
MAP™ Pan-Cancer Tissue test (“Oncotype MAP” test).
Acquisition of Viomics—In March 2020, we acquired Viomics, Inc., a development stage company with extensive
sequencing capabilities and expertise in identifying unique biomarkers that indicate the presence of cancer in solid
tissue and blood.
Acquisition of Genomic Health—In November 2019, we acquired Genomic Health, Inc., a leading provider of
genomic-based tests that help optimize cancer care, and its Oncotype IQ Genomic Intelligence Platform comprised of
its flagship line of Oncotype DX® gene expression tests. The Genomic Health acquisition also provided us with a best-
in-class international sales infrastructure.
Our Products and Services
With a leading portfolio of products for earlier cancer detection and treatment guidance, we provide patients with earlier,
smarter answers. Our current products and services focus on screening tests and precision oncology tests.
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Our Cologuard Test
Our flagship screening product, the Cologuard test, is a patient-friendly non-invasive stool-based DNA (“sDNA”)
screening test that utilizes a multi-target approach to detect DNA and hemoglobin biomarkers associated with colorectal cancer
and pre-cancer. Eleven biomarkers are targeted that have been shown to be strongly associated with colorectal cancer and pre-
cancer. Methylation, mutation, and hemoglobin results are combined in the laboratory analysis through a proprietary algorithm
to provide a single positive or negative reportable result.
We believe the large underserved population of unscreened and inadequately screened patients represents a significant
opportunity for our Cologuard test. It is widely accepted that colorectal cancer is among the most preventable, yet least
prevented cancers. Colorectal cancer can take up to 10-15 years to progress from a pre-cancerous lesion to metastatic cancer
and death. Patients who are diagnosed early in the progression of the disease—with pre-cancerous lesions or polyps or early-
stage cancer—are more likely to have a complete recovery and to be treated less expensively. Colorectal cancer is the second
leading cause of cancer deaths in the United States (“U.S.”) and the leading cause of cancer deaths in the U.S. among non-
smokers. Each year in the U.S. there are approximately 150,000 new cases of colorectal cancer and approximately 53,000
deaths from colorectal cancer.
Upon approval by the U.S. Food and Drug Administration (“FDA”) in August 2014, our Cologuard test became the first
and only FDA-approved sDNA non-invasive colorectal cancer screening test. In September 2019, the FDA expanded our
Cologuard test's indication to include average-risk individuals ages 45-49. Our Cologuard test is now indicated for average risk
adults 45 years of age and older.
Our peer-reviewed study, “Multi-target Stool DNA Testing for Colorectal-Cancer Screening,”published in the New
England Journal of Medicine in April 2014, highlighted the performance of the Cologuard test in its 10,000 patient Deep-C
clinical trial:
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Cancer Sensitivity: 92%
Stage I and II Cancer Sensitivity: 94%
High-Grade Dysplasia Sensitivity: 69%
Specificity: 87%
We believe the competitive advantages of sDNA screening provide a significant market opportunity. There are nearly 110
million Americans between the ages of 45 and 85 who are at average-risk for colorectal cancer. At a three-year screening
interval and an average revenue per test of approximately $500 this represents a potential $18 billion market for our Cologuard
test.
An estimated 45 percent of Americans between the ages of 45 and 85 who are at average-risk for colorectal cancer are not
up-to-date with screening according to the American Cancer Society’s (“ACS”) colorectal cancer screening guidelines.We
believe our Cologuard test helps more people get screened for colorectal cancer. Internal studies have shown that nearly 50% of
surveyed Cologuard users were previously unscreened for colorectal cancer.
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Our Cologuard test is included in key guidelines and quality measures that many healthcare providers rely on when making
screening recommendations.
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The U.S. Preventative Services Task Force (“USPSTF”) has given colorectal cancer screening in people ages 50-75 an
“A” grade and included our Cologuard test (referred to in their statement as sDNA-FIT) as a recommended screening
method for all average-risk patients in that age group. In October 2020, the USPSTF released draft updated
recommendation statement that added a “B” grade for colorectal cancer screening for people ages 45-49. We expect
that USPSTF will release final updated guidelines in 2021.
The American Cancer Society has specifically included our Cologuard test as a recommended colorectal cancer
screening test in average-risk asymptomatic individuals. The ACS recommends colorectal cancer screening beginning
at age 45 for people at average-risk of colorectal cancer.
The National Comprehensive Cancer Network (“NCCN”) includes sDNA screening at a once-every-three-years
interval in its Colorectal Cancer Screening Guidelines.
The National Committee for Quality Assurance (“NCQA”) includes sDNA testing on a three-year interval as one of
the methods permitted for colorectal cancer screening in its most recent Healthcare Effectiveness Data and Information
Set (“HEDIS”) quality measures.
The Centers for Medicare & Medicaid Services (“CMS”) includes our Cologuard test in its most recent Medicare
Advantage Star Ratings program.
Our Oncotype IQ Tests
With our Oncotype IQ Genomic Intelligence Platform we apply our world-class scientific and commercial expertise and
infrastructure to lead the translation of clinical and genomic data into actionable results for treatment planning throughout the
cancer patient's journey. We believe our Oncotype IQ tests improve the quality of treatment decisions and the health economics
of cancer care.
Our Oncotype IQ Genomic Intelligence Platform is currently comprised of:
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our flagship line of Oncotype DX gene expression tests for breast, prostate and colon cancers,
Oncotype MAP, a tissue test delivering rapid, comprehensive tumor profiling to aid therapy selection for patients with
advanced, metastatic, refractory or recurrent cancer, and
Oncotype DX AR-V7 Nucleus Detect® test, a liquid-based test for advanced stage prostate cancer.
Oncotype DX Breast Cancer Tests
Oncotype DX Breast Recurrence Score® Test
Our Oncotype DX Breast Recurrence Score test has been demonstrated to identify patients who are most likely to benefit
from chemotherapy as well as those who may receive no clinical benefit from chemotherapy. We have delivered more than 1.3
million Oncotype DX Breast Recurrence Score tests to cancer patients since launching the product in 2004.
Among women, breast cancer is the most commonly diagnosed cancer and the leading cause of cancer death. In 2021, more
than 281,000 women are expected to be diagnosed with invasive breast cancer in the United States according to ACS, along
with more than 49,000 new cases of non-invasive (in situ) breast cancer. Worldwide, it is estimated that there are approximately
2.1 million newly diagnosed cases of breast cancer each year.
The Oncotype DX breast cancer test examines the activity of 21 genes in a patient’s breast tumor tissue to provide
personalized information for tailoring treatment based on the biology of the patient's individual disease. The test is supported by
multiple rigorous clinical validation studies, including the landmark TAILORx and RxPONDER studies, confirming the test’s
ability to predict the likelihood of chemotherapy benefit as well as the chance of cancer recurrence in certain common types of
early-stage breast cancer.
As the only test proven to predict chemotherapy benefit, the Oncotype DX Breast Recurrence Score test is included in all
major cancer guidelines worldwide, and is considered a standard of care for women with early-stage breast cancer.
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Oncotype DX Breast DCIS Score® Test
Our Oncotype DX DCIS test provides ductal carcinoma in situ ("DCIS") patients an individualized prediction of the 10-
year risk of local recurrence (DCIS or invasive carcinoma), represented by a DCIS Score® result. This test helps guide
treatment decision-making in women with DCIS treated by local excision, with or without tamoxifen. Development of our
Oncotype DX Breast DCIS Score test was based on published results for the Oncotype DX Breast Recurrence Score test that
showed similarity in the expression profiles of genes between DCIS and invasive breast cancer when both are present within the
same patient tumor.
Oncotype DX Colon Recurrence Score® Test
In patients with stage II and stage III colon cancer, the decision to treat with chemotherapy following surgery is based on
an assessment of the likelihood of cancer recurrence and as a result, it is critical for clinicians to accurately assess a patient's
risk of recurrence. Our Oncotype DX Colon Recurrence Score test is a multi-gene test for predicting recurrence risk in patients
with stage II and stage III A/B colon cancer to enable an individualized approach to treatment planning. By evaluating specific
genes within a patient’s colon tumor, the test can determine the likelihood that the cancer cells will spread and cause the disease
to return after surgery. Based on this information, healthcare providers and patients can make a more informed treatment
decisions. The Oncotype DX colon cancer test is supported by three rigorous clinical validation studies confirming the test’s
ability to provide additional and independent value beyond the currently used measures for determining colon cancer recurrence
risk.
Oncotype DX Genomic Prostate Score® Test
Worldwide, prostate cancer ranks as the second most frequent cancer and the fifth leading cause of cancer death in men.
Our Oncotype DX Genomic Prostate Score (“GPSTM”) test helps men newly diagnosed with early-stage prostate cancer to make
the most informed treatment decision for their individual disease, including active surveillance. Our prostate needle biopsy-
based, multi-gene test has been clinically validated to predict aggressive cancer at the time of diagnosis, helping to identify
those men who need immediate surgery or radiation therapy versus those who can confidently choose active surveillance. The
result is a more precise and accurate assessment of risk, which helps more men avoid the lifelong complications associated with
treatments they do not need, while directing aggressive therapy to those men who require immediate treatment.
Oncotype MAP Pan-Cancer Tissue Test
In October 2020 we introduced the Oncotype MAP test. The Oncotype MAP test is a rapid, comprehensive tumor profiling
panel that aids therapy selection for patients with advanced, metastatic, refractory, or recurrent cancer. The Oncotype MAP test
utilizes next generation sequencing and immunohistochemistry to provide in-depth insights into genomic alterations in
hundreds of cancer-related genes. The Oncotype MAP test report supports clinical decision making by showing actionable
biomarkers associated with more than 100 evidence-based therapies, over 45 combination therapies, and more than 650 active
clinical trial associations. The identification of these biomarkers helps to inform treatment options for a breadth of solid tumor
types.
Oncotype DX AR-V7 Nucleus Detect Test
Our Oncotype DX AR-V7 Nucleus Detect test is a blood-based test designed to guide treatment decisions for men with
metastatic castration-resistant prostate cancer (“mCRPC”), an advanced stage of the disease in which the cancer continues to
grow and spread despite androgen deprivation therapy. mCRPC is often treated with androgen receptor-signaling inhibitor
(“ARSI”) therapies. However, one in three patients become resistant to ARSI therapy after two rounds of treatment, leading to
poor outcomes and unnecessary treatment costs. Epic Sciences developed and performs the Oncotype DX AR-V7 Nucleus
Detect test. We commercialize the test pursuant to an exclusive license and distribution agreement with Epic Sciences.
Covid-19 Testing
In late March 2020, we began providing COVID-19 testing. We have partnered with various customers, including the State
of Wisconsin Department of Health, to administer testing. Customers are responsible for employing trained personnel to collect
specimens. Specimens are sent to our laboratory in Madison, Wisconsin, where we run the assay in our laboratories and provide
test results to ordering providers. In light of the uncertainty surrounding the COVID-19 pandemic, we intend to periodically
reassess offering COVID-19 testing.
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Pipeline Research and Development
Our research and development efforts are focused on developing new products and enhancing existing products to address
new cancer areas and expand the clinical utility and addressable patient populations for our existing tests. We are focused on
enhancing our Cologuard test's performance characteristics and developing blood and other fluid-based ("liquid biopsy") tests.
These development efforts may lead to a variety of possible new products, including risk assessment, screening and prevention,
early disease diagnosis, adjuvant and/or neoadjuvant disease treatment, metastatic disease treatment selection and patient
monitoring.
Through our collaboration with Mayo Foundation for Medical Education and Research, we have successfully performed
validation studies on multiple types of cancer using tissue, blood, and other samples. In September 2020, Mayo agreed to make
available certain personnel to provide us research development assistance through January 2025. Through recent business
development activities, we have acquired exclusive access to technologies developed by The Johns Hopkins University, TGen,
Oxford University and the Ludwig Institute for Cancer Research.
We expect to advance liquid biopsy through biomarker discovery and validation in tissue, blood, or other fluids and to
leverage recent business development activities to accelerate our leadership in earlier cancer detection and treatment guidance.
We are pursuing the following opportunities:
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Colon Cancer Screening. We are seeking opportunities to improve upon our Cologuard test's performance
characteristics. In October 2019, we and Mayo presented at the American College of Gastroenterology’s 2019 Annual
Scientific Meeting findings from a blinded-case control study showing enhanced colorectal cancer and advanced
adenoma detection using newly discovered methylation biomarkers. In October 2020, we acquired Base Genomics,
whose methylation analysis technologies promise to build upon other contemplated enhancements to our Cologuard
test. To establish the performance of an enhanced multi-target stool DNA test, we expect to enroll more than 10,000
patients 40 years of age and older in our multi-center, prospective BLUE-C study. The timing of any such
enhancements to our Cologuard test is unknown and would be subject to FDA approval. We are also working to
develop a blood-based screening test for colorectal cancer.
• Multi-Cancer Screening Test Development. We are currently seeking to develop a blood-based, multi-cancer screening
test. In January 2021, we completed the acquisition of Thrive Earlier Detection Corp., a healthcare company dedicated
to developing a blood-based, multi-cancer screening test. An early version of Thrive’s test has achieved promising
results in a 10,000-patient, prospective, interventional study detecting 10 different types of cancer, including seven
with no current recommended screening guidelines, with very few false positives. We are exploring opportunities to
incorporate Exact’s and Base Genomics’ methylation technologies into Thrive's test in order to enhance the test's
accuracy and accelerate the widespread adoption of this potentially life-saving advancement.
Hepatocellular Carcinoma (“HCC”) Test Development. We are currently seeking to develop a blood-based biomarker
test to serve as an alternative to ultrasound and alpha-fetoprotein (“AFP”) for use in HCC testing. HCC is the most
common type of liver cancer. Our goal is to develop a patient-friendly test that performs better than the current
standard of care. In November 2019, we released the results of a 450-patient study which demonstrated 80% overall
sensitivity at 90% specificity with a novel combination of six blood-based biomarkers for HCC. The study also
showed 71% sensitivity for early stage HCC at 90% specificity. The study compared performance to the AFP test,
which demonstrated 45% sensitivity at 90% specificity for early stage HCC.
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• Minimal Residual Disease (“MRD”) Test Development. In January 2021 we acquired an exclusive license to the TGen
proprietary TARDIS technology. We are currently seeking to utilize this compelling and technically distinct approach
to develop a test to detect small amounts of tumor DNA that may remain in patients’ blood after they have undergone
initial treatment. In a study published in Science Translational Medicine, TARDIS demonstrated high accuracy in
assessing molecular response and residual disease during neoadjuvant therapy to treat breast cancer. TARDIS achieved
up to 100-fold improvement beyond the current limit of circulating tumor DNA detection.
Development Studies for Oncotype DX Products. We may also conduct or fund clinical studies that could support
additional opportunities for our Oncotype DX products. For example, we are exploring clinical studies to expand the
use of genomic testing to address additional populations, including higher-risk patients.
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Research and development, which includes our clinical study programs, accounts for a material portion of our operating
expenses. As we seek to enhance our current product portfolio and expand our product pipeline by developing additional cancer
screening and diagnostic tests, we expect that our research and development expenditures will continue to increase.
8
Commercial Operations
We operate within a single business segment, with commercial teams focused on screening, precision oncology, and
international markets. Beginning in March 2020, the COVID-19 pandemic began to disrupt our commercial operations,
including by causing us to suspend face-to-face interactions between sales representatives and healthcare providers. Although a
portion of our sales force has no recommenced field-based interactions, access to healthcare providers remains limited.
Cologuard Test Commercial Operations
We promote our Cologuard test through our primary care, gastroenterology, women’s health and health systems field sales
teams, as well as through an inside sales team. In addition, Pfizer, Inc. ("Pfizer") promotes our Cologuard test and provides
certain sales, marketing, analytical and other commercial operations support pursuant to a Promotion Agreement.
Our sales team actively engages with healthcare providers and their staffs to emphasize the need for colorectal cancer
screening, educate them on the value of our Cologuard test, and facilitate their ability to order the test. We focus on specific
healthcare providers based on a combination of Cologuard order history and ordering potential. We also focus on healthcare
provider groups and larger regional and national health systems.
A critical part of the value proposition of our Cologuard test is its adherence program, which involves active engagement
with patients and providers. This customer-oriented support activity is focused on encouraging and helping patients to complete
Cologuard tests that have been ordered for them by their providers. We may undertake several activities to promote patient
adherence including letters, text messages, online chat, emails, and phone calls.
We have undertaken a significant public relations effort to engage patients in the U.S., and launched demographically-
targeted, direct-to-patient advertising campaigns in digital, social, print, and other channels. We promote our Cologuard test
through a national television advertising campaign, with a majority of placements in national cable and syndicated
programming widely viewed by our target patient demographic. During 2020, in response to COVID-19, we deepened our
investment in virtual resources, including launching a telehealth option for patients which can be found on Cologuard.com. We
also built new capabilities to market our Cologuard test to health systems, with a focus on health information technologies.
Following the FDA’s September 2019 expansion of Cologuard’s indication to average-risk individuals ages 45-49, we updated
our direct-to-consumer efforts to educate and motivate this younger population to screen with our Cologuard test.
Oncotype IQ Commercial Operations
We promote our Oncotype IQ tests through our precision oncology sales force. Our commercial infrastructure, including
our sales force, managed care group, and patient support network, is critical to the future success of our Oncotype IQ products.
In our domestic sales, marketing and reimbursement efforts, we interact directly with medical, radiation, and surgical
oncologists, urologists, pathologists and payers. We employ a direct sales approach that targets oncologists, cancer surgeons
and urologists, and utilizes medical education and scientific liaisons who target key opinion leaders. We also plan to continue
conducting clinical studies with the objective of having results published in peer-reviewed journals. We believe the combination
of these approaches is our best means to increase patient and healthcare provider awareness of our products and services and the
number of favorable reimbursement coverage decisions by third-party payers.
International Commercial Operations
We now commercialize our Oncotype IQ tests internationally through employees in Canada, Japan and six European
countries, as well as through exclusive distribution agreements. We do not offer our Cologuard test outside of the U.S. We have
provided our Oncotype IQ tests in more than 90 countries outside of the U.S.
Inclusion of our products in guidelines and quality measures will be critical to our international success. The Oncotype DX
breast cancer test is recognized in international guidelines issued by the St. Gallen International Breast Cancer Expert Panel and
European Society for Medical Oncology. Our Oncotype DX breast cancer test has been recommended to guide certain patients'
chemotherapy treatment decisions by the National Institute for Health and Care Excellence in England, the Gynecologic
Oncology Working Group in Germany and the Japan Breast Cancer Society. Our Oncotype DX breast cancer test is reimbursed
for certain patients in the public health systems in more than ten countries, including Germany, the United Kingdom ("U.K."),
and Canada.
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We are exploring opportunities to establish local laboratories in certain locations outside of the U.S. Certain countries have
severe restrictions on exporting tissue samples. These restrictions limit our ability to offer our tests in those countries without
local laboratories or a method of test delivery that does not require samples to be transported to our U.S. laboratory.
Reimbursement for our Tests
Reimbursement for our Cologuard Test
Our Cologuard test has broad reimbursement coverage from Medicare and most private payers. As outlined in CMS’s
National Coverage Determination (“NCD”), Medicare Part B covers our Cologuard test once every three years for beneficiaries
who meet all of the following criteria:
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age 50 to 85 years,
asymptomatic (no signs or symptoms of colorectal disease including, but not limited to, lower gastrointestinal pain,
blood in stool, positive guaiac fecal occult blood test or fecal immunochemical test), and
at average risk for developing colorectal cancer (e.g., no personal history of adenomatous polyps, colorectal cancer, or
inflammatory bowel disease, including Crohn’s Disease and ulcerative colitis; no family history of colorectal cancers
or adenomatous polyps, familial adenomatous polyposis or hereditary non-polyposis colorectal cancer).
In addition to Medicare reimbursement, most commercial payers have issued positive coverage decisions for our Cologuard
test, and we continue to negotiate contracts with payers to include our Cologuard test as an in-network service. In-network
agreements with payers have varying terms and conditions, including reimbursement rate, term and termination. Some payers
may apply various medical management requirements, including a requirement that they give prior authorization for a
Cologuard test before they are willing to pay for it. Other payers may perform post-payment reviews or audits, which could lead
to payment recoupments.
The following laws and regulations establish coverage requirements relevant to our Cologuard test.
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Section 2713 of the Patient Protection and Affordable Care Act (“ACA”) mandates that certain health insurers cover,
without imposing any patient cost-sharing, evidence-based items or services that have in effect a rating of “A” or “B”
in the current recommendations of USPSTF (“ACA Mandate”).
Federal regulations require that Medicare Advantage plans cover “A” or “B” rated preventive services without patient
cost-sharing, and CMS has issued a notice affirming that Medicare Advantage plans must include coverage of our
Cologuard test every three years without patient cost-sharing.
• We believe the laws of approximately 30 states currently mandate coverage of our Cologuard test by certain health
insurance plans.
The federal laws and regulations referenced above currently mandate coverage for individuals beginning at age 50. We
believe that if the draft USPSTF colorectal cancer screening guidelines become final as currently written, the ACA mandate
would, after a transition period, begin at age 45. While most of the state mandates apply beginning at age 50, we believe some
should be interpreted to require coverage beginning at age 45.
Reimbursement for our Oncotype IQ Tests
We depend on government insurance plans, managed care organizations and private insurance plans for reimbursement of
our Oncotype IQ tests.
Medicare coverage for our Oncotype IQ tests is currently subject to the discretion of the local Medicare Administrative
Contractors (“MAC”). Palmetto, the MAC that establishes the coverage and coding policies for most of our tests under
Medicare, developed the Molecular Diagnostic Services Program (“MolDx”), to identify and establish Medicare coverage for
molecular diagnostic tests that fall within the scope of its Molecular Diagnostic Test local coverage decision (“LCD”). To
obtain coverage under the MolDx program, developers of molecular diagnostic tests must submit a detailed dossier of analytical
and clinical data to substantiate that a test meets Medicare’s requirements for coverage. To date, Palmetto has determined that
our invasive breast and colon cancer tests will be covered, and that our prostate cancer test will be covered for patients with
specified risk levels. Coverage determinations for our tests made by Palmetto under the MolDx program have been adopted by
Noridian Healthcare Solutions, the MAC that processes Medicare claims submitted by us.
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Reimbursement of our Oncotype IQ tests by third-party payers is essential to our commercial success. Where there is a
payer policy, contract or agreement in place, we bill the third-party payer, the hospital or referring laboratory and/or the patient
(for deductibles and coinsurance or copayments, where applicable) in accordance with established policy, contract or agreement
terms. Where there is no payer policy in place, we pursue third-party reimbursement on behalf of each patient on a case-by-case
basis. Our efforts on behalf of these patients involve a substantial amount of time and expense, and bills may not be paid for
many months, if at all. Furthermore, if a third-party payer denies coverage after final appeal, it may take a substantial amount of
time to collect from the patient, if we are able to collect at all.
State Medicaid agencies generally assign a reimbursement rate for our Oncotype IQ tests equal to or less than the
prevailing Medicare rate, often determined by state law as a percentage of the Medicare reimbursement rate.
International Reimbursement
In many countries, governments are primarily responsible for financing and establishing reimbursement for diagnostic
tests. The majority of our international Oncotype IQ test revenues come from reimbursement, payments from our distributors,
and patient self-pay. We have obtained coverage for our invasive breast cancer test outside of the U.S., including coverage for
certain patients in Canada, France, Spain, Germany, Italy, Ireland, Israel, Saudi Arabia, Switzerland, and the U.K.
We expect that our international sales will be heavily dependent on the availability of reimbursement, and broadening
coverage and reimbursement for our Oncotype IQ tests outside of the United States will take years.
Reimbursement for Future Products
Successful commercialization of our newly developed products and products in development will also depend on our
ability to obtain adequate reimbursement from government insurance plans, managed care organizations and private insurance
plans for such products.
Our Clinical Laboratory and Manufacturing Facilities
We process our Cologuard test at two state of the art, high throughput clinical laboratories in Madison, Wisconsin that are
certified pursuant to federal Clinical Laboratory Improvement Amendments (“CLIA”) and accredited by College of American
Pathologists (“CAP”). Our total lab capacity at both facilities is approximately seven million Cologuard tests per year, with the
opportunity to add additional capacity, if needed.
We currently manufacture our Cologuard test at two facilities in Madison, Wisconsin. In 2020 we completed the
construction of our second manufacturing facility, and we were granted FDA approval for commercial production in July 2020.
We are committed to manufacturing and providing medical devices and related products that meet customer expectations and
applicable regulatory requirements. We adhere to manufacturing and safety standards required by federal, state, and local laws
and regulations and operate our manufacturing facilities under a quality management system. We purchase certain components
for our Cologuard test from third-party suppliers and manufacturers.
We are committed to responding to the challenges posed by the coronavirus (“COVID-19”) pandemic. Beginning in March
2020, we allocated space at our clinical laboratories in Madison, Wisconsin to process our COVID-19 tests. We also
manufacture and assemble our COVID-19 test kits at our manufacturing facilities in Madison, Wisconsin.
All internally developed Oncotype DX tests for domestic and international patients are currently processed in our clinical
reference laboratory facilities in Redwood City, California, which is certified under CLIA and accredited by CAP. Our
Oncotype MAP test is processed in our clinical reference laboratory facility in Phoenix, Arizona, which is certified under CLIA
and accredited by CAP. The Oncotype DX AR-V7 Nucleus Detect test, which was designed and validated by Epic Sciences,
Inc. (“Epic Sciences”), is performed in its CLIA-accredited, CAP-certified clinical reference laboratory facility in San Diego,
California.
We believe that we currently have sufficient capacity to process all of our tests. We may require additional facilities in the
future as we expand our business and believe that additional space, when needed, will be available on market terms.
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Competition
We operate in a rapidly evolving and highly competitive industry. There are a number of private and public companies that
offer products or have announced that they are developing products that compete with ours. Some of our current and potential
competitors possess greater brand recognition, development capabilities, and financial and other resources than us. We expect
to compete with a broad range of organizations in the U.S. and other countries that are engaged in the development, production
and commercialization of cancer screening and diagnostic products and services. These competitors include:
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biotechnology, diagnostic and other life science companies,
academic and scientific institutions,
governmental agencies, and
public and private research organizations.
The U.S. market for colorectal cancer screening is large, consisting of nearly 110 million eligible individuals between the
ages of 45 and 85, and has attracted numerous competitors. Our Cologuard test faces competition from procedure-based
detection technologies such as colonoscopy, flexible sigmoidoscopy, “virtual” colonoscopy - a radiological imaging approach
that visualizes the inside of the bowel by CT scan (spiral computerized axial tomography) - as well as other common screening
tests, such as the fecal occult blood test ("FOBT") and the fecal immunochemical test (“FIT”), and other screening
technologies. Newer screening technologies include liquid biopsy tests, such as Epi proColon, which was approved by the FDA
in April 2016, and pill-based imaging solutions like PillCam COLON, which was cleared by the FDA in February 2014, and C-
Scan, which obtained a CE Mark in early 2019. As noted below, a number of companies are developing liquid biopsy tests for
colorectal cancer screening, as well as other applications.
We also are aware of at least three companies, DiaTech Pharmacogenetics, Prescient Metabiomics, and Geneoscopy, that
are seeking to develop stool-based colorectal cancer tests in the United States. Our competitors may also be developing
additional methods of detecting colorectal cancer and pre-cancer that have not yet been announced.
Notwithstanding that the market for colorectal cancer screening is highly competitive, we believe that our Cologuard test,
as the first and only sDNA-based non-invasive colorectal cancer screening test on the market today, compares favorably to
other available products and services. All other colorectal cancer detection methods in use today are constrained by some
combination of poor sensitivity, poor adherence, and high cost. For example, colonoscopy requires advance dietary restrictions
and bowel cleansing and can be uncomfortable, time-consuming, hazardous, and expensive. Colonoscopy requires sedation,
potential lost time from work, and someone to drive the patient home from the procedure. A 2010 study shows that 7 out of 10
people age 50 and older who were told they should get a colonoscopy did not do so primarily due to fear. Fecal blood testing,
including FIT testing, suffers from poor sensitivity, with only a 74 percent detection rate for cancer and 24 percent detection
rate for pre-cancer. The blood-based DNA tests currently available are also disadvantaged by relatively low sensitivity.
Epigenomics AG has reported that the Epi proColon test has an overall cancer sensitivity rate of 68 percent, and only 59 percent
for early-stage cancer. Additionally, FIT testing suffers from low adherence over time. One study published in the American
Journal of Managed Care demonstrated that only 3 out of every 1,000 patients studied adhered to fecal test screening guidelines
during a continuous 10-year observation period.
Our Oncotype IQ products compete against a number of companies that offer products or have conducted research to
profile genes and gene expression in breast, colon, and prostate cancer. These companies include Agendia Inc.,
BioTheranostics, GenomeDx Biosciences Inc., Guardant Health, Inc., Hologic Inc., Myriad Genetics Inc. (and its Sividon
Diagnostics subsidiary), NanoString Technologies Inc., NeoGenomics, Inc., OPKO Health, Inc. (and its Bio-Reference
Laboratories, Inc. subsidiary), Pacific Edge Limited, Qiagen N.V. and Veracyte, Inc. Historically, our principal competition for
our Oncotype IQ tests has also come from existing diagnostic methods used by pathologists and oncologists, and such
traditional diagnostic methods can be difficult to compete with or supplement. Our Oncotype IQ tests also face competition
from commercial laboratories with strong distribution networks for diagnostic tests, such as Laboratory Corporation of America
Holdings and Quest Diagnostics Incorporated. Other potential competitors include companies that develop diagnostic tests such
as Roche Diagnostics, a division of Roche Holding, Ltd, and Siemens AG, as well as other companies and academic and
research institutions.
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For our prostate cancer tests, we face comparatively greater competition than for our breast cancer tests, including
competition from products that were on the market prior to our product launch and that are supported by clinical studies and
published data. This existing direct and indirect competition for tests and procedures may make it difficult to gain market share,
impact our ability to obtain reimbursement or result in a substantial increase in resources necessary to successfully
commercialize our Oncotype DX GPS prostate test and the Oncotype DX AR-V7 Nucleus Detect test.
We believe that our Oncotype IQ tests compete primarily on the basis of the value of the quantitative information they
provide, the clinical validation of the utility of our tests, the level of adoption and reimbursement coverage for our tests, the
inclusion of our tests in clinical practice guidelines, our ability to commercialize products through our clinical development
platform, our ability to expand our sales efforts into new areas of medical practice as we launch new products, our
collaborations with clinical study groups, the quality of our clinical laboratory, and the level of customer service we provide.
While we believe that our Oncotype IQ tests compete favorably with respect to these factors, to continue to do so we must
innovate and adopt advanced technology, successfully market, sell and enhance our tests, obtain peer-reviewed publications of
our clinical studies in a timely manner, continue to obtain positive reimbursement determinations, continue to expand in
countries outside of the U.S., continue to develop our technological and clinical operations, encourage healthcare provider
participation in Medicare-required information collection efforts, and successfully expand our reach into additional product
markets including through collaborations with third parties.
In addition to our on-market products, we intend to offer additional liquid biopsy tests that:
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screen for colorectal cancer,
screen for multiple types of cancers using a single test,
provide diagnostic information for liver cancer,
provide prognostic information, guide therapy selection, or measure minimal residual disease or cancer recurrence.
We are aware of a number of companies — including Bioprognos, Bluestar Genomics, Burning Rock, Caris Life Sciences,
CellMax, Inc., Clinical Genomics, DiaCarta, EarlyDx, Epigenomics AG, Foundation Medicine, Freenome Inc., Glycotest,
GRAIL, Inc., Guardant Health, Inc., Helio Health, Immunovia AB, Inivata, Invitae, JBS Science, Natera Inc., Nucleix Ltd.,
Singlera Genomics, Sysmex Ignostics, and Tempus — that have developed, or are developing, liquid biopsy tests for the
detection of cancer, based on the detection of proteins, tumor cells, nucleic acids, epigenetic markers, or other biomarkers.
These tests could represent significant competition for our current tests, including our Cologuard and Oncotype IQ tests, as well
as other tests we may develop. Guardant Health, Inc. and Freenome Inc. are conducting prospective colorectal cancer screening
clinical trials intended to support FDA approval, and other companies may do so in the future.
Competitors may develop their own versions of our tests in countries where we did not apply for patents, where our patents
have not issued or where our intellectual property rights are not recognized and compete with us in those countries, including
encouraging healthcare providers or patients to use their tests in other countries. We are aware of at least one company that is
offering or intends to offer in China a test that appears similar to our Cologuard test. Competitors also may be able to design
around our intellectual property.
We may be unable to compete effectively against our competitors either because their products and services are superior or
because they may have more expertise, experience, financial resources, or stronger business relationships. These competitors
may have broader product lines and greater name recognition than we do. Furthermore, even if we do develop new marketable
products or services, our current and future competitors may develop products and services that are more commercially
attractive than ours, and they may bring those products and services to market earlier or more effectively than us. If we are
unable to compete successfully against current or future competitors, we may be unable to increase market acceptance for and
sales of our tests, which could prevent us from increasing or sustaining our revenues or achieving sustained profitability and
could cause the market price of our common stock to decline.
Seasonality
We are continuing to learn how seasonal factors may affect our business. Based on our experience to date, we expect some
seasonal variations in our financial results due to a variety of factors, such as the year-end holiday period and other major
holidays, vacation patterns of both patients and healthcare providers, climate and weather conditions in our markets, seasonal
conditions that may affect medical practices and provider activity, including for example influenza outbreaks that may reduce
the percentage of patients that can be seen, and other factors relating to the timing of patient deductibles and co-insurance
limits.
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Regulation
Certain of our activities are subject to regulatory oversight by the FDA under provisions of the Federal Food, Drug, and
Cosmetic Act (“FDCA”) and regulations thereunder, including regulations governing the development, marketing, labeling,
promotion, manufacturing, distribution, and export of diagnostic products. Our clinical laboratory facilities are subject to
oversight by CMS pursuant to CLIA, as well as agencies in various states, including New York. We are subject to many other
federal, state and foreign laws, including anti-fraud and abuse, anti-kickback and patient privacy. Failure to comply with
applicable requirements can lead to sanctions, including withdrawal of products from the market, recalls, refusal to authorize
government contracts, product seizures, exclusion from participation in federal and state healthcare programs, civil money
penalties, injunctions, and criminal prosecution.
U.S. Food and Drug Administration
Devices subject to FDA regulation must undergo premarket review prior to commercialization unless the device is exempt
from such review. The FDA granted premarket approval (“PMA”) for our Cologuard test in August 2014. The regulations
governing Cologuard’s approval place substantial restrictions on how our Cologuard test is marketed and sold, specifically,
by prescription only. In addition, as a condition of our FDA approval, we were required to conduct a post-approval study. The
post-approval study concluded in 2020 and final results were submitted to the FDA in late 2020. There can be no assurance that
the results of this study will be satisfactory and will not cause the FDA to modify or withdraw our approval for the Cologuard
test.
Additionally, manufacturers of medical devices must comply with various regulatory requirements under the FDCA and
regulations thereunder, including, but not limited to, quality system regulations, unless they are exempt, facility registration,
product listing, labeling requirements, and certain post-market surveillance requirements. Entities that fail to comply with FDA
requirements can be liable for criminal or civil penalties, such as recalls, detentions, orders to cease manufacturing, and
restrictions on labeling and promotion, among other potential sanctions. In 2017, we recalled one of the components of our
Cologuard test kit and circumstances may arise that cause us to recall other products or components used in connection with our
Cologuard test.
Certain of our products in development or additional diagnostic products and services that we seek to develop may be
regulated by the FDA as medical devices. The regulatory review and approval process for medical devices can be costly,
timely, and uncertain. This process may involve, among other things, successfully completing additional clinical trials and
submitting a premarket clearance notice or filing a premarket approval application with the FDA. If premarket review is
required by the FDA, there can be no assurance that our tests will be cleared or approved on a timely basis, if at all. In addition,
there can be no assurance that the labeling claims cleared or approved by the FDA will be consistent with our current claims or
adequate to support continued adoption of and reimbursement for our products. Ongoing compliance with FDA regulations
could increase the cost of conducting our business, subject us to FDA inspections and other regulatory actions, and potentially
subject us to penalties in the event we fail to comply with such requirements.
Laboratory Developed Tests (“LDTs”)
Our Oncotype IQ tests are regulated as LDTs and we may seek to commercialize certain of our products in development as
LDTs. LDTs are clinical laboratory tests that are developed and validated by a laboratory for its own use. Historically, LDTs
have been regulated under CLIA while the FDA has exercised enforcement discretion and not required approvals or clearances
for many LDTs performed by CLIA-certified laboratories. The FDA has traditionally chosen not to exercise its authority to
regulate LDTs because LDTs were limited in number, were relatively simple tests, and were typically used to diagnose rare
diseases and uncommon conditions.
At various times since 2006, the FDA has issued documents outlining its intent to require varying levels of FDA oversight
of many LDTs, including our tests. The FDA has yet to implement any form of oversight requirements with respect to LDTs,
and it is unclear at this time if or when the FDA ends enforcement discretion for LDTs. It is also unclear whether the FDA may
decide to regulate certain LDTs on a case-by-case basis at any time. Action by the FDA to exercise enforcement discretion over
LDTs may materially impact our development and commercialization of LDTs, including without limitation our Oncotype IQ
tests.
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Laboratory Certification, Accreditation, and Licensing
We are also subject to U.S. and state laws and regulations regarding the operation of clinical laboratories. CLIA
requirements and laws of certain states, including those of California, New York, Maryland, Pennsylvania, Rhode Island and
Florida, impose certification requirements for clinical laboratories, and establish standards for quality assurance and quality
control, among other things. CLIA provides that a state may adopt different or more stringent regulations than federal law and
permits states to apply for exemption from CLIA if the state’s laboratory laws are equivalent to or more stringent than CLIA.
For example, the State of New York’s clinical laboratory regulations, which have received an exemption from CLIA, contain
provisions that are in certain respects more stringent than federal law. Therefore, as long as New York maintains a licensure
program that is CLIA-exempt, we will need to comply with New York’s clinical laboratory regulations in order to offer our
clinical laboratory products and services in New York.
We have current certificates to perform clinical laboratory testing. Clinical laboratories are subject to inspection by
regulators and to sanctions for failing to comply with applicable requirements. Sanctions available under CLIA and certain state
laws include prohibiting a laboratory from running tests, requiring a laboratory to implement a corrective plan, and imposing
civil monetary penalties. If we fail to meet any applicable requirements of CLIA or state law, that failure could adversely affect
any future CMS consideration of our technologies, prevent their approval entirely, and/or interrupt the commercial sale of any
products and services and otherwise cause us to incur significant expense.
HIPAA and Other Privacy Laws
The Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for
Economic and Clinical Health Act (“HIPAA”) established comprehensive protection for the privacy and security of health
information. The HIPAA standards apply to three types of organizations, or “Covered Entities”: health plans, healthcare
clearinghouses, and healthcare providers that conduct certain healthcare transactions electronically. Covered Entities and their
business associates must have in place administrative, physical, and technical standards to guard against the misuse of
individually identifiable health information. We perform activities that may implicate HIPAA, such as providing clinical
laboratory testing services and entering into specific kinds of relationships with Covered Entities and business associates of
Covered Entities. Penalties for violations of HIPAA include civil money and criminal penalties.
Our activities must also comply with other applicable privacy laws, which impose restrictions on the access, use and
disclosure of personal information. More state and international privacy laws are being adopted. Many state laws are not
preempted by HIPAA because they are more stringent or are broader in scope than HIPAA including the California Consumer
Privacy Act of 2018, which protects personal information other than health information covered by HIPAA and allows certain
data access and erasure rights to California consumers. Further, we are required to comply with international personal data
protection laws and regulations, including the European Union's General Data Protection Regulation (“GDPR”). The GDPR is a
prescriptive, detailed regulation that provides extensive powers to public authorities to sanction and stop use of personal data.
While companies are afforded some flexibility in determining how to comply with the GDPR’s various requirements, the
GDPR has and will continue to require significant effort and expense to ensure compliance. All of these laws may impact our
business and may change periodically, which could adversely affect our business operations. Our failure to comply with these
privacy laws or significant changes in the laws restricting our ability to obtain stool, tissue, blood, and other patient samples and
associated patient information could significantly impact our business and our future business plans, including potentially a
temporary inability to provide tests to patients in the European Union.
Federal and State Billing and Fraud and Abuse Laws
Anti-fraud Laws/Overpayments. We are subject to numerous federal and state anti-fraud and abuse laws, including the
Federal False Claims Act. Many of these anti-fraud laws are broad in scope, and neither the courts nor government agencies
have extensively interpreted these laws. Prohibitions under some of these laws include:
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the submission of false claims or false information to government programs,
the retention of any overpayments by governmental payers,
deceptive or fraudulent conduct,
excessive or unnecessary services or services at excessive prices, and
defrauding private sector health insurers.
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We may be subject to substantial penalties for violations of anti-fraud and abuse laws, including denial of payment and
refunds or recoupments, suspension of payments from Medicare, Medicaid or other federal healthcare programs, and exclusion
from participation in federal and state healthcare programs, as well as civil monetary and criminal penalties and imprisonment.
Numerous federal and state agencies enforce the anti-fraud and abuse laws. In addition, private insurers may also bring private
actions. In some circumstances, private whistleblowers are authorized to bring fraud suits on behalf of the government against
providers and are entitled to receive a portion of any final recovery.
In addition, amendments to the False Claims Act impose severe penalties for the knowing and improper retention of
overpayments collected from governmental payers. Within 60 days of identifying and quantifying an overpayment, a provider is
required to notify CMS or the Medicare contractor of the overpayment and the reason for it and return the overpayment. These
amendments could subject our procedures for identifying and processing payments to greater scrutiny. Overpayments may
occur from time to time in the healthcare industry without any fraudulent intent. For example, overpayments may result from
mistakes in reimbursement claim forms or from improper processing by governmental payers. We maintain protocols intended
to identify any overpayments. From time to time we have identified overpayments and made refunds to government payers.
To avoid liability, we must carefully and accurately code claims for reimbursement, proactively monitor the accuracy and
appropriateness of Medicare claims and payments received, diligently investigate any credible information indicating that we
may have received an overpayment, and promptly return any overpayments.
Federal and State “Self-Referral” and “Anti-Kickback” Restrictions
If we or our operations are found to be in violation of applicable laws and regulations prohibiting improper referrals for
healthcare services or products, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion
from participation in U.S. federal or state healthcare programs, and the curtailment or restructuring of our operations.
Anti-Kickback Statute. The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting,
receiving, offering, or paying remuneration, directly or indirectly, to induce either the referral of an individual, or the
furnishing, recommending, or arranging for a good or service, for which payment may be made under a federal healthcare
program, such as the Medicare and Medicaid programs, unless an exception applies. The term “remuneration” is not defined in
the federal Anti-Kickback Statute and has been broadly interpreted to include anything of value, including for example, gifts,
discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payment, ownership
interests and providing anything at less than its fair market value. Sanctions for violations of the federal Anti-Kickback Statute
may include imprisonment and other criminal penalties, civil monetary penalties, and exclusion from participation in federal
healthcare programs. Many states have also adopted laws similar to the federal Anti-Kickback Statute, some of which apply to
the referral of patients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid
programs, and do not contain identical safe harbors.
In addition to the Anti-Kickback Statute, in October 2018, Congress enacted the Eliminating Kickbacks in Recovery Act of
2018 (“EKRA”) as a component of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for
Patients and Communities Act. EKRA is an anti-kickback law similar to the federal Anti-Kickback Statute that, subject to
several exceptions, makes it a criminal offense to pay any remuneration to induce referrals to, or in exchange for, patients using
the services of a recovery home, a substance use clinical treatment facility, or laboratory. Although it appears that EKRA was
intended to reach patient brokering and similar arrangements to induce patronage of substance use recovery and treatment, the
language in EKRA is broadly written and can apply to laboratory services covered under public or private payer arrangements.
That said, an interpretation of EKRA that prohibits certain incentive compensation payments to sales employees or other forms
of remuneration that would otherwise be permissible under a safe harbor to the federal Anti-Kickback Statute would directly
conflict with the intent of the federal Anti-Kickback Statute and regulations and would prohibit a number of practices that are
common throughout the industry. Significantly, EKRA permits the U.S. Department of Justice ("DOJ") to issue regulations
clarifying EKRA’s exceptions or adding additional exceptions, but no such regulations or applicable guidance have yet been
issued.
Self-Referral Law. The federal “self-referral” law, commonly referred to as the “Stark” law, provides that healthcare
providers who, personally or through a family member, have ownership interests in or compensation arrangements with a
laboratory are prohibited from making a referral to that laboratory for laboratory tests reimbursable by Medicare, and also
prohibits laboratories from submitting a claim for Medicare payments for laboratory tests referred by healthcare providers who,
personally or through a family member, have ownership interests in or compensation arrangements with the testing laboratory.
The Stark law contains a number of specific exceptions which, if met, permit healthcare providers who have ownership or
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compensation arrangements with a testing laboratory to make referrals to that laboratory and permit the laboratory to submit
claims for Medicare payments for laboratory tests performed pursuant to such referrals. We are subject to comparable state
laws, some of which apply to all payers regardless of source of payment, and do not contain identical exceptions to the Stark
law.
Any action against us for violation of these or similar foreign laws, even if we successfully defend against it, could cause
us to incur significant legal expenses and divert our management’s attention from the operation of our business.
Sunshine Act
In 2010, Congress enacted a statute commonly known as the Sunshine Act, which aims to promote transparency. The
Sunshine Act requires manufacturers of drugs, devices, biologicals, and medical supplies covered by Medicare, Medicaid, or
the Children’s Health Insurance Program to report annually to CMS any payments or other transfers of value made to
healthcare providers and teaching hospitals, unless an exception applies. Manufacturers must also disclose to CMS any
healthcare provider ownership or investment interests. Some states have similar transparency laws. Our failure to comply with
any applicable transparency reporting requirements may subject us to substantial penalties.
International
When marketing our tests outside of the U.S., we are subject to foreign regulatory requirements governing human clinical
testing, export of tissue, marketing approval for our products, and performance and reporting of tests in each market. These
requirements vary by jurisdiction, differ from those in the U.S., and may require us to perform additional pre-clinical or clinical
testing. In many countries outside of the U.S., coverage, pricing, and reimbursement approvals are also required in order for our
tests to be made available to patients in substantial volume.
Many countries in which we offer our tests have anti-kickback regulations prohibiting providers, as well as medical and in
vitro diagnostic device manufacturers, from offering, paying, soliciting, or receiving remuneration, directly or indirectly, or
providing a benefit to a healthcare professional in order to induce business that is reimbursable under any national healthcare
program. In situations involving healthcare providers employed by public or state-funded institutions or national healthcare
services, violation of the local anti-corruption or anti-gift laws may also constitute a violation of the U.S. Foreign Corrupt
Practices Act (“FCPA”).
The FCPA prohibits any U.S. individual, business entity, or employee of a U.S. business entity from offering or providing,
directly or through a third party, including the distributors we rely on in certain markets, anything of value to a foreign
government official with corrupt intent to influence an award or continuation of business or to gain an unfair advantage,
whether or not such conduct violates local laws. In addition, it is illegal for a company that reports to the Securities and
Exchange Commission (“SEC”) to have false or inaccurate books or records or to fail to maintain a system of internal
accounting controls. We are also required to maintain accurate information and control over sales and distributors’ activities
that may fall within the purview of the FCPA, its books and records provisions, and its anti-bribery provisions.
Other Laws
Occupational Safety and Health. In addition to its comprehensive regulation of health and safety in the workplace in
general, the Occupational Safety and Health Administration has established extensive requirements aimed specifically at
laboratories and other healthcare-related facilities. In addition, because our operations require employees to use certain
hazardous chemicals, we also must comply with regulations on hazard communication and hazardous chemicals in laboratories.
These regulations require us, among other things, to develop written programs and plans, which must address methods for
preventing and mitigating employee exposure, the use of personal protective equipment, and training.
Specimen Transportation. Our commercialization activities subject us to regulations of the Department of Transportation,
the U.S. Postal Service, and the Centers for Disease Control and Prevention that apply to the surface and air transportation of
clinical laboratory specimens.
Environmental. The cost of compliance with federal, state, and local provisions related to the protection of the environment
has had no material effect on our business. There were no material capital expenditures for environmental control facilities in
the year ended December 31, 2020, and there are no material expenditures planned for such purposes for the year ended
December 31, 2021.
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Intellectual Property
We rely on a combination of patents, patent applications, copyrights and trademarks, as well as contracts, such as
confidentiality, material data transfer, and license and invention assignment agreements to protect our intellectual property
rights. We also rely upon trade secret laws to protect unpatented know-how and continuing technological innovation.
We have intellectual property rights pertaining to sample type, sample preparation, sample preservation, biomarkers, gene
expression and sequencing technology, and related methods and formulations.
Our success depends upon our ability to protect our technologies through patent coverage. As of December 31, 2020, we
had 130 issued patents in the U.S. and 733 issued patents outside of the U.S., which includes validated patents issued by the
European Patent Office in key European Union countries, covering genes and methods that are components of the Cologuard
test, Oncotype DX breast, colon and prostate cancer tests, pipeline technologies or research methods and platform technologies.
In addition, we have a number of pending patent applications in the U.S. and in other countries, including provisional and non-
provisional filings. Our issued U.S. patents expire at various times between 2022 and 2038. Some of these U.S. patent
applications also have corresponding pending or granted applications under the Patent Cooperation Treaty in Canada, Europe,
Japan, Australia, and other jurisdictions. In these patent applications, we have either sole or joint ownership positions. In certain
cases where joint ownership positions were created, we have negotiated contractual provisions providing us with the
opportunity to acquire exclusive rights under the patent applications. Under some patent applications, we have elected to allow
exclusive options to lapse without exercising the option. The joint ownership agreements generally are in the form of material
data transfer agreements that were executed at the onset of our collaborations with third parties.
License Agreements
We license certain technologies that are, or may be, incorporated into our technology under several license agreements.
Generally, the license agreements require us to pay royalties based on certain net revenues received, and may require minimum
royalty amounts, milestone payments, and maintenance fees.
Mayo
In June 2009, we entered into a license agreement with Mayo, which was most recently amended in September
2020. Under the license agreement, Mayo granted us 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, we assumed the obligation and expense of prosecuting and maintaining the
licensed Mayo patents and are obligated to make commercially reasonable efforts to bring to market products using the licensed
Mayo intellectual property.
Pursuant to our license agreement with Mayo, we are required to pay Mayo various low single-digit royalty rates on net
sales of current and future products using the licensed Mayo intellectual property during the term of the Mayo agreement.
In addition to the royalties described above, we are also required to pay Mayo cash of $0.2 million, $0.8 million, and $2.0
million upon each product using the licensed Mayo intellectual property reaching $5.0 million, $20.0 million, and $50.0 million
in cumulative net sales, respectively.
As part of the September 2020 amendment, we agreed to pay Mayo an additional $6.3 million, payable in five annual
installments, through 2024. The Company paid Mayo the first annual installment of $1.3 million in the third quarter of 2020
and will make subsequent annual payments in the first quarter of each year beginning in January 2021.
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 we are
still using the licensed Mayo know-how or certain Mayo-provided biological specimens or their derivatives on such expiration
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date, the term shall continue until the earlier of the date we stop 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 we sue Mayo or its affiliates, other than any such suit claiming an uncured material breach
by Mayo of the license agreement.
In addition to granting us a license to the covered Mayo intellectual property, Mayo provides us with 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.
Hologic
In October 2009, we entered into a technology license agreement with Hologic, Inc. (“Hologic”). Under the license
agreement, Hologic granted us an exclusive, worldwide license within the field of human stool based colorectal cancer and pre-
cancer detection or identification with regard to certain Hologic patents, patent applications and improvements, including
Hologic’s Invader detection chemistry (the “Covered Hologic IP”). The licensed patents and patent applications contain both
method and composition-of-matter claims. The jurisdictions covered by these patents and patent applications include the U.S.,
Australia, Canada, China, the European Union, Japan, and Korea. The license agreement also provided us with non-exclusive,
worldwide licenses to the Covered Hologic IP within a field covering clinical diagnostic purposes relating to colorectal cancer
(including cancer diagnosis, treatment, monitoring, or staging) and the field of detection or identification of colorectal cancer
and pre-cancer through means other than human stool samples. In December 2012, we entered into an amendment to this
license agreement with Hologic pursuant to which Hologic granted us a non-exclusive worldwide license to the Covered
Hologic IP within the field of any disease or condition within, related to or affecting the gastrointestinal tract and/or appended
mucosal surfaces.
We are required to pay Hologic a low single-digit royalty on our net sales of products using the Covered Hologic IP.
Unless earlier terminated in accordance with the agreement, the license agreement will remain in effect until the last of the
licensed patents expires in 2029. The agreement contains customary termination provisions which, among other things, permit
termination in the event of material uncured breaches.
Human Capital
Our vision to pursue smarter solutions that provide the clarity to take life-changing action earlier drives us to find
ambitious, dynamic individuals who thrive in a team-based environment. To facilitate talent attraction and retention, we strive
to make Exact Sciences a diverse and inclusive workplace, with opportunities for our employees to grow and develop in their
careers, supported by strong compensation, benefits, and health and wellness programs.
At December 31, 2020, we had approximately 5,000 full-time, part-time and temporary employees, 4,800 of which were
full-time employees. More than 95% of our employees are located in the United States and none of our employees are
represented by a labor union. During fiscal year 2020, our voluntary turnover rate was less than 9%, below the healthcare
industry benchmark, which is comprised of certain of our key competitors (Aon, 2020 Salary Increase and Turnover Study —
Second Edition, September 2020).
Diversity and Inclusion
We believe diversity in thought, experience, perspective, and background within our team is necessary to support our core
value of innovation. We are firmly committed to providing equal opportunity in all aspects of employment and will not
discriminate in any employment decision because of a person’s race, color, sex, religion, national origin, age, disability, sexual
orientation, gender identity, genetic information, veteran status, or any other basis prohibited by applicable law.
Our Senior VP of Human Resources is part of the executive leadership team and has direct responsibility for our diversity
and inclusion program. We track and monitor workforce diversity data to ensure we are fulfilling our diversity and inclusion
aspiration – to be known as a great place to work for all. Thanks, in part, to our competitive benefits, women make up
approximately 55% of total employees (full-time and part-time), and 50% of management positions. Our board of directors
includes four female members to support diversity of opinion and perspective at the board level as well. In addition, we have
been awarded with a Great Place to Work® CertificationTM in 2020, Fortune's Best Workplaces in Health Care & BiopharmaTM
in 2020, and Fortune's Best Workplaces for MillennialsTM in 2020.
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Compensation and Benefits
Attracting the best talent starts with offering industry-leading compensation and benefits. We want our compensation and
benefits to give our employees a sense of ownership in our company, and pride and determination to achieve our mission. We
offer the following benefits, among others, to 100% of our U.S. employees, including part-time employees (subject, in certain
cases, to minimum tenure or number of hours worked thresholds): medical, dental, and vision care coverage for all employees
and their dependents; life, disability, and accident insurance and critical illness benefits; health care and dependent care flexible
spending account programs; employer contributions to health savings accounts (for specific medical plans); 401(k) with
employer matching; retirement planning resources; employee stock purchase plan; equity awards upon hire and annually
thereafter; annual cash bonus program; parental leave program.
Training and Development
We invest significant resources to develop the talent needed to achieve long-term success. We have implemented a
comprehensive employee training program, governed by the Exact Sciences’ Employee Training Policy. The program applies
to all our employees, including full-time, part-time, and temporary employees. Senior leadership, in conjunction with Human
Resources, is responsible for ensuring that all personnel, including contractors and consultants, have the appropriate education,
training, competency, and credentials.
Our organizational development team and functional training teams create opportunities for personal growth, professional
growth, and career mobility. From facilitated workshops and podcasts to eLearning modules and succession planning, we have
invested in internal capabilities to meet our employees at any stage of their career growth and development. We have also
created a variety of tools to facilitate developmental feedback. Thanks, in large part, to our training and development
investments, in 2020 we were able to fill 35% of our open positions with internal candidates.
Financial Information
See our consolidated financial statements included elsewhere in this Form 10-K and accompanying notes to the
consolidated financial statements.
Available Information
We were incorporated in the State of Delaware on February 10, 1995. Our corporate headquarters are located at 5505
Endeavor Lane, Madison, Wisconsin 53719. Our telephone number is 608-284-5700. Our Internet website address is
www.exactsciences.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8‑K,
including exhibits, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 are available free of charge through the investor relations page of our Internet website as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.
Our Internet website and the information contained therein or connected thereto are not intended to be incorporated into this
Annual Report on Form 10-K.
Item 1A. Risk Factors
We operate in a rapidly changing environment that involves a number of risks that could materially affect our business,
financial condition or future results, some of which are beyond our control. This discussion highlights some of the risks that
may affect future operating results. These are the risks and uncertainties we believe are most important for you to consider. We
cannot be certain that we will successfully address these risks. If we are unable to address these risks, our business may not
grow, our stock price may suffer, and we may be unable to stay in business. Additional risks and uncertainties not presently
known to us, which we currently deem immaterial or which are similar to those faced by other companies in our industry or
business in general, may also impair our business operations.
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Risk Factors Summary
The following is a summary of the principal risks that could adversely affect our business, operations and financial results.
Risks Related to our Business and Business Strategy
• We may never become profitable.
• We may need additional capital to execute our business plan.
•
•
•
Our success depends heavily on our Cologuard and Oncotype IQ tests.
Our operating results could be subject to significant fluctuation, which could increase the volatility of our stock price.
Other companies or institutions may develop and market novel or improved technologies, which may make our
technologies less competitive or obsolete.
If any of our facilities or our laboratory equipment were damaged or destroyed, or if we experience a significant
disruption in our operations for any reason, our ability to continue to operate our business could be materially harmed.
• We rely upon single-source suppliers and loss or interruption of supply could have a disruptive effect on our business.
Failure in our information technology, storage systems or our clinical laboratory equipment could significantly disrupt
•
our operations and our research and development efforts.
•
• We rely on courier delivery services to transport Cologuard collection kits to patients and samples for all of our tests
•
•
•
back to laboratory facilities for analysis. If these delivery services are disrupted or become prohibitively expensive,
customer satisfaction and our business could be negatively impacted.
The success of our business is substantially dependent upon the efforts of our senior management team and our ability
to attract and retain personnel.
Our business and reputation will suffer if we are unable to establish and comply with stringent quality standards to
assure that the highest level of quality is observed in the performance of our tests.
Product and professional liability suits against us could result in expensive and time-consuming litigation, payment of
substantial damages and increases in our insurance rates.
Our inability to manage growth could harm our business.
•
• We may engage in acquisitions that are not successful and which could disrupt our business, cause dilution to our
•
stockholders and reduce our financial resources.
International expansion of our business exposes us to business, regulatory, political, operational, financial, compliance
and economic risks associated with doing business outside of the U.S.
•
The COVID-19 outbreak has and may further materially and adversely affect our business and financial results.
• We currently offer COVID-19 testing, but there can be no assurance that we will continue to be able to successfully
offer, perform or generate revenues from the test.
Risks Relating to Governmental Regulation and Reimbursement
• We face uncertainty related to healthcare reform, pricing, coverage and reimbursement.
•
If third-party payers, including managed care organizations, do not approve and maintain reimbursement for our
Cologuard and Oncotype IQ tests at adequate reimbursement rates, our commercial success could be compromised.
Because of Medicare billing rules or changes in Medicare billing rules and processes, we may not receive
reimbursement for all tests provided to Medicare patients or may experience delays in receiving payments.
If we are unable to obtain or maintain adequate reimbursement for our Oncotype IQ tests outside of the U.S., our
ability to expand internationally will be compromised.
If we fail to meet any applicable requirements of CLIA or similar state laws, that failure could adversely affect any
future payer consideration of our technologies, prevent their approval entirely, and/or interrupt the commercial sale
and/or marketing of any products and services and otherwise cause us to incur significant expense.
Failure to maintain compliance with FDA requirements may prevent or delay the development, marketing or
manufacturing of our Cologuard test, or future improvements to that test.
Delays in obtaining regulatory clearances or approvals for new medical devices, or improvements to or expanded
indications for our current offerings, could prevent, delay or adversely impact future product commercialization.
If the FDA were to change its position with respect to its regulation of the laboratory developed tests we offer or plan
to offer, we could incur substantial costs and time delays and decreased demand for or reimbursement of our tests.
If we were required to conduct additional clinical trials, those trials could result in delays or failure to obtain necessary
regulatory approvals or clearances, which could harm our business.
•
•
•
•
•
•
•
• We are subject to numerous U.S. and foreign laws and governmental regulations, and any governmental enforcement
action may materially affect our financial condition and business operations.
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•
•
•
Our business is subject to various complex laws and regulations applicable to clinical diagnostics. We could be subject
to significant fines and penalties if we or our partners fail to comply with these laws and regulations.
Due to billing complexities in the diagnostic and laboratory service industry, we may not be able to collect payment
for the tests we perform.
Some of our activities may subject us to risks under federal, state and foreign laws prohibiting ‘kickbacks’ and false or
fraudulent claims as well as the Foreign Corrupt Practices Act.
Compliance with the HIPAA security, privacy and breach notification regulations may increase our costs.
•
• We expect to rely on third parties to conduct any future studies of our technologies that may be required by the FDA or
other US or foreign regulatory bodies, and those third parties may not perform satisfactorily.
• We are subject to increasingly complex taxation rules and practices.
•
Our business is subject to complex and evolving laws, as well as customer and patient expectations, regarding data
privacy, protection and security.
Risks Relating to Product Development, Commercialization and Sales of our Products
•
• We have finite resources, which may restrict our success in commercializing our products, and we may be
unsuccessful in entering into or maintaining third-party arrangements to support our internal efforts.
If we are unable to deploy and maintain effective sales, marketing and medical affairs capabilities, we will have
difficulty achieving market awareness and selling our products and services.
The success of our Cologuard test, our Oncotype IQ tests and any other screening or diagnostic product or service we
may offer or develop will depend on the degree of market acceptance by healthcare providers, patients, healthcare
payers and others in the medical community.
Recommendations, guidelines and quality metrics issued by various organizations may significantly affect payers’
willingness to cover, and healthcare providers’ willingness to prescribe, our products.
•
•
• We expect to make significant investments to research and develop new cancer tests, which may not be successful.
•
Our dependence on distributors for sales outside of the U.S. could limit or prevent us from selling our tests in foreign
markets and impact our revenue.
If we or Pfizer fail to adequately perform under our Cologuard Promotion Agreement, or if the Promotion Agreement
is terminated prior to its full term, our business, prospects, financial condition and results of operations could be
adversely affected.
Our research and development efforts will be hindered if we are not able to obtain samples, contract with third parties
for access to samples or complete timely enrollment in future clinical trials.
•
•
Risks Relating to our Intellectual Property
• We rely on strategic collaborative and licensing arrangements with third parties to develop critical intellectual
property. We may not be able to successfully establish and maintain such intellectual property.
• We may be subject to substantial costs and liability, or be prevented from using technologies incorporated in our tests,
•
as a result of litigation or other proceedings relating to patent or other intellectual property rights.
If we are unable to protect or enforce our intellectual property effectively, we may be unable to prevent third parties
from using our intellectual property, which would impair any competitive advantage we may otherwise have.
Risks Relating to our Securities
• We are required to assess our internal control over financial reporting on an annual basis and any future adverse results
from such assessment could result in a loss of investor confidence and an adverse effect on our stock price.
• We face risks associated with currency exchange rate fluctuations, which could adversely affect our operating results.
•
•
•
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
Our stock price has fluctuated widely and is likely to continue to be volatile.
Our balance sheet includes significant amounts of goodwill and intangible assets. The impairment of a significant
portion of these assets would negatively affect our results of operations.
Our management has broad discretion over the use of our available cash and marketable securities and might not spend
available cash and marketable securities in ways that increase the value of your investment.
Our indebtedness could adversely affect our business, financial condition and results of operations.
Servicing our debt will require a significant amount of cash, and we may not have sufficient cash flow from our
business to pay amounts due under our indebtedness, including the convertible notes.
•
•
•
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Risks Related to our Business and Business Strategy
We may never become profitable.
We have incurred losses since we were formed. From our date of inception on February 10, 1995 through December 31,
2020, we have accumulated a total deficit of approximately $1.97 billion. We expect to continue investing significantly toward
development and commercialization of our colorectal cancer screening technology, our Oncotype IQ tests, our blood-based
multi-cancer screening test and other products and services. If our revenue does not grow significantly, we will not be
profitable. We cannot be certain that the revenue from the sale of any products or services based on our technologies will be
sufficient to make us profitable.
We may need additional capital to execute our business plan.
Although we believe that we have sufficient capital to fund our operations for at least the next twelve months, we may
require additional capital to fully fund our current strategic plan, which includes successfully commercializing our Cologuard
and Oncotype IQ tests and developing a pipeline of future products and services. Additional financing may not be available in
amounts or on terms satisfactory to us or at all. Our success in raising additional capital may be significantly affected by general
market conditions, the market price of our common stock, our financial condition, uncertainty about the future commercial
success of our current products and services, the development and commercial success of future products or services, regulatory
developments, the status and scope of our intellectual property, any ongoing litigation, our compliance with applicable laws and
regulations and other factors. If we raise additional funds through the sale of equity, convertible debt or other equity-linked
securities, our stockholders’ ownership will be diluted, and the market price of our common stock could be depressed. We may
issue securities that have rights, preferences and privileges senior to our common stock. If we raise additional funds through
collaborations, licensing arrangements or other structured financing transactions, we may relinquish rights to our technologies
or products or services, grant security interests in our assets or grant licenses to third parties on terms that are unfavorable to us.
Our success depends heavily on our Cologuard colorectal cancer screening test and our Oncotype DX breast cancer test.
For at least the next 12 months, our ability to generate revenues will depend very substantially on the commercial success
of our Cologuard and Oncotype DX breast cancer tests. There can be no assurance that we will develop or commercialize any
other products or services that will generate significant revenue. The commercial success of our tests and our ability to generate
revenues will depend on a variety of factors, including the following:
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•
•
•
•
•
•
•
•
•
•
acceptance in the medical community;
inclusion in healthcare guidelines and recommendations, such as those developed by ACS, USPSTF, American
Society of Clinical Oncology, and NCCN and similar guidelines and recommendations outside the United States;
inclusion in quality measures including the HEDIS measures and the CMS Medicare Advantage Star Ratings;
recommendations and studies that may be published by government agencies, companies, professional
organizations, academic or medical journals or other key opinion leaders;
patient acceptance and demand;
patient compliance with orders for our tests by healthcare providers, and patient adherence to recommendations
regarding periodic re-testing;
successful sales, marketing, and educational programs, including successful direct-to-patient marketing such as
television advertising and social media;
the number of patients screened for colorectal cancer, as well as the number of patients who use our Cologuard
test for that purpose;
the number of women diagnosed with breast cancer;
sufficient coverage and reimbursement by third-party payers within and outside the U.S.
the existence of federal or state laws that mandate coverage for colorectal cancer screening, the extent to which
those laws mandate coverage of our Cologuard test and the enforcement of those laws;
the amount and nature of competition from other products and procedures;
•
• maintaining regulatory approvals to legally market;
•
• maintaining and defending patent protection for the intellectual property relevant to our products and services;
the ease of use of our ordering process for healthcare providers;
•
and
our ability to establish and maintain adequate commercial manufacturing, distribution, sales and CLIA laboratory
testing capabilities.
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If we are unable to continue to grow sales of our Cologuard and Oncotype DX breast cancer tests or if we are delayed or
limited in doing so, our business prospects, financial condition and results of operations would be adversely affected.
Our operating results could be subject to significant fluctuation, which could increase the volatility of our stock price and
cause losses to our stockholders.
Our revenues and results of operations may fluctuate significantly, depending on a variety of factors, including the
following:
•
•
•
•
•
•
•
•
the impact of the COVID-19 pandemic on our business and operations;
our success in marketing and selling, and changes in demand for, our Cologuard and Oncotype IQ tests, and the level
of reimbursement and collection obtained for such tests;
seasonal variations affecting healthcare provider recommendations for our tests and patient compliance with healthcare
provider recommendations, including without limitation holidays, weather events, and circumstances such as the
outbreak of influenza that may limit patient access to medical practices for diagnostic tests and preventive services;
our success in collecting payments from third-party payers, patients and collaborative partners, variation in the timing
of these payments and recognition of these payments as revenues;
the pricing of our tests, including potential changes in CMS or other reimbursement rates;
circumstances affecting our ability to provide our tests, including weather events, supply shortages, or regulatory or
other circumstances that adversely affect our ability to manufacture our tests or process tests in our clinical
laboratories;
fluctuations in the amount and timing of our selling and marketing costs and our ability to manage costs and expenses
and effectively implement our business; and
our research and development activities, including the timing of costly clinical trials.
Other companies or institutions may develop and market novel or improved technologies, which may make our technologies
less competitive or obsolete.
We operate in a rapidly evolving and highly competitive industry. There are a number of private and public companies that
offer products or have announced that they are developing products that compete with ours. Some of our current and potential
competitors possess greater brand recognition, financial and other resources and development capabilities than us. As more
information regarding cancer genomics becomes available to the public, we anticipate that competition will further increase.
We expect to compete with a broad range of organizations in the U.S. and other countries that are engaged in the development,
production and commercialization of cancer screening and diagnostic products and services. These competitors include:
•
•
•
•
biotechnology, diagnostic and other life science companies;
academic and scientific institutions;
governmental agencies; and
public and private research organizations.
The U.S. market for colorectal cancer and pre-cancer screening is large, consisting of nearly 110 million individuals
between the ages of 45 and 85, and has attracted numerous competitors. Our Cologuard test faces competition from procedure-
based detection technologies such as colonoscopy, flexible sigmoidoscopy, and “virtual” colonoscopy, a radiological imaging
approach that visualizes the inside of the bowel by CT scan (spiral computerized axial tomography), as well as other common
screening tests, such as the fecal occult blood test and the fecal immunochemical test, and newer screening technologies. Newer
screening technologies include liquid biopsy tests, such as Epi proColon, approved by the FDA in April 2016, and pill-based
imaging solutions like PillCam COLON, cleared by the FDA in February 2014, and C-Scan, which obtained a CE Mark in early
2019. A number of companies are developing liquid biopsy tests for colorectal cancer screening, as well as other applications.
We also are aware of at least three companies, DiaTech Pharmacogenetics, Prescient Metabiomics, and Geneoscopy, that
are seeking to develop, stool-based colorectal cancer tests in the U.S. Our competitors may also be developing additional
methods of detecting colorectal cancer and pre-cancer that have not yet been announced.
Similarly our Oncotype IQ products compete against a number of companies that offer products or have conducted
research to profile genes and gene expression in breast, colon and prostate cancer. These companies include Agendia Inc.,
BioTheranostics, GenomeDx Biosciences Inc., Guardant Health, Inc., Hologic Inc., Myriad Genetics Inc. (and its Sividon
Diagnostics subsidiary), NanoString Technologies Inc., NeoGenomics, Inc., OPKO Health, Inc. (and its Bio-Reference
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Laboratories, Inc. subsidiary), Pacific Edge Limited, Qiagen N.V. and Veracyte, Inc. Historically, our principal competition for
our Oncotype IQ tests has also come from existing diagnostic methods used by pathologists and oncologists, and such
traditional diagnostic methods can be difficult to change or supplement. Our Oncotype IQ tests also face competition from
commercial laboratories with strong distribution networks for diagnostic tests, such as Laboratory Corporation of America
Holdings and Quest Diagnostics Incorporated. Other potential competitors include companies that develop diagnostic tests such
as Roche Diagnostics, a division of Roche Holding, Ltd, and Siemens AG, as well as other companies and academic and
research institutions.
For our prostate cancer tests, we face comparatively greater competition than for our breast cancer tests, including
competition from products which were on the market prior to our product launch and which are supported by clinical studies
and published data. This existing direct and indirect competition for tests and procedures may make it difficult to gain market
share, impact our ability to obtain reimbursement or result in a substantial increase in resources necessary for us to successfully
continue to commercialize our Oncotype DX GPS prostate test and the Oncotype DX AR-V7 Nucleus Detect test.
We believe that our Oncotype IQ tests compete primarily on the basis of the value of the quantitative information they
provide, the clinical validation of the utility of our tests, the level of adoption and reimbursement coverage for our tests, the
inclusion of our tests in clinical practice guidelines, our ability to commercialize products through our clinical development
platform, our ability to expand our sales efforts into new areas of medical practice as we launch new products, our
collaborations with clinical study groups, the quality of our clinical laboratory, and the level of customer service we provide.
While we believe that our Oncotype IQ tests compete favorably with respect to these factors, to continue to do so we must
innovate and adopt advanced technology, successfully market, sell and enhance our tests, obtain peer-reviewed publications of
our clinical studies in a timely manner, continue to obtain positive reimbursement determinations, continue to expand in
countries outside of the U.S., continue to develop our technological and clinical operations, encourage healthcare provider
participation in Medicare-required information collection efforts, and successfully expand our reach into additional product
markets including through collaborations with third parties.
In addition to our on-market products, we intend to offer additional liquid biopsy tests that:
•
•
•
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screen for colorectal cancer,
screen for multiple types of cancers using a single test,
surveil for liver cancer,
provide prognostic information, guide therapy selection, or measure minimal residual disease or cancer recurrence.
We are aware of a number of companies — including Bioprognos, Bluestar Genomics, Burning Rock, Caris Life Sciences,
CellMax, Inc., Clinical Genomics, DiaCarta, EarlyDx, Epigenomics AG, Foundation Medicine, Freenome Inc., Glycotest,
GRAIL, Inc., Guardant Health, Inc., Helio Health, Immunovia AB, Inivata, Invitae, JBS Science, Natera Inc., Nucleix Ltd.,
Singlera Genomics, Sysmex Ignostics, and Tempus — that have developed, or are developing, liquid biopsy tests for the
detection of cancer, based on the detection of proteins, tumor cells, nucleic acids, epigenetic markers, or other biomarkers.
These tests could represent significant competition for our current tests, including our Cologuard and Oncotype IQ tests, as well
as other tests we may develop. Guardant Health, Inc. and Freenome Inc. are conducting prospective colorectal cancer screening
clinical trials intended to support FDA approval, and other companies may do so in the future.
Competitors may develop their own versions of our tests in countries where we did not apply for patents, where our patents
have not issued or where our intellectual property rights are not recognized and compete with us in those countries, including
encouraging the use of their test by healthcare providers or patients in other countries.
We may be unable to compete effectively against our competitors either because their products and services are superior or
because they are more effective in commercializing competing products and services. These competitors may have broader
product lines and greater name recognition than we do. Furthermore, even if we do develop new marketable products or
services, our current and future competitors may develop products and services that are more commercially attractive than ours,
and they may bring those products and services to market earlier or more effectively than us. If we are unable to compete
successfully against current or future competitors, we may be unable to increase market acceptance for and sales of our tests,
which could prevent us from increasing or sustaining our revenues or achieving sustained profitability and could cause the
market price of our common stock to decline.
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If any of our facilities or our laboratory equipment were damaged or destroyed, or if we experience a significant disruption
in our operations for any reason, our ability to continue to operate our business could be materially harmed.
We currently perform our Cologuard test in two laboratory facilities in Madison, Wisconsin. We manufacture the
Cologuard test in a single facility in Madison, Wisconsin. Our headquarters are also located in Madison, Wisconsin.
As we expand the commercialization of products and services and increase the number of tests processed by our laboratory
facilities, we believe it may be necessary to both expand our existing laboratory facilities and to add one or more new
manufacturing and laboratory facilities in order to increase our manufacturing and processing capacity to meet anticipated
demand. During 2018 we expanded the capacity at our first laboratory facility in Madison, Wisconsin to approximately three
million Cologuard tests per year. In 2019, we began performing the Cologuard test out of a second laboratory facility in
Madison, Wisconsin. We estimate our current annual capacity to perform the Cologuard test at approximately seven million
tests per year. In early 2020, we also completed construction of an additional manufacturing facility, warehouse, and office
space in Madison, Wisconsin. Finally, our financial condition will be adversely affected if demand for our products and
services does not materialize in line with our current expectations and if, as a result, we end up building excess capacity that
does not yield a reasonable return on our investment.
We perform our Oncotype DX tests out of our clinical laboratory facilities in Redwood City, California. Redwood City is
situated near active earthquake fault lines and we do not have a redundant facility where we can perform our Oncotype DX
tests. If our present, or any future facilities, were to be damaged, destroyed or otherwise unable to operate, whether due to fire,
floods, storms, tornadoes, earthquakes, other inclement weather events or natural disasters, employee malfeasance, terrorist
acts, power outages, or otherwise, it may render it difficult or impossible for us to perform our tests for some period of time and
our business could be severely disrupted. Our facilities and the equipment we use to perform our tests would be costly to
replace and could require substantial lead time to repair or replace. The inability to perform our tests or the backlog of tests that
could develop if any of our facilities become inoperable for even a short period of time may result in the loss of customers or
harm our reputation, and we may be unable to regain those customers in the future. Although we possess insurance for damage
to our property and the disruption of our business, this insurance may not be sufficient to cover all of our potential losses and
may not continue to be available to us on acceptable terms, if at all.
In order to rely on a third party to perform certain of our tests, we could only use another facility with established state
licensure and CLIA accreditation under the scope of which Oncotype DX tests could be performed following validation and
other required procedures. We cannot assure you that we would be able to find another CLIA certified facility willing to
comply with the required procedures, that this laboratory would be willing to perform the tests for us on commercially
reasonable terms, or that it would be able to meet our quality or regulatory standards. In order to establish a redundant clinical
reference laboratory outside of our Redwood City, California facilities, we would have to spend considerable time and money
securing adequate space, constructing the facility, recruiting and training employees, and establishing the additional operational
and administrative infrastructure necessary to support a second facility. We may not be able, or it may take considerable time,
to replicate our testing processes or results in a new facility. Additionally, any new clinical reference laboratory facility opened
by us would be subject to certification under CLIA and licensing by several states, including California and New York, which
could take a significant amount of time and result in delays in our ability to resume operations.
We rely upon certain single-source suppliers and loss or interruption of supply from single-source suppliers could have a
disruptive effect on our business.
We purchase certain supplies from third-party suppliers and manufacturers. In some cases, due to the unique attributes of
products that are incorporated into our tests, we maintain a single-source supplier relationship. These third parties are
independent entities subject to their own unique operational, regulatory compliance, and financial risks that are outside our
control. These third parties may not perform their obligations in a timely and cost-effective manner and they may be unwilling
to increase production capacity commensurate with demand for our tests or future products or services. Moreover, we may
become dependent on other single-source suppliers as we expand and develop our product and service pipeline. The loss of a
single-source supplier, the failure to perform by a single-source supplier, the deterioration of our relationship with a single-
source supplier or any unilateral modification to the contractual terms under which we are supplied materials by a single-source
supplier could have a disruptive effect on our business, and could adversely affect our results of operations.
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Failure in our information technology, storage systems or our clinical laboratory equipment could significantly disrupt our
operations and our research and development efforts.
Our ability to execute our business strategy depends, in part, on the continued and uninterrupted performance of our
information technology (“IT”) systems, which support our operations, including at our clinical laboratories, and our research
and development efforts. We are dependent on our IT systems to receive and process test orders, securely store patient health
records and deliver the results of our tests. The integrity and protection of our own data, and that of our customers and
employees, is critical to our business. The regulatory environment governing information, security and privacy laws is
increasingly demanding and continues to evolve. IT systems are vulnerable to damage from a variety of sources, including
telecommunications or network failures, malicious human acts from criminal hackers, hacktivists, state-sponsored intrusions,
industrial espionage and employee malfeasance, breaches due to employee error and natural disasters. Moreover, despite
network security and back-up measures, some of our servers are potentially vulnerable to physical or electronic break-ins,
computer viruses and similar disruptive problems.
High-profile security breaches at other companies and in government agencies have increased in recent years, and security
industry experts and government officials have warned about the risks of hackers and cyber-attacks targeting businesses such as
ours. Cyber-attacks are becoming more sophisticated and frequent, and in some cases have caused significant harm. Computer
hackers and others routinely attempt to breach the security of technology products, services and systems, and to fraudulently
induce employees, customers, or others to disclosure information or unwittingly provide access to systems or data.
We have experienced and expect to continue to experience attempted cyber-attacks of our IT systems or networks. To date,
none of these attempted cyber-attacks has had a material effect on our operations or financial condition. However, any such
breach or interruption could compromise our networks and the information stored therein could be accessed by unauthorized
parties, publicly disclosed, lost or stolen. Despite the precautionary measures we have taken to prevent unanticipated problems
that could affect our IT systems, unauthorized access, loss or disclosure could also disrupt our operations, including our ability
to:
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process tests, provide test results, bill payers or patients;
process claims and appeals;
provide customer assistance services;
conduct research and development activities;
collect, process and prepare company financial information;
provide information about our tests and other patient and healthcare provider education and outreach efforts through
our website; and
and manage the administrative aspects of our business and damage our reputation.
Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws
that protect the privacy of personal information, such as the Health Insurance Portability and Accountability Act of 1996,
similar U.S. state data protection regulations, including the California Consumer Privacy Act, the E.U. General Data Protection
Regulation, or GDPR, and other regulations, the breach of which could result in significant penalties.
In addition, the interpretation and application of consumer, health related and data protection laws in the U.S., Europe and
elsewhere are often uncertain, contradictory and in flux, such as in the area of international transfers of personal data. Genomic
Health self-certified with the Department of Commerce for compliance with the U.S.-E.U. Privacy Shield in August 2016, and
Exact Sciences self-certified in November 2019 and added Genomic Health, Inc. as a covered subsidiary in July 2020. The
Privacy Shield was invalidated by the E.U. Court of Justice in July 2020 in Data Protection Commissioner v. Facebook Ireland
decision ("Schrems II"), requiring Exact Sciences and all organizations exporting personal data from the E.U. to the U.S. to
implement other measures to permit that transfer. European data protection authorities' and Exact Sciences customers have not
consistently interpreted Schrems II so far, and an ultimate interpretation could significantly restrict performance of laboratory
tests in the U.S. for persons in the E.U. More generally as well, authorities could interpret or apply European data protection
law in a manner that is inconsistent with our practices. If so, this could result in prohibitions on processing of data required to
perform our tests in Europe or government-imposed fines, or both, which could adversely affect our business. In addition,
complying with these various laws, and satisfying healthcare providers' and patients' evolving expectations with respect to data
protection, could cause us to incur substantial costs or require us to change our business practices and compliance procedures in
a manner adverse to our business.
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System upgrades and enhancements require significant expenditures and allocation of valuable employee resources. We
deployed SAP SE and Epic Systems Corporation (“Epic”) software in our Madison, Wisconsin based operations in 2019. Since
implementation, there have been significant software upgrades and roll-outs that have gone live and we expect this to continue
over the next 12 months and beyond. Epic’s software handles multiple components of our information technology system, from
order entry all the way through revenue cycle and customer care. Differences in software and systems across our operations
may create complexity and compatibility problems. As we complete acquisitions, it is necessary for us to integrate the acquired
company's information technology systems into our existing systems. Delays in integration or disruptions to our business from
implementation of new or upgraded systems could have a material adverse impact on our financial condition and operating
results. There can be no assurance that our process of improving existing systems, developing new systems to support our
expanding operations, integrating new systems, protecting confidential patient information, and improving service levels will
not be delayed or that additional systems issues will not arise in the future. Failure to adequately protect and maintain the
integrity of our information systems issues and data may result in a material adverse effect on our financial position, results of
operations and cash flows.
We rely on courier delivery services to transport Cologuard collection kits to patients and samples for all of our tests back to
laboratory facilities for analysis. If these delivery services are disrupted or become prohibitively expensive, customer
satisfaction and our business could be negatively impacted.
In most cases, we ship Cologuard collection kits to patients, and patients ship samples to our Madison, Wisconsin
laboratory facilities for analysis, by air and ground express courier delivery service. Additionally, medical providers typically
ship samples for Oncotype DX testing to our laboratory facilities in Redwood City, California via air and ground express
courier delivery service. Disruptions in delivery service, whether due to bad weather, natural disaster, labor disruptions, terrorist
acts or threats, or for other reasons, can adversely affect customer satisfaction, specimen quality and our ability to provide our
services on a timely basis. If the courier delivery services that transport Cologuard collection kits or other test samples institute
significant price increases, our profitability would be negatively affected and we may need to identify alternative delivery
methods, if possible, modify our service model, or attempt to raise our pricing, which may not be possible with regard to
Medicare claims or commercially practicable with regard to commercial claims.
If we use hazardous materials in a manner that causes injury, we could be liable for damages.
Our activities currently require the use of hazardous materials and medical specimens. We cannot eliminate the risk of
accidental contamination or injury to employees or third parties from the use, storage, handling or disposal of these materials or
specimens. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could
exceed our resources or any applicable insurance coverage we may have. Additionally, we are subject to federal, state and local
laws and regulations governing the use, storage, handling and disposal of these materials and specified waste products, as well
as regulations relating to the safety and health of laboratory employees. The cost of compliance with these laws and regulations
may become significant and could negatively affect our operating results.
The success of our business is substantially dependent upon the efforts of our senior management team and our ability to
attract and retain personnel.
Our success depends largely on the skills, experience and performance of key members of our senior management team.
Our executives are critical to directing and managing our growth and development in the future. Our success is substantially
dependent upon our senior management’s ability to lead our company, implement successful corporate strategies and initiatives,
develop key relationships, including relationships with collaborators and business partners, and successfully commercialize
products and services. If we were to lose any of our senior management team, we may experience difficulties in competing
effectively, developing our technologies and implementing our business strategies.
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Competition for desirable personnel is intense, and there can be no assurance that we will be able to attract and retain the
necessary staff. Our research and development programs, commercial laboratory operations and information technology
infrastructure depend on our ability to attract and retain highly skilled personnel. We may not be able to attract or retain
qualified talent due to the competition for qualified personnel among life science and technology businesses, particularly in the
San Francisco Bay Area. We also face competition from universities and public and private research institutions in recruiting
and retaining highly qualified scientific personnel. In addition, our success depends on our ability to attract and retain
salespeople with extensive experience in primary care, oncology, gastroenterology and urology and close relationships with
healthcare providers and other hospital personnel. All of our employees in the U.S. are at will, which means that either we or
the employee may terminate their employment at any time. If we are not able to attract and retain the necessary personnel, our
business and operating results could be harmed.
Our business and reputation will suffer if we are unable to establish and comply with, stringent quality standards to assure
that the highest level of quality is observed in the performance of our tests.
Inherent risks are involved in providing and marketing cancer tests and related services. Patients and healthcare providers
rely on us to provide accurate clinical and diagnostic information that may be used to make critical healthcare decisions. As
such, users of our tests may have a greater sensitivity to errors than users of some other types of products and services.
We must maintain top service standards and FDA-mandated and other quality controls. Past or future performance or
accuracy defects, incomplete or improper process controls, excessively slow turnaround times, unanticipated uses of our tests or
mishandling of samples or test results (whether by us, patients, healthcare providers, courier delivery services or others) can
lead to adverse outcomes for patients and interruptions to our services. These events could lead to voluntary or legally
mandated safety alerts relating to our tests or our laboratory facilities and could result in the removal of our products and
services from the market or the suspension of our laboratories' operations. Insufficient quality controls and any resulting
negative outcomes could result in significant costs and litigation, as well as negative publicity that could reduce demand for our
tests and payers’ willingness to cover our tests. Even if we maintain adequate controls and procedures, damaging and costly
errors may occur.
Product and professional liability suits against us could result in expensive and time-consuming litigation, payment of
substantial damages and increases in our insurance rates.
The sale and use of our tests could lead to product or professional liability claims. We may also be subject to liability for
errors in the test results we provide to healthcare providers or for a misunderstanding of, or inappropriate reliance upon, the
information we provide. Claims could also arise out of clinical studies we may conduct or any of our other activities. A product
or professional liability claim could result in substantial damages, be costly and time consuming to defend, and cause material
harm to our business, reputation or financial condition. We cannot assure you that our liability insurance would protect our
assets from the financial impact of defending a product or professional liability claim. Any claim brought against us, with or
without merit, could increase our liability insurance rates or prevent us from securing insurance coverage in the future.
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Our inability to manage growth could harm our business.
In connection with the commercialization of our tests, we have added, and expect to continue to add personnel in the areas
of sales and marketing, laboratory operations, billing and collections, quality assurance and compliance. Our number of full-
time employees has increased from 1,977, as of December 31, 2018, to 4,110, as of December 31, 2019 and to 4,833, as of
December 31, 2020. Further, as we build our commercialization efforts and expand research and development activities for new
products and services, the scope and complexity of our operations is increasing significantly. As a result of our growth, our
operating expenses and capital requirements have also increased, and we expect that they will continue to increase significantly.
Our ability to manage our growth effectively requires us to expend funds to improve our operational, financial and management
controls, reporting systems and procedures. As we move forward in commercializing our tests, we will also need to effectively
manage our growing manufacturing, laboratory operations and sales and marketing needs. We are continuing to expand our
current facilities and add new facilities to support anticipated demand for our tests and anticipated growth in our personnel. We
face various risks in managing these expansion efforts, including financing, construction delays, budget management, quality
control, design efficiency, and transition execution. If we are unable to manage our anticipated growth effectively, our business
could be harmed.
We may engage in acquisitions that are not successful and which could disrupt our business, cause dilution to our
stockholders and reduce our financial resources.
We undertake acquisition activities from time to time. In November 2019 we completed the acquisition of Genomic Health,
Inc., in March 2020 we completed the acquisitions of Paradigm Diagnostics, Inc. and Viomics, Inc., in October 2020 we
completed the acquisitions of Base Genomics Limited and in January 2021 we completed the acquisition of Thrive Earlier
Detection Corporation. Certain risks may exist as a result of these and other acquisition activities, including, among others, that:
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we may encounter potential unknown liabilities and unforeseen increased expenses, delays or unfavorable conditions
in connection with the integration of the acquired businesses into our business;
we may be unable to successfully integrate the acquired businesses into our business;
we may lose key employees;
we may encounter potential unknown liabilities and unforeseen risks associated with contracts containing consent and/
or other provisions that may be triggered by the acquisitions;
we may be unable to realize the anticipated benefits of the acquisitions or do so within the anticipated timeframe;
our future results will suffer if we do not effectively manage our expanded operations; and
the market price of our common stock may decline as a result of the acquisitions.
In the future, we may enter into transactions to acquire other businesses, products, services or technologies. Because we
have only made a limited number of acquisitions to date, our ability to do so successfully is unproven. If we do identify suitable
candidates, we may not be able to make such acquisitions on favorable terms or at all. Any acquisitions we make may not
strengthen our competitive position, and these transactions may be viewed negatively by investors, healthcare providers,
patients and others. In addition to the risks outlined above, we may decide to incur debt in connection with an acquisition or
issue our common stock or other securities to the stockholders of the acquired company, which would reduce the percentage
ownership of our existing stockholders. We cannot predict the number, timing or size of future acquisitions or the effect that
any such transactions might have on our operating results.
International expansion of our business exposes us to business, regulatory, political, operational, financial, liability,
compliance and economic risks associated with doing business outside of the U.S.
Our business strategy incorporates international expansion, which includes growing our direct sales and healthcare provider
outreach and education capabilities outside of the U.S. and developing our relationships with payers and distributors in foreign
markets. Doing business internationally involves a number of risks, including:
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difficulties in complying with multiple, conflicting and changing laws and regulations such as tax laws, export and
import restrictions, employment laws, data protection laws, regulatory requirements and other governmental approvals,
permits and licenses;
significant competition from local and regional product offerings;
difficulties in complying with unclear product regulations in various jurisdictions, including the changing regulation in
Europe with regard to medical device and in vitro diagnostic ("IVD") regulations;
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restrictions or prohibitions of transmitting personal data, including patient data, from foreign jurisdictions to our
centralized laboratories in the U.S.;
difficulties in staffing and managing foreign operations;
complexities associated with managing multiple payer reimbursement regimes, public payers or patient self-pay
systems;
logistics and regulations associated with shipping tissue samples or complying with local regulations concerning the
analysis of tissue, including infrastructure conditions and transportation delays;
limits in our ability to access or penetrate international markets if we are not able to process tests locally;
lack of intellectual property protection in certain markets;
financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and
regional financial crises on demand and payment for our tests and exposure to foreign currency exchange rate
fluctuations;
natural disasters, political and economic instability, including wars, terrorism, and political unrest, outbreak of disease,
boycotts, curtailment of trade and other business restrictions;
regulatory and compliance risks that relate to maintaining accurate information and control over the activities of our
salesforce and distributors that may fall within the purview of the U.S. FCPA, its books and records provisions or its
anti-bribery provisions, or similar anti-bribery or anti-corruption laws or regulations, such as the U.K. Anti-bribery Act
and the U.K. Criminal Finances Act;
complexity of compliance with local standard contractual requirements to access public customers and payers.
Any of these factors could significantly harm our future international expansion and operations and, consequently, our
financial condition and results of operations.
The COVID-19 outbreak has and may further materially and adversely affect our business and financial results.
The COVID-19 outbreak, which the World Health Organization has classified as a pandemic, together with related
precautionary measures, began to materially disrupt our business in March 2020 and may continue to disrupt our business for an
unknown period of time. The territories in which we market, sell, distribute and perform our tests are attempting to address the
COVID-19 pandemic in varying ways, including stay-at-home orders, temporarily closing businesses, restricting gatherings,
restricting travel, and mandating social distancing and face coverings. Certain jurisdictions have begun re-opening only to
return to restrictions due to increases in new COVID-19 cases. Even in areas where “stay-at-home” restrictions have been lifted
and the number of cases of COVID-19 has declined, many individuals remain cautious about resuming activities such as
preventive-care medical visits. Medical practices continue to be cautious about allowing individuals, such as sales
representatives, into their offices. Many individuals continue to work from home rather from an office setting. The level and
nature of the disruption caused by COVID-19 is unpredictable, may be cyclical and long-lasting and may vary from location to
location. As a result, COVID-19 has significantly impacted, and may continue to significantly impact, our operating results
including our revenues, margins, and cash utilization, among other measures.
Beginning in March 2020, we undertook temporary precautionary measures intended to help minimize the risk of the virus
to our employees, including requiring most employees to work remotely; suspending field-based, face-to-face interactions by
our sales force; requiring on-site employees to undergo COVID-19 testing, wear personal protective equipment (including face
masks or shields) and maintain social distancing; pausing all non-essential travel worldwide for our employees; and limiting
employee attendance at industry events and in-person work-related meetings, to the extent those events and meetings are
continuing. Our commercial partner for our Cologuard test, Pfizer, took similar precautions, including suspending face-to-face
interactions between sales representatives and healthcare providers.
We expect to adjust our precautionary measures at our various locations based on local recovery levels and applicable
governmental regulations. For example, a portion of the Company’s and Pfizer’s sales force has recommenced field-based
interactions, although access to healthcare providers remains limited and the resumption of normal activities is expected to be
gradual. Our business could be negatively affected if we take excessive, ineffective or inadequate precautions.
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The COVID-19 pandemic has materially impacted our business, and may continue to impact our business for an unknown
period of time. Such impacts may include the following:
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Both our and Pfizer’s sales teams have been, and for an extended period of time may continue to be, limited in their in-
person interactions with healthcare providers, and therefore, also limited in their ability to engage in various types of
healthcare provider education activities as contemplated by our and Pfizer’s Cologuard promotion agreement; while
we amended and restated our promotion agreement with Pfizer to, among other things, address changes to the
operational landscape resulting from the COVID-19 pandemic, our expectations regarding the duration, severity and
effects of the pandemic may prove inaccurate, and we may not realize the expected benefits from this agreement;
Healthcare providers or patients have canceled or delayed scheduling, and for an extended period of time may continue
to cancel or delay scheduling, standard wellness visits and other non-emergency appointments and procedures
(including mammograms and prostate cancer screenings), contributing to a decline in orders for our products or
services;
Restrictions on travel, commerce and shipping may prevent patients and pathologists from shipping samples to our
clinical laboratories;
Illnesses, quarantines, financial hardships, restrictions on travel, commerce and shipping, or other consequences of the
pandemic, may disrupt our supply chain or other business relationships, and we or other parties may assert rights under
force majeure clauses to excuse performance;
• We have experienced, and for an extended period of time may continue to experience, reduced volumes at our clinical
laboratories and we may need to suspend operations at some or all of our clinical laboratories;
• We have taken, and may take additional, cost cutting measures, which may hinder our efforts to commercialize our
products or delay the development of future products and services but we might not realize all of the cost savings we
expect to achieve as a result of those efforts;
• We and our partners have postponed or cancelled clinical studies, which may delay or prevent our launch of future
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products and services;
Our workforce, much of which has been asked to work remotely in an effort to reduce the spread of COVID-19, may
be infected by the virus or otherwise distracted;
A combination of factors, including infection from the virus, supply shortfalls, and inability to obtain or maintain
equipment, could adversely affect our lab capacity and our ability to meet the demand for our testing services. In
March of 2020 we began offering a COVID-19 test and by devoting lab capacity and supplies to that test, we may
experience capacity limitations and supply shortfalls that adversely affect our ability to provide our Cologuard test and
other tests that may generate more revenue and higher profits; and
• We may inaccurately estimate the duration or severity of the COVID-19 pandemic, which could cause us to misalign
our staffing, spending, activities and precautionary measures with market current or future market conditions.
Despite our efforts, the ultimate impact of COVID-19 depends on factors beyond our knowledge or control, including the
duration and severity of the outbreak, third-party actions taken to contain its spread and mitigate its public health effects and
short- and long-term changes in the behaviors of medical professionals and patients resulting from the pandemic.
We currently offer COVID-19 testing, but there can be no assurance that we will continue to be able to successfully offer,
perform or generate revenues from the test.
In late March 2020, we began providing COVID-19 testing. While we have entered into a limited number of contracts to
provide COVID-19 testing and expect to pursue additional contracts, there can be no assurance that our efforts to offer and
perform COVID-19 testing will be successful. The success of our test, our ability to continue to generate revenues from
COVID-19 testing, and our ability to generate profits from COVID-19 testing will depend on a variety of factors, including:
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the level of demand for COVID-19 testing, the price we are able to charge for performing the test, and the length of
time for which that demand persists;
the availability of COVID-19 testing, from other laboratories;
acceptance of our COVID-19 testing in the medical community;
the emergence of other forms of COVID-19 testing (including antigen and antibody screening tests) and other sample
collection methods, which healthcare providers and patients may prefer to our test;
our ability to maintain regulatory approvals to perform and market COVID-19 testing and to respond to any changes in
regulatory requirements;
the potential for supply disruptions and our reliance on certain single-source suppliers;
the potential for disruption in the delivery of patient samples to our laboratories;
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the capacity of our laboratories to satisfy both COVID-19 testing and other testing demands;
the extent to which we choose to allocate limited laboratory capacity, supplies and other resources to areas of our
business other than COVID-19 testing;
the complexity of billing for, and collecting payment for, our test;
healthcare provider and patient compliance with instructions for performing the nasal swab and providing samples to
our laboratories;
our ability to maintain laboratory operations during the COVID-19 pandemic and to perform the test accurately and
punctually; and
the ease of use of our ordering and reporting process.
Additionally, we have previously only offered cancer screening and diagnostic tests. The addition of COVID-19 testing
may divert resources and distract management’s attention from other projects that may be more profitable or strategic. If we are
unable to successfully provide COVID-19 testing while continuing to operate our existing Screening and Precision Oncology
business, our results of operations, financial position and reputation may suffer.
Risks Relating to Governmental Regulation and Reimbursement
We face uncertainty related to healthcare reform, pricing, coverage and reimbursement.
Healthcare reform laws, including the Patient Protection, the ACA, and the Protecting Access to Medicare Act of 2014
(“PAMA”), are significantly affecting the U.S. healthcare and medical services industry. Existing legislation, and possible
future legal and regulatory changes, including potential repeal or modification of the ACA, elimination of penalties regarding
the individual mandate for coverage, or approval of health plans that allow lower levels of coverage for preventive services,
could materially change the structure and finances of the health insurance system and the methodology for reimbursing medical
services, drugs and devices, including our current and future products and services. The ACA has also been the subject of
various legal challenges and in December 2018, a federal district court in Texas found that the ACA’s “individual mandate”
was unconstitutional such that the whole of the ACA is invalid. The decision was appealed and, in December 2019, the Fifth
Circuit Court of Appeals affirmed certain portions of the district court’s decision, but remanded to the district court to
determine if any portions of the ACA may still be valid. In March 2020, the United States Supreme Court granted certiorari in
the consolidated cases which address the Fifth Circuit decision. The Supreme Court has heard oral arguments, but has not ruled
in the case. If the plaintiffs in this case, or in any other case challenging the ACA, are ultimately successful, insurance coverage
for our Cologuard test could be materially and adversely affected. Any change in reimbursement policy could result in a change
in patient cost-sharing, which could adversely affect a provider’s willingness to prescribe and patient’s willingness and ability
to use our Cologuard test and any other product or service we may develop. Healthcare reforms, which may intend to reduce
healthcare costs, may have the effect of discouraging third-party payers from covering certain kinds of medical products and
services, particularly newly developed technologies, such as our Cologuard test or other products or tests we may develop in the
future. We cannot predict whether future healthcare reform initiatives will be implemented at the federal or state level or the
effect any such future legislation or regulation will have on us. The taxes imposed by new legislation, cost reduction measures
and the expansion in the government’s role in the U.S. healthcare industry may result in decreased profits to us, which may
adversely affect our business, financial condition and results of operations.
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PAMA presents significant uncertainty for future CMS reimbursement rates for our tests. Because Medicare currently
covers a significant number of our patients, any reduction in the CMS reimbursement rate for our tests would negatively affect
our revenues and our business prospects. Under PAMA, CMS reimbursement rates for clinical diagnostic laboratory tests are
updated every three years, or annually for clinical laboratory tests that are considered "advanced diagnostic laboratory tests".
The CMS reimbursement rates for clinical diagnostic laboratory tests are updated based on the volume-weighted median of
private payer rates for each clinical diagnostic laboratory test based on data submitted by certain applicable laboratories. Based
on current regulations, we expect that the current CMS reimbursement rate for our Cologuard and Oncotype IQ tests will
remain unchanged until December 2022 and then will be reset for calendar years 2023-2025 based on the volume-weighted
median of private payer rates for Cologuard and Oncotype IQ tests during the data collection period from January 1, 2019 to
June 30, 2019. The Coronavirus Aid, Relief, and Economic Security ("CARES") Act further delayed the next reporting period
by another year to the period from January 1, 2022 to March 31, 2022. Laboratories that fail to report or erroneously report
required payment information may be subject to substantial civil money penalties. There can be no assurance under PAMA that
adequate CMS reimbursement rates will continue to be assigned to our tests. Congress could modify or repeal PAMA in the
future or CMS could modify regulations under PAMA, and any such action could have the effect of reducing the CMS
reimbursement rate for our tests. Further, it is possible that Medicare or other federal payers that provide reimbursement for our
tests may suspend, revoke or discontinue coverage at any time, may require co-payments from patients, or may reduce the
reimbursement rates payable to us. Any such action could have a negative impact on our revenues.
Coverage of our Cologuard test and other screening products that we may develop may also depend, in whole or in part, on
whether payers determine, or courts and/or regulatory authorities determine, coverage is required under applicable federal or
state laws mandating coverage of certain cancer screening services. For example, Section 2713 of the ACA mandates that
certain health insurers cover evidence-based items or services that have in effect a rating of “A” or “B” in the current
recommendations of USPSTF without imposing any patient cost-sharing (“ACA Mandate”). Similarly, federal regulations
require that Medicare Advantage plans cover “A” or “B” rated preventive services without patient cost-sharing. Following the
June 2016 update to the USPSTF colorectal cancer screening recommendation statement, CMS issued an updated Evidence of
Coverage notice for Medicare Advantage plans that affirms such plans must include coverage of our Cologuard test every three
years for average risk individuals between the ages of 50 and 75 without patient cost-sharing. While we believe the ACA
Mandate requires most health insurers to cover our Cologuard test for most patients between the ages of 50 and 75 without
patient cost-sharing, some health insurers have disagreed and determined not to cover our Cologuard test and others may take
that position in the future. It may be difficult for us or patients to enforce the ACA Mandate directly, and we may need to rely
on states to take enforcement action, which they may choose not to do. It is also possible that the ACA Mandate will be
repealed or overturned or significantly modified in the future.
Several states have laws mandating coverage for preventive services, such as colorectal cancer screening services,
applicable to certain health insurers. However, not all of these laws apply to our Cologuard test and not all of these laws
presently mandate coverage for patients within the 45-49 age range. We and payers may disagree about how these mandates
apply to our Cologuard test and we may find the mandates difficult to enforce. Further, if the ACA is repealed, replaced or
overturned, or even if it is not, states may decide to modify their laws, which may include repeal of those coverage mandates
that we believe currently apply to our Cologuard test.
Outside of the U.S., we largely depend on public or government-controlled or regulated payers for coverage of our
Oncotype IQ tests. As compared to many more routine diagnostic tests, our Oncotype IQ tests are more complicated, expensive
and are performed in a central, specialized lab. In order to accommodate the unique characteristics of our Oncotype IQ tests,
public payers in certain non-U.S. markets have designed reimbursement frameworks specifically for our tests. These payers
could decide to modify or discontinue these special frameworks, potentially leading to lower reimbursement prices or the
impossibility of providing the test in the market. Existing reimbursement processes or changes to those processes could impose
additional administrative burdens on us, such as complex public tendering procedures, or on ordering physicians, which could
adversely affect the number of payers covering the test or the number of orders placed. Public payers could condition
reimbursement of our tests upon performance of our tests locally or, even in laboratories owned or operated by the payers. Any
such change would adversely affect our ability to continue to serve those patients through our centralized labs in the U.S.
34
If payers, including managed care organizations, do not approve and maintain reimbursement for our Cologuard and
Oncotype IQ tests at adequate reimbursement rates, our commercial success could be compromised.
Our commercial success depends, in large part, on the availability of adequate reimbursement from government insurance
plans, managed care organizations and private insurance plans. Although we received a positive coverage decision and what we
believe is an adequate reimbursement rate from CMS for our Cologuard test, it is also critical that other third-party payers
approve and maintain reimbursement for our Cologuard test at adequate reimbursement rates. Healthcare providers may be
reluctant to prescribe, and patients may be reluctant to complete, our tests if they are not confident that patients will be
reimbursed for our tests.
Third-party payers are increasingly attempting to contain healthcare costs by limiting both coverage and the level of
reimbursement for new healthcare products. As a result, there is uncertainty surrounding the future level of reimbursement, if
any, for our current tests and any new tests we may develop. Reimbursement by a third-party payer may depend on a number of
factors, including a payer’s determination that tests using our technologies are: sufficiently sensitive and specific; not
experimental or investigational; approved or recommended by the major guidelines organizations; subject to applicable federal
or state coverage mandates; reliable, safe and effective; medically necessary; appropriate for the specific patient; and cost-
effective.
Our Oncotype DX Breast Recurrence Score test has received certain negative assessments in the past relating to technology
criteria for clinical effectiveness and appropriateness for use in patients with N+ disease, and our tests may receive similar
negative assessments in the future. Since each payer makes its own decision as to whether to establish a policy to reimburse our
tests, seeking these approvals is a time-consuming and costly process. To date, we have positive coverage determinations for
our Oncotype DX breast cancer test for N-, ER+ patients from most third party payers in the United States through contracts,
agreements or policy decisions. We cannot be certain that coverage for this test will be provided in the future by additional third
party payers or that existing contracts, agreements or policy decisions or reimbursement levels, including tests processed as out
of network, will remain in place or be fulfilled within existing terms and provisions.
We have obtained limited reimbursement from private third-party payers in the U.S. for our Oncotype DX colon cancer test
and for our Oncotype DX breast cancer test for N+ and DCIS patients. Until further clinical data is presented, our N+ and DCIS
indication for our breast cancer test and our colon cancer test may be considered investigational by payers and therefore may
not be covered under their reimbursement policies.
We have obtained Medicare reimbursement coverage for our Oncotype DX GPS prostate cancer test for low and very-low
risk patients, unfavorable and favorable intermediate risk patients, and high risk patients. However, we may not be able to
obtain other third-party payer reimbursement for our tests for patients with colon or prostate cancer or with N+ breast cancer or
DCIS that is similar to the coverage we have obtained for our invasive breast cancer test for N-, ER+ patients.
Under the terms of the coverage determinations for our Oncotype DX GPS prostate cancer test, coverage for the test for
patients with certain risk profiles is limited to tests ordered by healthcare providers who agree to participate in a Certification
and Training Registry, or CTR, and to provide certain information about Medicare beneficiaries who receive our test. If
healthcare providers do not timely submit necessary information as part of participating in the CTR, the timeframe in which we
are reimbursed and recognize revenue for those tests may be accordingly delayed.
From time to time payers change processes that may affect timely payment. These changes may result in uneven cash flow
or impact the timing of revenue recognized with these payers. Additionally, on a five-year rotational basis, Medicare requests
bids for its regional Medicare Administrative Contractor, or MAC, services. In September 2013, the claims processing function
for the jurisdiction in which we process Oncotype IQ tests transitioned from Palmetto to Noridian Healthcare Solutions,
although coverage determinations for those tests remain with Palmetto at this time through the MolDx Program. Future changes
in the MAC with jurisdiction over our tests may affect our ability to obtain Medicare coverage and reimbursement for tests for
which we have or may seek coverage.
Successful commercialization of our newly developed products and products in development will also depend on our
ability to obtain adequate coverage from government insurance plans, managed care organizations and private insurance plans
for such products.
35
Moreover, coverage determinations and reimbursement rates are subject to change, and we cannot guarantee that even if
we initially achieve adequate coverage and reimbursement rates for our Cologuard and Oncotype IQ tests, they will continue to
apply in the future. As noted above, under PAMA, our Medicare reimbursement rates will be subject to adjustment based on
our volume-weighted median commercial reimbursement rate. Any reduction in our Medicare reimbursement rates could
significantly and adversely affect our business prospects, financial condition and results of operations.
Even where a third-party payer agrees to cover one of our tests, other factors may have a significant impact on the actual
reimbursement we receive from that payer. For example, if we do not have a contract with a given payer, we may be deemed
an “out-of-network” provider by that payer, which could result in the payer allocating a portion of the cost of the test to the
patient, notwithstanding any applicable coverage mandate. We may be unsuccessful in our efforts to enter into, or maintain, a
network contract with a given payer, and we expect that our network status with a given payer may change from time to time
for a variety of reasons, many of which may be outside our control. To the extent one of our tests is out of network for a given
payer, healthcare providers may be less likely to prescribe that test for their patients and their patients may be less likely to
comply with those prescriptions that are written. Also, some payers may require that they give prior authorization for a test
before they are willing to pay for it or review claims post-service to ensure the service was medically appropriate for specific
patients. Prior authorization and other medical management practices may require that we, patients or healthcare providers
provide the payer with extensive medical records and other information. Prior authorization and other medical management
practices impose a significant additional cost on us, may be difficult to comply with given our position as a laboratory that
generally does not have direct access to patient medical records, may make healthcare providers less likely to prescribe our tests
for their patients, and may make patients less likely to comply with healthcare provider orders for our tests, all or any of which
may have an adverse effect on our revenues.
Because of Medicare billing rules or changes in Medicare billing rules and processes, we may not receive reimbursement for
all tests provided to Medicare patients or may experience delays in receiving payments.
Under Medicare billing rules, payment for our Oncotype IQ tests performed on Medicare beneficiaries who were hospital
patients at the time the tumor tissue samples were obtained and whose tests were ordered less than 14 days from discharge must
be bundled into the payment that the hospital receives for the services provided. Effective January 1, 2018, CMS changed its
rules to permit laboratories that perform molecular pathology tests on specimens collected during a hospital outpatient stay to
bill Medicare directly for such tests if they were performed following a hospital outpatient's discharge from the hospital
outpatient department. The rule remains unchanged with respect to payment for our Oncotype IQ tests performed on Medicare
beneficiaries who were hospital inpatients at the time the tumor tissue was collected and whose tests were ordered less than 14
days from discharge – payment for those tests must be bundled into the payment that the hospital receives for its services
provided. In these circumstances, hospitals are required to furnish services such as our tests as “services furnished under
arrangements between a provider and an outside vendor” and only the hospital may bill Medicare for such tests. Under these
circumstances, where the date of service for Medicare billing purposes is the date the specimen was collected and such date is
within 14 days of inpatient discharge, we are required to bill hospitals for such tests. We refer to this rule, as it has been in
effect and most recently amended as of January 1, 2018, as the Medicare Date of Service billing regulation.
These billing rules may lead to confusion regarding whether Medicare provides adequate reimbursement for our tests, and
could discourage providers from ordering our tests for Medicare patients or even non-Medicare patients. In addition, changes in
Medicare billing rules and processes could result in delays in receiving payments or receiving payments that are less than the
original invoice. When hospitals disclaim responsibility for, or delay payment of, our bills for tests affected by the Medicare
Date of Service rule, and when our collection efforts are unsuccessful, we may be forced to accept payments from hospitals that
are less than the original invoice or we may be unable to collect from hospitals at all. Our inability to successfully collect
payment from a hospital financially responsible for a test affected by the Medicare Date of Service rule may lead us to reject
orders from that hospital that implicate the Medicare Date of Service billing regulation until any outstanding bills are paid.
Compared to our breast cancer tests, a greater proportion of eligible patients for our colon and prostate Oncotype IQ tests are
covered by Medicare. We cannot assure you that Medicare will continue the Medicare Date of Service billing regulation in its
current form, that Medicare will not seek to include molecular pathology tests in hospital outpatient bundling rules in the future,
or that other payers will not adopt similar billing rules. As described in Note 15 of the Notes to Consolidated Financial
Statements included in Item 8 of this Annual Report on Form 10-K, the United States DOJ is investigating Genomic Health’s
compliance with the Medicare Date of Service billing regulation. An adverse outcome could include our being required to pay
treble damages, incur civil and criminal penalties, paying attorneys’ fees, entering into a corporate integrity agreement, being
excluded from participation in government healthcare programs, including Medicare and Medicaid, and other adverse actions
that could materially and adversely affect our business, financial condition and results of operations.
36
If we are unable to obtain or maintain adequate reimbursement for our Oncotype DX tests outside of the U.S., our ability to
expand internationally will be compromised.
The majority of our international Oncotype DX breast, prostate and colon cancer test revenues come from payer
reimbursement, payments from our distributors, and patient self-pay. In many countries outside of the U.S., various coverage,
pricing and reimbursement approvals are required for our tests to be available to patients in significant volume. We expect that
it will take several years to establish broad coverage and reimbursement for our tests with payers in countries outside of the
U.S., and our efforts may not be successful.
Even if public or private reimbursement is obtained, it may cover competing tests, or the reimbursement may be limited to
a subset of the eligible patient population or conditioned upon local performance of the tests or other requirements we may have
difficulty satisfying.
Reimbursement levels outside of the U.S. may vary considerably from the domestic reimbursement amounts we receive. In
addition, because we generally rely on distributors to obtain reimbursement for our tests in certain countries outside of the U.S.,
to the extent we do not have direct reimbursement arrangements with payers, we may not be able to retain reimbursement
coverage in those countries if our agreement with a distributor is terminated or expires, if a distributor fails to pay us or if other
events prevent payment. We may also be negatively affected by the financial instability of, and austerity measures implemented
by, several countries in the European Union and elsewhere.
If we fail to meet any applicable requirements of CLIA or similar state laws, that failure could adversely affect any future
payer consideration of our technologies, prevent their approval entirely, and/or interrupt the commercial sale and/or
marketing of any products and services and otherwise cause us to incur significant expense.
We and certain laboratories with whom we collaborate are subject to federal and state laws and regulations regarding the
operation of clinical laboratories. Federal CLIA requirements and laws of certain states, including New York, impose
certification requirements for clinical laboratories, establish standards for quality assurance and quality control, among other
things. Some state laws restrict laboratory marketing activities, which may adversely affect our ability to market our laboratory
services. Clinical laboratories are subject to inspection by regulators, and to sanctions for failing to comply with applicable
requirements. Sanctions available under CLIA include prohibiting a laboratory from running tests, requiring a laboratory to
implement a corrective plan, and imposing civil monetary penalties. If we or our third party partners fail to meet any applicable
requirements of CLIA or state law, that failure could adversely affect any payer consideration of our current or future
technologies, prevent their approval entirely, and/or interrupt the commercial sale and/or marketing of any products and
services and otherwise cause us to incur significant expense.
Failure to maintain compliance with FDA requirements may prevent or delay the development, marketing or manufacturing
of our Cologuard test, or future improvements to that test.
As a condition of the FDA approval of our Cologuard test, we were required to conduct a post-approval study. The post-
approval study concluded in 2020 and final results were submitted to FDA in late 2020. There is a risk that the FDA may
modify or withdraw the approval of our Cologuard test if the results of this post-approval study are not satisfactory. We
anticipate feedback from FDA in 2021 on the acceptance of these data to close the post-approval order.
Additionally, our Madison, Wisconsin manufacturing and laboratory facilities are periodically subject to inspection by the
FDA and other governmental agencies to ensure they meet production and quality requirements. Operations at these facilities
could be interrupted or halted if the FDA or other governmental agency deems the findings of such inspections unsatisfactory.
Further, failure to comply with FDA or other regulatory requirements regarding the development, marketing, promotion,
manufacturing and distribution of our tests could result in fines, unanticipated compliance expenditures, recall or seizures of our
products, total or partial suspension of production or distribution, restrictions on labeling and promotion, termination of
ongoing research, disqualification of data for submission to regulatory authorities, enforcement actions, injunctions and
criminal prosecution.
37
If we do not meet applicable regulatory or quality standards, our products may be subject to recall, and, under certain
circumstances, we may be required to notify applicable regulatory authorities about a recall. In 2017, we recalled one of the
components of our Cologuard test kit and circumstances may arise that cause us to recall other products or components used in
connection with our Cologuard test. Any such recalls could have an adverse effect on our ability to provide the Cologuard test,
which in turn would adversely affect our financial condition.
Delays in obtaining regulatory clearances or approvals for new medical devices, or improvements to or expanded indications
for our current offerings, could prevent, delay or adversely impact future product commercialization.
We may develop new tests that are regulated by the FDA as medical devices. Unless otherwise exempted, medical devices
must receive either FDA regulatory approval or clearance before being marketed in the U.S. The FDA determines whether a
medical device will require either regulatory approval or clearance based on statutory criteria that include the risk associated
with the device and whether the device is similar to an existing, legally marketed product. The process to obtain either
regulatory approval or clearance will likely be costly, time-consuming and uncertain. However, we believe the regulatory
approval process is generally more challenging than the clearance process. Even if we design a product that we expect to be
eligible for the regulatory clearance process, the FDA may require that the product undergo the regulatory approval
process. There can be no assurance that the FDA will ever permit us to market any new product that we develop. Even if
regulatory approval or clearance is granted, such approval may include significant limitations on indicated uses, which could
materially and adversely affect the prospects of any new medical device.
FDA regulatory approval or clearance is not just required for new medical devices we develop, but would also be required
for certain enhancements we may seek to make to our Cologuard test.
Delays in receipt of, or failure to obtain, clearances or approvals could materially delay or prevent us from commercializing
our products or result in substantial additional costs that could decrease our profitability. In addition, even if we receive FDA
clearance or approval for a new or enhanced product, the FDA may condition, withdraw or materially modify its clearance or
approval.
If the FDA were to change its position with respect to its regulation of the laboratory developed tests we offer or may seek to
offer in the future, we could incur substantial costs and time delays associated with meeting requirements for pre-market
clearance or approval or we could experience decreased demand for or reimbursement of our tests.
The FDA has regulatory responsibility over, among other areas, instruments, test kits, reagents and other medical devices
used by clinical laboratories to perform diagnostic testing. Clinical laboratories certified under the Clinical Laboratory
Improvement Amendments of 1988, or CLIA, frequently develop internal LDTs to provide diagnostic results to customers.
LDTs are subject to CMS oversight through its enforcement of CLIA. The FDA has also claimed regulatory authority over all
LDTs, but indicates that it has exercised enforcement discretion with regard to most LDTs offered by CLIA-certified
laboratories, and has not subjected these tests to the panoply of FDA rules and regulations governing medical devices. IVDs
like our Cologuard test are regulated as medical devices by the FDA. We believe that our Oncotype IQ tests are not diagnostic
kits and also believe that they are LDTs that are subject to regulation under CLIA and applicable state laws. As a result, we
believe our Oncotype IQ products fall within the scope of FDA's exercise of enforcement discretion and should not be subject
to FDA oversight or review under current FDA guidelines. Packaging requirements for receipt of tumor tissue for our Oncotype
IQ products may be subject to regulation under Department of Transportation, International Air Transport Association, and
other state, regional, or local laws.
At various times since 2006, the FDA has issued documents outlining its intent to require varying levels of FDA oversight
of many LDTs, including our tests. For example, in October 2014, the FDA published two draft guidance documents describing
a proposed risk-based framework under which the FDA might regulate LDTs. The FDA’s draft framework proposed, among
other things, premarket review for higher-risk LDTs, such as those that have the same intended use as FDA-approved or cleared
diagnostics currently on the market. In November 2015, the FDA issued a report citing evidence for the need for additional
regulation of LDTs and stated the FDA is continuing to work to finalize premarket review requirements for LDTs. However, in
November 2016 the FDA announced it would not issue a final guidance for LDTs. In January 2017, the FDA issued a
Discussion Paper on LDTs, which confirmed it would not finalize its guidance on the regulation of LDTs to allow more time
for public discussion and time for the congressional authorizing committees to develop a legislative solution. In August, 2020,
the U.S. Department of Health and Human Services (“HHS”) published a policy stating that FDA must engage in notice-and-
comment rulemaking before requiring premarket review of LDTs. It is unclear whether the Biden administration and a new
Secretary of HHS will retain this policy or whether FDA will proceed with rulemaking to regulate LDTs in the future.
38
In addition, legislative proposals addressing oversight of LDTs have been introduced in previous Congresses, and we
expect that new legislative proposals will be introduced from time to time in the future. Notably, the Verifying Accurate
Leading-edge IVCT Development Act which was introduced into both houses of Congress in March 2020, would provide FDA
with Authority to regulate LDTs. However, it remains unknown whether Congress will enact this or any other legislation
regulating LDTs and, if so, what regulatory approach Congress and FDA will adopt. Accordingly, we cannot provide any
assurance that FDA regulation, including pre-market review, will not be required in the future for our Oncotype IQ tests or new
tests we develop, whether through finalization of guidance issued by the FDA, new enforcement policies adopted by the FDA
or new legislation enacted by Congress. It is possible that legislation will be enacted into law or guidance could be issued by the
FDA which may result in increased regulatory burdens for us to continue to offer our Oncotype IQ tests or to develop and
introduce new LDTs.
If pre-market review is required for our current LDTs, our business could be negatively impacted in the U.S. until such
review is completed and clearance or approval is obtained, and the FDA could require that we stop selling our tests pending
pre-market clearance or approval.
If our Oncotype IQ tests are allowed to remain on the market but there is uncertainty about the regulatory status of such
tests, if they are labeled investigational by the FDA, or if labeling claims the FDA allows us to make are more limited than the
claims we currently make, orders or reimbursement may decline. The regulatory approval process may involve, among other
things, successfully completing additional clinical trials and submitting a pre-market clearance notice or filing a pre-market
approval application with the FDA. If pre-market review is required by the FDA, there can be no assurance that our LDTs will
be cleared or approved on a timely basis, if at all, nor can there be assurance that the labeling claims cleared or approved by the
FDA will be consistent with our current claims or adequate to support continued adoption of and reimbursement for our LDTs.
Ongoing compliance with FDA regulations with respect to our current LDTs would increase the cost of conducting our
business, and subject us to inspection by and the regulatory requirements of the FDA, for example registration and listing and
medical device reporting, and penalties in the event we fail to comply with these requirements. We may also decide voluntarily
to pursue FDA pre-market review of our LDTs if we determine that doing so would be appropriate.
We cannot predict the ultimate timing or form of final FDA guidance, legislation or regulation of LDTs and the potential
impact on our existing tests, our tests in development or the materials used to perform our tests. While we qualify all materials
used in our LDTs according to CLIA regulations, we cannot be certain that the FDA will not enact rules or guidance documents
that could impact our ability to purchase certain materials necessary for the performance of our LDTs, such as products labeled
for research use only. Should any of the reagents obtained by us from suppliers and used in conducting our LDTs be affected by
future regulatory actions, our business could be adversely affected by those actions, including increasing the cost of testing or
delaying and limiting or prohibiting the purchase of reagents necessary to perform testing.
If we were required to conduct additional clinical trials prior to continuing to sell our current LDTs or launching any other
LDTs we may develop, those trials could result in delays or failure to obtain necessary regulatory approvals or clearances,
which could harm our business.
If the FDA decides to regulate any of our LDTs, it may require additional pre-market clinical testing before clearing or
approving such tests for commercial sales. Such pre-market clinical testing could delay the commencement or completion of
other clinical testing, significantly increase our test development costs, delay commercialization of any future LTDs, and
interrupt sales of our current LTDs. Many of the factors that may cause or lead to a delay in the commencement or completion
of clinical trials may also ultimately lead to delay or denial of regulatory clearance or approval. The commencement of clinical
trials may be delayed due to insufficient patient enrollment, which is a function of many factors, including the size of the patient
population, the nature of the protocol, the proximity of patients to clinical sites and the eligibility criteria for the clinical trial.
39
We may find it necessary to engage contract research organizations to perform data collection and analysis and other
aspects of our clinical trials, which might increase the cost and complexity of those trials. We may also depend on clinical
investigators, medical institutions and contract research organizations to perform certain aspects of the trials. If these parties do
not successfully carry out their contractual duties or obligations or meet expected deadlines, or if the quality, completeness or
accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or for other
reasons, our clinical trials may have to be extended, delayed or terminated. Many of these factors would be beyond our control.
We may not be able to enter into replacement arrangements without undue delays or considerable expenditures. If there are
delays in testing or approvals as a result of the failure to perform by third parties, our research and development costs would
increase, and we may not be able to obtain regulatory clearance or approval for our LDTs. In addition, we may not be able to
establish or maintain relationships with these parties on favorable terms, if at all. Each of these outcomes would harm our
ability to market our LDTs, or to achieve sustained profitability.
Changes in funding or disruptions at FDA and other government agencies caused by funding shortages or global
health concerns could hinder their ability to hire and retain key leadership and other personnel, or otherwise prevent new or
modified products from being developed, approved or commercialized in a timely manner or at all, or otherwise prevent
those agencies from performing normal business functions on which the operation of our business may rely, which could
negatively impact our business.
The ability of the FDA to review and clear or approve new products or changes to existing products can be affected by a
variety of factors, including government budget and funding levels, statutory, regulatory, and policy changes, the FDA’s ability
to hire and retain key personnel and accept the payment of user fees, federal government shutdowns, and other events that may
otherwise affect the FDA’s ability to perform routine functions. Average review times at the agency have fluctuated in recent
years as a result. In addition, government funding of other government agencies that fund research and development activities is
subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies may also
slow the time necessary for new medical devices or modifications to cleared or approved medical devices to be reviewed and/or
approved by necessary government agencies, which would adversely affect our business. For example, over the last several
years, including for 35 days beginning on December 22, 2018, the U.S. government has shut down several times and certain
regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.
Separately, in response to the COVID-19 pandemic, on March 10, 2020, the FDA announced its intention to postpone
most inspections of foreign manufacturing facilities, and on March 18, 2020, the FDA temporarily postponed routine
surveillance inspections of domestic manufacturing facilities. Subsequently, on July 10, 2020, the FDA announced its intention
to resume certain on-site inspections of domestic manufacturing facilities subject to a risk-based prioritization system. FDA
intends to use this risk-based assessment system to identify the categories of regulatory activity that can occur within a given
geographic area, ranging from mission critical inspections to resumption of all regulatory activities. Regulatory authorities
outside the United States may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a
prolonged government shutdown occurs, or if global health concerns continue to prevent or delay the FDA or other regulatory
authorities from conducting, at all or in a timely manner, their regular inspections, reviews, or other regulatory activities
(including pre-submission engagements), it could significantly impact the ability of the FDA or other regulatory authorities to
timely review and process our regulatory submissions, which could have a material adverse effect on our business.
40
We are subject to numerous U.S. and foreign laws and governmental regulations, and any governmental enforcement action
may materially affect our financial condition and business operations.
We are subject to regulation in the United States by both the federal government and the states in which we conduct our
business, as well as in other jurisdictions outside of the United States, including:
• Medicare billing and payment regulations applicable to clinical laboratories;
•
•
•
the Federal Anti-Kickback Statute and state anti-kickback prohibitions and EKRA;
the Federal Physician Self-Referral Law, commonly known as the Stark Law, and the state equivalents;
the Federal Health Insurance Portability and Accountability Act of 1996, as amended (“HIPAA”) and the California
Consumer Privacy Act of 2018;
the Medicare civil money penalty and exclusion requirements;
the Federal False Claims Act civil and criminal penalties and state equivalents; and
the Foreign Corrupt Practices Act, the United Kingdom Anti-Bribery Act, the GDPR and other national or provincial
laws protecting personal information, the E.U. Medical Device and In Vitro Diagnostic Device Regulations, and
national laws restricting industry interaction with healthcare professionals, all of which may or will apply to our
international activities.
•
•
•
The U.S. Attorney’s Offices have increased their scrutiny over the healthcare industry in recent years. The U.S. Congress,
DOJ, Office of Inspector General of the Department of Health and Human Services, and Department of Defense have all issued
subpoenas and other requests for information to conduct investigations of, and commenced civil and criminal litigation against,
healthcare companies, related to financial arrangements with healthcare providers, regulatory compliance, product promotional
practices, and documentation, coding and billing practices. In addition, the Federal False Claims Act and state equivalents have
led to whistleblowers filing numerous qui tam civil lawsuits against healthcare companies, in part, because a whistleblower can
receive a portion of any amount obtained by the government through such a lawsuit.
Governmental enforcement action or qui tam civil litigation against us may result in material costs and occupy significant
management resources, even if we ultimately prevail. In addition, governmental enforcement action may result in substantial
fines, penalties or administrative remedies, including exclusion from government reimbursement programs and entry into
corporate integrity agreements with governmental agencies, which could entail significant obligations and costs. As described
further in Note 15 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K,
we are currently responding to civil investigative demands initiated by the U.S. DOJ concerning (1) Genomic Health’s
compliance with the Medicare Date of Service billing regulations and (2) allegations that we offered or gave gift cards to
patients in exchange for returning the Cologuard screening test, in violation of the Federal Anti-Kickback Statute and False
Claims Act. Adverse outcomes from these investigations could include our being required to pay treble damages, incur civil
and criminal penalties, paying attorney’s fees, entering into a corporate integrity agreement, being excluded from participation
in government healthcare programs, including Medicare and Medicaid, and other adverse actions that could materially and
adversely affect our business, financial condition and results of operations.
We have adopted policies and procedures designed to comply with these laws. In the ordinary course of our business, we
conduct internal reviews of our compliance with these laws. Our compliance is also subject to governmental review. The
growth of our business and sales organization and our expansion outside of the United States may increase the potential of
violating these laws or our internal policies and procedures. The risk of our being found in violation of these or other laws and
regulations is further increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the
courts, and their provisions are open to a variety of interpretations. Any action brought against us for violation of these or other
laws or regulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our
management’s attention from the operation of our business. If our operations are found to be in violation of any of these laws
and regulations, we may be subject to any applicable penalty associated with the violation, including civil and criminal
penalties, damages and fines, we could be required to refund payments received by us, and we could lose the ability to bill for
our tests and we could be required to curtail or cease our operations. Any of the foregoing consequences could seriously harm
our business and our financial results.
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Our business is subject to various complex laws and regulations applicable to clinical diagnostics. We could be subject to
significant fines and penalties if we or our partners fail to comply with these laws and regulations.
As a provider of clinical diagnostic products and services, we and our partners are subject to extensive and frequently
changing federal, state, local and foreign laws and regulations governing various aspects of our business. In particular, the
clinical laboratory and healthcare industry is subject to significant governmental certification and licensing regulations, as well
as federal, state and foreign laws regarding:
•
test ordering and billing practices;
• marketing, sales and pricing practices;
•
•
•
•
health information privacy and security, including HIPAA and comparable state and foreign laws;
insurance, including foreign public reimbursement;
anti-markup legislation; and
consumer protection.
We are also required to comply with FDA regulations, including with respect to our labeling and promotion activities. In
addition, advertising of our tests is subject to regulation by the Federal Trade Commission, or FTC, and advertising of
laboratory services is regulated by certain state laws. Violation of any FDA requirement could result in enforcement actions,
such as seizures, injunctions, civil penalties and criminal prosecutions, and violation of any FTC or state law requirement could
result in injunctions and other associated remedies, all of which could have a material adverse effect on our business. Most
states also have similar regulatory and enforcement authority for devices. Additionally, most foreign countries have authorities
comparable to the FDA and processes for obtaining marketing approvals. In particular, the entry into application of the E.U.'s In
Vitro Diagnostic Device Regulation will impose new requirements and create new compliance risks. Obtaining and maintaining
these approvals, and complying with all laws and regulations, may subject us to similar risks and delays as those we could
experience under FDA, FTC and state regulation. We incur various costs in complying and overseeing compliance with these
laws and regulations. The growth of our business and sales organization, the acquisition of additional businesses or products
and services and our expansion outside of the U.S. may increase the potential of violating these laws, regulations or our internal
policies and procedures.
Healthcare policy has been a subject of extensive discussion in the executive and legislative branches of the federal and
many state governments and healthcare laws and regulations are subject to change. Development of the existing
commercialization strategy for our tests and planned development of products in our pipeline has been based on existing
healthcare policies. We cannot predict what additional changes, if any, will be proposed or adopted or the effect that such
proposals or adoption may have on our business, financial condition and results of operations.
If we or our partners, including Pfizer, fail to comply with these laws and regulations, we could incur significant fines and
penalties and our reputation and prospects could suffer. Additionally, any such partners could be forced to cease offering our
products and services in certain jurisdictions, which could materially disrupt our business. As described further in Note 15 of
the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, the U.S. DOJ is
investigating Genomic Health's compliance with the Medicare Date of Service billing regulation. An adverse outcome could
include our being required to pay treble damages, incur civil and criminal penalties, paying attorneys’ fees, entering into a
corporate integrity agreement, being excluded from participation in government healthcare programs, including Medicare and
Medicaid, and other adverse actions that could materially and adversely affect our business, financial condition and results of
operations.
Due to billing complexities in the diagnostic and laboratory service industry, we may not be able to collect payment for the
tests we perform.
Billing for diagnostic and laboratory services is a complex process. Laboratories bill many different payers including
patients, private insurance companies, Medicare, Medicaid, and employer groups, all of which have different billing
requirements. We are continuing to work with third-party payers to cover and reimburse our tests. If we are unsuccessful, we
may not receive payment for the tests we perform for patients on a timely basis, if at all, and we may not be able to provide
services for patients with certain healthcare plans. We may have to litigate to enforce coverage obligations under Medicare laws
and laws that mandate coverage for certain screening or diagnostic tests or to enforce contractual coverage obligations. Such
litigation may be costly, may divert management attention from other responsibilities, may cause payers, including those not
directly involved in the litigation, to resist contracting with us, and may ultimately prove unsuccessful for a variety of
reasons. We may face lawsuits by government or commercial payers if they believe they have overpaid us for our test services
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or as a result of other circumstances. We may face write-offs of doubtful accounts, disputes with payers and patients, and long
collection cycles. We may face patient dissatisfaction, complaints or lawsuits, including to the extent our tests are not fully
covered by insurers and patients become responsible for all or part of the price of the test. As a result, patient demand for our
tests could be adversely affected. To the extent patients express dissatisfaction with our billing practices to their healthcare
providers, those healthcare providers may be less likely to prescribe our tests for other patients, and our business would be
adversely affected.
Even if payers do agree to cover our tests, our billing and collections process may be complicated by the following and
other factors, which may be beyond our control:
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disputes among payers as to which payer is responsible for payment;
disparity in coverage among various payers or among various healthcare plans offered by a single payer;
payer medical management requirements, including prior authorization requirements;
differing information and billing requirements among payers; and
failure by patients or healthcare providers to provide complete and correct billing information.
Sometimes, when we have a contract with a commercial payer to cover our tests, we are not permitted to bill patients
insured by that payer for amounts beyond deductibles, co-payments and co-insurance as prescribed in the coverage agreement
between the payer and the patients. Therefore, when such contracted payers do not pay us our full, contracted rate for a test, for
example, for failure to satisfy prior-authorization or other payer medical management requirements, we may not be permitted to
collect the balance from the patient and our business is adversely impacted.
The uncertainty of receiving payment for our tests and complex laboratory billing processes could negatively affect our
business and our operating results.
Some of our activities may subject us to risks under federal and state laws prohibiting ‘kickbacks’ and false or fraudulent
claims.
In addition to FDA marketing and promotion restrictions, several other types of state and federal healthcare fraud and
abuse laws have been applied in recent years to restrict certain marketing practices in the healthcare product and service
industry and to regulate billing practices and financial relationships with healthcare providers, hospitals and other healthcare
providers. These laws include a federal law commonly known as the Medicare/Medicaid anti-kickback law, and several similar
state laws, which prohibit payments intended to induce healthcare providers or others either to refer patients or to acquire or
arrange for or recommend the acquisition of healthcare products or services. While the federal law applies only to referrals,
products or services for which payment may be made by a federal healthcare program, state laws often apply regardless of
whether federal funds may be involved. These laws constrain the sales, marketing and other promotional activities of
manufacturers of medical devices and providers of laboratory services by limiting the kinds of financial arrangements,
including sales programs, that may be used with hospitals, healthcare providers, laboratories and other potential purchasers or
prescribers of medical devices and laboratory services. Other federal and state laws generally prohibit individuals or entities
from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other third-party
payers that are false or fraudulent, or are for items or services that were not provided as claimed.
In 2018, Congress passed EKRA as part of the Substance Use-Disorder Prevention that Promotes Opioid Recovery and
Treatment for Patients and Communities Act. Similar to the Medicare/Medicaid anti-kickback law, EKRA imposes criminal
penalties for knowing or willful payment or offer, or solicitation or receipt, of any remuneration, whether directly or indirectly,
overtly or covertly, in cash or in kind, in exchange for the referral or inducement of laboratory testing (among other healthcare
services) unless a specific exception applies. However, unlike the Medicare/Medicaid anti-kickback law, EKRA is not limited
to services covered by federal or state healthcare programs but applies more broadly to services covered by “healthcare benefit
programs,” including commercial insurers. As currently drafted, EKRA potentially expands the universe of arrangements that
could be subject to government enforcement under federal fraud and abuse laws. In addition, while the Medicare/Medicaid anti-
kickback law includes certain exceptions that are widely relied upon in the healthcare industry, not all of those same exceptions
apply under EKRA. Because EKRA is a relatively new law, there is no agency guidance or court precedent to indicate how and
to what extent it will be applied and enforced. We cannot assure you that our relationships with healthcare providers, sales
representatives, hospitals, customers, or any other party will not be subject to scrutiny or will survive regulatory challenge
under EKRA.
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Additionally, to avoid liability under federal false claims laws, we must carefully and accurately code claims for
reimbursement, proactively monitor the accuracy and appropriateness of Medicare claims and payments received, diligently
investigate any credible information indicating that we may have received an overpayment, and promptly return any
overpayments. Medicare payments are subject to audit, including through the Comprehensive Error Rate Testing ("CERT")
program, and payments may be recouped by CMS if it is determined that they were improperly made. Currently, a significant
percentage of our revenues are generated by payments from Medicare. The federal anti-kickback statute and certain false claims
laws prescribe civil and criminal penalties (including fines) for noncompliance that can be substantial. While we continually
strive to comply with these complex requirements, interpretations of the applicability of these laws to marketing and billing
practices are constantly evolving and even an unsuccessful challenge could cause adverse publicity and be costly to respond to,
and thus could harm our business and prospects. Our failure to comply with applicable laws could result in various adverse
consequences that could have a material adverse effect upon our business, including the exclusion of our products and services
from government programs and the imposition of civil or criminal sanctions.
Some of our activities may subject us to risks under foreign laws prohibiting ‘kickbacks’ as well as the Foreign Corrupt
Practices Act.
Many countries in which we offer our tests have regulations prohibiting providers, as well as medical and in vitro
diagnostic device manufacturers, from offering or providing a benefit to a healthcare professional in order to induce business. In
situations involving healthcare providers employed by public or state-funded institutions or national healthcare services,
violation of local anti-corruption or anti-gift laws may also constitute a violation of the U.S. FCPA.
The FCPA prohibits any U.S. individual, business entity or employee of a U.S. business entity from offering or providing,
directly or through a third party, including the distributors we rely on in certain markets, anything of value to a foreign
government official with corrupt intent to influence an award or continuation of business or to gain an unfair advantage,
whether or not such conduct violates local laws. In addition, it is illegal for a company that reports to the SEC to have false or
inaccurate books or records or to fail to maintain a system of internal accounting controls. We are also required to maintain
accurate information and control over sales and distributors’ activities that may fall within the purview of the FCPA, its books
and records provisions and its anti-bribery provisions.
The standard of intent and knowledge in the anti-bribery cases is minimal, and intent and knowledge are usually inferred
from that fact that bribery took place. The accounting provisions do not require intent. Violations of the FCPA’s anti-bribery
provisions for corporations and other business entities may result in a fine of up to $2 million and officers, directors,
stockholders, employees, and agents are subject to a fine of up to $100,000 and imprisonment for up to five years. Other
countries, including the U.K. and other OECD Anti-Bribery Convention members, have similar extraterritorial anti-corruption
laws.
Compliance with the HIPAA security, privacy and breach notification regulations may increase our costs.
The HIPAA privacy, security and breach notification regulations, including the expanded requirements under HITECH,
establish comprehensive federal standards with respect to the uses and disclosures of protected health information (“PHI”) by
health plans, healthcare providers and healthcare clearinghouses, in addition to setting standards to protect the confidentiality,
integrity and security of PHI. The regulations establish a complex regulatory framework on a variety of subjects, including:
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the circumstances under which uses and disclosures of PHI are permitted or required without a specific authorization
by the patient, including but not limited to treatment purposes, activities to obtain payments for our services, and our
healthcare operations activities;
a patient’s rights to access, amend and receive an accounting of certain disclosures of PHI;
requirements to notify individuals if there is a breach of their PHI;
the contents of notices of privacy practices for PHI;
administrative, technical and physical safeguards required of entities that use or receive PHI; and
the protection of computing systems maintaining electronic PHI.
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We have implemented practices intended to meet the requirements of the HIPAA privacy, security and breach notification
regulations, as required by law. We are required to comply with federal privacy, security and breach notification regulations as
well as varying state privacy, security and breach notification laws and regulations, which may be more stringent than federal
HIPAA requirements. In addition, for healthcare data transfers from other countries relating to citizens of those countries, we
must comply with the laws of those countries. The federal privacy regulations restrict our ability to use or disclose patient
identifiable data, without patient authorization, for purposes other than payment, treatment, healthcare operations and certain
other specified disclosures such as public health and governmental oversight of the healthcare industry.
HIPAA provides for significant fines and other penalties for wrongful use or disclosure of PHI, including potential civil
and criminal fines and penalties. Computer networks are always vulnerable to breach and unauthorized persons may in the
future be able to exploit weaknesses in the security systems of our computer networks and gain access to PHI. Additionally, we
share PHI with third-parties who are legally obligated to safeguard and maintain the confidentiality of PHI. Unauthorized
persons may be able to gain access to PHI stored in such third-parties computer networks. Any wrongful use or disclosure of
PHI by us or such third-parties, including disclosure due to data theft or unauthorized access to our or our third-parties
computer networks, could subject us to fines or penalties that could adversely affect our business and results of operations.
Although the HIPAA statute and regulations do not expressly provide for a private right of damages, we could also incur
damages under state laws to private parties for the wrongful use or disclosure of confidential health information or other private
personal information.
Our employees, independent contractors, consultants, commercial partners, and vendors may engage in misconduct or
other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of fraud, misconduct, or other illegal activity by our employees, independent contractors,
consultants, commercial partners, and vendors. Misconduct by these parties could include intentional, reckless and negligent
conduct that fails to: comply with the rules and regulations of the CMS, FDA, and other comparable foreign regulatory
authorities; provide true, complete and accurate information to such regulatory authorities; comply with manufacturing and
clinical laboratory standards; comply with healthcare fraud and abuse laws in the United States and similar foreign fraudulent
misconduct laws; or report financial information or data accurately or to disclose unauthorized activities to us. In particular,
research, sales, marketing, education, and other business arrangements in the healthcare industry are subject to extensive laws
designed to prevent fraud, kickbacks, self-dealing, and other abusive practices, as well as off-label product promotion. These
laws and regulations may restrict or prohibit a wide range of pricing, discounting, educating, marketing and promotion, sales
and commission, certain customer incentive programs, and other business arrangements generally. Activities subject to these
laws also involve the improper use of information obtained in the course of participant recruitment for clinical studies, which
could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of business conduct and
ethics, but it is not always possible to identify and deter misconduct by employees and third parties, and the precautions we take
to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us
from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws. If
any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions
could have a significant impact on our business, including the imposition of significant fines or other sanctions. Even if it is
later determined after an action is instituted against us that we were not in violation of these laws, we may be faced with
negative publicity, incur significant expenses defending our actions, and have to divert significant management resources from
other matters.
We expect to rely on third parties to conduct any future studies of our technologies that may be required by the FDA or
other US or foreign regulatory bodies, and those third parties may not perform satisfactorily.
We expect to rely on third parties such as contract research organizations, medical institutions and clinical investigators to
conduct studies, including the post-approval studies required by the FDA for our Cologuard test. Our reliance on these third
parties for clinical development activities will reduce our control over these activities. These third parties may not complete
activities on schedule or conduct studies in accordance with regulatory requirements or our study design. Our reliance on third
parties that we do not control will not relieve us of our requirement to prepare, and ensure our compliance with, various
procedures required under good clinical practices, even though third-party contract research organizations may prepare and
comply with their own, comparable procedures. If these third parties do not successfully carry out their contractual duties or
regulatory obligations or meet expected deadlines, if the third parties need to be replaced or if the quality or accuracy of the data
they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons,
our studies may be extended, delayed, suspended or terminated, and we may not be able to obtain a required regulatory
approval.
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We are subject to increasingly complex taxation rules and practices, which may affect how we conduct our business and our
results of operations.
As our business grows, we are required to comply with increasingly complex taxation rules and practices. We are subject to
tax in multiple U.S. tax jurisdictions and in foreign tax jurisdictions as we continue to expand internationally. The development
of our tax strategies requires additional expertise and may impact how we conduct our business. Our future effective tax rates
could be unfavorably affected by changes in, or interpretations of, tax rules and regulations in the jurisdictions in which we do
business or by changes in the valuation of our deferred tax assets and liabilities. Furthermore, we provide for certain tax
liabilities that involve significant judgment. We are subject to the examination of our tax returns by federal, state and foreign
tax authorities, which could focus on our intercompany transfer pricing methodology as well as other matters. If our tax
strategies are ineffective or we are not in compliance with domestic and international tax laws, our financial position, operating
results and cash flows could be adversely affected.
Our business is subject to complex and evolving laws, as well as customer and patient expectations, regarding data privacy,
protection and security.
The interpretation and application of consumer, health related and data protection laws in the U.S., Europe and elsewhere
are often uncertain, contradictory and in flux. In order to mitigate concerns about overseas data transfers and to comply with
provisions of the GDPR and its predecessor regulations, we self-certified with the Department of Commerce for compliance
with the U.S.-E.U. Privacy Shield. However, the Court of Justice of the European Union invalidated the U.S.-E.U. Privacy
Shield program in its July 2020 Schrems II decision. Although we are taking other measures to ensure compliance with the
GDPR, the changing legal landscape could cause us to incur substantial costs or change our operations and compliance
procedures, all of which may adversely affect our business.
If we fail to comply with the GDPR and other applicable data privacy, protection and security laws, or if we fail to satisfy
customer or patient concerns regarding data handling, we could be subject to government injunctions or other enforcement
actions including a prohibition on processing patient data at our centralized laboratories in the U.S., as well as private litigation,
civil, administrative, or criminal penalties, reduced orders and adverse publicity.
Risks Relating to Product Development, Commercialization and Sales of our Products
We have finite resources, which may restrict our success in commercializing our products, and we may be unsuccessful in
entering into or maintaining third-party arrangements to support our internal efforts.
To grow our business as planned, we must expand our sales, marketing and customer support capabilities, which will
involve developing and administering our commercial infrastructure and/or collaborative commercial arrangements and
partnerships. We must also maintain satisfactory arrangements for the manufacture and distribution of our tests. Also, we
operate CLIA certified lab facilities to process our tests and provide patient results.
Prior to our combination with Genomic Health in November 2019, we only had one commercial test. We have limited
experience managing a sales force, customer support operation and operating manufacturing and clinical laboratory operations
for multiple products in multiple locations with divergent regulatory requirements. We may encounter difficulties retaining and
managing the specialized workforce these activities require. We may seek to partner with others to assist us with any or all of
these functions. However, we may be unable to find appropriate third parties with whom to enter into these arrangements.
Our sales efforts have grown in size and complexity. We now maintain sales forces with primary care, oncology, GI,
urology and women's health call points. We must coordinate among our internal sales teams, as well as with Pfizer's, to ensure
that we are effectively and compliantly marketing our tests.
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If we are unable to deploy and maintain effective sales, marketing and medical affairs capabilities, we will have difficulty
achieving market awareness and selling our products and services.
To achieve commercial success for our Cologuard and Oncotype IQ tests and our future products and services, we must
continue to develop and grow our sales, marketing and medical affairs organizations to effectively explain to healthcare
providers the reliability, effectiveness and benefits of our current and future products and services as compared to alternatives.
We may not be able to successfully manage our dispersed or inside sales forces or our sales force may not be effective. Because
of the competition for their services, we may be unable to hire, partner with or retain additional qualified sales representatives
or marketing or medical affairs personnel, either as our employees or independent contractors or through independent sales or
other third-party organizations. Market competition for commercial, marketing and medical affairs talent is significant, and we
may not be able to hire or retain such talent on commercially reasonable terms, if at all.
Establishing and maintaining sales, marketing and medical affairs capabilities will be expensive and time-consuming. Our
expenses associated with maintaining our sales force may be disproportional compared to the revenues we may be able to
generate on sales of the Cologuard and Oncotype IQ tests or any future products or services.
The success of our Cologuard test, our Oncotype IQ tests and any other screening or diagnostic product or service we may
offer or develop will depend on the degree of market acceptance by healthcare providers, patients, healthcare payers and
others in the medical community.
Our products and services may not gain market acceptance by healthcare providers, healthcare payers and others in the
medical community. The degree of market acceptance of our Cologuard test, our Oncotype IQ tests, and other products and
services that we may offer will depend on a number of factors, including:
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demonstrated performance and utility;
price;
the availability and attractiveness of alternative tests;
the willingness of healthcare providers to prescribe our products and services;
the ease of use of our ordering process for healthcare providers; and
adequate third-party coverage or reimbursement.
Our assumptions regarding the market opportunity for our products or services may not prove true. For example, we
estimate the potential market opportunity for our Cologuard test assuming, among other things, the size of the screening
population, the adoption rate in the screening population and a three-year screening interval. Although ACS guidelines and
others recommend a three-year screening interval for our Cologuard test and CMS has determined that Medicare will cover the
test at this interval, the label for our Cologuard test does not specify a three-year interval and healthcare providers, healthcare
payers, the FDA and other regulators and opinion leaders could recommend a different interval. Further, patients may not
adhere to any recommended testing interval.
Recommendations, guidelines and quality metrics issued by various organizations may significantly affect payers’
willingness to cover, and healthcare providers’ willingness to prescribe, our products.
Securing influential recommendations, inclusion in healthcare guidelines and inclusion in quality measures are keys to our
healthcare provider and payer engagement strategies. These guidelines, recommendations and quality metrics may shape
payers’ coverage decisions and healthcare providers’ cancer screening procedures.
The USPSTF, a panel of primary care providers and epidemiologists and other national experts funded by the U.S.
Department of Health and Human Services’ Agency for Healthcare Research and Quality, makes influential recommendations
on clinical preventative services. In June 2016, USPSTF issued an updated recommendation statement for colorectal cancer
screening, and gave an "A" grade to colorectal cancer screening starting at age 50 and continuing until age 75. The statement
specifies seven screening methods, including FIT-DNA (which is our Cologuard test). USPSTF updates its screening
recommendations periodically, approximately every five to eight years. In October 2020, the USPSTF issued a draft
recommendation statement for colorectal cancer screening. Under the updated draft recommendation statement, our Cologuard
test was given a "B" grade for ages 45 to 49. Following the draft recommendation statement that was released in October 2020,
a final recommendation statement is expected to be announced in 2021. However, we cannot be certain when USPSTF will next
update its colorectal cancer screening recommendations, whether updated recommendations will continue to give an “A” grade
to colorectal cancer screening between the ages of 50 and 75, whether updated recommendations will lower the screening
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commencement age to 45, whether updated recommendations will continue to include FIT-DNA, whether updated
recommendations may take a different format, including by ranking or tiering different methodologies and positioning FIT-
DNA below other methodologies, or whether updated recommendations will include new technologies that are competitive with
our Cologuard test and that may have greater appeal to healthcare providers, patients and payers. Any update to the USPSTF
recommendations that may have the effect of reducing screening, that does not include FIT-DNA in a favorable manner, or that
adds new technologies could have a material adverse effect on our business. Further, while FDA expanded our Cologuard test’s
indication in September 2019 to include average-risk individuals ages 45-49 and while ACS recommends colorectal cancer
screening for that population, if updated USPSTF recommendations do not recommend that screening commence at age 45,
adoption of screening generally, and our Cologuard test specifically, within the 45-49 age band may be limited.
Maintaining a high USPSTF recommendation for our Cologuard test may have certain potentially significant implications.
For example, the ACA mandates that certain non-grandfathered health insurers cover evidence-based items or services that have
in effect a rating of “A” or “B” in the current recommendations of USPSTF without imposing any patient cost-sharing.
Similarly, federal regulations require that Medicare Advantage plans cover “A” or “B” graded preventive services without
patient cost-sharing. Following the updated 2016 USPSTF recommendation statement, the Centers for Medicare & Medicaid
Services (“CMS”) issued an updated Evidence of Coverage notice for Medicare Advantage plans that affirms such plans must
include coverage of our Cologuard test every three years without patient cost-sharing. While we believe the ACA Mandate
requires certain health insurers to cover our Cologuard test for individuals between the ages of 50 and 75 without patient cost-
sharing some health insurers have disagreed. Enforcement of the ACA Mandate is difficult and depends on state, federal or
other third-party enforcement actions that we do not control. Further, a court or regulatory agency may agree with arguments
that have been made, or that may in the future be made, by insurers and determine that the ACA Mandate does not require that
they cover our Cologuard test or may otherwise interpret the ACA Mandate in a manner unfavorable to us. Also, Congress may
modify or repeal all or part of the ACA, and any such modification or repeal may repeal or limit the ACA Mandate for
preventive services. Additionally, the ACA has also been the subject of various legal challenges and, if the plaintiffs are
successful in any such challenges, insurance coverage for our Cologuard test could be materially and adversely affected. If the
ACA Mandate for preventive services is repealed, overturned or modified, if the ACA Mandate is determined not to require
coverage of our Cologuard test, if the ACA Mandate is otherwise interpreted in a manner unfavorable to us, or if we are unable
to influence or secure effective enforcement of the ACA Mandate, even if it is held to require coverage of our Cologuard test,
our business prospects may be adversely affected.
While we believe the ACA Mandate requires certain health insurers to cover our Cologuard test for individuals between the
ages of 50 and 75, the ACA Mandate does not currently extend to screening within the 45-49 age group because USPSTF
currently does not currently recommend screening for that group. If USPSTF does not include the 45-49 age group in its final
updated recommendation statement, reimbursement for our Cologuard test within that group would not be compelled by the
ACA and therefore might be adversely affected.
The healthcare industry in the United States has experienced a trend toward cost containment and value-based purchasing
of healthcare services. Some government and private payers are adopting pay-for-performance programs that differentiate
payments for healthcare services based on the achievement of documented quality metrics, cost efficiencies or patient
outcomes. Payers may look to quality measures such as the NCQA, HEDIS, and the CMS Medicare Advantage Star Ratings to
assess quality of care. These measures are intended to provide incentives to service providers to deliver the same or better
results while consuming fewer resources. Our Cologuard test has been included NCQA's HEDIS measures since 2017 and in
CMS's Medicare Advantage Star Ratings since 2018. If for some reason our Cologuard test was removed from, or not included
in, HEDIS, the Star Ratings or other quality metrics, payers may be less inclined to reimburse our Cologuard test at adequate
levels, if at all, which could adversely impact our business. Additionally, if our Cologuard test was removed from, or not
included in, HEDIS, the Star Ratings or other quality metrics, healthcare providers may not earn quality credit for prescribing
our Cologuard test and therefore may be less inclined to do so. If our Cologuard test fails to maintain its current position within
any updated USPSTF colorectal cancer screening recommendations, our Cologuard test may, as a result, become excluded from
the HEDIS measures and the Star Ratings.
We expect to make significant investments to research and develop new cancer tests, which may not be successful.
We are seeking to increase our Cologuard test’s specificity by substituting new biomarkers and to develop a pipeline for
future products and services, including screening and diagnostic tests for liver, pancreatic, esophageal, lung and other types of
cancers. We expect to incur significant expenses on these development efforts, but they may not be successful.
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Developing new or improved cancer tests is a speculative and risky endeavor. Candidate products and services that may
initially show promise may fail to achieve the desired results in larger clinical studies or may not achieve acceptable levels of
clinical accuracy. Results from early studies or trials are not necessarily predictive of future clinical trial results, and interim
results of a trial are not necessarily indicative of final results. From time to time, we may publicly disclose then-available data
from clinical studies before the studies are complete, and the results and related findings and conclusions may be subject to
change following the final analysis of the data related to the particular study or trial. As a result, such data should be viewed
with caution until the final data are available. Additionally, such data from clinical trials are subject to the risk that one or more
of the clinical outcomes may materially change as patient enrollment and/or follow-up continues and more patient data become
available. Significant adverse differences between initial or interim data and final data could significantly harm our reputation
and business prospects.
Any cancer screening test we develop will need to demonstrate in clinical studies a high level of accuracy. Because cancer
screening tests seek to identify relatively rare occurrences, if in a clinical study a candidate product or service fails to identify
even a small number of cancer cases, the sensitivity rate may be materially and adversely affected and we may have to abandon
the candidate product or service. Any cancer diagnostic test we develop will need to address an unmet medical need with
accurate performance and utility.
We may need to explore a number of different biomarker combinations, alter our candidate products or platform
technologies and repeat clinical studies before we identify a potentially successful candidate. We may need to acquire, whether
through purchase, license or otherwise, technologies owned by third parties, and we may not be able to acquire such
technologies on commercially reasonable terms or at all. Product development is expensive, may take years to complete and can
have uncertain outcomes. Failure can occur at any stage of the development. If, after development, a candidate product or
service appears successful, we may, depending on the nature of the product or service, still need to obtain FDA and other
regulatory clearances or approvals before we can market it. The FDA’s clearance or approval pathways are likely to involve
significant time, as well as additional research, development and clinical study expenditures. There can be no guarantee that the
FDA would clear or approve any future product or service we may develop. Even if the FDA clears or approves a new product
or service we develop, we would need to commit substantial resources to commercialize, sell and market it before it could be
profitable, and the product or service may never be commercially viable. Additionally, development of any product or service
may be disrupted or made less viable by the development of competing products or services.
If we determine that any of our current or future development programs is unlikely to succeed, we may abandon it without
any return on our investment into the program. We may need to raise significant additional capital to bring any new products or
services to market, which may not be available on acceptable terms, if at all.
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Our dependence on distributors for sales outside of the U.S. could limit or prevent us from selling our tests in foreign
markets and impact our revenue.
As of December 31, 2020, we have entered into exclusive distribution agreements for the sale of our Oncotype IQ tests
with distributors in dozens of countries. We may enter into other similar arrangements to distribute our tests in other countries
in the future. We intend to continue to grow our business internationally, and to do so we may need to attract additional
distributors to expand the territories in which we sell our tests. Despite contractual obligations, distributors may not commit the
necessary resources to market and sell our tests to the level of our expectations. If current or future distributors do not perform
adequately, or we are unable to enter into or maintain arrangements with distributors to market our tests in particular geographic
areas, we may not realize long-term international revenue growth. Additionally, local laws may make it very difficult or costly
for us to terminate or replace distributors, and local public procurement law may complicate providing our centralized
laboratory services through a distributor. Furthermore, our revenue from distributors could be negatively impacted as a result of
changes in business cycles, business or economic conditions, coverage determinations, reimbursement rates, changes in foreign
currency exchange rates that make our tests more expensive in our distributors’ local currencies or other factors that could
affect their ability to pay us for tests on a timely basis or at all.
If we or Pfizer fail to adequately perform under our Cologuard Promotion Agreement, or if the Promotion Agreement is
terminated prior to its full term, our business, prospects, financial condition and results of operations could be adversely
affected.
In August 2018, we entered into a Promotion Agreement with Pfizer, which was amended and restated in October 2020
(the "Promotion Agreement"), pursuant to which Pfizer promotes our Cologuard test and provide certain sales, marketing,
analytical and other commercial operations support services. We and Pfizer committed in the Promotion Agreement to invest
specified amounts in the advertising and promotion of our Cologuard test. Under the Promotion Agreement we are required to
pay Pfizer certain fixed fees and performance-related bonuses and royalties for our Cologuard-related revenues for a specified
period after the expiration or termination of the Promotion Agreement.
The term of the Promotion Agreement is scheduled to run through December 31, 2022, but may be terminated by either
party at any time upon six months’ written notice to the other party.
We have dedicated significant time and resources to negotiating, implementing and coordinating performance under the
Promotion Agreement. The growth in our Cologuard test revenue we anticipate as a result of the Promotion Agreement may not
occur. We may not realize the expected benefits from the Promotion Agreement for a number of reasons including, among
others, if we and Pfizer fail to coordinate our promotional efforts effectively, if Pfizer fails to optimally or effectively promote,
market and sell our Cologuard test or otherwise fails to perform under the Promotion Agreement, if Pfizer prioritizes the
promotion of its own, or other partners’, products or services over our Cologuard test, if the Promotion Agreement is terminated
before its anticipated benefits can be fully realized, or if other factors, extraneous to the Promotion Agreement, adversely
impact sales of our Cologuard test (for example, reimbursement, competition, or seasonal factors). We have limited experience
executing under co-promotion agreements and Pfizer has limited experience promoting molecular diagnostic products. Our
strategic partnership with Pfizer will impact the retention and development of our own sales and marketing capabilities, both for
our Cologuard test and other products in our pipeline. If we do not realize the expected benefits from the Promotion Agreement,
either because Pfizer’s marketing strategy and sales and marketing expertise do not translate well to the promotion of our
Cologuard test or for any other reason, our business, prospects, financial condition and results of operations may be adversely
affected.
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Our research and development efforts will be hindered if we are not able to obtain samples, contract with third parties for
access to samples or complete timely enrollment in future clinical trials.
Access to human sample types, such as blood, tissue, stool, or urine is necessary for our research and product development.
Acquiring samples from individuals with clinical diagnoses or associated clinical outcomes through purchase or clinical studies
is necessary. Lack of available samples can delay development timelines and increase costs of development. Generally, the
agreements under which we gain access to human samples are non-exclusive. Other companies may compete with us for access.
Additionally, the process of negotiating access to samples can be lengthy and it may involve numerous parties and approval
levels to resolve complex issues such as usage rights, institutional review board approval, privacy rights, publication rights,
intellectual property ownership and research parameters. If we are not able to negotiate access to clinical samples with research
institutions, hospitals, clinical partners, pharmaceutical companies, or companies developing therapeutics on a timely basis, or
at all, or if other laboratories or our competitors secure access to these samples before us, our ability to research, develop and
commercialize future products will be limited or delayed. Finally, we may not be able to conduct or complete clinical trials on a
timely basis if we are not able to enroll sufficient numbers of patients in such trials, and our failure to do so could have an
adverse effect on our research and development and product commercialization efforts.
Risks Relating to our Intellectual Property
We rely on strategic collaborative and licensing arrangements with third parties to develop critical intellectual property. We
may not be able to successfully establish and maintain such intellectual property.
The development and commercialization of our products and services rely, directly or indirectly, upon strategic
collaborations and licensing agreements with third parties. We have collaborative and licensing arrangements with Mayo
Foundation for Medical Education and Research, under which Mayo provides us with certain exclusive and non-exclusive
intellectual property rights and ongoing product development and research and development assistance. In addition, we have
licensing agreements with Hologic, Johns Hopkins University, Ludwig Institute for Cancer Research, Translational Genomics
Research Institute and others. Such arrangements provide us with intellectual property and other business rights crucial to our
product development and commercialization. We have incorporated licensed technology into our Cologuard test and expect to
incorporate licensed technology into our pipeline products. Our dependence on licensing, collaboration and other similar
agreements with third parties may subject us to a number of risks. There can be no assurance that any current contractual
arrangements between us and third parties or between our strategic partners and other third parties will be continued on
materially similar terms and will not be breached or terminated early. Any failure to obtain or retain the rights to necessary
technologies on acceptable commercial terms could require us to re-configure our products and services, which could
negatively impact their commercial sale or increase the associated costs, either of which could materially harm our business and
adversely affect our future revenues and ability to achieve sustained profitability.
We expect to continue and expand our reliance on collaborative and licensing arrangements. Establishing new strategic
collaborations and licensing arrangements is difficult and time-consuming. Discussions with potential collaborators or licensors
may not lead to the establishment of collaborations on favorable terms, if at all. To the extent we agree to work exclusively with
one collaborator in a given area, our opportunities to collaborate with other entities could be limited. Potential collaborators or
licensors may reject collaborations with us based upon their assessment of our financial, regulatory or intellectual property
position or other factors. Even if we successfully establish new collaborations, these relationships may never result in the
successful commercialization of any product or service. In addition, the success of the projects that require collaboration with
third parties will be dependent on the continued success of such collaborators. There is no guarantee that our collaborators will
continue to be successful and, as a result, we may expend considerable time and resources developing products or services that
will not ultimately be commercialized.
We may be subject to substantial costs and liability, or be prevented from using technologies incorporated in our screening
or diagnostic tests, as a result of litigation or other proceedings relating to patent or other intellectual property rights.
Third parties may assert infringement or other intellectual property claims against our licensors, our licensees, our
suppliers, our strategic partners or us. We pursue a patent strategy that we believe provides us with a competitive advantage in
the non-invasive early detection of cancer and pre-cancer, as well as in the guidance of cancer treatment decisions, and is
designed to maximize our patent protection against third parties. We have filed patent applications that we believe cover the
methods we have designed and use in our Cologuard test to detect colorectal cancer and pre-cancer, our Oncotype IQ tests to
provide prognosis and guide treatment decisions, and for pipeline cancer tests still in development. In order to protect or
enforce our patent and other intellectual property rights, we may have to initiate actions against third parties. Any actions
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regarding patents could be costly and time-consuming and divert the attention of our management and key personnel from our
business. Additionally, such actions could result in challenges to the validity, enforceability, or applicability of our patents.
Because the U.S. Patent & Trademark Office maintains patent applications in secrecy until a patent application publishes or the
patent is issued, we have no way of knowing if others may have filed patent applications covering technologies used by us or
our partners. Additionally, there may be third-party patents, patent applications and other intellectual property relevant to our
technologies that may block or compete with our technologies. From time to time we have received correspondence from third
parties alleging to hold intellectual property rights that could block our development or commercialization of products. While
none of these inquiries to date have had any material effect on us, we may receive inquiries in the future that could have a
material effect on our business. Even if third-party claims are without merit, defending a lawsuit may result in substantial
expense to us and may divert the attention of management and key personnel. In addition, we cannot provide assurance that we
would prevail in any such suits to the extent necessary to conduct our business according to our strategic plan or that the
damages or other remedies, if any, awarded against us would not be substantial. Claims of intellectual property infringement
may require that we, or our strategic partners, enter into royalty or license agreements with third parties that may only be
available on unacceptable terms, if at all. These claims may also result in injunctions against the further development and
commercial sale of services or products containing our technologies, which would have a material adverse effect on our
business, financial condition and results of operations.
Also, patents and patent applications owned by us may become the subject of interference proceedings in the U.S. Patent
and Trademark Office ("USPTO") to determine priority of invention, which could result in substantial cost to us as well as a
possible adverse decision as to the priority of invention of the patent or patent application involved. An adverse decision in an
interference proceeding may result in the loss of rights under a patent or patent application subject to such a proceeding.
If we are unable to protect or enforce our intellectual property effectively, we may be unable to prevent third parties from
using our intellectual property, which would impair any competitive advantage we may otherwise have.
We rely on patent protection as well as a combination of trademark, copyright and trade secret protection and other
contractual restrictions to protect our proprietary technologies and other intellectual property rights, all of which provide limited
protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. If we fail to
protect our intellectual property, third parties may be able to compete more effectively against us and we may incur substantial
litigation costs in our attempts to recover or restrict use of our intellectual property, which may not be entirely successful, if at
all. Additionally, certain of our patents began to expire in 2018. This loss of intellectual property protection may permit third
parties to use certain intellectual property assets previously exclusively reserved for our use.
We cannot assure you that any of our currently pending or future patent applications will result in issued patents, and we
cannot predict how long it will take for any such patents to be issued. Further, we cannot assure you that other parties will not
challenge any patents issued to us or that courts or regulatory agencies will hold our patents to be valid or enforceable. We have
been in the past, and may be in the future, the subject of opposition proceedings relating to our patents. We cannot guarantee
that we will be successful in defending challenges made against our patents and patent applications. Any successful third-party
challenge to our patents could result in co-ownership of such patents with the third party or the unenforceability or invalidity of
such patents. Furthermore, in the life sciences field, courts frequently render opinions that may affect the patentability of certain
inventions or discoveries, including opinions that may affect the patentability of isolated DNA and/or methods for analyzing or
comparing DNA. Such decisions may adversely impact our ability to obtain new patents and facilitate third-party challenges to
our existing patents.
Even where we have valid patents, third parties may be able to successfully design their products and services around those
patents, such that their products and services do not infringe our patents. We may face competition internationally in
jurisdictions where we do not have intellectual property protection. Our business may be adversely affected to the extent third
parties are able to develop or commercialize competing products and services that do not infringe our patents. We may also be
adversely affected to the extent third parties develop or commercialize competing products or services in countries where we
did not apply for patents, where our patents have not issued or where our intellectual property rights are not recognized.
We depend on trademarks to establish a market identity for our company and our products and services. To maintain the
value of our trademarks, we may have to file lawsuits against third parties to prevent them from using trademarks confusingly
similar to or dilutive of our registered or unregistered trademarks. We also may not obtain registrations for our pending or
future trademark applications, and might have to defend our registered trademarks and pending applications from challenges by
third parties. Enforcing or defending our registered and unregistered trademarks might result in significant litigation costs and,
if we are unsuccessful, might result in damages, including the inability to continue using certain trademarks.
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If patent regulations or standards are modified, such changes could have a negative impact on our business.
From time to time, the U.S. Supreme Court, other federal courts, the U.S. Congress or the USPTO may change the
standards of patentability and validity of patents within the cancer screening and diagnostics space, and any such changes could
have a negative impact on our business.
There have been several cases involving “gene patents” and diagnostic claims that have been considered by the U.S.
Supreme Court. In March 2012, the Supreme Court in Mayo Collaborative Services v. Prometheus Laboratories, Inc, found a
patented diagnostic method claim unpatentable because the relationship between a metabolite concentration and optimized
dosage was a patent-ineligible “law of nature.” In June 2013, the Supreme Court ruled in ACLU v. Myriad Genetics, Inc, that an
isolated genomic DNA sequence is not patent eligible while cDNA is eligible. The Prometheus and Myriad decisions, as well
as subsequent case law, affect the legal concept of subject matter eligibility by seemingly narrowing the scope of the statute
defining patentable inventions.
In December 2014 and again in 2019, the USPTO published revised guidelines for patent examiners to apply when
examining process claims for patent eligibility in view of several recent Supreme Court decisions, including Mayo, Association
for Molecular Pathology v. Myriad Genetics, Inc., and Alice Corporation Pty. Ltd. v. CLS Bank International, and others. The
guidance indicates that claims directed to a law of nature, a natural phenomenon, or an abstract idea that do not meet the
eligibility requirements should be rejected as non-statutory, patent ineligible subject matter. While these guidelines may be
subject to review and modification by the USPTO over time, we cannot assure you that our patent portfolio will not be
negatively impacted by the decisions described above, rulings in other cases or changes in guidance or procedures issued by the
USPTO.
Additional substantive changes to patent law, whether new or associated with the America Invents Act — which
substantially revised the U.S. patent system — may affect our ability to obtain, enforce or defend our patents. Accordingly, it is
not clear what, if any, impact these substantive changes will ultimately have on the cost of prosecuting our patent applications,
our ability to obtain patents based on our discoveries and our ability to enforce or defend our issued patents, all of which could
have a material adverse effect on our business.
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Risks Relating to our Securities
We are required to assess our internal control over financial reporting on an annual basis and any future adverse results
from such assessment could result in a loss of investor confidence and have an adverse effect on our stock price.
Pursuant to the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated by the SEC, we are required to
furnish in our Form 10-K a report by our management regarding the effectiveness of our internal control over financial
reporting. The report includes, among other things, an assessment of the effectiveness of our internal control over financial
reporting as of the end of our fiscal year, including a statement as to whether our internal control over financial reporting is
effective. This assessment must include disclosure of any material weaknesses in our internal control over financial reporting
identified by management. While we believe our internal control over financial reporting is currently effective, the effectiveness
of our internal controls in future periods is subject to the risk that our controls may become inadequate because of changes in
conditions. Moreover, as described further in Item 9A – Controls and Procedures, in accordance with SEC staff guidance, we
have excluded the business of Genomic Health, Inc. we acquired in November 2019 from the assessment of the effectiveness of
our internal control over financial reporting as of December 31, 2019 contained in this Annual Report on Form 10-K, and it is
therefore possible we will later determine that corrective action is needed to ensure the effectiveness of the internal control over
financial reporting for this acquired business. Establishing, testing and maintaining an effective system of internal control over
financial reporting requires significant resources and time commitments on the part of our management and our finance staff,
may require additional staffing and infrastructure investments and would increase our costs of doing business. If we are unable
to assert that our internal control over financial reporting is effective in any future period (or if our auditors are unable to
express an opinion on the effectiveness of our internal controls or conclude that our internal controls are ineffective), we could
lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our
stock price.
We face risks associated with currency exchange rate fluctuations, which could adversely affect our operating results.
As a result of our international operations, we receive a portion of our revenues and pay a portion of our expenses in
currencies other than the U.S. dollar, such as the Euro, the Swiss franc, the British pound and the Canadian dollar. In addition,
many of our distribution agreements contain clauses requiring regular U.S. dollar price re-adjustments to account for
fluctuations in the exchange rate between the U.S. dollar and the local currency. As a result, we are at risk from exchange rate
fluctuations between such foreign currencies and the U.S. dollar, which could adversely affect our results of operations.
Additionally, the volume of our international orders may be negatively impacted by a strong U.S. dollar. For the year ended
December 31, 2020, approximately 5.2% of our revenues came from foreign denominated currencies. If the U.S. dollar
strengthens against foreign currencies, the translation of these foreign currency denominated transactions will result in
decreased revenues and operating expenses. We may not be able to offset adverse foreign currency impact with increased
revenues. We enter into forward contracts to mitigate the impact of adverse movements in foreign exchange rates related to the
re-measurement of monetary assets and liabilities and hedge our foreign currency exchange rate exposure. Even with this
strategy in place to mitigate balance sheet foreign currency risk, we will not eliminate our exposure to foreign exchange rate
fluctuations on our financial results.
Delaware law, our charter and bylaw documents and certain provisions of our convertible notes could impede or discourage
a takeover or change of control that stockholders may consider favorable.
As a Delaware corporation, we are subject to certain anti-takeover provisions. Under Delaware law, a corporation may not
engage in a business combination with any holder of 15 percent or more of its capital stock unless the holder has held the stock
for three years or, among other things, the board of directors has approved the transaction. Accordingly, our board of directors
could rely on Delaware law to prevent or delay an acquisition of our company. In addition, certain provisions of our certificate
of incorporation and bylaws may have the effect of delaying or preventing a change of control or changes in our management.
These provisions include the following:
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•
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•
Our board of directors is divided into three classes serving staggered three-year terms.
Only our board of directors can fill vacancies on the board.
Our stockholders may not act by written consent.
There are various limitations on persons authorized to call a special meeting of stockholders and advance notice
requirements for stockholders to make nominations of candidates for election as directors or to bring matters before an
annual meeting of stockholders.
Our board of directors may issue, without stockholder approval, shares of undesignated preferred stock.
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These types of provisions could make it more difficult for a third party to acquire control of us, even if the acquisition
would be beneficial to our stockholders.
Certain provisions of the convertible notes we issued in 2018, 2019, and 2020 could make it more difficult or more
expensive for a third party to acquire us. Upon the occurrence of certain transactions constituting a “fundamental change,” as
such term is defined in the indenture for the notes, holders of the convertible notes will have the right, at their option, to require
us to repurchase all of their convertible notes or any portion of the principal amount of such convertible notes in integral
multiples of $1,000. We may also be required to increase the conversion rate in the event of a “make-whole fundamental
change,” as such term is defined in the indenture for the notes. In addition, the indenture and the convertible notes will prohibit
us from engaging in certain mergers or acquisitions unless, among other things, the surviving entity assumes our obligations
under the convertible notes and the indenture. These and other provisions in the indenture could deter or prevent a third party
from acquiring us.
Our bylaws provide, subject to certain exceptions, that the Court of Chancery of the State of Delaware will be the sole and
exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable
judicial forum for disputes with us or our directors, officers, employees or stockholders.
Our bylaws provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware will, to the fullest
extent permitted by law, be the sole and exclusive forum for any claims, including any derivative actions or proceedings
brought on our behalf, (1) that are based upon a violation of a duty by a current or former director or officer or stockholder in
such capacity or (2) that may be brought in the Court of Chancery pursuant to the Delaware General Corporation Law. This
provision would not apply to suits brought to enforce a duty or liability created by the Securities Act of 1933, as amended, or
the Securities Exchange Act of 1934, as amended. Any person or entity purchasing or otherwise acquiring any interest in shares
of our common stock shall be deemed to have notice of and to have consented to the provisions of our bylaws described above.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for
disputes with us or any of our directors, officers, other employees or stockholders which may discourage lawsuits with respect
to such claims. Alternatively, if a court were to find the choice of forum provision that is contained in our bylaws to be
inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other
jurisdictions, which could materially adversely affect our business, financial condition and results of operations.
Our ability to use our net operating losses to offset future taxable income may be subject to certain limitations.
As of December 31, 2020, we had federal, state, and foreign net operating loss carryforwards (“NOLs”) of approximately
$1.55 billion, $709.2 million, and $4.3 million, respectively. In general, under Section 382 of the Internal Revenue Code of
1986, as amended (the “Code”), a corporation that undergoes an “ownership change” is subject to limitations on its ability to
utilize its pre-change NOLs to offset future taxable income. An ownership change is generally defined as a greater than 50
percent change in equity ownership by value over a specified time period (generally three years). Given the Code’s broad
definition, an ownership change could be the unintended consequence of otherwise normal market trading in our stock that is
outside our control. An ownership change under Section 382 of the Code could also be triggered by certain strategic
transactions. Additionally, tax law limitations may result in our NOLs expiring before we have the ability to use them. Pursuant
to the Tax Cuts and Jobs Act (H.R. 1) of 2017, federal NOLs arising in tax years beginning after December 31, 2017 have an
indefinite carryover period and may only be used to offset 80 percent of current year taxable income. For these reasons, even if
we attain profitability, our ability to utilize our NOLs may be limited, potentially significantly so.
Our stock price has fluctuated widely and is likely to continue to be volatile.
The market price for our common stock varied between a high of $144.00 and a low of $35.25 in the twelve-month period
ended December 31, 2020. Our stock price is likely to continue to be volatile and subject to significant price and volume
fluctuations in response to market and other factors, including those listed in this “Item 1A. Risk Factors” section and other,
unknown factors. Among numerous other factors, our stock price also may be affected by:
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comments by securities analysts regarding our business or prospects;
our quarterly operating performance;
our issuance of common stock or other securities;
our inability to accurately forecast future performance;
our inability to meet analysts’ expectations;
our entering into merger, acquisition or other similar transactions;
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•
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general fluctuations in the stock market or in the stock prices of companies in the life sciences or healthcare
diagnostics industries; and
general conditions and publicity regarding the life sciences or healthcare diagnostics industries.
Consequently, the current market price of our common stock may not be indicative of future market prices, and we may be
unable to sustain or increase the value of an investment in our common stock. Further, sharp drops in the market price of our
common stock, such as we experienced at certain times in our history, may expose us to securities class-action litigation. Such
litigation could result in substantial expenses and diversion of management’s attention and corporate resources, which would
seriously harm our business, financial condition, and results of operations.
We have never paid cash dividends and do not intend to do so.
We have never declared or paid cash dividends on our common stock. We currently plan to use any cash proceeds from our
operations to finance the growth of our business rather than to pay cash dividends. Payments of any cash dividends in the future
will depend on our financial condition, results of operations and capital requirements, as well as other factors deemed relevant
by our board of directors.
Our balance sheet includes significant amounts of goodwill and intangible assets. The impairment of a significant portion of
these assets would negatively affect our results of operations.
Our balance sheet includes goodwill and intangible assets that represent 42% of our total assets at December 31, 2020.
These assets consist primarily of goodwill and identified intangible assets associated with our acquisitions. On at least an annual
basis, we assess whether there have been impairments in the carrying value of goodwill. In addition, we review intangible assets
for impairment whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable.
If the carrying value of the asset is determined to be impaired, then it is written down to fair value by a charge to operating
earnings. An impairment of a significant portion of goodwill or intangible assets could have a material negative effect on our
results of operations.
Our management has broad discretion over the use of our available cash and marketable securities and might not spend
available cash and marketable securities in ways that increase the value of your investment.
From time to time we may carry high levels of cash and marketable securities. As of December 31, 2020, we had $1.84
billion in combined cash and marketable securities. Our management currently expects to deploy our cash and marketable
securities primarily to expand our Cologuard and Oncotype IQ operations and commercialization activities, to fund our product
development efforts and for general corporate purposes, including working capital and possible acquisitions. However, our
management has broad discretion to pursue other objectives, we may raise additional capital, and we may use our current and
future resources for other purposes. Our management might not effectively deploy our cash and marketable securities which
could have an adverse effect on our business.
Our indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet
our payment obligations under such indebtedness.
Pursuant to the convertible note offerings we completed in 2018, 2019, and 2020, we incurred $2.21 billion of
indebtedness, and we have a construction loan outstanding of $23.8 million as of December 31, 2020. This level of debt could
have significant consequences on our future operations, including:
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increasing our vulnerability to adverse economic and industry conditions;
• making it more difficult for us to meet our payment and other obligations;
• making it more difficult to obtain any necessary future financing for working capital, capital expenditures, debt service
requirements or other purposes;
requiring the dedication of a substantial portion of any cash flow from operations to service our indebtedness, thereby
reducing the amount of cash flow available for other purposes, including capital expenditures;
placing us at a possible competitive disadvantage with competitors that are less leveraged than us or have better access
to capital than we have; and
limiting our flexibility in planning for, or reacting to, changes in our business and the markets in which we compete.
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Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations
and our ability to meet our payment obligations under the convertible notes.
Our ability to meet our payment and other obligations under the convertible notes depends on our ability to generate
significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and
regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash
flow from operations, or that future borrowings will be available to us, in an amount sufficient to enable us to meet our payment
obligations under the convertible notes and to fund other liquidity needs. If we are not able to generate sufficient cash flow to
service our debt obligations, we may need to refinance or restructure our debt, including the convertible notes, sell assets,
reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these
alternatives, we may not be able to meet our payment obligations under the convertible notes, and such a default could cause us
to be in default on any other currently existing or future outstanding indebtedness.
Servicing our debt will require a significant amount of cash, and we may not have sufficient cash flow from our business to
pay amounts due under our indebtedness, including the convertible notes.
Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including
the $2.21 billion aggregate principal amount of our 1.0%, 0.375%, and 0.375% convertible senior notes due 2025, 2027, and
2028, respectively, depends on our future performance, which is subject to economic, financial, competitive and other factors
beyond our control. Our business may not generate cash flow from operations in the future sufficient to service our debt,
including the convertible notes, and make necessary capital expenditures. If we are unable to generate such cash flow, we may
be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital or
share-settling the convertible notes which could be highly dilutive. Our ability to refinance our indebtedness will depend on the
capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in
these activities on desirable terms, which could result in a default on our debt obligations.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 31, 2020, we occupied approximately 983,000 square feet of space at our significant facilities in the
Madison, Wisconsin area and 229,000 square feet in our facilities in Redwood City, California. See Note 15 in the Notes to
Consolidated Financial Statements included in Part II, Item 8, “Consolidated Financial Statements and Supplementary Data” for
further discussion surrounding our leased facilities and Note 9 in the Notes to our Consolidated Financial Statements for further
discussion surrounding mortgages on our owned properties.
As of December 31, 2020, our material facilities are as follows:
Location
Primary Function
Total Square Feet (approx.)
Leased or Owned
Madison, Wisconsin
Redwood City, California
Research and development, corporate,
operations and clinical laboratory
Research and development, corporate,
operations and clinical laboratory
983,000
Leased/Owned
229,000
Leased
Phoenix, Arizona
Operations and clinical laboratory
11,000
Leased
Item 3. Legal Proceedings
From time to time we are a party to various legal proceedings arising in the ordinary course of our business. Legal
proceedings, including litigation, government investigations and enforcement actions could result in material costs, occupy
significant management resources and entail civil and criminal penalties. The information called for by this item is incorporated
by reference to the information in Note 15 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual
Report on Form 10-K.
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Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Our common stock is currently listed on the NASDAQ Capital Market under the symbol “EXAS.”
As of February 15, 2021, there were 169,093,162 shares of our common stock outstanding held by approximately 336
holders of record.
We have never paid any cash dividends on our common stock and do not plan to pay any cash dividends in the foreseeable
future.
See Note 14 in the Notes to Consolidated Financial Statements for further information on our stock-based compensation
plans.
Item 6. Selected Financial Data
The selected historical financial data for the five years ended December 31, 2020 is derived from our audited consolidated
financial statements. The selected historical financial data should be read in conjunction with, and is qualified by reference to
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial
statements and notes thereto.
Statements of Operations Data:
Revenue:
Loss from operations
Net loss before tax
Net loss
Year Ended December 31,
2020 (1)
2019 (2)
2018
2017
2016
(Amounts in thousands, except per share data)
$ 1,491,391 $ 876,293 $ 454,462 $ 265,989 $
99,376
(768,019)
(233,782)
(159,471)
(118,310)
(169,016)
(857,105)
(268,851)
(175,057)
(114,584)
(167,211)
(848,533)
(83,993)
(175,149)
(114,397)
(167,211)
Net loss per share—basic and diluted
(5.61)
(0.64)
(1.43)
(0.99)
(1.63)
Balance Sheet Data:
Total assets
Long-term liabilities
$ 4,925,092 $ 3,505,768 $ 1,524,022 $ 598,560 $ 377,040
1,525,759
981,213
706,912
10,018
11,053
_________________________________
(1) In March 2020, we completed our acquisition of Paradigm Diagnostics, Inc. and Viomics, Inc. in transactions that are
deemed to be a single business combination. In October 2020 we completed the acquisition of Base Genomics. The results of
these acquisitions have been included in our results from the date of the acquisition. Refer to Note 19 in our Notes to
Consolidated Financial Statements for further discussion of these acquisitions.
In the third quarter of 2020, we recognized two non-cash, pre-tax impairment losses on intangible assets previously acquired.
Refer to Note 6 in our Notes to Consolidated Financial Statements for further discussion of the impairment losses recorded.
(2) In November 2019, we completed our combination with Genomic Health, Inc. The results of Genomic Health have been
included in our results from the date of combination. Refer to Note 19 in our Notes to Consolidated Financial Statements for
further discussion of this combination.
59
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with the
consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K. We
have omitted discussion of 2018 results where it would be redundant to the discussion previously included in Management's
Discussion and Analysis of Financial Condition and Results of Operations on Form 10-K for the year ended December 31,
2019, which has been filed with the SEC.
Overview
Exact Sciences Corporation (together with its subsidiaries, “Exact,” “we,” “us,” “our” or the “Company”) is a leading
global cancer diagnostics company. We have developed some of the most impactful brands in cancer diagnostics, and we are
currently working on the development of additional tests, with the goal of bringing new innovative cancer tests to patients
throughout the world.
Acquisitions
On January 4, 2021, we completed the acquisition ("Thrive Merger") of Thrive Earlier Detection Corporation, which
merged Thrive with and into one of our wholly-owned subsidiaries. Thrive is a healthcare company dedicated to incorporating
earlier cancer detection into routine medical care. We intend to combine Thrive's early-stage screening test, CancerSEEK, with
our scientific platform, clinical organization and commercial infrastructure to establish us as a leading competitor in blood-
based, multi-cancer screening. Under the terms of the Thrive Merger, we agreed to pay the Thrive owners total consideration of
up to $2.15 billion, of which $1.70 billion was payable at closing, comprised of 35% in cash and 65% of our common stock. An
additional $450.0 million would be payable in cash based upon the achievement of certain milestones related to the
development and commercialization of a blood-based, multi-cancer screening test.
On October 26, 2020, we completed the acquisition of Base Genomics Limited, an epigenetics company working to set a
new standard in DNA methylation analysis to detect cancer in its earliest stages. As part of the combination, we acquired all of
the outstanding equity interest of the company for an aggregate purchase price of $416.5 million in cash.
On March 3, 2020, we completed the acquisition of Paradigm Diagnostics, Inc. and Viomics, Inc., two related companies,
in transactions that are deemed to be a single business combination under Accounting Standards Codification ("ASC") 805. The
acquired entities provide comprehensive genomic-based profiling tests that assist in the diagnosis and therapy recommendations
for late-stage cancer. As part of the acquisition, we acquired all of the outstanding equity interests of the companies for an
aggregate purchase price of $40.4 million, which consists of $32.2 million payable in shares of our common stock and $8.2
million which was settled through a cash payment. Of the $32.2 million to be settled through the issuance of common stock,
$28.8 million was issued as of December 31, 2020, and the remaining $3.4 million, which was withheld and may become
payable as additional merger consideration, is included in other current liabilities in the consolidated balance sheet as of
December 31, 2020.
COVID-19 Testing Business
In late March 2020, we began providing COVID-19 testing. We have partnered with various customers, including the State
of Wisconsin Department of Health, to administer testing. Customers are responsible for employing trained personnel to collect
specimens. Specimens are sent to our laboratory in Madison, Wisconsin,where we allocated space to run the assay in our
laboratories and provide test results to ordering providers. We also manufacture and assemble our COVID-19 test kits at our
manufacturing facilities in Madison, Wisconsin. In light of the uncertainty surrounding the COVID-19 pandemic, we intend to
periodically reassess our COVID-19 testing business.
2021 Priorities
Our top priorities for 2021 are to (1) get more people tested, (2) advance new solutions, and (3) enhance our customer
experience.
60
Get More People Tested
We are committed to delivering critical answers to patients by getting more people tested with our Cologuard and
Oncotype tests. We will also continue to provide COVID-19 testing to support our employees, the states where they live, and to
improve the country's testing capacity.
Advance New Solutions
In 2021, we are focused on advancing new solutions for screening and guiding treatment decisions for cancer. We'll do this
by investing in ongoing and additional clinical trials to support our product development efforts in enhancing existing products
and bringing new products to patients and providers.
We are seeking opportunities to improve upon our Cologuard test’s performance characteristics. In October 2019, we and
Mayo presented at the American College of Gastroenterology’s 2019 Annual Scientific Meeting findings from a blinded-case
control study showing enhanced colorectal cancer and advanced adenoma detection using newly discovered methylation
biomarkers. In October 2020, we acquired Base Genomics, whose methylation analysis technologies promise to build upon
other contemplated enhancements to our Cologuard test. To establish the performance of an enhanced multi-target stool DNA
test, we expect to enroll more than 10,000 patients 40 years of age and older in our multi-center, prospective BLUE-C study.
The timing of any such enhancements to our Cologuard test is unknown and would be subject to FDA approval. We are also
working to develop a blood-based screening test for colorectal cancer.
We are currently seeking to develop a blood-based, multi-cancer screening test. In January 2021, we completed the
acquisition of Thrive, a healthcare company dedicated to developing a blood-based, multi-cancer screening test. An early
version of Thrive’s test has achieved promising results in a 10,000-patient, prospective, interventional study detecting 10
different types of cancer, including seven with no current recommended screening guidelines, with very few false positives. We
are exploring opportunities to incorporate Exact’s and Base Genomics’ methylation technologies into Thrive's test in order to
enhance the test's accuracy and accelerate the widespread adoption of this potentially life-saving advancement.
We are currently seeking to develop a blood-based biomarker test to serve as an alternative to ultrasound and the AFP test
for use in HCC testing. HCC is the most common type of liver cancer. Our goal is to develop a patient-friendly test that
performs better than the current standard of care. In November 2019, we released the results of a 450-patient study which
demonstrated 80% overall sensitivity for HCC at 90% specificity with a novel combination of six blood-based biomarkers for
HCC. The study also showed 71% sensitivity for early-stage HCC at 90% specificity. The study compared performance to the
AFP test, which demonstrated 45% sensitivity at 90% specificity for early-stage HCC.
In January 2021 we acquired an exclusive license to the TGen proprietary TARDIS technology. We are currently seeking
to utilize this compelling and technically distinct approach to develop a test to detect small amounts of tumor DNA that may
remain in patients’ blood after they have undergone initial treatment. In a study published in Science Translational Medicine,
TARDIS demonstrated high accuracy in assessing molecular response and residual disease during neoadjuvant therapy to treat
breast cancer. TARDIS achieved up to 100-fold improvement beyond the current limit of circulating tumor DNA detection. We
intend to expand our precision oncology business to become a leader in minimal residual disease testing, which will leverage
our existing foundation to deliver better solutions to patients navigating cancer. Additionally, we may also use a number of
other technologies across our various development programs and to implement our products. While early-stage cancer
continues to be our main focus, we believe we also have an opportunity to expand our business further along the patient’s
cancer journey, both through our research and development process and strategic collaborations.
We may also conduct or fund clinical studies that could support additional opportunities for our Oncotype IQ products. For
example, we are exploring clinical studies to expand the use of genomic testing to address additional populations, including
higher-risk patients.
Enhance Our Customer Experience
Another priority for 2021 is to enhance our customer service. We plan to improve customer communications and outreach
to make doing business with Exact Sciences easier than ever. Our goal is to become the cancer diagnostic provider of choice for
physicians and patients.
61
Results of Operations
The spread of COVID-19 has affected many segments of the global economy, including the cancer screening and
diagnostics industry. The COVID-19 outbreak, which the World Health Organization has classified as a pandemic, has
prompted governments and regulatory bodies throughout the world to enact broad precautionary measures, including “stay at
home” orders, restrictions on the performance of “non-essential” services, public gatherings and travel. Health systems,
including in key markets where we operate, have been, or may be, overwhelmed with high volumes of patients suffering from
COVID-19. The territories in which we market, sell, distribute and perform our tests are attempting to address the COVID-19
pandemic in varying ways, including stay-at-home orders, temporarily closing businesses, restricting gatherings, restricting
travel, and mandating social distancing and face coverings. Certain jurisdictions have begun re-opening only to return to
restrictions due to increases in new COVID-19 cases. Even in the absence of legal restrictions, businesses and individuals may
voluntarily continue to limit in-person interactions and practice social distancing, and such behaviors may continue beyond the
formal end of the pandemic. The level and nature of the disruption caused by COVID-19 is unpredictable, may be cyclical and
long-lasting and may vary from location to location.
The pandemic and related precautionary measures began to materially disrupt our business in March 2020 and may
continue to disrupt our business for an unknown period of time. As a result, the pandemic had a significant impact on our 2020
operating results, including our revenues, margins, and cash utilization, among other measures.
As a result of COVID-19 and its impact to our business, we re-prioritized our goals for 2020 with a focus on serving
patients who continued to need the healthcare services we provide while aligning our cost structure with the anticipated lower
sales volumes and revenues. Our top priorities for 2020 were to (1) get people tested using our Cologuard, Oncotype IQ, and
COVID-19 tests, (2) take care of our customers by taking steps to limit exposure to COVID-19 based on recommendations
from government and health agencies, and (3) preserve financial strength by taking proactive measures to achieve cost savings.
Due to social distancing, stay-at-home orders, and other actions taken in response to COVID-19, in 2020 there was a
significant and widespread decline in standard wellness visits and preventive services. We took steps to limit exposure to
COVID-19 based on recommendations from government and health agencies, including limiting field-based, face-to-face
interactions by our sales force. The sales team that was not engaged in face-to-face interactions served healthcare providers via
telephone and online technologies until it was safe to return to the field and practices allowed representatives back in their
offices. Our commercial partner for our Cologuard test, Pfizer, took similar precautions, including suspending face-to-face
interactions between sales representatives and healthcare providers. The decline in field-based, face-to-face interactions with
health care providers negatively impacted Cologuard test orders during the second quarter of 2020 in our Screening business,
notwithstanding the availability of alternative ordering channels such as telehealth. Starting in the third quarter, orders began to
recover to pre-pandemic levels and continued to recover during the fourth quarter. Our Precision Oncology business started to
see weakening underlying conditions in April 2020 because of COVID-19, more notably in the U.S. prostate business and in
certain international geographies. The widespread decrease in preventive services, including mammograms and prostate cancer
screenings, negatively impacted Precision Oncology test volumes beginning in May 2020 and continuing throughout the third
quarter of 2020 due to the typical lag between cancer screening and genomic test ordering. We began to see orders recovering
during the fourth quarter of 2020 to near pre-pandemic levels. As a result of the pandemic, we began providing COVID-19
testing in March 2020, the revenue from which has partially offset the pandemic's impact on our Screening and Precision
Oncology testing revenue.
During 2020, business continuity plans were in place at all of our sites to help sustain operations and ensure continuity of
services for patients during this unprecedented time. Despite the COVID-19 pandemic, many people still needed to be screened
for colorectal cancer, and treated for breast, colon, and prostate cancers. Our lab facilities remained operational so that we could
continue to process results of our Cologuard, Oncotype IQ and COVID-19 tests.
We expect to adjust our precautionary measures at our various locations based on local recovery levels and applicable
governmental regulations. For example, a portion of the Company’s and Pfizer’s sales force has recommenced field-based
interactions, although access to healthcare providers remains limited and the resumption of normal activities is expected to be
gradual. Our business could be negatively affected if we take excessive, ineffective or inadequate precautions.
62
In order to minimize the adverse impacts to our business and operations due to the COVID-19 pandemic, beginning in
April 2020, we initiated proactive measures to achieve cost savings. Actions we took included a temporary reduction of base
pay for our executive officers and other employees at or above the director level, a reduction in the annual retainer payable to
our board of directors, and a reduction of quarterly sales commissions. We implemented a workforce reduction, involuntary
furloughs, work schedule reductions, as well as a voluntary furlough program. Additionally, we reduced investments in
marketing and other promotional activities, paused certain clinical trial activities, reduced travel and professional services, and
delayed or terminated certain capital projects. We also saw a reduction in certain volume based cost of goods sold expenses
consistent with the reduction in revenue. These actions contributed to significant cost savings in 2020.
As our Screening and Precision Oncology businesses started to recover, we adjusted the proactive cost-saving measures
discussed above in order to support the recovery as well as prepare for future growth. During the fourth quarter of 2020, we
continued to plan for future growth through investing in our existing operations and through the business combinations further
discussed above.
We also ensured that we were well capitalized to meet our future goals by raising $1.13 billion, net of issuance costs,
through an underwritten public offering of convertible notes completed in February 2020 and $861.7 million, net of issuance
costs, through a registered direct offering of our common stock completed in October 2020. We finished the year with $1.84
billion in cash, cash equivalents, and marketable securities.
Comparison of the years ended December 31, 2020 and 2019
Revenue. Our revenue is primarily generated by our laboratory testing services, from our Cologuard, Oncotype IQ, and
COVID-19 tests. Our Screening revenue, which primarily includes laboratory service revenue from our Cologuard tests, was
$815.1 million and $810.1 million for the years ended December 31, 2020 and 2019, respectively. The increase was primarily
due to an increase in the number of completed Cologuard tests. Our Precision Oncology revenue, which primarily includes
laboratory service revenue from our global Oncotype products, was $440.5 million and $66.2 million for the years ended
December 31, 2020 and 2019, respectively. The increase was primarily due to a full year of Precision Oncology operations in
2020 after completing our combination with Genomic Health in November 2019. For the year ended December 31, 2020, we
also generated $235.8 million in revenue from our COVID-19 testing.
For the year ended December 31, 2020, our Screening and Precision Oncology laboratory service revenue was impacted by
the effects of the COVID-19 outbreak as discussed above. In response to the pandemic, we are conducting COVID-19 testing,
which has served as additional source of revenue outside our normal Screening and Precision Oncology laboratory testing
services.
Our cost structure. Our selling, general, and administrative expenses consist primarily of non-research personnel salaries,
office expenses, professional fees, sales and marketing expenses incurred in support of our commercialization efforts and non-
cash stock-based compensation.
Cost of sales includes costs related to inventory production and usage, shipment of collection kits and tissue samples,
royalties and the cost of services to process tests and provide results to healthcare providers.
We expect that revenue and cost of sales for our services will continue to fluctuate and be affected by the test volume of
our products, our operating efficiencies, patient adherence rates, payer mix, the levels of reimbursement, and payment patterns
of payers and patients.
63
Cost of sales (exclusive of amortization of acquired intangible assets). Cost of sales increased to $354.3 million for the
year ended December 31, 2020 from $216.7 million for the year ended December 31, 2019. The increase in cost of sales is
primarily due to costs incurred to support Oncotype DX products after the completion of our combination with Genomic Health
in November 2019 and costs incurred from COVID-19 testing, which began in March 2020. We also incurred an increase in
personnel and facility and support services to support future growth of our Cologuard test.
Amounts in millions
Production costs
Personnel expenses
Facility and support services
Stock-based compensation
Other cost of sales expenses
Total cost of sales expense
2020
2019
Change
$
186.3 $
144.8 $
103.3
51.4
12.9
0.4
42.5
23.0
5.8
0.6
41.5
60.8
28.4
7.1
(0.2)
$
354.3 $
216.7 $
137.6
Research and development expenses. Research and development expenses increased to $554.1 million for the year ended
December 31, 2020 compared to $139.7 million for the year ended December 31, 2019. The increase in research and
development expenses was primarily due to our acquisition of Base Genomics in October 2020, which was accounted for as an
asset acquisition and resulted in an expense of $412.6 million that is included in research and development expenses. The
acquisition is further described in Note 19 of our consolidated financial statements included in this Annual Report on Form 10-
K. In addition, there was an increase in personnel related costs and facility and support services as a result of our combination
with Genomic Health in November 2019. This increase was partially offset by decreased clinical trial activity, professional fees,
and other direct research and development expenses due to measures taken in response to the COVID-19 pandemic for a
portion of the year.
Amounts in millions
Intellectual property acquisition
Personnel expenses
Direct research and development expenses
Stock-based compensation
Facility and support services
Professional fees
Other research and development expenses
Total research and development expenses
2020
2019
Change
$
412.6 $
— $
60.5
42.9
20.0
12.7
3.1
2.3
38.5
69.8
17.2
6.4
5.0
2.8
412.6
22.0
(26.9)
2.8
6.3
(1.9)
(0.5)
$
554.1 $
139.7 $
414.4
64
General and administrative expenses. General and administrative expenses increased to $481.7 million for the year ended
December 31, 2020 compared to $352.5 million for the year ended December 31, 2019. The increase in general and
administrative expenses was primarily related to the inclusion of a full year of Genomic Health's operations after the completion
of our combination in November 2019. As part of the combination with Genomic Health, we incurred $62.8 million in
acquisition and integration related costs during the year ended December 31, 2019. Due to the COVID-19 pandemic and the
protective measures put in place in the first half of 2020, we saw a decrease in expected spend in our personnel and professional
fees. As our business began to recover in the second half of 2020, personnel expenses and stock-based compensation increased
due to additional headcount. We also incurred additional costs as we invested in our information technology infrastructure and
customer care center costs to support the growth of the Company.
Amounts in millions
Personnel expenses
Professional and legal fees
Stock-based compensation
Facility and support services
Other general and administrative
Total general and administrative expenses
2020
2019
Change
$
222.0 $
136.1 $
86.4
76.0
58.3
39.0
77.0
64.2
56.5
18.7
85.9
9.4
11.8
1.8
20.3
$
481.7 $
352.5 $
129.2
Sales and marketing expenses. Sales and marketing expenses increased to $589.9 million for the year ended December 31,
2020 compared to $385.2 million for the year ended December 31, 2019. The increase in sales and marketing expenses was
primarily a result of the additional personnel, facility and support services, and stock-based compensation costs incurred after
completing the combination with Genomic Health in November 2019. As discussed above, our sales force and Pfizer took
several steps to limit exposure to COVID-19 and many healthcare provider offices prohibited sales representatives throughout
the year, which ultimately reduced certain professional and personnel related costs, primarily in the second and third quarters of
2020. As our business began to recover in the second half of 2020, we ended our involuntary furloughs and hired additional
sales and marketing personnel, and we also increased our direct marketing spend to support the future growth of our products,
which resulted in an overall increase in spend during the year.
Amounts in millions
Personnel expenses
Direct marketing costs
Professional and legal fees
Facility and support services
Stock-based compensation
Other sales and marketing expenses
Total sales and marketing expenses
2020
2019
Change
$
280.3 $
166.7 $
133.8
77.7
45.5
44.0
8.6
99.9
87.7
9.0
21.3
0.6
113.6
33.9
(10.0)
36.5
22.7
8.0
$
589.9 $
385.2 $
204.7
Amortization of acquired intangible assets. Amortization of acquired intangible assets increased to $93.4 million for the
year ended December 31, 2020 compared to $16.0 million for the year ended December 31, 2019. This increase in amortization
of acquired intangible assets was primarily due to the Genomic Health combination.
Intangible asset impairment charge. Intangible asset impairment charge was $209.7 million for the year ended
December 31, 2020 compared to zero for the year ended December 31, 2019. The impairment charge recorded during the year
ended December 31, 2020 relates to the impairment charges recorded on the in-process research and development intangible
asset acquired as part of the combination with Genomic Health of $200.0 million and the intangible asset acquired through an
asset purchase agreement with Armune Biosciences, Inc. of $9.7 million.
Other operating income. Other operating income increased to $23.7 million for the year ended December 31, 2020
compared to zero for the year ended December 31, 2019. The income generated during the year ended December 31, 2020
represents the funding received under the CARES Act Provider Relief Fund, which was accepted from the Department of
Health & Human Services in May 2020.
65
Investment income, net. Investment income, net decreased to $6.9 million for the year ended December 31, 2020
compared to $26.5 million for the year ended December 31, 2019. The decrease in investment income, net was due to a
decrease in realized gains generated from the sale of marketable securities and a decrease in the average rate of return on
investments due to a decrease in market interest rates and a lower average balance in marketable securities for the year ended
December 31, 2020 when compared to the same period in 2019.
Interest expense. Interest expense increased to $96.0 million for the year ended December 31, 2020 compared to
$61.6 million for the year ended December 31, 2019. The increase is primarily due to the issuance of additional convertible
notes in February 2020. Interest expense recorded from our outstanding convertible notes totaled $86.1 million and $49.6
million for the years ended December 31, 2020 and 2019, respectively. Of the $86.1 million and $49.6 million in interest
expense recorded on outstanding convertible notes, $76.5 million and $42.3 million of interest expense relates to amortization
of debt discount and debt issuance costs for the years ended December 31, 2020 and 2019, respectively. The remaining interest
expense recorded on outstanding convertible notes relates to the stated interest that is paid out in cash. In addition to the interest
expense recorded on outstanding convertible notes, an additional $8.0 million and $10.6 million was recorded during the years
ended December 31, 2020 and 2019, respectively, as a result of the settlement of convertible notes. The convertible notes are
further described in Note 10 of our consolidated financial statements included in this Annual Report on Form 10-K. The
remaining interest expense for the years ended December 31, 2020 and 2019 relates to the stated interest on our construction
loan further described in Note 9 of our consolidated financial statements included in this Annual Report.
Income tax benefit (expense). An income tax benefit of $8.6 million was recorded for the year ended December 31, 2020
compared to a benefit of $184.9 million for the year ended December 31, 2019. The income tax benefit recorded during the year
ended December 31, 2019 was primarily a result of a change in deferred tax asset valuation allowance resulting from the
Genomic Health combination. The income tax benefit of $8.6 million for the year ended December 31, 2020 was recorded
primarily as a result of future limitations on and expiration of certain Federal and State deferred tax assets.
Liquidity and Capital Resources
We have financed our operations since inception primarily through public offerings of our common stock and convertible
debt and through revenue generated by the sale of our Cologuard test, and since the completion of our Genomic Health
combination, of Oncotype IQ tests. As of December 31, 2020, we had approximately $1.49 billion in unrestricted cash and cash
equivalents and approximately $348.7 million in marketable securities.
The majority of our investments in marketable securities consist of fixed income investments, and all are deemed available-
for-sale. The objectives of this portfolio are to provide liquidity and safety of principal while striving to achieve the highest rate
of return. Our investment policy limits investments to certain types of instruments issued by institutions with investment grade
credit ratings and places restrictions on maturities and concentration by type and issuer.
Net cash provided by operating activities was $136.5 million for the year ended December 31, 2020 compared to cash used
in operating activities of $111.7 million for the year ended December 31, 2019. The increase in cash provided by operating
activities for the year ended December 31, 2020 was primarily due to the increase in cash receipts as a result of an increase in
revenue. The increase in revenue was driven by having a full year of Precision Oncology operations in 2020 after completing
our combination with Genomic Health in November 2019. This was partially offset by an increase in cash payments made
related to an increase in inventory and other expenses necessary to process our tests. Additionally, we saw a reduction in
discretionary spend due to proactive cost saving measures taken throughout the year as a result of the COVID-19 pandemic.
Net cash used in investing activities was $702.0 million for the year ended December 31, 2020. We purchased $1.09 billion
in marketable securities, while $886.7 million of our marketable securities were sold or matured during the year. We used net
cash of $411.4 million in the acquisition of Base, and also invested $64.4 million in property and equipment, and $15.9 million
in strategic investments in privately held companies. Net cash used in investing activities was $124.4 million for the year ended
December 31, 2019. We purchased $634.1 million in marketable securities, while $1.66 billion of our marketable securities
were sold or matured during the year in order to prepare for our combination with Genomic Health in November 2019, which
resulted in using net cash of $973.9 million. Additionally, we invested $171.8 million in property and equipment, consisting
primarily of increased laboratory equipment purchases, computer equipment and computer software purchases, and assets under
construction in order to support our operations for future expected growth of our business.
66
Net cash provided by financing activities was $1.88 billion for the year ended December 31, 2020. We received proceeds
of $1.13 billion from the issuance of convertible notes with a maturity date of March 1, 2028 (the “2028 Notes”), and we used
$150.1 million of cash to settle convertible notes with an original maturity date of January 15, 2025 (the "2025 Notes"). We
also received proceeds of $861.7 million from the sale of common stock, net of issuance costs. Additionally, we received
proceeds of $27.1 million from the exercise of stock options, $18.4 million from our employee stock purchase plan, and made
payments on the principal of our outstanding construction loan and finance leases of $3.0 million. Net cash provided by
financing activities was $253.2 million for the year ended December 31, 2019. We received proceeds of $729.5 million from
the issuance of convertible notes with a maturity date of March 15, 2027 (the "2027 Notes," and collectively with the 2025
Notes and 2028 Notes, the "Notes"), and we used $493.4 million of cash to settle a portion of the 2025 Notes. Additionally, we
received proceeds of $8.8 million from the exercise of stock options, and $8.4 million from our employee stock purchase plan.
As described above, on January 4, 2021, we completed the Thrive Merger in a cash and stock transaction valued at
approximately $2.15 billion, of which $1.70 billion was paid at closing including cash consideration of approximately $600
million.
We expect that cash and cash equivalents and marketable securities on hand at December 31, 2020 will be sufficient to
fund our current operations for at least the next twelve months including the cash consideration paid as part of the Thrive
Merger in January 2021, based on current operating plans. However, we may need to raise additional capital to fully fund our
current strategic plan, which includes successfully commercializing our Cologuard and Oncotype IQ products and developing a
pipeline of future products. Additionally, we may enter into transactions to acquire other businesses, products, services, or
technologies as part of our strategic plan. If we are unable to obtain sufficient additional funds to enable us to fund our
operations through the completion of such plan, our results of operations and financial condition would be materially adversely
affected, and we may be required to delay the implementation of our plan and otherwise scale back our operations. Even if we
successfully raise sufficient funds to complete our plan, there is no certainty that we will be successful in generating sufficient
cash flow from operations or achieving and maintaining profitable operations in the future to enable it to meet our obligations
as they come due.
The following table sets forth certain information concerning our obligations to make contractual future payments, such as
pursuant to debt and lease agreements, as of December 31, 2020:
(In thousands)
Convertible notes (1)
Long-term debt obligations (2)
Other liabilities (3)
Purchase obligations (4)
Operating lease obligations
Finance lease obligations
Total
Payments Due by Period (5)
Less Than
More Than
Total
One Year
1 - 3 Years
3 - 5 Years
5 Years
$ 2,277,290 $
10,266 $
20,532 $
334,006 $ 1,912,486
24,847
22,991
36,200
180,519
20,706
1,914
3,834
32,450
19,881
5,674
22,933
5,422
2,500
40,902
11,160
—
2,121
1,250
40,595
3,872
—
11,614
—
79,141
—
$ 2,562,553 $
74,019 $
103,449 $
381,844 $ 2,003,241
_________________________________
(1) Includes the principal amount of our senior convertible notes due in 2025, 2027, and 2028, as well as the interest payments
associated with the notes. The notes are presented in the table in line with their maturity dates, but they may be converted
earlier if certain conditions are met. The holders of the convertible notes with a maturity date in 2025 will have the right to
convert beginning on January 1, 2021 and are classified as current on the consolidated balance sheet as of December 31, 2020.
See Note 10 in the Notes to Consolidated Financial Statements for further information.
(2) Includes obligations associated with outstanding construction loan agreement. See Note 9 in the Notes to Consolidated
Financial Statements for further information.
(3) Primarily includes obligations under a financing obligation. This also includes miscellaneous unrestricted grants that were
made to third parties.
67
(4) Primarily includes fixed obligations under the Restated Promotion Agreement with Pfizer, which is further discussed in
Note 12 in the Notes to Consolidated Financial Statements. This also includes payments to Mayo under our license agreement
discussed in Note 11 and a land purchase obligation agreement with the owner of the land adjacent to one of our current
Madison, Wisconsin facilities.
(5) Contingent consideration and contingent license payments are excluded from this table as the amount and timing of such
outflows cannot be reasonably determined. See Note 7 and Note 11 in the Notes to Consolidated Financial Statements for
further information.
Net Operating Loss Carryforwards
As of December 31, 2020, we had federal, state, and foreign NOL carryforwards of approximately $1.55 billion, $709.2
million, $4.3 million, respectively. We also had federal and state research tax credit carryforwards of approximately $54.3
million and $34.0 million, respectively. The net operating loss and tax credit carryforwards will expire at various dates through
2040, if not utilized. The Internal Revenue Code and applicable state laws impose substantial restrictions on a corporation’s
utilization of net operating loss and tax credit carryforwards if an ownership change is deemed to have occurred. Additionally,
tax law limitations may result in our NOLs expiring before we have the ability to use them. The Tax Cuts and Jobs Act (H.R. 1)
of 2017 limits the deduction for NOLs to 80 percent of current year taxable income and provides for an indefinite carryover
period for federal NOLs. Both provisions are applicable for losses arising in tax years beginning after December 31, 2017. As
of December 31, 2020, we had $615.1 million of NOLs incurred after December 31, 2017. For these reasons, even if we attain
profitability our ability to utilize our NOLs may be limited, potentially significantly so.
A valuation allowance is provided for deferred tax assets if it is more likely than not these items will either expire before
we are able to realize their benefit, or that future deductibility is uncertain. In general, companies that have a history of
operating losses are faced with a difficult burden of proof on their ability to generate sufficient future income in order to realize
the benefit of the deferred tax assets. We have recorded a valuation against our deferred tax assets based on our history of losses
and current uncertainty as to timing of future taxable income. Given the future limitations on and expiration of certain Federal
and State deferred tax assets, the recording of a valuation allowance resulted in a deferred tax liability of approximately
$19.5 million remaining at the end of 2020, which is included in other long-term liabilities on our consolidated balance sheet.
Additionally, an income tax benefit of $8.6 million was recorded primarily as a result of future limitations on and expiration of
certain Federal and State deferred tax assets.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S.
(“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts
reported in our consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and
judgments. We base our estimates on historical experience and on various other factors that are believed to be appropriate under
the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions.
While our significant accounting policies are more fully described in Note 1 in the Notes to Consolidated Financial
Statements, we believe that the following accounting policies and judgments are most critical to aid in fully understanding and
evaluating our reported financial results.
68
Revenue Recognition. Revenues are recognized when we release a result to the ordering healthcare provider, in an amount
that reflects the consideration we expect to collect in exchange for those services. The amount of revenue we recognize is based
on the established billing rates less contractual and other adjustments, which yields the constrained amount that we expect to
ultimately collect. We determine the amount we expect to ultimately collect using historical collections, established
reimbursement rates and other adjustments. The expected amount is typically lower than, if applicable, the agreed-upon
reimbursement amount due to several factors, such as the amount of any patient co-payments, out-of-network payers, the
existence of secondary payers and claim denials. The consideration derived from our contracts is fixed when we contract with a
direct bill payer. Our ability to collect is not contingent on the customer’s ability to collect through their downstream billing
efforts.
In the case of some of our laboratory service agreements (“LSAs”) with various organizations, the right to bill and collect
exists prior to the receipt of a specimen and release of a test result to the ordering healthcare provider, which results in deferred
revenue. The deferred revenue balance is generally relieved upon the release of the applicable patient’s test result to the
ordering healthcare provider or as of the date the customer has surpassed the window of time in which they are able to exercise
their rights for testing services. We believe these points in time represent our fulfillment of our obligations to the customer.
The quality of our billing operations, most notably those activities that relate to obtaining the correct information in order
to bill effectively for services provided, directly impacts the collectability of our receivables and revenue estimates. As such, we
continually assess the state of our order to cash cycle for areas of opportunity as we believe adequate operations support our
ability to appropriately estimate receivables and revenue. Upon ultimate collection, the aggregate amount received from payers
and patients where reimbursement was estimated is compared to previous collection estimates and, if necessary, the contractual
allowance is adjusted. Finally, should we later determine the judgments underlying estimated collections change, our financial
results could be negatively impacted in future quarters.
Tax Positions. A valuation allowance to reduce the deferred tax assets is reported if, based on the weight of the evidence, it
is more likely than not that some portion or all of the deferred tax assets will not be realized. We have incurred significant
losses since our inception and due to the uncertainty of the amount and timing of future taxable income, management has
determined that a valuation allowance of $157.6 million and $120.7 million at December 31, 2020 and 2019, respectively is
necessary to reduce the tax assets to the amount that is more likely than not to be realized. Due to the existence of the valuation
allowance, future changes in our unrecognized tax benefits will not impact our effective tax rate.
Convertible Notes. We account for convertible debt instruments that may be settled in cash or equity upon conversion by
separating the liability and equity components of the instruments in a manner that reflects our nonconvertible debt borrowing
rate. We determined the carrying amount of the liability component of the convertible debt instruments by using assumptions
that market participants would use in pricing a debt instrument, including market interest rates, credit standing, yield curves,
volatilities, and the expected life of the instrument. Determining the fair value of the debt component requires the use of
accounting estimates and assumptions. These estimates and assumptions are judgmental in nature and could have a significant
impact on the determination of the debt component, and the associated non-cash interest expense.
The amount allocated to the equity component is the difference between the principal value of the instrument and the fair
value of the liability component at issuance. The equity component, less any premium, is treated as a discount on the liability
component. The debt discount is amortized to interest expense over the contractual term of the debt instrument using the
effective interest rate method. In addition, debt issuance costs related to the debt instrument are allocated to the liability and
equity components based on their relative values. The debt issuance costs allocated to the liability component are amortized
over the contractual term of the debt instrument as additional non-cash interest expense. The transaction costs allocated to the
equity component are netted with the equity component of the convertible debt instrument in stockholders equity.
Business Combinations. Business Combinations are accounted for under the acquisition method in accordance with ASC
805, Business Combinations. The acquisition method requires identifiable assets acquired and liabilities assumed and any non-
controlling interest in the business acquired be recognized and measured at fair value on the acquisition date, which is the date
that the acquirer obtains control of the acquired business. The amount by which the fair value of consideration transferred as the
purchase price exceeds the net fair value of assets acquired and liabilities assumed is recorded as goodwill. Acquisitions that do
not meet the definition of a business combination under the ASC are accounted for as asset acquisitions. Asset acquisitions are
accounted for by allocating the cost of the acquisition to the individual assets acquired and liabilities assumed on a relative fair
value basis. Goodwill is not recognized in an asset acquisition with any consideration in excess of net assets acquired allocated
to acquired assets on a relative fair value basis. Transaction costs are expensed in a business combination and are considered a
component of the cost of the acquisition in an asset acquisition.
69
Impairment of Long-Lived Assets. We evaluate the fair value of long-lived assets, which include property, plant and
equipment, intangible assets, and investments in privately held companies, for impairment whenever events or changes in
circumstances indicate that the carrying amounts of the assets may not be fully recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be
generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or fair value less costs to sell.
Recent Accounting Pronouncements
See Note 1 in the Notes to Consolidated Financial Statements for the discussion of Recent Accounting Pronouncements.
Off-Balance Sheet Arrangements
As of December 31, 2020, we had no off-balance sheet arrangements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
Our exposure to market risk is principally confined to our cash, cash equivalents and marketable securities. We invest our
cash, cash equivalents, and marketable securities in securities of the U.S. governments and its agencies and in investment-grade,
highly liquid investments consisting of commercial paper, bank certificates of deposit, and corporate bonds, which as of
December 31, 2020 and December 31, 2019 were classified as available-for-sale. We place our cash, cash equivalents,
restricted cash, and marketable securities with high-quality financial institutions, limit the amount of credit exposure to any one
institution, and have established investment guidelines relative to diversification and maturities designed to maintain safety and
liquidity.
Based on a hypothetical ten percent adverse movement in interest rates, the potential losses in future earnings, fair value of
risk-sensitive financial instruments, and cash flows are immaterial, although the actual effects may differ materially from the
hypothetical analysis. While we believe our cash, cash equivalents, restricted cash, and marketable securities do not contain
excessive risk, we cannot provide absolute assurance that, in the future, our investments will not be subject to adverse changes
in market value. In addition, we maintain significant amounts of cash, cash equivalents, restricted cash, and marketable
securities at one or more financial institutions that are in excess of federally insured limits. Given the potential instability of
financial institutions, we cannot provide assurance that we will not experience losses on these deposits. We do not utilize
interest rate hedging agreements or other interest rate derivative instruments.
A hypothetical ten percent change in interest rates would not have a material adverse impact on our future operating results
or cash flows. All of our significant interest-bearing liabilities bear interest at fixed rates and therefore are not subject to
fluctuations in market interest rates; however, because these interest rates are fixed, we may be paying a higher interest rate,
relative to market, in the future if circumstances change.
Foreign Currency Risk
Substantially all of our revenues are recognized in U.S. dollars, although a small portion is denominated in foreign
currency as we continue to expand into markets outside of the U.S. Certain expenses related to our international activities are
payable in foreign currencies. As a result, factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets will affect our financial results.
70
Prior to our acquisition of Genomic Health in November 2019, the functional currency for each of our international
subsidiaries was its local currency. For 2019 our international subsidiaries use the U.S. dollar as the functional currency,
resulting in us not being subject to gains and losses from foreign currency translation of the subsidiary financial statements. In
September 2017, Genomic Health (now a wholly owned subsidiary) started entering into forward contracts to mitigate the
impact of adverse movements in foreign exchange rates related to the re-measurement of monetary assets and liabilities and
hedge our foreign currency exchange rate exposure. As of December 31, 2020, we had open foreign currency forward contracts
with notional amounts of $22.4 million. Although the impact of currency fluctuations on our financial results has been
immaterial in the past, there can be no guarantee that the impact of currency fluctuations related to our international activities
will not be material in the future.
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Item 8. Consolidated Financial Statements and Supplementary Data
EXACT SCIENCES CORPORATION
Index to Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Page
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78
79
80
81
83
72
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Exact Sciences Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheet of Exact Sciences Corporation and its subsidiaries (the
“Company”) as of December 31, 2020, and the related consolidated statements of operations, of comprehensive loss, of
stockholders’ equity and of cash flows for the year then ended, including the related notes (collectively referred to as the
“consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of
December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express
opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting
based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United
States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audit of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinions.
73
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Valuation of Net Accounts Receivable - Variable Consideration
As described in Note 2 to the consolidated financial statements, the Company’s revenue is primarily generated from laboratory
services from its Cologuard and Oncotype DX products. The Company’s customer is the patient. Management estimates the
amount of variable consideration using the expected value method, which represents the sum of probability-weighted amounts
in a range of possible consideration amounts. When estimating the amount of variable consideration, management considers
several factors, such as historical collections experience, patient insurance eligibility and payer reimbursement contracts. The
Company’s net accounts receivable as of December 31, 2020 was $233.2 million.
The principal considerations for our determination that performing procedures relating to the valuation of net accounts
receivable - variable consideration is a critical audit matter are the significant judgment by management when developing the
estimate of the amount of variable consideration, due to the estimation uncertainty involved in developing the estimate; this in
turn led to significant auditor judgment, subjectivity and effort in performing procedures and evaluating the audit evidence
obtained related to management’s estimate of the amount of variable consideration.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
management’s estimate of the amount of variable consideration, including controls over management’s methodology and data
used in the estimate. These procedures also included, among others, testing management’s process for developing the estimated
amount of variable consideration, including evaluating the appropriateness of the analysis and testing completeness and
accuracy of the underlying historical collection data used in the analysis; testing, on a sample basis, the accuracy of revenue
transactions and cash collections from the historical billing and collection data used in management’s analysis; and performing
a retrospective comparison of actual cash collected subsequent to year-end to evaluate the reasonableness the prior year
estimate of the amount of variable consideration.
Issuance and Settlement of Convertible Notes
As described in Notes 1 and 10 to the consolidated financial statements, the Company issued and sold $1.15 billion in aggregate
principal amount of convertible notes due in 2028 (the “2028 Notes”). Management accounts for convertible notes that may be
settled in cash or equity upon conversion by separating the liability and equity components of the instruments in a manner that
reflects the Company’s nonconvertible debt borrowing rate. Management determines the carrying amount of the liability
component of the convertible notes by using assumptions that market participants would use in pricing a debt instrument,
74
including market interest rates, credit standing, yield curves, volatilities, and expected life of the instrument. Determining the
fair value of the debt component requires the use of accounting estimates and assumptions. Management used $150.1 million of
the proceeds from the issuance of the 2028 Notes to settle $100.0 million of convertible notes due in 2025 (the “2025 Notes”).
The consideration transferred was allocated to the liability and equity components of the 2025 Notes using the equivalent rate
that reflected the borrowing rate for a similar non-convertible debt instrument immediately prior to settlement. The transaction
resulted in a loss on settlement of convertible notes of $8.0 million, which is recorded in interest expense in the Company’s
consolidated statement of operations. The loss represents the difference between (i) the fair value of the liability component and
(ii) the sum of the carrying value of the debt component and any unamortized debt issuance costs at the time of repurchase.
The principal considerations for our determination that performing procedures relating to the issuance and settlement of
convertible notes is a critical audit matter are the significant judgment by management to determine the fair value of the liability
component of the convertible debt at the time of issuance and to determine the fair value of the liability component of the
convertible debt settled at the time of repurchase in order to calculate the loss on settlement; this in turn led to a high degree of
auditor judgment, subjectivity and effort in performing procedures relating to management’s estimated market interest rate that
reflects the Company’s nonconvertible borrowing rate and the expected life of the convertible notes issued. In addition, the
audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to
management’s accounting for the convertible notes transactions, including controls over the determination of fair value of the
liability components of the convertible debt issued and settled. These procedures also included, among others, evaluating the
methodology used by management to determine the fair value of a similar liability that does not have an associated conversion
feature, testing the completeness and accuracy of the underlying data used in the model, and evaluating the reasonableness of
significant assumptions related to (i) estimated market interest rate that reflects the Company’s nonconvertible borrowing rate,
considering external market and industry data, and (ii) the expected life of the notes issued. Professionals with specialized skill
and knowledge were used to assist in evaluating whether the market interest rate used by management was reasonable.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 16, 2021
We have served as the Company’s auditor since 2020.
75
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
Exact Sciences Corporation
Madison, Wisconsin
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Exact Sciences Corporation (the “Company”) as of December
31, 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each
of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company at December 31, 2019, and the results of their operations and their cash flows for each of the two years
in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of
America.
Change in Accounting Method Related to Leases
As discussed in Notes 1 and 15 to the consolidated financial statements, the Company has changed its method of accounting for
leases in 2019 due to the adoption of Topic 842 — Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, LLP
We have served as the Company's auditor from 2012 to 2020.
Madison, Wisconsin
February 21, 2020
76
EXACT SCIENCES CORPORATION
Consolidated Balance Sheets
(Amounts in thousands, except per share data)
ASSETS
Current Assets:
Cash and cash equivalents
Marketable securities
Accounts receivable, net
Inventory
Prepaid expenses and other current assets
Total current assets
Long-term Assets:
Property, plant and equipment, net
Operating lease right-of-use assets
Goodwill
Intangible assets, net
Other long-term assets, net
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Accrued liabilities
Operating lease liabilities, current portion
Convertible notes, net, current portion
Debt, current portion
Other current liabilities
Total current liabilities
Long-term Liabilities:
Convertible notes, net, less current portion
Long-term debt, less current portion
Other long-term liabilities
Operating lease liabilities, less current portion
Total liabilities
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—no
shares at December 31, 2020 and December 31, 2019
Common stock, $0.01 par value Authorized—400,000,000 shares issued and outstanding—
159,423,410 and 147,625,696 shares at December 31, 2020 and December 31, 2019
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2020
December 31,
2019
$ 1,491,288 $
177,254
348,699
233,185
92,265
33,157
146,401
130,362
61,724
38,195
2,198,594
553,936
450,683
125,947
455,325
126,444
1,237,672
1,203,197
848,426
1,143,550
63,770
23,316
$ 4,925,092 $ 3,505,768
$
35,709 $
25,973
233,604
11,483
255,464
1,319
38,265
575,844
193,329
7,891
—
834
8,467
236,494
1,320,760
803,605
22,342
61,582
24,032
34,911
121,075
118,665
2,101,603
1,217,707
—
—
1,595
1,477
4,789,657
3,406,440
526
(100)
(1,119,756)
2,288,061
$ 4,925,092 $ 3,505,768
(1,968,289)
2,823,489
The accompanying notes are an integral part of these consolidated financial statements.
77
EXACT SCIENCES CORPORATION
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
Revenue
Operating expenses:
Cost of sales (exclusive of amortization of acquired intangible
assets)
Research and development
Sales and marketing
General and administrative
Amortization of acquired intangible assets
Intangible asset impairment charge
Total operating expenses
Other operating income
Loss from operations
Other income (expense)
Investment income, net
Interest expense
Total other income (expense)
Year Ended December 31,
2020
2019
2018
$
1,491,391 $
876,293 $
454,462
354,324
554,052
589,919
481,716
93,398
209,666
216,717
139,694
385,176
352,453
16,035
—
2,283,075
1,110,075
116,644
67,285
249,448
178,016
2,540
—
613,933
23,665
—
—
(768,019)
(233,782)
(159,471)
6,897
(95,983)
(89,086)
26,530
(61,599)
(35,069)
21,203
(36,789)
(15,586)
Net loss before tax
(857,105)
(268,851)
(175,057)
Income tax benefit (expense)
8,572
184,858
(92)
Net loss
Net loss per share—basic and diluted
$
$
(848,533) $
(83,993) $
(175,149)
(5.61) $
(0.64) $
(1.43)
Weighted average common shares outstanding—basic and diluted
151,137
131,257
122,207
The accompanying notes are an integral part of these consolidated financial statements.
78
EXACT SCIENCES CORPORATION
Consolidated Statements of Comprehensive Loss
(Amounts in thousands)
Net loss
Other comprehensive loss:
Year Ended December 31,
2020
2019
2018
$
(848,533) $
(83,993) $
(175,149)
Unrealized gain (loss) on available-for-sale investments
Foreign currency adjustment
Comprehensive loss, before tax
771
25
1,322
—
(708)
36
(847,737)
(82,671)
(175,821)
Income tax expense related to items of other comprehensive loss
(170)
—
—
Comprehensive loss, net of tax
$
(847,907) $
(82,671) $
(175,821)
The accompanying notes are an integral part of these consolidated financial statements.
79
EXACT SCIENCES CORPORATION
Consolidated Statements of Stockholders’ Equity
(Amounts in thousands, except share data)
Common Stock
Number of
Shares
$0.01
Par Value
Additional
Paid In
Capital
Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Total
Stockholders’
Equity
Balance, January 1, 2018
120,497,426 $
1,205 $
1,380,577 $
(750) $
(860,614) $
520,418
Equity component of convertible
debt, net of issuance costs
—
Exercise of common stock options
1,033,012
Issuance of common stock to fund
the Company’s 2017 401(k) match
86,882
Compensation expense related to
issuance of stock options and
restricted stock awards
Purchase of employee stock
purchase plan shares
Net loss
Accumulated other comprehensive
income
1,228,611
346,609
—
—
—
10
1
13
3
—
—
260,246
6,626
4,302
60,251
4,892
—
—
—
—
—
—
—
—
—
—
—
—
—
260,246
6,636
4,303
60,264
4,895
(175,149)
(175,149)
(672)
—
(672)
Balance, December 31, 2018
123,192,540 $
1,232 $
1,716,894 $
(1,422) $
(1,035,763) $
680,941
Settlement of convertible notes
—
Shares issued to settle convertible
notes
Equity component of convertible
debt, net of issuance costs
2,159,716
—
Exercise of common stock options
641,925
Issuance of common stock to fund
the Company’s 2018 401(k) match
86,532
Compensation expense related to
issuance of stock options and
restricted stock awards
Purchase of employee stock
purchase plan shares
Issuance of common stock for
business combinations
Stock issuance costs
Net loss
Accumulated other comprehensive
loss
4,322,366
176,458
17,046,159
—
—
—
—
22
—
6
1
43
2
171
—
—
—
(300,768)
182,455
268,368
8,781
7,408
108,440
8,394
1,406,909
(441)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(83,993)
(300,768)
182,477
268,368
8,787
7,409
108,483
8,396
1,407,080
(441)
(83,993)
1,322
—
1,322
Balance, December 31, 2019
147,625,696 $
1,477 $
3,406,440 $
(100) $
(1,119,756) $
2,288,061
Equity component of convertible
debt, net of issuance costs
Settlement of convertible notes,
net of tax
Exercise of common stock options
Issuance of common stock to fund
the Company’s 2019 401(k) match
Compensation expense related to
issuance of stock options and
restricted stock awards
Purchase of employee stock
purchase plan shares
Issuance of common stock for
business combinations
Issuance of common stock for
registered direct offering
Net loss
Accumulated other comprehensive
loss
—
—
702,907
136,559
1,665,408
301,064
386,293
8,605,483
—
—
—
—
7
1
17
3
4
86
—
—
346,641
(64,199)
27,070
12,006
152,889
18,352
28,843
861,615
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
346,641
(64,199)
27,077
12,007
152,906
18,355
28,847
861,701
(848,533)
(848,533)
626
—
626
Balance, December 31, 2020
159,423,410 $
1,595 $
4,789,657 $
526 $
(1,968,289) $
2,823,489
The accompanying notes are an integral part of these consolidated financial statements.
80
EXACT SCIENCES CORPORATION
Consolidated Statements of Cash Flows
(Amounts in thousands, except share data)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and other amortization
Loss on disposal of property, plant and equipment
Unrealized net (gain) loss on revaluation of equity securities
Loss on preferred stock investment
Deferred tax benefit
Stock-based compensation
Loss on settlement of convertible notes
Amortization of convertible note debt discount and issuance costs
Amortization of deferred financing costs and other liabilities
Accretion (Amortization) of discount (premium) on short-term investments
Amortization of acquired intangibles
Asset acquisition IPR&D expense
Intangible asset impairment charge
Non-cash lease expense
Changes in assets and liabilities, net of effects of acquisition:
Accounts receivable, net
Inventory, net
Operating lease liabilities
Accounts payable and accrued liabilities
Other assets and liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchases of marketable securities
Maturities of marketable securities
Purchases of property, plant and equipment
Investment in privately held companies
Business combination, net of cash acquired
Asset acquisition, net of cash acquired
Other investing activities
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of convertible notes, net
Proceeds from exercise of common stock options
Proceeds from sale of common stock, net of issuance costs
Proceeds in connection with the Company's employee stock purchase plan
Payments on settlement of convertible notes
Proceeds from construction loan, net deferred financing costs
Other financing activities
Net cash provided by financing activities
Year Ended December 31,
2020
2019
2018
$
(848,533) $
(83,993) $
(175,149)
69,964
2,470
(1,179)
—
(9,862)
152,906
7,954
76,479
(3,889)
1,549
93,398
412,568
209,666
15,720
(100,526)
(30,310)
(8,784)
55,165
41,726
136,482
34,212
1,394
207
—
(185,109)
108,483
10,558
42,256
(4,467)
(3,102)
16,035
—
—
5,427
(27,633)
(19,041)
(4,114)
3,469
(6,237)
(111,655)
20,544
353
—
765
—
60,264
—
28,564
(2,394)
(3,516)
2,540
—
—
—
(17,292)
(12,729)
—
33,076
(3,966)
(68,940)
(1,089,953)
(634,117)
(1,192,506)
886,675
(64,352)
(15,947)
(6,658)
(411,421)
(381)
1,657,204
(171,802)
(1,000)
(973,861)
—
(852)
578,786
(150,093)
—
(17,908)
—
(578)
(702,037)
(124,428)
(782,299)
1,125,547
729,477
896,430
27,077
861,701
18,355
8,787
—
8,396
(150,054)
(493,356)
—
(3,005)
319
(442)
1,879,621
253,181
6,636
—
4,895
—
24,236
1,945
934,142
36
82,939
77,491
Effects of exchange rate changes on cash and cash equivalents
—
—
Net increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at the beginning of period
1,314,066
177,528
17,098
160,430
Cash, cash equivalents and restricted cash at the end of period
$
1,491,594 $
177,528 $
160,430
81
EXACT SCIENCES CORPORATION
Consolidated Statements of Cash Flows
(Amounts in thousands, except share data)
Supplemental disclosure of non-cash investing and financing activities:
Property, plant and equipment acquired but not paid
Property acquired under build-to-suit lease
Unrealized loss on available-for-sale investments
Issuance of 136,559, 86,532, and 86,882 shares of common stock to fund the Company’s
401(k) matching contribution for 2019, 2018, and 2017, respectively
Issuance of 2,159,716 shares of common stock upon settlement of convertible notes
Retirement of equity component of convertible notes settled
Issuance of 386,293 and 17,046,159 shares of common stock in 2020 and 2019, respectively,
for business combination
Business acquisition contingent consideration liability
Supplemental disclosure of cash flow information:
Interest paid
Year Ended December 31,
2020
2019
2018
$
$
$
$
$
$
$
$
$
2,685 $
10,265 $
— $
771 $
— $
1,322 $
33,452
2,092
(708)
12,007 $
7,409 $
4,303
— $
182,477 $
(64,199) $
(300,768) $
(28,847) $
(1,407,080) $
—
—
—
— $
— $
3,060
9,384 $
5,128 $
4,638
The accompanying notes are an integral part of these consolidated financial statements.
82
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements
(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 screening and 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 consolidated financial statements include the accounts of Exact Sciences Corporation and those of its
wholly-owned subsidiaries and variable interest entities. All intercompany transactions and balances have been eliminated upon
consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the
United States ("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 convertible notes, valuation of intangible assets
and goodwill, and accounting for income taxes among others.
The spread of the coronavirus (“COVID-19”) has affected many segments of the global economy, including the cancer
screening and diagnostics industry. The COVID-19 outbreak, which the World Health Organization has classified as a
pandemic, has prompted governments and regulatory bodies throughout the world to enact broad precautionary measures,
including “stay-at-home” orders, restrictions on the performance of “non-essential” services, public gatherings and travel.
Health systems, including key markets where the Company operates, have been, or may be, overwhelmed with high volumes of
patients suffering from COVID-19. Even in areas where “stay-at-home” restrictions have been lifted and the number of cases of
COVID-19 has declined, many individuals remain cautious about resuming activities such as preventive-care medical visits.
Medical practices continue to be cautious about allowing individuals, such as sales representatives, into their offices. Many
individuals continue to work from home rather from an office setting. The Company cannot forecast when the COVID-19
pandemic will end or the extent to which practices that have emerged during the pandemic will continue once it subsides.
The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving
factors including, but not limited to: the magnitude and duration of COVID-19, the extent to which it will impact worldwide
macroeconomic conditions including interest rates, employment rates and health insurance coverage, the speed of the
anticipated recovery, access to capital markets, and governmental and business reactions to the pandemic. 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 December 31, 2020 and
through the date of the filing of this Annual Report on Form 10-K. 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 had a significant impact on the
Company's 2020 revenues and operating results.
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.
83
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
In April 2020, the Company received $23.7 million from the United States Department of Health and Human Services
(“HHS”) as a distribution from the Public Health and Social Services Emergency Fund provided for in the CARES Act. The
fund payments are grants, not loans, and HHS will not require repayment provided the funds are utilized to offset expenses
incurred to address COVID-19 or to replace lost revenues. The Company accepted the terms and conditions of the grant in May
2020 and recognized the entire $23.7 million during the year ended December 31, 2020, due to lost revenue attributable to
COVID-19, which is reflected in other operating income in the consolidated statement of operations. The Company cannot
predict the extent to which it might receive any additional funds to be paid out under the Provider Relief Fund, and to what
extent the financial impact of receiving such funds might offset the broad implications of the COVID-19 pandemic, which
include increases in the Company’s costs and lost revenues.
Cash and Cash Equivalents
The Company considers cash on hand, demand deposits in a bank, money market funds, and all highly liquid investments
with an original maturity of 90 days or less to be cash and cash equivalents.
Marketable Securities
Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such
designation as of each balance sheet date. Debt securities carried at amortized cost are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to maturity. Debt securities not classified as held-to-maturity
are classified as available-for-sale. Available-for-sale securities are carried at fair value. The unrealized gains and losses, net of
tax, on the Company's debt securities are reported in other comprehensive income. Marketable equity securities are measured at
fair value and the unrealized gains and losses, net of tax, are recognized in other income (expense) in the consolidated
statements of operations. The amortized cost of debt securities in this category is adjusted for amortization of premiums and
accretion of discounts to maturity computed under the effective interest rate method. Such amortization is included in
investment income, net. Realized gains and losses and declines in value as a result of credit losses on available-for-sale
securities are included in the consolidated statements of operations as investment income, net. The cost of securities sold is
based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in
the consolidated statements of operations as investment income, net.
The Company’s investment policy limits investments to certain types of instruments issued by institutions with investment
grade credit ratings and places restrictions on maturities and concentration by type and issuer. Investments in which the
Company has the ability and intent, if necessary, to liquidate in order to support its current operations (including those with a
contractual term greater than one year from the date of purchase) are classified as current.
The Company periodically evaluates its available-for-sale debt securities in unrealized loss positions to determine whether
any impairment is a result of a credit loss or other factors. This evaluation includes, but is not limited to, significant quantitative
and qualitative assessments and estimates regarding credit ratings, significance of a security’s loss position, adverse conditions
specifically related to the security, and the payment structure of the security.
Allowance for Doubtful Accounts
The Company estimates an allowance for doubtful accounts against accounts receivable using historical collection trends,
aging of accounts, current and future implications surrounding the ability to collect such as economic conditions, and regulatory
changes. The allowance for doubtful accounts is evaluated on a regular basis and adjusted when trends, significant events or
other substantive evidence indicate that expected collections will be less than applicable accrual rates. At December 31, 2020
and 2019, the allowance for doubtful accounts recorded was not material to the Company's consolidated balance sheets. For the
years ended December 31, 2020, 2019 and 2018, there was an immaterial amount of bad debt expense written off against the
allowance and charged to operating expense.
84
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Inventory
Inventory is stated at the lower of cost or net realizable value. The Company determines the cost of inventory using the
first-in, first out method (“FIFO”). The Company estimates the recoverability of inventory by reference to internal estimates of
future demands and product life cycles, including expiration. The Company periodically analyzes its inventory levels to identify
inventory that may expire prior to expected sale, no longer meet quality specifications, or has a cost basis in excess of its
estimated realizable value and records a charge to cost of sales for such inventory as appropriate.
Direct and indirect manufacturing costs incurred during process validation with probable future economic benefit are
capitalized. Validation costs incurred for other research and development activities, which are not permitted to be sold, have
been expensed to research and development in the Company’s consolidated statements of operations.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using the straight-line method over the assets’ estimated
useful lives. Land is stated at cost and does not depreciate. Additions and improvements are capitalized, including direct and
indirect costs incurred to validate equipment and bring to working conditions. Revalidation costs, including maintenance and
repairs are expensed when incurred.
Software Development Costs
Costs related to internal use software, including hosted arrangements, are incurred in three stages: the preliminary project
stage, the application development stage, and the post-implementation stage. Costs incurred during the preliminary project and
post-implementation stages are expensed as incurred. Costs incurred during the application development stage that meet the
criteria for capitalization are capitalized and amortized, when the software is ready for its intended use, using the straight‑line
basis over the estimated useful life of the software, or the duration of the hosting agreement.
Investments in Privately Held Companies
The Company determines whether its investments in privately held companies are debt or equity based on their
characteristics, in accordance with the applicable accounting guidance for such investments. The Company also evaluates the
investee to determine if the entity is a variable interest entity (“VIE”) and, if so, whether the Company is the primary
beneficiary of the VIE, in order to determine whether consolidation of the VIE is required. If consolidation is not required and
the Company does not have voting control of the entity, the investment is evaluated to determine if the equity method of
accounting should be applied. The equity method applies to investments in common stock or in substance common stock where
the Company exercises significant influence over the investee.
Investments in privately held companies determined to be equity securities are accounted for as non-marketable securities.
The Company adjusts the carrying value of its non-marketable equity securities for changes from observable transactions for
identical or similar investments of the same issuer, less impairment. All gains and losses on non-marketable equity securities,
realized and unrealized, are recognized in investment income, net in the consolidated statements of operations.
Investments in privately held companies determined to be debt securities are accounted for as available-for-sale or held to
maturity securities, in accordance with the applicable accounting guidance for such investments.
Derivative Financial Instruments
The Company hedges a portion of its foreign currency exposures related to outstanding monetary assets and liabilities
using foreign currency forward contracts. The foreign currency forward contracts are included in prepaid expenses and other
current assets or in accrued liabilities in the consolidated balance sheets, depending on the contracts’ net position. These
contracts are not designated as hedges, and as a result, changes in their fair value are recorded in other income (expense) in the
consolidated statements of operations.
85
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Business Combinations and Asset Acquisitions
Business Combinations are accounted for under the acquisition method in accordance with Accounting Standards
Codification ("ASC") 805, Business Combinations. The acquisition method requires identifiable assets acquired and liabilities
assumed and any non-controlling interest in the business acquired be recognized and measured at fair value on the acquisition
date, which is the date that the acquirer obtains control of the acquired business. The amount by which the fair value of
consideration transferred as the purchase price exceeds the net fair value of assets acquired and liabilities assumed is recorded
as goodwill. Acquisitions that do not meet the definition of a business combination under the ASC are accounted for as asset
acquisitions. Asset acquisitions are accounted for by allocating the cost of the acquisition to the individual assets acquired and
liabilities assumed on a relative fair value basis. Goodwill is not recognized in an asset acquisition with any consideration in
excess of net assets acquired allocated to acquired assets on a relative fair value basis. Transaction costs are expensed in a
business combination and are considered a component of the cost of the acquisition in an asset acquisition.
Intangible Assets
Purchased intangible assets are recorded at fair value. The Company uses a discounted cash flow model to value intangible
assets. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, risk, the
cost of capital, terminal values and market participants.
Patent costs are capitalized as incurred, only if the Company determines that there is some probable future economic
benefit derived from the transaction. A capitalized patent is amortized over its estimated useful life, beginning when such patent
is approved. Capitalized patent costs are expensed upon disapproval, upon a decision by the Company to no longer pursue the
patent or when the related intellectual property is either sold or deemed to be no longer of value to the Company. The Company
determined that all patent costs incurred during the years ended December 31, 2020, 2019 and 2018 should be expensed and not
capitalized as the future economic benefit derived from the patent costs incurred cannot be determined.
Acquired In-process Research and Development ("IPR&D")
Acquired IPR&D represents the fair value assigned to research and development assets that have not reached technological
feasibility. The value assigned to acquired IPR&D is determined by estimating the costs to develop the acquired technology
into commercially viable products, estimating the resulting revenues from the projects and discounting the net cash flows to
present value. The revenues and cost projections used to value acquired IPR&D are, as applicable, reduced based on the
probability of success. IPR&D projects acquired in a business combination that are not complete are capitalized and accounted
for as indefinite-lived intangible assets until completion or abandonment of the related R&D efforts. Upon successful
completion of the project, the capitalized amount is amortized over its estimated useful life. If a project is abandoned, all
remaining capitalized amounts are written off immediately. There are often major risks and uncertainties associated with
IPR&D projects as we are required to obtain regulatory approvals in order to be able to market the resulting products. Such
approvals require completing clinical trials that demonstrate the products effectiveness. Consequently, the eventual realized
value of the IPR&D project may vary from its fair value at the date of acquisition, and IPR&D impairment charges may occur
in future periods.
Capitalized IPR&D projects are tested for impairment annually and whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. The Company considers various factors for potential impairment, including
the current legal and regulatory environment, current and future strategic initiatives and the competitive landscape. Adverse
clinical trial results, significant delays in obtaining marketing approval, the inability to bring a product to market and the
introduction or advancement of competitors' products could result in partial or full impairment of the related intangible assets.
Goodwill
The Company evaluates goodwill for possible impairment in accordance with Financial Accounting Standards Board
("FASB") ASC 350 on an annual basis during the fourth quarter, or more frequently if events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. Qualitative factors considered in this assessment
include industry and market conditions, overall financial performance, and other relevant events and factors affecting the
Company's business. Based on the qualitative assessment, if it is determined that the fair value of goodwill is more likely than
not to be less than its carrying amount, the fair value of a reporting unit will be calculated and compared with its carrying
amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value.
86
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Impairment of Long-Lived Assets
The Company evaluates the fair value of long-lived assets, which include property, plant and equipment, finite-lived
intangible assets, and investments in privately held companies, for impairment whenever events or changes in circumstances
indicate that the carrying amounts of the assets may not be fully recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
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:
(In thousands)
Shares issuable in connection with acquisitions
Shares issuable upon exercise of stock options
Shares issuable upon the release of restricted stock awards
Shares issuable upon the release of performance share units
Shares issuable upon conversion of convertible notes
Accounting for Stock-Based Compensation
December 31,
2020
2019
2018
157
2,231
3,968
619
20,309
27,284
—
2,700
3,801
583
12,196
19,280
—
2,532
3,847
2,399
12,044
20,822
The Company requires all share-based payments to employees, including grants of employee stock options, restricted
stock, restricted stock units, shares purchased under an employee stock purchase plan (if certain parameters are not met), and
performance share units to be recognized in the financial statements based on their grant date fair values. Forfeitures of any
share-based awards are recognized as they occur.
The fair values and recognition of the Company's share-based payment awards are determined as follows:
The fair value of each service-based option award is estimated on the date of grant using the Black-Scholes option-pricing
model. The Black-Scholes pricing model utilizes the following assumptions:
Expected Term—Expected life of an option award is the average length of time over which the Company expects
employees will exercise their options, which is based on historical experience with similar grants.
Expected Volatility—Expected volatility is based on the Company’s historical stock volatility data over the expected term
of the awards.
Risk-Free Interest Rate—The Company bases the risk-free interest rate on the implied yield currently available on U.S.
Treasury zero-coupon issues with an equivalent expected term.
The estimated fair value of these awards is recognized to expense using the straight-line method over the expected term.
The fair value of service-based awards for each restricted stock unit award is determined on the date of grant using the
closing stock price on that day. The estimated fair value of these awards is recognized to expense using the straight-line method
over the vesting period.
87
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
The fair value of performance-based equity awards is determined on the date of grant using the closing stock price on that
day. The expense recognized each period is partially dependent on the probability of what performance conditions will be met
which is determined by management's evaluation of internal and external factors. Determining the appropriate amount to
expense based on the anticipated achievement of the stated goals requires judgment, including forecasting future financial
results. The estimate of the timing of the expense recognition is revised periodically based on the probability of achieving the
goals and adjustments are made as appropriate. The cumulative impact of any revision is reflected in the period of the change. If
the financial performance targets and operational milestones are not achieved, the award would not vest, so no compensation
cost would be recognized and any previously recognized stock-based compensation expense would be reversed.
Research and Development Costs
Research and development costs are expensed as incurred. These expenses include the costs of our proprietary research and
development efforts, as well as costs of IPR&D projects acquired as part of an asset acquisition that have no alternative future
use. Upfront and milestone payments due to third parties in connection with research and development collaborations prior to
regulatory approval are expensed as incurred. Milestone payments due to third parties upon, or subsequent to, regulatory
approval are capitalized and amortized into research and development costs over the shorter of the remaining license or product
patent life, when there are no corresponding revenues related to the license or product. Nonrefundable advance payments for
goods and services that will be used in future research and development activities are expensed when the activity has been
performed or when the goods have been received, rather than when the payment is made.
The Company incurred research and development expenses of $554.1 million, $139.7 million, and $67.3 million during
the years ended December 31, 2020, 2019, and 2018, respectively, including IPR&D of $412.6 million that was acquired in an
asset acquisition in 2020 and had no alternative future use. The value of the acquired IPR&D that was expensed was determined
by identifying those acquired specific IPR&D projects that would be continued and which (a) were incomplete and (b) had no
alternative future use. Acquired IPR&D assets that are acquired in an asset acquisition and which have no alternative future use
are classified as an investing cash outflow in the consolidated statement of cash flows.
Advertising Costs
The Company expenses the costs of media advertising at the time the advertising takes place. The Company expensed
approximately $93.2 million, $88.7 million, and $93.7 million of media advertising during the years ended December 31, 2020,
2019, and 2018, respectively, which is recorded in sales and marketing expenses on the Company's consolidated statements of
operations.
Fair Value Measurements
The FASB has issued authoritative guidance that requires fair value to be based on the assumptions market participants
would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to
develop those assumptions. Under that standard, fair value measurements are separately disclosed by level within the fair value
hierarchy. The fair value hierarchy establishes and prioritizes the inputs used to measure fair value that maximizes the use of
observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that
market participants would use in pricing the asset or liability developed based on market data obtained from sources
independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions
market participants would use in pricing the asset or liability developed based on the best information available in the
circumstances.
Convertible Notes
The Company accounts for convertible debt instruments that may be settled in cash or equity upon conversion by
separating the liability and equity components of the instruments in a manner that reflects the Company’s nonconvertible debt
borrowing rate. The Company determines the carrying amount of the liability component of the convertible debt instrument by
using assumptions that market participants would use in pricing a debt instrument, including market interest rates, credit
standing, yield curves, volatilities, and expected life of the instrument. Determining the fair value of the debt component
requires the use of accounting estimates and assumptions. These estimates and assumptions are judgmental in nature and could
have a significant impact on the determination of the debt component, and the associated non-cash interest expense.
88
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
The amount allocated to the equity component is the difference between the principal value of the instrument and the fair
value of the liability component at issuance. The equity component, less any premium, is treated as a discount on the liability
component. The debt discount is amortized to interest expense over the contractual term of the debt instrument using the
effective interest rate method. In addition, debt issuance costs related to the debt instrument are allocated to the liability and
equity components based on their relative values. The debt issuance costs allocated to the liability component are amortized
over the contractual term of the debt instrument as additional non-cash interest expense. The transaction costs allocated to the
equity component are netted with the equity component of the convertible debt instrument in stockholders equity.
Leases
The Company acts as lessee in its lease agreements, which include operating leases for corporate offices, laboratory space,
warehouse space, vehicles and certain laboratory and office equipment, and finance leases for certain equipment and vehicles.
The Company determines whether an arrangement is, or contains, a lease at inception. At the beginning of fiscal year 2019,
the company adopted ASC Topic 842. The Company records the present value of lease payments as right-of-use (“ROU”)
assets and lease liabilities on the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying
asset for the lease term and lease liabilities represent an obligation to make lease payments based on the present value of lease
payments over the lease term. Classification of lease liabilities as either current or non-current is based on the expected timing
of payments due under the Company’s obligations.
As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate
based on the information available at commencement date in determining the present value of lease payments. The incremental
borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term and
at an amount equal to the lease payments in a similar economic environment. In order to determine the appropriate incremental
borrowing rates, the Company has used a number of factors including the credit rating, and the lease term.
The ROU asset also consists of any lease incentives received. The lease terms used to calculate the ROU asset and related
lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that
option. “Reasonably certain” is assessed internally based on economic, industry, company, strategic and contractual factors.
The leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the lease for up to 10
years, and some of which include options to terminate the lease within 1 year. Operating lease expense and amortization of
finance lease ROU assets are recognized on a straight-line basis over the lease term as an operating expense. Finance lease
interest expense is recorded as interest expense on the Company’s consolidated statements of operations.
The Company accounts for leases acquired in business combinations by measuring the lease liability at the present value of
the remaining lease payments as if the acquired lease were a new lease for the Company. This measurement includes
recognition of a lease intangible for any below-market terms present in the leases acquired. The below-market lease intangible
is included in the ROU asset on the consolidated balance sheets and are amortized over the remaining lease term. The Company
has not acquired any leases with above-market terms.
The Company has taken advantage of certain practical expedients offered to registrants at adoption of ASC 842. The
Company does not apply the recognition requirements of ASC 842 to short-term leases. Instead, those lease payments are
recognized in profit or loss on a straight-line basis over the lease term. Further, as a practical expedient, all lease contracts are
accounted for as one single lease component, as opposed to separating lease and non-lease components to allocate the
consideration within a single lease contract.
Revenue Recognition
Revenues are recognized when the satisfaction of the performance obligation occurs, in an amount that reflects the
consideration the Company expects to collect in exchange for those services. To determine revenue recognition for the
arrangements that the Company determines are within the scope of FASB ASC Topic 606, Revenue from Contracts with
Customers, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the
performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance
obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 2 for
further discussion.
89
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Foreign Currency Transactions
Prior to 2019, the Company’s international subsidiaries’ functional currency was the local currency and assets and
liabilities were translated into U.S. dollars at the period-end exchange rate or historical rates, as appropriate. Consolidated
statements of operations were translated at average exchange rates for the period, and the cumulative translation adjustments
resulting from changes in exchange rates were included in the Company’s consolidated balance sheet as a component of
additional paid-in capital. In 2019 and 2020, the Company’s international subsidiaries use the U.S. dollar as the functional
currency, resulting in the Company not being subject to gains and losses from foreign currency translation of the subsidiary
financial statements. The Company recognizes gains and losses from foreign currency transactions in the consolidated
statements of operations. Net foreign currency transaction gains or losses were not material to the consolidated statements of
operations for the periods presented.
Concentration of Credit Risk
Financial instruments that subject the Company to credit risk consist of cash, cash equivalents and marketable securities.
As of December 31, 2020, the Company had cash and cash equivalents deposited in financial institutions in which the balances
exceed the federal government agency insured limit of $250,000 by approximately $237.0 million. The Company has not
experienced any losses in such accounts and management believes it is not exposed to any significant credit risk.
Through December 31, 2020, the Company’s revenues have been primarily derived from the sale of Cologuard, Oncotype
DX, and COVID-19 tests. The following is a breakdown of revenue and accounts receivable from major payers:
Major Payer
Centers for Medicare and Medicaid
Services
UnitedHealthcare
State of Wisconsin
Tax Positions
% Revenue for the years ended December 31,
% Accounts Receivable at December 31,
2020
21%
10%
12%
2019
29%
13%
—%
2018
36%
13%
—%
2020
14%
7%
22%
2019
19%
7%
—%
2018
32%
10%
—%
A valuation allowance to reduce the deferred tax assets is reported if, based on the weight of the evidence, it is more likely
than not that some portion or all of the deferred tax assets will not be realized. The Company has incurred significant losses
since its inception and due to the uncertainty of the amount and timing of future taxable income, the Company has determined
that a $157.6 million and $120.7 million valuation allowance at December 31, 2020 and 2019 is necessary to reduce the tax
assets to the amount that is more likely than not to be realized. The change in valuation allowance as of December 31, 2020 and
2019 was an increase of $36.9 million and a decrease of $89.2 million, respectively. An income tax benefit of $8.6 million was
recorded primarily as a result of future limitations on and expiration of certain Federal and State deferred tax assets. Due to the
existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact our effective tax rate.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments-Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments. The updated guidance requires companies to measure all
expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions, and
reasonable supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit
losses on financial assets, including trade receivables. The updates also require available-for-sale debt security credit losses to
be recognized as allowances rather than a reduction in amortized cost. The guidance was adopted by the Company on January
1, 2020. The requirements of the ASU did not result in the recognition of a material allowance for current expected credit
losses, as the Company’s analysis of collectability looks at historical experience as well as current and future implications
surrounding the ability to collect. Adoption of the updated guidance did not have a material impact on the Company’s
consolidated financial statements.
90
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments –Credit
Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The updated guidance provides clarity
regarding measurement of securities without readily determinable fair values. The guidance was adopted on January 1, 2020
and did not have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles –Goodwill and Other –Internal-Use Software (Subtopic
350-40). The update provided guidance for evaluating the accounting for fees paid by a customer in a cloud computing
arrangement that is a service contract. The guidance was adopted on a prospective basis, beginning on January 1, 2020 and it
did not have a material impact on the Company's consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820); Disclosure Framework — Changes
to the Disclosure Requirements for Fair Value Measurement. The guidance provided an update to the disclosure requirements
for fair value measurements under the scope of ASC 820. The updates were adopted on January 1, 2020 and did not have a
material impact on the Company’s consolidated financial statements.
In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808). The update provided
additional guidance regarding the interaction between Topic 808 on Collaborative Arrangements and Topic 606 on Revenue
Recognition. The guidance was adopted on January 1, 2020 and did not have a material impact on the Company's consolidated
financial statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes. The update simplifies the accounting for income taxes through removing exceptions related to certain intraperiod
allocations and deferred tax liabilities; clarifying guidance primarily related to evaluating the step-up tax basis for goodwill in a
business combination; and reflecting enacted changes in tax laws or rates in the annual effective tax rate. The amended
guidance is effective for interim and annual periods in 2021, however early adoption is permitted. The guidance was early
adopted on January 1, 2020 and did not have a material impact on the Company’s consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting. The updated guidance provides optional expedients for applying the
requirements of certain topics in the codification for contracts that are modified because of reference rate reform. In addition to
the optional expedients, the update includes a general principle that permits an entity to consider contract modifications due to
reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a
previous accounting determination. The updated guidance is effective for all entities as of March 12, 2020 and through
December 31, 2022. The Company adopted the guidance upon issuance on March 12, 2020. There was no impact on the
Company's consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2020, The Financial Accounting Standards Board issued 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, the new guidance modifies how particular convertible instruments and certain contracts that may be
settled in cash or shares impact the computation of diluted earnings per share. 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 is currently evaluating the impact of this
guidance on its consolidated financial statements.
91
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Guarantees and Indemnifications
The Company, as permitted under Delaware law and in accordance with its bylaws, indemnifies its officers and directors
for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s
request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum amount
of potential future indemnification is unlimited; however, the Company has a directors and officers insurance policy that limits
its exposure and may enable it to recover a portion of any future amounts paid. 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
December 31, 2020 and 2019.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation in the consolidated financial
statements and accompanying notes to the consolidated financial statements.
(2) REVENUE
The Company’s revenue is primarily generated by its laboratory testing services utilizing its Cologuard, Oncotype IQ®, and
COVID-19 tests. The services are completed upon release of a patient’s test result to the ordering healthcare provider.
The core principle of ASC 606 is that the Company recognizes revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the Company expects to collect in exchange for those goods
or services. The Company recognizes revenues from its products in accordance with that core principle, and key aspects
considered by the Company include the following:
Contracts
The Company’s customer is primarily the patient, but the Company does not enter into a formal reimbursement contract
with a patient. The Company establishes a contract with a patient in accordance with other customary business practices, which
is the point in time an order is received from a provider and a patient specimen has been returned to the laboratory for testing.
Payment terms are a function of a patient’s existing insurance benefits, including the impact of coverage decisions with Center
for Medicare & Medicaid Services (“CMS”) and applicable reimbursement contracts established between the Company and
payers. However, when a patient is considered self-pay, the Company requires payment from the patient prior to the
commencement of the Company’s performance obligations. The Company’s consideration can be deemed variable or fixed
depending on the structure of specific payer contracts, and the Company considers collection of such consideration to be
probable to the extent that it is unconstrained.
Under the Company’s Laboratory Service Agreements (“LSA”) and Laboratory Reference Agreements (“LRA”) the
Company contracts with a direct bill payer who is the customer for an agreed upon amount of laboratory testing services for a
specified amount of time at a fixed reimbursement rate, and certain of the Company’s LSAs obligate the customer to pay for
testing services prior to result.
Performance obligations
A performance obligation is a promise in a contract to transfer a distinct good or service (or a bundle of goods or services)
to the customer. The Company’s contracts have a single performance obligation, which is satisfied upon rendering of services,
which culminates in the release of a patient’s test result to the ordering healthcare provider. Or, in the context of some of the
Company’s LSAs, the satisfaction of the performance obligation occurs when a specimen sample is not returned to the
laboratory for processing before the end of the allotted testing window. The Company elects the practical expedient related to
the disclosure of unsatisfied performance obligations, as the duration of time between providing testing supplies, the receipt of a
sample, and the release of a test result to the ordering healthcare provider is far less than one year.
92
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Transaction price
The transaction price is the amount of consideration that the Company expects to collect in exchange for transferring
promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales
taxes). The consideration expected to be collected from a contract with a customer may include fixed amounts, variable
amounts, or both.
Fixed consideration is derived from the Company’s LSA, LRA, and direct bill payer contracts that exist between the
Company and the direct bill payers. The contracted reimbursement rate is deemed to be fixed as the Company expects to fully
collect all amounts billed under these relationships. Variable consideration is primarily derived from payer and patient billing
and can result due to several factors such as the amount of contractual adjustments, any patient co-payments, deductibles or
patient adherence incentives, the existence of secondary payers, and claim denials.
The Company estimates the amount of variable consideration using the expected value method, which represents the sum
of probability-weighted amounts in a range of possible consideration amounts. When estimating the amount of variable
consideration, the Company considers several factors, such as historical collections experience, patient insurance eligibility and
payer reimbursement contracts.
The Company limits the amount of variable consideration included in the transaction price to the unconstrained portion of
such consideration. In other words, the Company recognizes revenue up to the amount of variable consideration that is not
subject to a significant reversal until additional information is obtained or the uncertainty associated with the additional
payments or refunds is subsequently resolved. Differences between original estimates and subsequent revisions, including final
settlements, represent changes in the estimate of variable consideration and are included in the period in which such revisions
are made. Revenue recognized from changes in transaction prices was $9.6 million, $9.9 million and $15.0 million for the years
ended December 31, 2020, 2019 and 2018, respectively.
The Company monitors its estimates of transaction price to depict conditions that exist at each reporting date. If the
Company subsequently determines that it will collect more or less consideration than it originally estimated for a contract with a
patient, it will account for the change as an increase or decrease in the estimate of the transaction price (i.e., an upward or
downward revenue adjustment) in the period identified.
When the Company does not have significant historical experience or that experience has limited predictive value, the
constraint over estimates of variable consideration may result in no revenue being recognized upon completion of the
performance obligations associated with the Company's tests, with recognition, generally occurring at the date of cash receipt.
Allocate transaction price
The transaction price is allocated entirely to the performance obligation contained within the contract with a customer.
Point in time recognition
The Company’s single performance obligation is satisfied at a point in time. That point in time is defined as the date the
Company releases a result to the ordering healthcare provider, or, in the context of some of the Company's LSAs, that point in
time could be the date the allotted testing window ends if a specimen sample is not returned to the laboratory for processing.
The point in time in which revenue is recognized by the Company signifies fulfillment of the performance obligation to the
patient or direct bill payer.
93
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Disaggregation of Revenue
The following table presents the Company's revenues disaggregated by revenue source:
(In thousands)
Screening
Medicare Parts B & C
Commercial
Other
Total Screening
Precision Oncology
Medicare Parts B & C
Commercial
International
Other
Total Precision Oncology
COVID-19 Testing
Total
Year Ended December 31,
2020
2019
2018
$
365,471 $
404,331 $
254,431
409,671
39,925
815,067
368,006
37,783
810,120
184,538
15,493
454,462
$
157,166 $
24,325 $
186,043
77,484
19,800
440,493
29,976
11,444
428
66,173
$
235,831 $
— $
—
—
—
—
—
—
$ 1,491,391 $
876,293 $
454,462
Screening revenue primarily includes laboratory service revenue from the Cologuard test while Precision Oncology
revenue primarily includes laboratory service revenue from global Oncotype IQ products.
Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable and deferred revenue
on the consolidated balance sheets. Generally, billing occurs subsequent to the release of a patient’s test result to the ordering
healthcare provider, resulting in an account receivable. However, the Company sometimes receives advance payment from a
patient or a direct bill payer before a test result is completed, resulting in deferred revenue. The deferred revenue recorded is
recognized as revenue at the point in time results are released to the patient’s healthcare provider. Or, in the context of some of
the Company’s LSAs, the satisfaction of the performance obligation occurs when a specimen sample is not returned to the
laboratory for processing before the end of the allotted testing window.
Deferred revenue balances are reported in other current liabilities in the Company’s consolidated balance sheets and were
$25.0 million and $0.6 million as of December 31, 2020 and 2019, respectively. As of December 31, 2020, $24.2 million of the
Company’s deferred revenue balance is a result of the billing terms pursuant to the existing COVID-19 LSAs with customers.
Revenue recognized for the years ended December 31, 2020 and 2019, which was included in the deferred revenue balance
at the beginning of each period was $0.2 million and $0.2 million, respectively.
Practical Expedients
The Company does not adjust the transaction price for the effects of a significant financing component, as at contract
inception, the Company expects the collection cycle to be one year or less.
The Company expenses sales commissions when incurred because the amortization period would have been one year or
less. These costs are recorded within sales and marketing expenses in the Company’s consolidated statements of operations.
The Company incurs certain other costs that are incurred regardless of whether a contract is obtained. Such costs are
primarily related to legal services and patient communications (e.g. adherence reminder letters). These costs are expensed as
incurred and recorded within general and administrative expenses in the Company’s consolidated statements of operations.
94
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(3) MARKETABLE SECURITIES
The following table sets forth the Company’s cash, cash equivalents, restricted cash, and marketable securities at
December 31, 2020 and 2019:
(In thousands)
Cash, cash equivalents, and restricted cash
Cash and money market
Cash equivalents
Restricted cash (1)
Total cash, cash equivalents and restricted cash
Marketable securities
Available-for-sale debt securities
Equity securities
Total marketable securities
December 31,
2020
2019
$
901,294 $
146,932
589,994
306
30,322
274
1,491,594
177,528
347,178
1,521
348,699
144,685
1,716
146,401
Total cash and cash equivalents, restricted cash and marketable securities
$ 1,840,293 $
323,929
_________________________________
(1) Restricted cash is included in other long-term assets on the consolidated balance sheets. There was no restricted cash at
December 31, 2018.
Available-for-sale debt securities at December 31, 2020 consisted of the following:
(In thousands)
Cash equivalents
U.S. government agency securities
Total cash equivalents
Marketable securities
Corporate bonds
U.S. government agency securities
Asset backed securities
Total marketable securities
Total available-for-sale debt securities
_________________________________
Gains in
Accumulated
Other
Comprehensive
Income (Loss)
(1)
Losses in
Accumulated
Other
Comprehensive
Income (Loss)
(1)
Estimated Fair
Value
Amortized Cost
$
589,986 $
589,986
132,301
207,119
7,070
346,490
936,476 $
$
8 $
8
612
52
24
688
696 $
— $
—
589,994
589,994
—
—
—
—
— $
132,913
207,171
7,094
347,178
937,172
(1) Gains and losses in accumulated other comprehensive income (loss)("AOCI") are reported before tax impact.
95
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Available-for-sale debt securities at December 31, 2019 consisted of the following:
(In thousands)
Cash equivalents
Gains in
Accumulated
Other
Comprehensive
Income (Loss)
(1)
Losses in
Accumulated
Other
Comprehensive
Income (Loss)
(1)
Estimated Fair
Value
Amortized Cost
U.S. government agency securities
$
30,320 $
Total cash equivalents
Marketable securities
Corporate bonds
U.S. government agency securities
Total marketable securities
30,320
4,017
140,745
144,762
2 $
2
— $
—
30,322
30,322
—
10
10
(14)
(73)
(87)
4,003
140,682
144,685
Total available-for-sale debt securities
$
175,082 $
12 $
(87) $
175,007
_________________________________
(1) There was no tax impact on the gains and losses in accumulated income (loss) at December 31, 2019.
The following table summarizes contractual underlying maturities of the Company’s available-for-sale debt securities at
December 31, 2020:
(In thousands)
Cash equivalents
Due one year or less
Due after one year through four years
Cost
Fair Value
Cost
Fair Value
U.S. government agency securities
$
589,986 $
589,994 $
Total cash equivalents
Marketable securities
U.S. government agency securities
Corporate bonds
Asset backed securities
Total marketable securities
589,986
589,994
199,988
100,837
—
300,825
199,994
101,122
—
301,116
— $
—
7,131
31,464
7,070
45,665
Total available-for-sale securities
$
890,811 $
891,110 $
45,665 $
There were no available-for-sale debt securities in an unrealized loss position as of December 31, 2020.
The following table summarizes the gross unrealized losses and fair value of available-for-sale debt securities in an
unrealized loss position as of December 31, 2019, aggregated by investment category and length of time that individual
securities have been in a continuous unrealized loss position:
—
—
7,177
31,791
7,094
46,062
46,062
(In thousands)
Marketable Securities
Corporate bonds
Asset backed securities
Total
Less than 12 months
12 months or greater
Total
Fair Value
Gross
Unrealized
Loss
Fair Value
Gross
Unrealized
Loss
Fair Value
Gross
Unrealized
Loss
4,003 $
— $
—
— $ 144,685 $
140,682
(14)
(73)
(87)
$
4,003 $
140,682
$ 144,685 $
(14) $
(73)
(87) $
— $
—
— $
96
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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 December 31, 2020 and
2019 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 Company recorded a realized gain on available-for-
sale debt securities of $0.1 million, $3.4 million, and $0.4 million for the years ended December 31, 2020, 2019, and 2018,
respectively, net of insignificant realized losses.
The Company recorded a loss of $0.2 million and $0.2 million, respectively, from its equity securities for the years ended
December 31, 2020 and 2019. The Company held no equity securities during the year ended December 31, 2018, and recorded
no gain or loss.
The gains and losses recorded are included in investment income, net in the Company’s consolidated statements of
operations.
(4) INVENTORY
Inventory consisted of the following:
(In thousands)
Raw materials
Semi-finished and finished goods
Total inventory
(5) PROPERTY, PLANT AND EQUIPMENT
The estimated useful lives of property, plant and equipment are as follows:
(In thousands)
Property, plant and equipment
Land
Leasehold and building improvements
Land improvements
Buildings
Computer equipment and computer software
Laboratory equipment
Furniture and fixtures
Assets under construction
Property, plant and equipment, at cost
Accumulated depreciation
Property, plant and equipment, net
_________________________________
December 31,
2020
43,083 $
49,182
92,265 $
$
$
2019
24,958
36,766
61,724
December 31,
Estimated
Useful Life
2020
2019
n/a
(1)
15 years
30 - 40 years
3 years
3 - 10 years
3 - 10 years
n/a
$
4,466 $
117,865
4,864
200,980
73,296
142,110
24,968
18,751
587,300
4,466
80,352
1,766
112,815
65,323
104,008
14,539
149,687
532,956
(136,617)
(77,631)
$
450,683 $
455,325
(1) Lesser of remaining lease term, building life, or estimated useful life.
Depreciation expense for the years ended December 31, 2020, 2019, and 2018 was $69.4 million, $33.9 million, and $20.5
million, respectively.
97
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
At December 31, 2020, the Company had $18.8 million of assets under construction which consisted of $3.2 million
related to building and leasehold improvements, $7.6 million of costs related to laboratory equipment under construction, $7.9
million of capitalized costs related to software projects, and $0.1 million of furniture and fixtures. Depreciation will begin on
these assets once they are placed into service upon completion in 2021 and 2022.
(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
December 31, 2020:
(In thousands)
Finite-lived intangible assets
Trade name
Customer relationships
Patents
Supply agreement
Acquired developed technology
Internally developed technology
Total finite-lived intangible assets
Internally developed technology in process
Total intangible assets
Weighted
Average
Remaining
Life (Years)
Cost
Accumulated
Amortization
Net Balance at
December 31,
2020
14.9
12.8
3.7
6.5
9.0
2.2
n/a
$
$
100,700 $
2,700
10,441
30,000
814,171
2,121
960,133
103
960,236 $
(7,258) $
(404)
(5,422)
(4,527)
(93,278)
(921)
(111,810)
—
(111,810) $
93,442
2,296
5,019
25,473
720,893
1,200
848,323
103
848,426
The following table summarizes the net-book-value and estimated remaining life of the Company’s finite-lived intangible
assets as of December 31, 2019:
(In thousands)
Finite-lived intangible assets
Trade name
Customer relationships
Patents
Supply agreement
Acquired developed technology
Internally developed technology
Total finite-lived intangible assets
In-process research and development
Internally developed technology in process
Total intangible assets
Weighted
Average
Remaining
Life (Years)
Cost
Accumulated
Amortization
Net Balance at
December 31,
2019
15.9
13.8
8.8
7.5
9.9
2.5
n/a
n/a
$
100,700 $
2,700
22,690
30,000
806,371
1,229
963,690
200,000
271
(961) $
(224)
(5,975)
(571)
(12,344)
(336)
(20,411)
—
—
99,739
2,476
16,715
29,429
794,027
893
943,279
200,000
271
$ 1,163,961 $
(20,411) $ 1,143,550
As of December 31, 2020, 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:
98
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(In thousands)
2021
2022
2023
2024
2025
Thereafter
$
93,401
93,196
92,876
92,422
91,374
385,054
$
848,323
The Company’s acquired intangible assets are being amortized on a straight-line basis over the estimated useful life.
During the third quarter of 2020, the Company began discussions with Biocartis regarding the termination of its
agreements with Biocartis related to the development of an in vitro diagnostic (“IVD”) version of the Oncotype DX Breast
Recurrence Score® test. As a result, and in connection with the preparation of the financial statements included in the
Company's Form 10-Q for the period ended September 30, 2020, the Company recorded a non-cash, pre-tax impairment loss of
$200.0 million related to the in-process research and development intangible asset that was initially recorded as part of the
combination with Genomic Health. The impairment is recorded in intangible asset impairment charge in the consolidated
statement of operations for the year ended December 31, 2020. The agreements with Biocartis were terminated in November
2020.
During the third quarter of 2020, the Company abandoned certain research and development assets acquired through an
asset purchase agreement with Armune Biosciences, Inc. in 2017. These assets were expected to complement the Company’s
product pipeline and were expected to have alternative future uses at the time of acquisition; however, due to changes in
strategic priorities and efforts during the third quarter of 2020, these assets are no longer expected to be utilized to advance the
Company’s product pipeline. As a result, the Company wrote-off the gross cost basis of the intangible asset of $12.2 million
and accumulated amortization of $2.5 million. This write-off resulted in a non-cash, pre-tax impairment loss of $9.7 million,
which is recorded in intangible asset impairment charge in the consolidated statement of operations for the year ended
December 31, 2020.
There were no impairment losses for the years ended December 31, 2019 and 2018.
Goodwill
The change in the carrying amount of goodwill for the years ended December 31, 2020 and 2019 is as follows:
(In thousands)
Balance, January 1, 2019 (1)
Genomic Health acquisition
Balance, December 31, 2019
Paradigm & Viomics acquisition
Genomic Health acquisition adjustment (2)
Balance, December 31, 2020
_________________________________
$
17,279
1,185,918
1,203,197
30,431
4,044
$ 1,237,672
(1) The beginning balance represents the goodwill acquired from the acquisitions of Sampleminded, Inc. in 2017 and
Biomatrica, Inc. in 2018 totaling $2.0 million and $15.3 million, respectively.
(2) 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 years ended December 31, 2020, 2019, and 2018.
99
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(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.
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)
Cash, cash equivalents, and restricted cash
Cash and money market
U.S. government agency securities
Restricted cash
Marketable securities
Corporate bonds
U.S. government agency securities
Asset backed securities
Equity securities
Liabilities
Contingent consideration
Total
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)
$
901,294 $
901,294 $
— $
589,994
306
132,913
207,171
7,094
1,521
—
306
—
—
—
1,521
(2,477)
—
589,994
—
132,913
207,171
7,094
—
—
$
1,837,816 $
903,121 $
937,172 $
—
—
—
—
—
—
—
(2,477)
(2,477)
The following table presents the Company’s fair value measurements as of December 31, 2019 along with the level within
the fair value hierarchy in which the fair value measurements, in their entirety, fall.
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(In thousands)
Cash and cash equivalents
Cash and money market
U.S. government agency securities
Restricted cash
Marketable securities
Corporate bonds
U.S. government agency securities
Equity securities
Liabilities
Contingent consideration
Total
Fair Value at
December 31,
2019
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
146,932 $
146,932 $
— $
30,322
274
4,003
140,682
1,716
—
274
—
—
1,716
(2,879)
—
30,322
—
4,003
140,682
—
—
$
321,050 $
148,922 $
175,007 $
—
—
—
—
—
—
(2,879)
(2,879)
There have been no changes in valuation techniques or transfers between fair value measurement levels during the years
ended December 31, 2020 and 2019. 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 is
classified as a Level 1 instrument. See Note 11 for additional information on Biocartis.
Contingent Consideration
In connection with the Biomatrica acquisition, a contingent earn-out liability was created to account for an additional
$20.0 million in contingent consideration that could be earned based upon certain revenue milestones being met. The following
table provides a roll-forward of the fair values of the contingent consideration, which includes Level 3 measurements:
(In thousands)
Balance, January 1, 2020
Changes in fair value
Payments
Balance, December 31, 2020
Contingent
consideration
$
(2,879)
325
77
$
(2,477)
As of December 31, 2020, the fair value of the contingent earn-out liability is classified as a component of other long-term
liabilities in the Company’s consolidated balance sheet.
This fair value measurement of contingent consideration related to the Biomatrica acquisition was categorized as a Level 3
liability, as the measurement amount is based primarily on significant inputs not observable in the market. The Company
evaluates the fair value of expected contingent consideration and the corresponding liability each annual reporting period using
the Monte Carlo Method, which is consistent with the initial measurement of the expected Biomatrica Acquisition earn-out
liability. The Company estimates projections during the earn-out period utilizing various potential pay-out scenarios.
Probabilities were applied to each potential scenario and the resulting values were discounted using a rate that considers
weighted average cost of capital as well as a specific risk premium associated with the riskiness of the earn-out itself, the
related projections, and the overall business.
Non-Marketable Equity Investments
The Company has non-marketable equity investments which are initially recorded at the estimated fair value based on
observable transactions. The Company has concluded it is not a primary beneficiary with regards to these investments and does
not have the ability to exercise significant influence over the investees and thus has not consolidated the investees pursuant to
the requirements of ASC 810, Consolidation. The Company will continue to assess its investments and future commitments to
the investees and to the extent its relationship with the investees change and whether such change may require consolidation of
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
the investees in future periods. The Company remeasures the fair value only when an observable transaction occurs during the
period that would suggest a change in the carrying value of the investment. As of December 31, 2020 and 2019, the Company
had non-marketable equity investments of $29.1 million and $11.8 million, respectively, which are classified as a component of
other long-term assets in the Company’s consolidated balance sheets. As of December 31, 2020, the balance primarily consists
of the Company’s preferred stock investments in 18,258,838 shares of Epic Sciences, Inc. ("Epic Sciences") and 5,025,764
shares of Thrive Earlier Detection Corp. (“Thrive”) of $10.8 million and $12.5 million, respectively. As of December 31, 2019,
the balance consists of the Company’s preferred stock investments in Epic Sciences and Thrive Earlier Detection Corp.
(“Thrive”) of $10.8 million and $1.0 million, respectively.
The Company purchased 4.0 million shares of Series B Preferred Stock of Thrive for $10.0 million in July 2020. The
Company previously held a $1.0 million investment in the Series A Preferred Stock of Thrive, which does not have a readily
determinable fair value and therefore, the Company elected the measurement alternative. The rights and obligations of the
Series B Preferred Stock are generally the same as the Series A Preferred Stock previously held indicating that the transactions
are identical or similar investments. As a result, the Company recorded an unrealized gain of $1.5 million during the year ended
December 31, 2020 in investment income, net on the Company’s consolidated statement of operations to revalue the
Company’s initial investment to the value of the Series B Preferred Stock, which was the most recent observable transaction.
As discussed in Note 22 below, the Company acquired Thrive in January 2021.
There have been no other observable transactions during the years ended December 31, 2020 and 2019.
Derivative Financial Instruments
As of December 31, 2020 and 2019, the Company had open foreign currency forward contracts with notional amounts of
$22.4 million and $17.9 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
December 31, 2020 and 2019, and there were no gains or losses recorded for the years ended December 31, 2020 and 2019.
Fair Value of Long-Term Debt and Convertible Notes
The Company measures the fair value of its convertible notes and long-term debt for disclosure purposes. The following
table summarizes the Company’s outstanding convertible notes and long-term debt:
(In thousands)
2028 Convertible notes (2)
2027 Convertible notes (2)
2025 Convertible notes (2)
Construction loan (3)
December 31, 2020
December 31, 2019
Carrying Amount (1)
Fair Value
Carrying Amount (1)
Fair Value
$
806,587 $ 1,526,625 $
— $
—
514,173
255,464
23,661
992,306
601,744
23,661
483,909
319,696
24,866
843,741
592,482
24,866
_________________________________
(1) The carrying amounts presented are net of debt discounts and debt issuance costs. See Note 9 and Note 10 of the
consolidated financial statements for further information.
(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. A portion of the 2025 convertible notes were settled in 2019 resulting in a
decrease in the liability.
(3) The carrying amount of the construction loan approximates fair value due to the short-term nature 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 was due to payments made on the loan resulting in a decrease in the liability.
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(8) ACCRUED LIABILITIES
Accrued liabilities at December 31, 2020 and 2019 consisted of the following:
(In thousands)
Compensation
Pfizer Promotion Agreement related costs
Professional fees
Other
Assets under construction
Research and trial related expenses
Licenses
(9) LONG-TERM DEBT
Construction Loan Agreement
December 31,
2020
2019
$
117,273 $
46,937
36,113
20,735
2,118
5,911
4,517
95,166
33,230
29,108
13,976
10,720
8,368
2,761
$
233,604 $
193,329
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’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 December 31, 2020 and 2019,
the outstanding balance was $23.8 million and $25.0 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 Construction Loan Agreement was amended effective June 30, 2020 to include a financial covenant to maintain a
minimum liquidity of $250.0 million and remove the minimum tangible net worth covenant. As of December 31, 2020, the
Company is in compliance with the covenant included in the amended agreement.
103
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
The table below represents the future principal obligations as of December 31, 2020. Amounts included in the table are in
thousands:
Year ending December 31
2021
2022
Total
Tax Increment Financing Loan Agreements
$
$
1,319
22,431
23,750
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 $4.6 million from the City of Madison. As of
December 31, 2020, the corresponding liability, which reflected when the expected benefit of the tax credit amortization would
reduce future operating expenses, has been fully amortized and has a balance of zero. As of December 31, 2019, the Company
had recorded a liability of $2.7 million in other current liabilities on the Company's balance sheet.
(10) CONVERTIBLE NOTES
Convertible note obligations included in the consolidated balance sheets consisted of the following:
(In thousands)
2028 Convertible notes
2027 Convertible notes
2025 Convertible notes
Total Convertible notes
Less: Debt discount (2)
Less: Debt issuance costs (3)
Net convertible debt including current maturities
Less: Current maturities (4)
Net long-term convertible debt
Coupon
Interest
Rate
Effective
Interest
Rate
Fair Value
of Liability
Component
at Issuance
(1)
December 31,
2020
2019
0.375 %
0.375 %
1.000 %
5.2 % $ 790,608 $ 1,150,000 $
—
6.3 % 472,501
747,500
747,500
6.0 % 227,103
315,049
415,049
2,212,549
1,162,549
(608,685) (342,463)
(27,640) (16,481)
1,576,224
803,605
(255,464)
—
$ 1,320,760 $ 803,605
_________________________________
(1) As each of the convertible instruments may be settled in cash upon conversion, for accounting purposes, they were
separated into a liability component and an equity component. The amount allocated to the equity component is the difference
between the principal value of the instrument and the fair value of the liability component at issuance. The resulting debt
discount is being amortized to interest expense at the respective effective interest rate over the contractual term of the debt. A
portion of the 2025 Convertible Notes have been extinguished or converted. The fair value of the liability component at
issuance reflected above represents the liability value at issuance for the applicable portion of the 2025 Notes which remain
outstanding at December 31, 2020. The fair value of the liability component of the 2025 Notes at issuance was $654.8 million
with the equity component being $267.9 million.
104
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(2) The unamortized discount consists of the following:
(In thousands)
2028 Convertible notes
2027 Convertible notes
2025 Convertible notes
Total unamortized discount
(3) Debt issuance costs consist of the following:
(In thousands)
2028 Convertible notes
2027 Convertible notes
2025 Convertible notes
Total debt issuance costs
December 31,
2020
2019
$
328,372 $
—
224,517
55,796
253,340
89,123
$
608,685 $
342,463
December 31,
2020
2019
$
15,041 $
8,810
3,789
—
10,251
6,230
$
27,640 $
16,481
(4) Based on the share price on trading days leading up to December 31, 2020, holders of the 2025 Convertible Notes will have
the right to convert their debentures beginning on January 1, 2021. As a result, the 2025 Convertible Notes are included within
convertible notes, net, current portion on the consolidated balance sheet. As of December 31, 2019, the 2025 Convertible Notes
were not convertible and included within long-term convertible notes, net on the consolidated balance sheet.
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 will be 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 $375.0 million was allocated to the liability component, $300.8 million was allocated to the
equity component, and $0.7 million was used to pay off interest accrued on the 2025 Notes. The consideration transferred was
allocated to the liability and equity components of the 2025 Notes using the equivalent rate that reflected the borrowing rate for
a similar non-convertible debt instrument immediately prior to settlement. The transaction resulted in a loss on settlement of
convertible notes of $10.6 million, which is recorded in interest expense in the Company’s consolidated statement of
operations. The loss represents the difference between (i) the fair value of the liability component and (ii) the sum of the
carrying value of the debt component and any unamortized debt issuance costs at the time of repurchase.
105
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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 $85.5 million was allocated to the liability component, $64.2 million, net of a tax impact of
$0.3 million, was allocated to the equity component, and $0.1 million was used to pay off interest accrued on the 2025 Notes.
The consideration transferred was allocated to the liability and equity components of the 2025 Notes using the equivalent rate
that reflected the borrowing rate for a similar non-convertible debt instrument immediately prior to settlement. The transaction
resulted in a loss on settlement of convertible notes of $8.0 million, which is recorded in interest expense in the Company’s
consolidated statement of operations. The loss represents the difference between (i) the fair value of the liability component and
(ii) the sum of the carrying value of the debt component and any unamortized debt issuance costs 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 Indenture. 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. 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.
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 conversion rate is subject to
adjustment upon the occurrence of certain specified events 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.
As of December 31, 2020, the 2025 Notes are classified as current on the Company's consolidated balance sheet. The
holders of the 2025 Notes will have the right to convert their debentures beginning on January 1, 2021 based on the share price
on trading days leading up to December 31, 2020. As of December 31, 2020, the 2027 and 2028 Notes are classified as long-
term on the Company's consolidated balance sheet as the holders do not have the right to convert. During 2019, the holders of
the 2025 Notes had the right to convert their debentures between July 1, 2019 and December 31, 2019, and 55 notes were
converted during the period, which were settled through the issuance of common shares equivalent to the conversion rate with
any fractional shares settled in cash. The 2025 Notes no longer met any of the conversion features as of December 31, 2019.
The future convertibility and resulting balance sheet classification of this liability will be monitored at each quarterly reporting
date and will be analyzed dependent upon market prices of the Company’s common stock during the prescribed measurement
periods. In the event that the holders of the Notes have the election to convert the Notes at any time during the prescribed
measurement period, the Notes would then be considered a current obligation and classified as such.
Based on the closing price of our common stock of $132.49 on December 31, 2020, the if-converted values on our 2025,
2027, and 2028 Notes exceed the principal amount by $238.3 million, $139.4 million, and $100.5 million, respectively.
106
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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; equal in right of payment to all of the Company’s
future liabilities that are not so subordinated, unsecured indebtedness; (ii) are effectively junior to all of our 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 (iii) are structurally subordinated to all indebtedness and other liabilities of the Company’s
subsidiaries.
The Company allocates total transaction costs of the Notes to the liability and equity components based on their relative
values. Transaction costs attributable to the liability component are amortized to interest expense over the term of the Notes,
and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity. The
following table summarizes the original transaction costs at the time of issuance for each set of Notes and the respective
allocation to the liability and equity components:
(In thousands)
Transaction costs allocated to liability component
Transaction costs allocated to equity component
Total transaction costs
January 2025
Notes
June 2025
Notes
2027 Notes
2028 Notes
$
$
13,569 $
5,052 $
11,395 $
16,811
5,340
2,311
6,632
7,642
18,909 $
7,363 $
18,027 $
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.
Interest expense includes the following:
(In thousands)
Debt issuance costs amortization
Debt discount amortization
Loss on settlement of convertible notes
Coupon interest expense
Total interest expense on convertible notes
Other interest expense
Total interest expense
Year Ended December 31,
2020
2019
2018
$
4,207 $
2,661 $
72,272
7,954
9,631
94,064
1,919
39,595
10,558
7,325
60,139
1,460
2,273
26,291
—
7,823
36,387
402
$
95,983 $
61,599 $
36,789
The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 4.04
years, 6.21 years, and 7.17 years for the 2025 Notes, 2027 Notes and 2028 Notes, respectively.
(11) 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 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.
107
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
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. The January 2016 amendment to the Mayo license agreement established various low-single-digit royalty
rates on net sales of current and future products and clarified how net sales will be calculated. As part of the January 2016 and
October 2017 amendments, the royalty rate on the Company's net sales of the Cologuard test increased but the rate remains a
low-single-digit percentage of net sales.
In addition to the royalties described above, the Company is required to pay Mayo cash of $0.2 million, $0.8 million and
$2.0 million upon each product using the licensed Mayo intellectual property reaching $5.0 million, $20.0 million and $50.0
million in cumulative net sales, respectively.
As part of the most recent amendment, the Company agreed to pay Mayo an additional $6.3 million, payable in five annual
installments, through 2024. The Company paid Mayo the first annual installment of $1.3 million in the third quarter of 2020
and will make subsequent annual payments in the first quarter of the year beginning in January 2021.
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 $3.9 million, $4.8 million, and $4.5
million for the years ended December 31, 2020, 2019, and 2018, respectively. The charges incurred in connection with this
collaboration are recorded in research and development expenses in the Company's consolidated statements of operations.
Hologic
In October 2009, the Company entered into a technology license agreement with Hologic, Inc. (“Hologic”). Under the
license agreement, Hologic granted the Company an exclusive, worldwide license within the field of human stool based
colorectal cancer and pre-cancer detection or identification with regard to certain Hologic patents, patent applications and
improvements, including Hologic’s Invader detection chemistry (the “Covered Hologic IP”). The license agreement also
provided the Company with non-exclusive, worldwide licenses to the Covered Hologic IP within a field covering clinical
diagnostic purposes relating to colorectal cancer (including cancer diagnosis, treatment, monitoring or staging) and the field of
detection or identification of colorectal cancer and pre-cancers through means other than human stool samples. In December
2012, the Company entered into an amendment to this license agreement with Hologic pursuant to which Hologic granted the
Company a non-exclusive worldwide license to the Covered Hologic IP within the field of any disease or condition within,
related to or affecting the gastrointestinal tract and/or appended mucosal surfaces. The Company is required to pay Hologic a
low single-digit royalty on the Company’s net sales of products using the Covered Hologic IP.
108
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Epic Sciences
In June 2016, Genomic Health (now a wholly-owned subsidiary of the Company) entered into a collaboration agreement
with Epic Sciences, which was superseded and replaced in March 2019 by a license agreement and laboratory services
agreement with Epic Sciences, under which Genomic Health was granted exclusive distribution rights to commercialize Epic
Sciences’ AR-V7 Nucleus Detect® test in the United States, which is marketed as Oncotype DX AR-V7 Nucleus Detect®. The
Company has primary responsibility, in accordance with applicable laws and regulations, for marketing and promoting the test,
order fulfillment, billing and collections of receivables, claims appeals, customer support, and providing and maintaining order
management systems for the test. Epic Sciences is responsible for performing all tests, performing studies including analytic
and clinical validation studies, and seeking Medicare coverage and a Medicare payment rate from the CMS for the test. The
license and laboratory service agreement has a term of 10 years from June 2016, unless terminated earlier under certain
circumstances. The Oncotype DX AR-V7 Nucleus Detect test became commercially available in February 2018. The Company
recognizes revenues for the test performed under this arrangement and Epic Sciences receives a fee per test performed that
represents the fair market value for the testing services they perform.
Biocartis
In September 2017, Genomic Health entered into an exclusive license and development agreement with Biocartis, a
molecular diagnostics company based in Belgium, to develop and commercialize an IVD version of the Oncotype DX Breast
Recurrence Score test on the Biocartis Idylla platform. Under the terms of the license and development agreement, the
Company had an exclusive, worldwide, royalty-bearing license to develop and commercialize an IVD version of the Oncotype
DX Breast Recurrence Score test on the Biocartis Idylla platform, and certain options to expand the collaboration .
Pursuant to the license and development agreement, Genomic Health recorded a one-time upfront license and option fee of
$3.2 million. In December 2017, Genomic Health purchased 270,000 ordinary shares of Biocartis, a public company listed on
the Euronext exchange, for a total cost of $4.0 million. This investment was subject to a lock-up agreement that expired in
December 2018. The investment has been recognized at fair value, which the Company estimated to be $1.5 million as of
December 31, 2020 and is included in marketable securities on the Company's consolidated balance sheet.
In October 2020, the Company and Biocartis agreed to terminate all agreements between them with a mutual release. As
part of the termination, the Company made a payment of $12.0 million and returned certain equipment to Biocartis. The
remaining net book value of the equipment was previously written off when it was determined that the agreement with Biocartis
would be terminated. The termination payment and equipment write-off are both recorded in general and administrative
expenses on the Company's consolidated statement of operations.
Ludwig Institute for Cancer Research Ltd ("Ludwig")
Through the acquisition of Base Genomics Limited ("Base"), the Company acquired a worldwide exclusive license
agreement with Ludwig for use of patents and know-how. The license is designed to leverage technology related to DNA
methylation detection and bisulfite sequencing for product research, development and commercialization. The agreement terms
include low single-digit sales-based royalties on the Company’s net sales of products using the technology. The license
agreement will remain in effect, unless earlier terminated by the parties in accordance with the agreement, until the tenth
anniversary of the first commercial sale.
109
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(12) 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 also includes additional 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 in the Company's consolidated statements of operations. The Company incurred charges of $85.3 million,
$68.9 million and $5.8 million for promotion, sales and marketing services performed by Pfizer on behalf of the Company
during the years ended December 31, 2020, 2019 and 2018, respectively. Under the Original Promotion Agreement, the service
fee was calculated based on incremental gross profits over specified baselines during the term. The Company incurred charges
of $68.5 million and $4.8 million for the service fee during the years ended December 31, 2019 and 2018, respectively. Under
the Restated Promotion Agreement, the service fee was revised to a fee-for-service model, and includes certain fixed fees and
performance-related bonuses. The Company incurred charges of $51.2 million for the service fee during the year ended
December 31, 2020. 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. 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.
(13) STOCKHOLDERS' EQUITY
Amendment to Certificate of Incorporation
In July 2020, the Company filed a Certificate of Amendment (the “Certificate of Amendment”) to its Sixth Amended and
Restated Certificate of Incorporation with the Secretary of State of the State of Delaware to increase the number of authorized
shares of the Company’s common stock from 200 million to 400 million shares. The Certificate of Amendment was approved
by the Company’s stockholders at the Company’s 2020 annual meeting in July 2020.
Convertible Notes Settlement Stock Issuance
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 convertible
notes. Refer to Note 10 for further discussion of this settlement transaction.
Genomic Health Combination Stock Issuance
In November 2019, the Company completed the combination with Genomic Health in a cash and stock transaction valued
at $2.47 billion. Of the $2.47 billion purchase price, $1.41 billion was settled through the issuance of 17.0 million shares of
common stock. The Company incurred $0.4 million in stock issuance costs as part of the transaction. Refer to Note 19 for
further discussion of the consideration transferred as part of the combination with Genomic Health.
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 valued at $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 December 31, 2020, and the remainder was withheld and may
become issuable as additional merger consideration on June 3, 2021.
Registered Direct Offering
In October 2020, the Company entered into securities purchase agreements with a limited number of institutional investors
for the registered direct offering of 8.6 million shares of common stock at a price of $101.00 per share. The Company received,
in the aggregate, approximately $861.7 million of net proceeds from the offering, after deducting $7.5 million for the offering
expenses and other stock issuance costs paid by the Company.
110
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Changes in Accumulated Other Comprehensive Income (Loss)
The amount recognized in AOCI for the years ended December 31, 2020, 2019 and 2018 were as follows:
Cumulative
Translation
Adjustment
Unrealized
Gain (Loss)
on Securities
Accumulated
Other
Comprehensive
Income (Loss)
$
(61) $
(689) $
(In thousands)
Balance, January 1, 2018
(750)
(989)
317
(672)
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period change in accumulated other comprehensive income (loss)
(1)
36
—
36
(1,025)
317
(708)
Balance at December 31, 2018
$
(25) $
(1,397) $
(1,422)
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period change in accumulated other comprehensive income (loss)
(1)
—
—
—
681
641
1,322
Balance at December 31, 2019
$
(25) $
(75) $
Other comprehensive income (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive loss
Net current period change in accumulated other comprehensive income (loss)
Balance at Income tax expense related to items of other comprehensive
income
—
25
25
—
Balance at December 31, 2020
$
— $
771
—
771
(170)
526 $
681
641
1,322
(100)
771
25
796
(170)
526
_________________________________
(1) There was no tax impact from the amounts recognized in AOCI for the years ended December 31, 2019 and 2018.
Amounts reclassified from accumulated other comprehensive loss for the years ended December 31, 2020, 2019 and 2018
were as follows:
Affected Line
Item in the
Statements of
Operations
Investment
income
$
General and
administrati
ve
$
Year Ended December 31,
2020
2019
2018
— $
641 $
317
25
25 $
—
641 $
—
317
Details about AOCI Components (In thousands)
Change in value of available-for-sale investments
Sales and maturities of available-for-sale investments
Foreign currency adjustment
Total reclassifications
(14) STOCK-BASED COMPENSATION
Stock-Based Compensation Plans
The Company maintains the following plans for which awards were granted from in 2020: the 2010 Omnibus Long-Term
Incentive Plan (As Amended and Restated Effective July 27, 2017), the 2019 Omnibus Long-Term Incentive Plan, the 2010
Employee Stock Purchase Plan, and the 2016 Inducement Award Plan. The Company also maintained the 2000 Stock Option
and Incentive Plan, of which the final options were exercised in 2020. These plans are collectively referred to as the “Stock
Plans”.
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EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
The Stock Plans are administered by the compensation committee of the Company’s board of directors. The plans for
share-based equity awards provide that upon an acquisition of the Company, all equity will accelerate by a period of one year.
In addition, upon the termination of an employee without cause or for good reason prior to the first anniversary of the
completion of the acquisition, all equity awards then outstanding under the respective plan held by that employee will
immediately vest.
2000 Stock Option and Incentive Plan. The Company adopted the 2000 Stock Option and Incentive Plan (the “2000
Option Plan”) on October 17, 2000 to grant share-based awards to employees, officers, directors, consultants and advisors.
Awards granted under the 2000 Option Plan may include incentive stock options, as defined under the Internal Revenue Code,
non-qualified options, restricted stock awards and other stock awards in amounts and with terms and conditions determined by
the compensation committee of the Company’s board of directors, subject to the provisions of the 2000 Option Plan. The 2000
Option Plan expired October 17, 2010 and after such date no further awards could be granted under the plan. Options granted
under the 2000 Option Plan expire ten years from the date of grant. Grants made from the 2000 Option Plan generally vest over
a period of three to four years. At December 31, 2020, there were no options outstanding under the 2000 Option Plan. There
were no shares of restricted stock outstanding under the 2000 Option Plan.
2010 Omnibus Long-Term Incentive Plan. The Company adopted the 2010 Omnibus Long-Term Incentive Plan (the
“2010 Stock Plan”) on July 16, 2010 to grant share-based awards to employees, officers, directors, consultants and advisors.
Awards granted under the 2010 Stock Plan may include incentive stock options, as defined under the Internal Revenue Code,
non-qualified options, restricted stock awards and other stock awards in amounts and with terms and conditions determined by
the compensation committee of the Company’s board of directors, subject to the provisions of the 2010 Stock Plan. The 2010
Stock Plan expired on July 16, 2020 and after such date no further awards may be granted under the plan. Options granted
under the 2010 Stock Plan expire ten years from the date of grant. Grants made from the 2010 Stock Plan generally vest over a
period of three to four years. At December 31, 2020, options to purchase 1,763,865 shares were outstanding under the 2010
Stock Plan and 2,138,282 shares of restricted stock and restricted stock units were outstanding. At December 31, 2020, there
were no shares available for future grant under the 2010 Stock Plan.
2019 Omnibus Long-Term Incentive Plan. The Company adopted the 2019 Omnibus Long-Term Incentive Plan (the
“2019 Stock Plan”) on July 25, 2019 to grant share-based awards to employees, officers, directors, consultants and advisors.
Awards granted under the 2019 Stock Plan may include incentive stock options, as defined under the Internal Revenue Code,
non-qualified options, restricted stock awards and other stock awards in amounts and with terms and conditions determined by
the compensation committee of the Company’s board of directors, subject to the provisions of the 2019 Stock Plan. The 2019
Stock Plan will expire on July 25, 2029 and after such date no further awards may be granted under the plan. Options granted
under the 2019 Stock Plan expire ten years from the date of grant. Grants made from the 2019 Stock Plan generally vest over a
period of three to four years. At December 31, 2020, options to purchase 467,194 shares were outstanding under the 2019 Stock
Plan and 2,388,415 shares of restricted stock and restricted stock units were outstanding. At December 31, 2020, there were
11,898,737 shares available for future grant under the 2019 Stock Plan.
2016 Inducement Award Plan. The Company adopted the 2016 Inducement Award Plan (the “2016 Inducement Plan”) on
January 25, 2016 to grant share-based awards to employees who were not previously an employee of the Company or any of its
Subsidiaries. Awards granted under the 2016 Inducement Plan may include grant incentive stock options, as defined under the
Internal Revenue Code, non-qualified options, restricted stock awards and other stock awards in amounts and with terms and
conditions determined by the compensation committee of the Company’s board of directors, subject to the provisions of the
2016 Inducement Plan. The 2016 Inducement Plan expired on July 27, 2017, and after such date no further awards could be
granted under the plan. Options granted under the 2016 Inducement Plan expire ten years from the date of grant. Grants made
from the 2016 Inducement Plan generally vest over a period of three to four years. At December 31, 2020, there were 60,032
shares of restricted stock and restricted stock units outstanding under the 2016 Inducement Award Plan. At December 31, 2020,
there were no shares available for future grant under the 2016 Inducement Plan.
2010 Employee Stock Purchase Plan. The 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”) was adopted
by the Company on July 16, 2010 to provide participating employees the right to purchase shares of common stock at a
discount through a series of offering periods. The 2010 Purchase Plan will expire on October 31, 2030. The Company’s
stockholders approved amendments to the 2010 Employee Stock Purchase Plan to increase the number of shares available for
purchase thereunder by 500,000 shares and 2,000,000 shares on July 24, 2014 and July 28, 2016, respectively. At December 31,
2020, there were 759,015 shares of common stock available for purchase by participating employees under the 2010 Purchase
Plan.
112
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Generally, all employees whose customary employment is more than 20 hours per week and more than five months in any
calendar year are eligible to participate in the 2010 Purchase Plan. Participating employees authorize an amount, between 1
percent and 15 percent of the employee’s compensation, to be deducted from the employee’s pay during the offering period. On
the last day of the offering period, the employee is deemed to have exercised the employee’s option to purchase shares of
Company common stock, at the option exercise price, to the extent of accumulated payroll deductions. Under the terms of the
2010 Purchase Plan, the option exercise price is an amount equal to 85 percent of the fair market value, as defined under the
2010 Purchase Plan, and no employee can purchase more than $25,000 of Company common stock under the 2010 Purchase
Plan in any calendar year. Rights granted under the 2010 Purchase Plan terminate upon an employee’s voluntary withdrawal
from the 2010 Purchase Plan at any time or upon termination of employment. At December 31, 2020, there were 2,040,985
cumulative shares issued under the 2010 Purchase Plan.
Stock-Based Compensation Expense
A summary of non-cash stock-based compensation expense by expense category included in the Company's consolidated
statements of operations for the years ended December 31, 2020, 2019, and 2018 is as follows:
Year Ended December 31,
(In thousands)
Cost of sales
Research and development
General and administrative
Sales and marketing
$
2020
12,852 $
19,976
75,999
44,079
5,799 $
17,196
64,222
21,266
2019
2018
Total stock-based compensation
$ 152,906 $ 108,483 $
3,531
10,189
34,181
12,363
60,264
As of December 31, 2020, there was approximately $262.5 million of expected total unrecognized compensation cost
related to non-vested share-based compensation arrangements granted under all equity compensation plans. The Company
expects to recognize that cost over a weighted average period of 2.63 years.
In connection with the April 2018 transition of the Company’s former Chief Operating Officer, the Company accelerated
the vesting of 69,950 shares under his previously unvested stock options and 54,350 shares under his previously unvested
restricted stock units whereby such unvested stock options and unvested restricted stock units vest on December 31, 2018. It
was determined that the continuing service to be provided by the Company’s Chief Operating Officer to the Company through
December 31, 2018 was substantive and, as a result, the Company recognized the additional non-cash stock-based
compensation expense for the modified awards evenly over the transition term of April 25, 2018 to December 31, 2018. During
the year ended December 31, 2018, the Company recorded $3.9 million of non-cash stock-based compensation expense for the
modified awards.
In connection with the combination with Genomic Health, the Company accelerated the vesting of shares of previously
unvested stock options and restricted stock units for employees with qualifying termination events. During the year ended
December 31, 2020, the Company accelerated 83,593 shares of previously unvested stock options and 93,770 shares of
previously unvested restricted stock units. During the year ended December 31, 2019, the Company accelerated 364,281 shares
of previously unvested stock options and 70,138 shares of previously unvested restricted stock units. During the years ended
December 31, 2020 and 2019, the Company recorded $9.7 million and $21.6 million, respectively, of non-cash stock-based
compensation expense for the accelerated awards.
113
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Stock Options
The Company determines the fair value of each service-based option award on the date of grant using the Black-Scholes
option-pricing mode, which utilizes several key assumptions which are disclosed in the following table:
Option Plan Shares
Risk-free interest rates
Expected term (in years)
Expected volatility
Dividend yield
Year Ended December 31
2020
2019
2018
1.26% -
1.47%
6.15
65.67% -
65.71%
0%
2.54% -
2.59%
6.28
64.95% -
64.99%
0%
2.73% -
2.79%
5.45 - 6.44
61.82% -
66.17%
0%
A summary of stock option activity under the Stock Plans is as follows:
Options
Shares
Weighted
Average
Exercise
Price (1)
Weighted
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value(2)
(Aggregate intrinsic value in thousands)
Outstanding, January 1, 2020
Granted
Exercised
Forfeited
Outstanding, December 31, 2020
Vested and expected to vest, December 31, 2020
Exercisable, December 31, 2020
2,700,293 $
309,143
(707,013)
(71,364)
2,231,059 $
2,231,059 $
1,399,721 $
34.01
97.66
39.07
82.76
39.67
39.67
22.53
6.7
6.0 $
6.0 $
4.9 $
207,090
207,090
153,912
_________________________________
(1) The weighted average grant date fair value of options granted during the years ended December 31, 2020, 2019, and 2018
was $58.57, $57.11, and $24.55.
(2) The total intrinsic value of options exercised during the years ended December 31, 2020, 2019, and 2018 was $40.6 million,
$52.0 million, and $53.0 million, respectively, determined as of the date of exercise.
The Company received approximately $27.1 million, $8.8 million, and $6.6 million from stock option exercises during the
years ended December 31, 2020, 2019 and 2018, respectively.
Restricted Stock and Restricted Stock Units
The fair value of restricted stock and restricted stock units is determined on the date of grant using the closing stock price
on that day.
114
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
A summary of restricted stock and restricted stock unit activity is as follows:
Outstanding, January 1, 2020
Granted
Released (1)
Forfeited
Outstanding, December 31, 2020
Restricted
Shares
Weighted
Average Grant
Date Fair Value (2)
3,800,722 $
2,236,535
(1,731,631)
(337,412)
3,968,214 $
58.68
92.55
50.67
81.36
79.38
_________________________________
(1) The fair value of restricted stock units vested and converted to shares of the Company's common stock was $152.4 million,
$173.8 million, and $63.8 million for the years ended December 31, 2020, 2019, and 2018, respectively.
(2) The weighted average grant date fair value of the restricted stock units granted during the years ended December 31, 2019
and 2018 was $93.20, and $50.45, respectively.
Performance Share Units
The Company issued performance-based equity awards to certain employees which vest upon the achievement of certain
performance goals, including financial performance targets and operational milestones.
In June 2020 and December 2020, the Company modified certain of the operational milestones and financial performance
targets, respectively, within the outstanding performance-based equity awards, which were not deemed to have an impact on
vesting and no incremental stock-based compensation expense was recorded for the year ended December 31, 2020. This
modification impacted awards held by 36 employees.
A summary of performance share unit activity is as follows:
Outstanding, December 31, 2019
Granted
Released (1)
Forfeited
Outstanding, December 31, 2020
Performance
Share Units (2)
Weighted
Average Grant
583,283 $
35,232
—
—
93.40
90.17
—
—
618,515 $
93.22
_________________________________
(1) The fair value of performance share units vested and converted to shares of the Company's common stock was $183.8
million for the year ended December 31, 2019. There were no performance share units vested and converted to shares of the
Company's common stock during the years ended December 31, 2020 and 2018.
(2) Participants may ultimately earn between zero and 200% of the target number of performance share units granted based on
the degree of achievement of the performance criteria. The performance share units listed above assumes attainment of
maximum payout rates as set forth in the performance criteria. Applying actual or expected payout rates, the number of
outstanding performance share units as of December 31, 2020 was 158,958.
(3) The weighted average grant date fair value of the performance share units granted during the years ended December 31,
2019 was $93.40. There were no performance share units granted during the year ended December 31, 2018.
115
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Employee Stock Purchase Plan ("ESPP")
A summary of ESPP activity is as follows:
(in thousands, except share and per share amounts)
Shares issued under the 2010 Purchase Plan
Cash received under the 2010 Purchase Plan
Weighted average fair value per share of stock purchase rights granted
during the period
Year Ended December 31,
2020
2019
2018
301,064
176,458
346,609
$
$
18,355 $
32.57 $
8,396 $
29.21 $
4,895
20.47
The 301,064 shares issued during the year ended December 31, 2020 were as follows:
Offering period ended
April 30, 2020
November 2, 2020
The fair value of ESPP shares is based on the assumptions in the following table:
Number of Shares
Weighted Average
price per Share
167,921 $
133,143 $
57.95
64.35
ESPP Shares
Risk-free interest rates
Expected term (in years)
Expected volatility
Dividend yield
Shares Reserved for Issuance
Year Ended December 31,
2020
2019
2018
0.11% - 0.2% 1.6% - 2.4%
2.1% - 2.8%
0.5 - 2
61.59% -
89.0%
0%
0.4 - 2
43.2% -
57.6%
0%
0.5 - 2
51.7% -
65.4%
0%
The Company has reserved shares of its authorized common stock for issuance pursuant to its employee stock purchase and
equity plans, including all outstanding stock option grants noted above at December 31, 2020, as follows:
Shares reserved for issuance
2019 Stock Plan
2010 Purchase Plan
11,898,737
759,015
12,657,752
116
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(15) COMMITMENTS AND CONTINGENCIES
Leases
The components of lease expense were as follows:
(In thousands)
Finance lease cost
Amortization of right-of-use assets
Interest on lease liabilities
Operating lease cost
Short-term lease cost
Variable lease cost
Total Lease Cost
Year Ended December 31,
2020
2019
$
1,935 $
383
22,551
356
2,703
$
27,928 $
27
2
9,200
219
896
10,344
Supplemental disclosure of cash flow information related to the Company's cash and non-cash activities with its leases are
as follows:
(In thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Finance cash flows from finance leases
Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities (1)
Right-of-use assets obtained in exchange for new finance lease liabilities
Weighted-average remaining lease term - operating leases (in years)
Weighted-average remaining lease term - finance leases (in years)
Weighted-average discount rate - operating leases
Weighted-average discount rate - finance leases
Year Ended December 31,
2020
2019
$
17,531
$
9,641
381
1,756
13,261
20,349
8.75
3.68
6.80 %
5.67 %
1
15
51,030
237
9.80
1.20
6.80 %
5.60 %
_________________________________
(1) For the year ended December 31, 2019, this includes right-of-use assets obtained from the initial adoption of ASC 842 of
approximately $17.9 million.
As of December 31, 2020 and 2019, the Company’s right-of-use assets from operating leases are $125.9 million and
$126.4 million, respectively, which are reported in operating lease right-of-use assets in the Company’s consolidated balance
sheet. As of December 31, 2020, the Company has outstanding lease obligations of $132.6 million, of which $11.5 million is
reported in operating lease liabilities, current portion and $121.1 million is reported in operating lease liabilities, less current
portion in the Company’s consolidated balance sheet. As of December 31, 2019, the Company had outstanding lease
obligations of $126.6 million, of which $7.9 million is reported in operating lease liabilities, current portion and $118.7 million
is reported in operating lease liabilities, less current portion in the Company’s consolidated balance sheet. The Company
calculates its incremental borrowing rates for specific lease terms, used to discount future lease payments, as a function of the
U.S. Treasury rate and an indicative Moody’s rating for operating leases.
As of December 31, 2020 and 2019, the Company’s right-of-use assets from finance leases are $20.6 million and $0.3
million, respectively, which are reported in other long-term assets, net in the Company’s consolidated balance sheets. As of
December 31, 2020, the Company has outstanding finance lease obligations of $18.7 million, of which $4.7 million is reported
in other current liabilities and $14.0 million is reported in other long-term liabilities in the Company’s consolidated balance
117
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
sheets. As of December 31, 2019, the Company had outstanding finance lease obligations of $0.2 million, of which $32,000 is
reported in other current liabilities and $0.2 million is reported in other long-term liabilities in the Company’s consolidated
balance sheets. The Company calculates its incremental borrowing rates for specific lease terms, used to discount future lease
payments, as a function of the U.S. Treasury rate and an indicative Moody’s rating for finance leases.
Maturities of operating lease liabilities on an annual basis as of December 31, 2020 were as follows (amounts in
thousands):
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total minimum lease payments
Imputed interest
Total
$
19,881
19,596
21,306
21,257
19,338
79,141
180,519
(47,961)
$
132,558
Maturities of finance lease liabilities on an annual basis as of December 31, 2020 were as follows (amounts in thousands):
(In thousands)
2021
2022
2023
2024
2025
Thereafter
Total minimum lease payments
Imputed interest
Total
$
$
5,674
5,635
5,525
3,819
53
—
20,706
(1,961)
18,745
The Company executed a lease agreement for a new facility in Redwood City, California in 2020 that will commence in
February 2021. The Company anticipates to recognize $8.2 million for the operating lease right-of-use assets and $8.3 million
for the operating lease liabilities in the consolidated balance sheet, respectively, upon commencement of the lease.
Rent expense included in the accompanying consolidated statements of operations was approximately $3.6 million for the
year ended December 31, 2018.
Legal Matters
The Company is currently responding to civil investigative demands initiated by the United States Department of Justice
(“DOJ”) concerning (1) Genomic Health's compliance with the Medicare Date of Service billing regulations and (2) allegations
that the Company offered or gave gift cards to patients in exchange for returning the Cologuard screening test, in violation of
the Federal Anti-Kickback Statute and False Claims Act. The Company has been cooperating with these inquiries and has
produced documents in response thereto. Adverse outcomes from these investigations could include the Company being
required to pay treble damages, incur civil and criminal penalties, paying attorneys' fees, entering into a corporate integrity
agreement, being excluded from participation in government healthcare programs, including Medicare and Medicaid, and other
adverse actions that could materially and adversely affect the Company's business, financial condition and results of operation.
See Note 19 for additional information on the Company's fair value determination of this pre-acquisition loss contingency
related to the Genomic Health DOJ investigation.
118
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
In connection with the Company's combination with Genomic Health, on June 22, 2020, Suzanne Flannery, a purported
former stockholder of Genomic Health, filed a Verified Individual and Class Action Complaint in the Delaware Court of
Chancery, captioned Flannery v. Genomic Health, Inc., et al., C.A. No. 2020-0492. Flannery amended her complaint on
November 23, 2020. The amended complaint asserts individual and class action claims, including: (i) a violation of 8 Del. C. §
203 by Genomic Health, Exact Sciences and a purported controlling group of former Genomic Health stockholders; (ii)
conversion by Genomic Health, Exact Sciences and Spring Acquisition Corp.; (iii) breach of fiduciary duty by Genomic
Health's former directors; (iv) breach of fiduciary duty by the purported controlling group; and (v) aiding and abetting breach of
fiduciary duty against Exact Sciences, Spring Acquisition and Goldman Sachs & Co. LLC, Genomic Health's financial advisor
in the combination. The amended complaint seeks, among other things, declaratory relief, unspecified monetary damages and
attorneys' fees and costs. All defendants moved to dismiss the amended complaint.
These investigations are still in process and the scope and outcome of the investigations is not determinable at this time.
There can be no assurance that any settlement, resolution, or other outcome of these matters during any subsequent reporting
period will not have a material adverse effect on the Company’s results of operations or cash flows for that period or on the
Company’s financial position.
(16) EMPLOYEE BENEFIT PLAN
The Company maintains a qualified 401(k) retirement savings plan for Exact Sciences employees (the "401(k) Plan").
After the combination with Genomic Health in 2019, the Company maintained a plan for legacy Genomic Health employees
(the "Genomic Health Plan") up until the Genomic Health Plan was merged into the 401(k) Plan effective April 3, 2020. Under
the terms of the 401(k) Plan, participants may elect to defer a portion of their compensation into the 401(k) Plan, subject to
certain limitations. Company matching contributions may be made at the discretion of the Board of Directors.
The Company’s Board of Directors approved 401(k) Plan matching contributions for the years ended December 31, 2020,
2019 and 2018 in the form of Company common stock equal to 100 percent up to 6 percent of the participant’s eligible
compensation for that year. The Company recorded compensation expense of approximately $22.8 million, $12.5 million, and
$7.4 million, respectively, in the statements of operations for the years ended December 31, 2020, 2019 and 2018.
(17) NEW MARKET TAX CREDIT
During the fourth quarter of 2014, the Company received approximately $2.4 million in net proceeds from financing
agreements related to working capital and capital improvements at one of its Madison, Wisconsin facilities. This financing
arrangement was structured with an unrelated third-party financial institution (the “Investor”), an investment fund, and its
majority owned community development entity in connection with the Company’s participation in transactions qualified under
the federal New Markets Tax Credit (“NMTC”) program, pursuant to Section 45D of the Internal Revenue Code of 1986, as
amended. The Company is required to be in compliance through December 2021 with various regulations and contractual
provisions that apply to the NMTC arrangement. Noncompliance with applicable requirements could result in the Investor’s
projected tax benefits not being realized and, therefore, require the Company to indemnify the Investor for any loss or recapture
of NMTC related to the financing until such time as the recapture provisions have expired under the applicable statute of
limitations. The Company does not anticipate any credit recapture will be required in connection with this financing
arrangement.
The Investor and its majority owned community development entity are considered Variable Interest Entities (“VIEs”) and
the Company is the primary beneficiary of the VIEs. This conclusion was reached based on the following:
•
•
•
•
the ongoing activities of the VIEs—collecting and remitting interest and fees and NMTC compliance—were all
considered in the initial design and are not expected to significantly affect performance throughout the life of the
VIE;
contractual arrangements obligate the Company to comply with NMTC rules and regulations and provide various
other guarantees to the Investor and community development entity;
the Investor lacks a material interest in the underlying economics of the project; and
the Company is obligated to absorb losses of the VIEs.
Because the Company is the primary beneficiary of the VIEs, they have been included in the consolidated financial
statements. There are no other assets, liabilities or transactions in these VIEs outside of the financing transactions executed as
part of the NMTC arrangement.
119
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(18) WISCONSIN ECONOMIC DEVELOPMENT TAX CREDITS
During the first quarter of 2015, the Company entered into an agreement with the Wisconsin Economic Development
Corporation (“WEDC”) to earn $9.0 million in refundable tax credits on the condition that the Company expends $26.3 million
in capital investments and establishes and maintains 758 full-time positions over a seven-year period. The tax credits earned are
first applied against the tax liability otherwise due, and if there is no such liability present, the claim for tax credits will be
reimbursed in cash to the Company. The maximum amount of the refundable tax credit to be earned for each year is fixed, and
the Company earns the credits by meeting certain capital investment and job creation thresholds over the seven-year period.
Should the Company earn and receive the job creation tax credits but not maintain those full-time positions through the end of
the agreement, the Company may be required to pay those credits back to the WEDC.
The Company records the earned tax credits as job creation and capital investments occur. The amount of tax credits earned
is recorded as a liability and amortized as a reduction of operating expenses over the expected period of benefit. The tax credits
earned from capital investment are recognized as an offset to depreciation expense over the expected life of the acquired capital
assets. The tax credits earned related to job creation are recognized as an offset to operational expenses over the life of the
agreement, as the Company is required to maintain the minimum level of full-time positions through the seven-year period.
As of December 31, 2020, the Company has earned all $9.0 million of the refundable tax credits and has received payment
of $5.9 million from the WEDC. The unpaid portion is $3.1 million, of which $1.6 million is reported in prepaid expenses and
other current assets and $1.5 million is reported in other long-term assets, reflecting when collection of the refundable tax
credits is expected to occur. As of December 31, 2020, the corresponding liability, which reflected when the expected benefit of
the tax credit amortization would reduce future operating expenses, has been fully amortized and has a balance of zero.
During the years ended December 31, 2020, 2019 and 2018, the Company amortized $2.2 million, $2.4 million, and $2.2
million, respectively, of the tax credits earned as a reduction of operating expenses.
(19) BUSINESS COMBINATIONS AND ASSET ACQUISITIONS
Business Combinations
Paradigm Diagnostics, Inc. and Viomics, Inc.
On March 3, 2020, the Company acquired all of the outstanding capital stock of Paradigm and Viomics, two related party
companies of one another headquartered in Phoenix, Arizona, in transactions that are deemed to be a single business
combination in accordance with ASC 805, Business Combinations, (“the Paradigm Acquisition”). Paradigm provides
comprehensive genomic-based profiling tests that assist in the diagnosis and therapy recommendations for late-stage cancer.
Viomics provides a platform for identification of biomarkers.
The Company entered into this acquisition to enhance its product portfolio in cancer diagnostics and to enhance its
capabilities for biomarker identification.
The acquisition date fair value of the consideration to be transferred for Paradigm and Viomics was $40.4 million, which
consists of $32.2 million payable in shares of the Company’s common stock and $8.2 million which was settled through a cash
payment. Of the $32.2 million to be settled through the issuance of common stock, $28.8 million was issued as of December 31,
2020, and the remaining $3.4 million, which was withheld and may become payable as additional merger consideration, is
included in other current liabilities in the consolidated balance sheet as of December 31, 2020. The purchase price was allocated
to the underlying assets acquired and liabilities assumed based upon their estimated fair values as follows:
(In thousands)
Net operating assets
Goodwill
Developed technology
Net operating liabilities
Total purchase price
Preliminary
Allocation
Measurement
Period
Preliminary
Allocation
$
6,133 $
(760) $
29,695
7,800
736
—
5,373
30,431
7,800
(3,123)
(80)
(3,203)
$
40,505 $
(104) $
40,401
120
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
The measurement period adjustments primarily relate to accounts receivable valuation and working capital adjustments.
The fair value of identifiable intangible assets has been determined using the income approach, which involves significant
unobservable inputs (Level 3 inputs). These inputs include projected sales, margin, weighted average cost of capital and tax
rate.
Developed technology represents purchased technology that had reached technological feasibility and for which
development had been completed as of the acquisition date. Fair value was determined using future discounted cash flows
related to the projected income stream of the developed technology for a discrete projection period. Cash flows were discounted
to their present value as of the closing date. Developed technology is amortized on a straight-line basis over its estimated useful
life of 15 years.
The calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible
assets acquired was recorded to goodwill, which is primarily attributed to the assembled workforce, and expected synergies.
The total goodwill related to this acquisition is not deductible for tax purposes.
The Company agreed to issue to the previous investors in Viomics equity interests with an acquisition-date fair value of up
to $8.4 million in Viomics, vesting over 4 years based on certain retention arrangements. Payment is contingent upon continued
employment with the Company over the four year vesting period and is recognized as stock-based compensation expense in
general and administrative expense in the consolidated statement of operations.
The partial year results from the operations of Paradigm and Viomics are included in the Company’s consolidated financial
statements and not disclosed separately due to immateriality. Pro forma disclosures have not been included due to
immateriality.
Genomic Health, Inc.
On November 8, 2019, the Company acquired all of the outstanding capital stock of Genomic Health. Genomic Health,
headquartered in Redwood City, California, provides genomic-based diagnostic tests that address both the overtreatment and
optimal treatment of early and late stage cancer. The Company has included the financial results of Genomic Health in the
consolidated financial statements from the date of the combination.
The Company entered into this combination to create a leading global cancer diagnostics company and provide a robust
platform for continued growth. This combination provides the Company with a commercial presence in more than 90 countries
in which the combined company expects to continue to increase adoption of current tests, and to bring new innovative cancer
tests to patients around the world.
During 2019, the Company incurred $22.5 million of acquisition-related costs recorded in general and administrative
expense. These costs include fees associated with financial, legal, accounting and other advisors incurred to complete the
combination.
The combination date fair value of the consideration transferred for Genomic Health was approximately $2.47 billion,
which consisted of the following:
(In thousands)
Cash
Common stock issued
Fair value of replacement stock options and restricted stock awards
Total purchase price
$
1,061,489
1,389,266
17,813
$
2,468,568
The fair value of the common stock issued as part of consideration was determined on the basis of the closing market price
of the Company's shares at the acquisition date. The fair value of the stock options assumed by the Company was determined
using the Black-Scholes option pricing model. The share conversion ratio of 0.76534 was applied to convert Genomic Health’s
outstanding equity awards for Genomic Health’s common stock into equity awards for shares of the Company’s common stock.
121
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
The fair value of options assumed were based on the assumptions in the following table:
Option Plan Shares Assumed
Risk-free interest rates
Expected term (in years)
Expected volatility
Dividend yield
Weighted average fair value per share of options assumed
0.88% - 2.90%
3.28 - 6.73
63.54% - 69.09%
0%
$45.75 - $57.44
The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair
values as follows:
(In thousands)
Cash and cash equivalents
Marketable securities
Accounts receivable
Inventory
Prepaid expenses and other current assets
Property, plant and equipment
Goodwill
Trade name
Supply agreement intangible
Developed technology
In-process research and development (IPR&D)
Operating lease right-of-use assets
Other long-term assets
Accounts payable, accrued liabilities and other current liabilities
Deferred tax liability
Operating lease liabilities, current portion
Operating lease liabilities, less current portion
Other long-term liabilities
Total fair value consideration
Preliminary
Allocation
November 8,
Measurement
Period
Adjustments
Final Allocation
November 8,
2020
$
87,627 $
— $
201,519
57,400
3,535
8,360
69,905
—
—
—
—
(122)
87,627
201,519
57,400
3,535
8,360
69,783
1,185,918
4,044
1,189,962
100,000
30,000
800,000
200,000
80,790
14,972
(88,995)
(205,536)
(3,258)
(71,270)
(2,399)
—
—
—
—
—
(96)
548
100,000
30,000
800,000
200,000
80,790
14,876
(88,447)
(4,374)
(209,910)
—
—
—
(3,258)
(71,270)
(2,399)
$
2,468,568 $
— $
2,468,568
The measurement period adjustments primarily relate to the fair value of Genomic Health's pre-acquisition deferred tax
liability due to finalization of certain income-tax related items.
The fair value of identifiable intangible assets has been determined using the income approach, which involves significant
unobservable inputs (Level 3 inputs). These inputs include projected sales, margin, required rate of return and tax rate, as well
as an estimated royalty rate in the cases of the developed technology and trade name intangibles. The developed technology and
tradename intangibles are valued using a relief-from-royalty method.
Trade names represent the value associated with the Oncotype DX trade name in the market. The trade name intangible is
amortized on a straight-line basis over its estimated useful life of 16 years.
Developed technology represents purchased technology that had reached technological feasibility and for which Genomic
Health had substantially completed development as of the date of combination. Fair value was determined using future
discounted cash flows related to the projected income stream of the developed technology for a discrete projection period. Cash
flows were discounted to their present value as of the closing date. Developed technology is amortized on a straight-line basis
over its estimated useful life of 10 years.
122
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
IPR&D represent capitalized incomplete research projects as of the combination date and had no alternative future use. The
amounts capitalized are being accounted for as indefinite-lived intangible assets, subject to impairment testing, until completion
or abandonment of the research and development efforts associated with the projects. The primary basis for determining
technological feasibility of these projects is obtaining regulatory approval to market the underlying product and expected
commercial release. The Company recorded $200.0 million of IPR&D related to the development of an IVD version of the
Oncotype DX Breast Recurrence Score test. The IPR&D asset was valued using the multiple-period excess earnings method
approach.
The calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible
assets acquired was recorded to goodwill, which is primarily attributed to the assembled workforce and expanded market
opportunities including a broader global presence. The total goodwill related to this combination is not deductible for tax
purposes.
The Company assumed unvested stock options and restricted stock awards with combination-date fair values of
$34.3 million and $42.3 million, respectively. Of the total consideration for stock options and restricted stock awards,
$2.2 million and $15.6 million, respectively, was allocated to the purchase consideration and $32.1 million and $26.7 million,
respectively, was allocated to future services and will be expensed over a weighted average period of 1.69 years and 2.12 years,
respectively.
The amounts of revenue and net loss before tax of Genomic Health included in the Company’s consolidated statement of
operations from the combination date of November 8, 2019 to December 31, 2019 and for the year ended December 31, 2020
are as follows:
(In thousands)
Total revenues
Net loss before tax
2020
2019
$
435,960 $
66,174
(254,162)
(40,446)
The following unaudited pro forma financial information summarized the combined results of operations for the Company
and Genomic Health, as though the companies were combined as of the beginning of January 1, 2018.
(In thousands)
Total revenues
Net loss before tax
Year Ended December 31,
2019
2018
$
1,266,591 $
848,573
(252,203)
(302,173)
The unaudited pro forma financial information for all periods presented above has been calculated after adjusting the
results of Genomic Health to reflect the business combination accounting effects resulting from this combination, including the
amortization expense from acquired intangible assets and the stock-based compensation expense for unvested stock options and
restricted stock awards assumed as though the combination occurred as of January 1, 2018. The historical consolidated financial
statements have been adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that
are directly attributable to the business combination and factually supportable. The unaudited pro forma financial information is
for informational purposes only and is not indicative of the results of operations that would have been achieved if the
combination had taken place as of January 1, 2018.
As described in Note 15, the Company identified a pre-acquisition contingency relating to the DOJ investigation. The
Company assigned a fair value estimate of zero to this pre-acquisition contingency. Subsequent to the Company's final
determination of the pre-acquisition contingency’s estimated value, changes to this estimate could have a material impact on
our results of operations and financial position.
In connection with the combination, the Company decided to terminate certain Genomic Health executives in the fourth
quarter of 2019 and recorded $32.1 million in severance benefits charges.
123
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
Asset Acquisitions
Base Genomics, Limited
On October 26, 2020, The Company acquired all of the outstanding capital stock of Base Genomics, Limited in a cash
transaction totaling $416.5 million. Base Genomics headquartered in Oxford, England exclusively licenses from Ludwig a non-
bisulfite technology for the detection of methylated DNA and other epigenetic modifications. This technology (“TAPS”)
simultaneously generates both genetic and epigenetic information at base resolution. TAPS overcomes the issues of the current
gold-standard for DNA methylation detection of bisulfite sequencing. The Company has included the financial results of Base
Genomics in the consolidated statements from the date of the acquisition and not disclosed separately due to immateriality. Pro
forma disclosures have not been included due to immateriality.
While the acquisition was treated legally as a merger of the two entities, for accounting purposes, the transaction was
treated as an asset acquisition under GAAP because substantially all of the fair value of the gross assets acquired were deemed
to be associated with the TAPS technology.
The assets and liabilities acquired in the merger were recorded at fair value as determined as of October 26, 2020, and were
substantially comprised of the TAPS IPR&D asset as shown in the table below. The Company incurred approximately $4.6
million of direct transaction costs during 2020 associated with this acquisition. These acquisition-related transaction costs were
capitalized to the acquired tangible and intangible assets based on their estimated fair values as of the closing date. The IPR&D
asset acquired was recorded to research and development expense in the consolidated statement of operations immediately after
acquisition as the asset was deemed to be incomplete and had no alternative future use at the time of acquisition.
The Company accounted for the merger in accordance with the accounting standards codification guidance for business
combinations, whereby the total purchase price was allocated to the acquired net tangible and intangible assets based on their
estimated fair values as of the closing date. As of December 31, 2020, the Company has substantially completed its process for
measuring the fair values of the assets acquired and liabilities assumed based on information available as of the closing date.
The following table summarizes the total consideration for the acquisition and the value of assets acquired and liabilities
assumed as of October 26, 2020, the Merger closing date. These values are based on internal Company and independent
external third-party valuations:
(In thousands)
Consideration
Cash paid for acquisition of Base Genomics outstanding shares
$
416,525
Transaction costs
Total consideration
Assets acquired and liabilities assumed
Cash
IPR&D asset
Other assets and liabilities
Net assets acquired
(20) SEGMENT INFORMATION
4,600
421,125
9,704
412,568
(1,147)
$
421,125
Management determined that the Company functions as a single operating segment, and thus reports as a single reportable
segment. This operating segment is focused on the development and global commercialization of clinical laboratory services
allowing healthcare providers and patients to make individualized treatment decisions. Management assessed the discrete
financial information routinely reviewed by the Company's Chief Operating Decision Maker, its President and Chief Executive
Officer, to monitor the Company's operating performance and support decisions regarding allocation of resources to its
operations. Performance is continuously monitored at the consolidated level to timely identify deviations from expected results.
124
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
The following table summarizes total revenue from customers by geographic region. Product revenues are attributed to
countries based on ship-to location.
(In thousands)
United States
Outside of United States
Total revenues
Year Ended December 31,
2020
2019
2018
$
1,413,907 $
864,849 $
454,462
77,484
11,444
—
$
1,491,391 $
876,293 $
454,462
Long-lived assets located in countries outside of the United States are not significant.
(21) INCOME TAXES
Under financial accounting standards, deferred tax assets or liabilities are computed based on the differences between the
financial statement and income tax bases of assets and liabilities using the enacted tax rates. Deferred income tax expense or
benefit represents the change in the deferred tax assets or liabilities from period to period. At December 31, 2020, the Company
had federal net operating loss, state net operating loss, and foreign net operating loss carryforwards of approximately $1.55
billion, $709.2 million, and $4.3 million, respectively for financial reporting purposes, which may be used to offset future
taxable income. The Company also had federal and state research tax credit carryforwards of $54.3 million and $34.0 million,
respectively which may be used to offset future income tax liability. The federal credit carryforwards expire at various dates
through 2040 and are subject to review and possible adjustment by the Internal Revenue Service. The state credit carryforwards
expire at various dates through 2035 with the exception of California research and development tax credits that have an
indefinite carryforward period. All state tax credits are subject to review and possible adjustment by local tax jurisdictions. In
the event of a change of ownership, the federal and state net operating loss and research and development tax credit
carryforwards may be subject to annual limitations provided by the Internal Revenue Code and similar state provisions.
Income (loss) before provision for taxes consisted of the following:
(In thousands)
Income (loss) before income taxes:
Domestic
Foreign
Total income (loss) before income taxes
The expense (benefit) for income taxes consists of:
(In thousands)
Current expense (benefit):
Federal
State
Foreign
Deferred tax expense (benefit):
Federal
State
Foreign
Total income tax expense (benefit)
$
125
Year Ended December 31,
2020
2019
2018
$
(451,067)
$ (267,832)
$ (175,275)
(406,038)
(1,019)
218
$
(857,105)
$ (268,851)
$ (175,057)
Year Ended December 31,
2020
2019
2018
$
(3) $
802
933
— $
314
(63)
(6,453)
(3,971)
120
(8,572) $
(169,727)
(15,397)
15
(184,858) $
—
92
—
—
—
—
92
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
The Company recorded an income tax benefit for the year ended December 31, 2020 of $8.6 million primarily as a result of
future limitations on and expiration of certain Federal and State deferred tax assets.
The components of the net deferred tax asset with the approximate income tax effect of each type of carryforward, credit
and temporary differences are as follows:
(In thousands)
Deferred tax assets:
Operating loss carryforwards
Tax credit carryforwards
Compensation related differences
Lease assets
Other temporary differences
Tax assets before valuation allowance
Less - Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Convertible notes
Amortization
Property, plant and equipment
Lease liabilities
Other temporary differences
Total deferred tax liabilities
Net deferred tax liabilities
December 31,
2020
2019
$
369,642 $
369,695
64,760
48,349
31,938
6,136
51,030
33,378
30,782
7,049
520,825
491,934
(157,629)
(120,679)
363,196 $
371,255
(145,925) $
(83,163)
(197,847)
(270,421)
(4,580)
(30,312)
(4,078)
(5,913)
(29,586)
(2,607)
$
$
(382,742)
(391,690)
$
(19,546) $
(20,435)
A valuation allowance to reduce the deferred tax assets is reported if, based on the weight of the evidence, it is more likely
than not that some portion or all of the deferred tax assets will not be realized. The Company has incurred significant losses
since its inception and due to the uncertainty of the amount and timing of future taxable income and the realization of deferred
tax liabilities, management has determined that a valuation allowance of $157.6 million and $120.7 million at December 31,
2020 and 2019, respectively, is necessary to reduce the tax assets to the amount that is more likely than not to be realized.
Given the future limitations on and expiration of certain federal and state deferred tax assets, the recording of a valuation
allowance resulted in a deferred tax liability of approximately $19.5 million remaining at the end of 2020, which is included in
other long-term liabilities on the Company's consolidated balance sheet. The overall change in valuation allowance for
December 31, 2020 and 2019 was an increase of $36.9 million and a decrease of $89.2 million, respectively.
Activity associated with the Company's valuation allowance is as follows:
(In thousands)
Balance as of January 1,
Valuation allowances established
Changes to existing valuation allowances
Acquisition and purchase accounting
Additional paid-in-capital
Balance as of December 31,
December 31,
2020
2019
2018
$
(120,679)
$ (209,868)
$ (214,250)
(108,944)
(132,522)
(52,855)
1,662
(5,558)
75,890
1,620
183,730
36,361
(2,744)
(1,739)
61,720
$
(157,629)
$ (120,679)
$ (209,868)
During 2020, the Company recorded an increase to the valuation allowance of $108.9 million primarily related to losses
from continuing operations. Additionally, the Company recorded a decrease to the valuation allowance of $75.9 million related
to convertible debt issuances offset against additional paid-in capital.
126
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
During 2019, the Company recorded an increase to the valuation allowance of $132.5 million primarily related to losses
from continuing operations. Additionally, the Company recorded a decrease to the valuation allowance of $183.7 million
related to the Genomic Health combination offset against goodwill, as well as a decrease of $36.4 million related to convertible
debt issuances offset against additional paid-in capital.
During 2018, the Company recorded an increase to the valuation allowance of $52.9 million primarily related to losses
from continuing operations. Additionally, the Company recorded a decrease to the valuation allowance of $61.7 million related
to convertible debt issuances offset against additional paid-in capital.
The effective tax rate differs from the statutory tax rate due to the following:
U.S. Federal statutory rate
State taxes
Federal and state tax rate changes
Foreign tax rate differential
Acquired IPR&D asset expense
Research and development tax credits
Stock-based compensation expense
Non-deductible executive compensation
Transaction costs
Other adjustments
Valuation allowance
Effective tax rate
December 31,
2020
2019
2018
21.0 %
1.9
—
(1.0)
(9.1)
1.6
1.1
(0.8)
(0.1)
(1.0)
(12.7)
0.9 %
21.0 %
5.8
(0.4)
0.6
—
1.1
22.1
(4.1)
(0.7)
(0.6)
24.0
68.8 %
21.0 %
3.4
—
—
—
1.9
9.1
(4.9)
—
1.1
(31.7)
(0.1) %
For the year ended December 31, 2020, the Company recognized an income tax benefit, representing an effective tax rate
of 0.9%. The difference between the expected statutory federal tax rate of 21.0% and the effective tax rate of 0.9% for the year
ended December 31, 2020, was primarily attributable to the valuation allowance established against the Company's current
period losses generated and the non-deductible IPR&D expense related to the Base Genomics acquisition.
For the year ended December 31, 2019, the Company recognized an income tax benefit, representing an effective tax rate
of 68.8%. The difference between the expected statutory federal tax rate of 21.0% and the effective tax rate of 68.8% for the
year ended December 31, 2019, was primarily attributable to an income tax benefit of $185.1 million recorded as a result of a
change in the deferred tax asset valuation allowance resulting from the Genomic Health combination, as well as excess tax
benefits on vested stock-based compensation awards.
For the year ended December 31, 2018, the Company recognized an immaterial income tax expense, representing an
effective tax rate of (0.1)%. The difference between the expected statutory federal tax rate of 21.0% and the effective tax rate of
(0.1)% for the year ended December 31, 2018, was primarily attributable to the valuation allowance established against our
current period losses generated.
The Company had unrecognized tax benefits related to federal and state research and development tax credits of $16.6
million, $10.3 million, and $1.9 million as of December 31, 2020, 2019 and 2018, respectively. These amounts have been
recorded as a reduction to our deferred tax asset, if recognized they would not have an impact on the effective tax rate due to the
existing valuation allowance. Certain of the Company's unrecognized tax benefits could change due to activities of various tax
authorities, including possible settlement of audits, or through normal expiration of various statutes of limitations. The
Company does not expect a material change in unrecognized tax benefits in the next twelve months.
127
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
The following is a tabular reconciliation of the amounts of unrecognized tax benefits:
(In thousands)
January 1,
Increase due to current year tax positions
Increase due to prior year tax positions
Decrease due to prior year tax positions
Settlements
December 31,
December 31,
2020
2019
2018
$
$
10,276 $
3,600
2,753
—
—
16,629 $
1,926 $
2,142
6,208
—
—
10,276 $
—
392
1,534
—
—
1,926
As of December 31, 2020, due to the carryforward of unutilized net operating losses and research and development credits,
the Company is subject to U.S. federal income tax examinations for the tax years 2001 through 2020, and to state income tax
examinations for the tax years 2001 through 2020. There were no interest or penalties related to income taxes that have been
accrued or recognized as of and for the years ended December 31, 2020, 2019 and 2018.
(22) SUBSEQUENT EVENTS
On January 5, 2021, the Company completed the acquisition ("Thrive Merger") of Thrive Earlier Detection Corporation,
pursuant to a merger through which the Company acquired all of the outstanding shares of Thrive. Thrive is a healthcare
company dedicated to incorporating earlier cancer detection into routine medical care. The Company expects that combining
Thrive’s early-stage screening test, CancerSEEK, with the Company’s scientific platform, clinical organization and commercial
infrastructure will establish the Company as a leading competitor in blood-based, multi-cancer screening. Under the terms of
the Thrive Merger, we paid Thrive's stockholders total consideration of $1.70 billion at closing, comprised of 35% in cash and
65% in the Company’s common stock. An additional $450.0 million would be payable in cash based upon the achievement of
certain milestones related to the development and commercialization of a blood-based, multi-cancer screening test. Due to the
proximity of the completion of the acquisition to the filing of this Form 10-K, the accounting for the preliminary purchase price
allocation is not complete, including the valuation of total consideration paid, assets acquired and liabilities assumed.
Through the Thrive Merger, the Company acquired a worldwide exclusive license agreement with John Hopkins
University (“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.
On January 11, 2021, the Company acquired a worldwide exclusive license to the proprietary Targeted Digital Sequencing
(“TARDIS”) technology from the Translational Genomics Research Institute (“TGen”), an affiliate of City of Hope for an up-
front cost of $25.0 million in cash and issuance of 191,336 shares of common stock valued at $27.3 million on the date of
issuance. This license is a royalty-free, perpetual license. Under the terms of the agreement, the Company is required to pay
cash of $10.0 million and $35.0 million upon achieving cumulative product revenue related to minimal residual disease
(“MRD”) detection and/or treatment totaling $100.0 million and $250.0 million, respectively. These payments are contingent
upon achievement of these cumulative revenues on or before December 31, 2030.
On February 12, 2021, the Company entered into an Equity Purchase Agreement (the “Ashion Purchase Agreement”) with
PMed Management, LLC (“PMed”) which is a subsidiary of TGen pursuant to which the Company will purchase all of the
outstanding equity interests of Ashion Analytics, LLC (“Ashion”; such transaction, the "Ashion Acquisition") in exchange for
cash of approximately $72.0 million and 125,444 shares of the Company’s common stock. An additional $20.0 million and
$30.0 million would be payable in cash upon the development and commercialization of a test for MRD detection and/or
treatment (the “Commercial Launch Milestone”) and cumulative revenues from MRD products of $500.0 million (the “MRD
Product Revenue Milestone”), respectively. The Commercial Launch Milestone is contingent upon achievement on or before
the fifth anniversary of the closing and the MRD Product Revenue Milestone is contingent upon achievement on or before the
tenth anniversary of the closing. Ashion is a CLIA-certified and CAP-accredited sequencing lab based in Phoenix, Arizona.
Ashion developed GEMExTra®, one of the most comprehensive genomic cancer tests available, and provides access to whole
exome, matched germline, and transcriptome sequencing capabilities. The Company currently expects the Ashion Acquisition
to close during the second quarter of 2021, subject to customary closing conditions.
128
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(23) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth unaudited quarterly statements of operations data for each of the eight quarters ended
December 31, 2020 and 2019. In the opinion of management, this information has been prepared on the same basis as the
audited consolidated financial statements and contains all adjustments, consisting only of normal recurring adjustments,
considered necessary for a fair statement of the unaudited quarterly results for the periods presented. The quarterly data should
be read in conjunction with the Company’s audited consolidated financial statements and the notes to the consolidated financial
statements appearing elsewhere in this Form 10-K.
Revenue
2020
Cost of sales (exclusive of amortization of acquired intangible assets)
Amortization of acquired intangible assets (1)
Gross profit
Operating expenses, net (2)
Interest income and interest expense
Income tax benefit
Net loss
Net loss per share—basic
Net loss per share—diluted
Weighted average common shares outstanding—basic
Weighted average common shares outstanding—diluted
2019
March 31,
June 30,
Quarter Ended (3)
September 3
0,
December 31
,
(Amounts in thousands, except per share data)
$ 347,821 $ 268,868 $ 408,363 $ 466,339
81,606
20,464
77,892
20,555
95,061
20,555
99,765
20,553
245,751
170,421
292,747
346,021
328,124
237,430
496,082
761,323
(25,056)
(20,000)
(21,059)
(22,971)
1,732
867
4,510
1,463
$ (105,697) $ (86,142) $ (219,884) $ (436,810)
(0.71) $
(0.71) $
$
$
148,151
148,151
(0.58) $
(0.58) $
(1.46) $
(1.46) $
149,727
149,727
150,155
150,155
(2.79)
(2.79)
156,470
156,470
Revenue
$ 162,043 $ 199,870 $ 218,805 $ 295,575
Cost of sales (exclusive of amortization of acquired intangible assets)
42,827
51,139
52,335
Amortization of acquired intangible assets (1)
425
424
424
70,416
11,981
Gross profit
Operating expenses (2)
Interest income and interest expense
Income tax benefit (expense)
Net income (loss)
Net income (loss) per share—basic
Net income (loss) per share—diluted
118,791
148,307
166,046
213,178
186,865
182,209
201,772
309,258
(15,335)
(5,043)
(4,116)
(10,575)
470
443
(683) 184,628
$ (82,939) $ (38,502) $ (40,525) $ 77,973
0.56
$
(0.31) $
(0.30) $
(0.66) $
$
(0.66) $
(0.30) $
(0.31) $
0.54
Weighted average common shares outstanding—basic
126,248
129,182
129,567
139,901
Weighted average common shares outstanding—diluted
126,248
129,182
129,567
143,200
_________________________________
(1) Includes only amortization of acquired intangible assets identified as developed technology assets through purchase
accounting transactions, which otherwise would have been allocated to cost of sales.
(2) Consists of research and development, sales and marketing, general and administrative, and amortization of acquired
intangible assets excluding acquired developed technology, which is included in the gross profit calculation above. This also
includes intangible asset impairment charges and funding received as part of the CARES Act. Refer to Note 6 for further
discussion on the intangible asset impairment charges recorded in the third quarter of 2020. Refer to Note 1 for further
discussion on the funding received as part of the CARES Act in the second quarter of 2020.
129
EXACT SCIENCES CORPORATION
Notes to Consolidated Financial Statements (Continued)
(3) The quarterly net loss presented for each of the quarterly statements of operations shown above differ from the net loss
presented in the Forms 10-Q issued during the year ended December 31, 2019 by an immaterial amount. The differences net to
zero for the full year in 2019 and relate to the Company's international subsidiaries' functional currency changing to the U.S.
dollar, which is discussed further in Note 1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no disagreements with accountants on accounting or financial disclosure matters.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
As required by Rule 13a‑15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), our management,
including our principal executive officer and principal financial officer, conducted an evaluation as of the end of the period
covered by this report, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a‑15(e) under the
Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer have concluded that our
disclosure controls and procedures were effective as of December 31, 2020 to provide reasonable assurance that information
required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and
reported, within the time periods specified in Securities and Exchange Commission rules and forms and that material
information relating to the Company is accumulated and communicated to management, including our principal executive
officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosures.
Changes in Internal Control over Financial Reporting.
There were no changes in our internal control over financial reporting identified in connection with the evaluation required
by Rule 13a-15(d) under the Exchange Act during the quarter ended December 31, 2020, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting.
Management of the Company is responsible for establishing and maintaining adequate internal control over financial
reporting as defined in Rule 13a‑15(f) under the Exchange Act. The Company’s internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We conducted an evaluation, under the supervision and with the participation of our management, of the effectiveness of
our internal control over financial reporting as of December 31, 2020. In making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
Framework (2013). Based on our assessment, management, including our principal executive officer and principal financial
officer, concluded that, as of December 31, 2020, our internal control over financial reporting was effective based on those
criteria.
The effectiveness of the Company's internal control over financial reporting as of December 31, 2020 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Item 9B. Other Information
None.
130
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required under this item is incorporated by reference to the following sections of our proxy statement for
our 2021 Annual Meeting of Stockholders: “Information Concerning Directors and Nominees for Director,” “Information
Concerning Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance,” “Corporate Governance
Principles and Board Matters,” and “The Board of Directors and Its Committees.”
Item 11. Executive Compensation
The information required under this item is incorporated by reference to the following sections of our proxy statement for
our 2021 Annual Meeting of Stockholders: “Compensation and Other Information Concerning Directors and Officers,” “The
Board of Directors and Its Committees,” and “Report of The Compensation Committee.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required under this item is incorporated by reference to the following sections of our proxy statement for
our 2021 Annual Meeting of Stockholders: “Equity Compensation Plan Information” and “Securities Ownership of Certain
Beneficial Owners and Management.”
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required under this item is incorporated by reference to the following sections of our proxy statement for
our 2021 Annual Meeting of Stockholders: “Certain Relationships and Related Transactions” and “Corporate Governance
Principles and Board Matters.”
Item 14. Principal Accountant Fees and Services
The information required under this item is incorporated by reference to the following sections of our proxy statement for
our 2021 Annual Meeting of Stockholders: “Independent Registered Public Accounting Firm” and “Pre-Approval Policies and
Procedures.”
131
Item 15. Exhibits and Financial Statement Schedules
PART IV
(a)
The following documents are filed as part of this Form 10‑K:
(1)
(2)
(3)
Exhibit
Number
2.1
2.2
2.3
2.4
3.1
3.2
3.3
4.1
4.2
Financial Statements (see “Consolidated Financial Statements and Supplementary Data” at Item 8 and
incorporated herein by reference).
Financial Statement Schedules (Schedules to the Financial Statements have been omitted because the
information required to be set forth therein is not applicable or is shown in the accompanying Financial
Statements or notes thereto).
Exhibits
Exhibit Description
Agreement and Plan of Merger, dated July
28, 2019, by and among the Registrant,
Spring Acquisition Corp. and Genomic
Health, Inc.
Agreement and Plan of Merger, dated
October 26, 2020, by and among the
Registrant, certain subsidiaries of the
Registrant, Thrive Earlier Detection Corp.
and Shareholder Representative Services
LLC
First Amendment to Agreement and Plan
of Merger, dated December 23, 2020, by
and among the Registrant, certain
subsidiaries of the Registrant, Thrive
Earlier Detection Corp. and Shareholder
Representative Services LLC
Second Amendment to Agreement and
Plan of Merger, dated January 4, 2021, by
and among the Registrant, certain
subsidiaries of the Registrant, Thrive
Earlier Detection Corp. and Shareholder
Representative Services LLC
Sixth Amended and Restated Certificate of
Incorporation of the Registrant
Amendment to Sixth Amended and
Restated Certificate of Incorporation of the
Registrant
Fourth Amended and Restated By-Laws of
the Registrant
Specimen certificate representing the
Registrant’s Common Stock
Indenture, dated January 17, 2018, by and
between the Registrant and U.S. Bank
National Association, as Trustee
Filed with this
Report
Incorporated by
Reference
herein
from Form or
Schedule
8-K
(Exhibit 2.1)
Filing Date
SEC File/
Registration
Number
7/30/2019
001-35092
8-K
(Exhibit 2.1)
10/27/2020
001-35092
8-K
(Exhibit 2.1)
1/5/2021
001-35092
8-K
(Exhibit 2.2)
1/5/2021
001-35092
S-1
(Exhibit 3.3)
8-K
(Exhibit 3.1)
8-K
(Exhibit 3.1)
S-1
(Exhibit 4.1)
8-K
(Exhibit 4.1)
12/4/2000
333-48812
7/24/2020
001-35092
1/31/2020
001-35092
12/26/2000
333-48812
1/17/2018
001-35092
132
4.3
4.4
4.5
First Supplemental Indenture, dated
January 17, 2018, by and between the
Registrant and U.S. Bank National
Association, as Trustee (including the form
of 1.0% Convertible Senior Notes due
2025)
Second Supplemental Indenture, dated
March 8, 2020, by and between the
Registrant and U.S. Bank National
Association, as Trustee (including the form
of 0.3750% Convertible Senior Notes due
2027)
Third Supplemental Indenture, dated
February 27, 2020, by and between the
Registrant and U.S. Bank National
Association, as Trustee (including the form
of 0.3750% Convertible Senior Notes due
2028)
4.6
Description of Common Stock
X
Lease Agreements
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
Second Amended and Restated Lease
Agreement, dated September 28, 2018, by
and between University Research Park
Incorporated and the Registrant
Lease Agreement, dated June 25, 2013, by
and between Tech Building I, LLC and
Exact Sciences Laboratories, Inc.
Lease Agreement, dated November 11,
2015, by and between Metropolitan Life
Insurance Company and Genomic Health,
Inc.
First Amendment to Lease Agreement,
dated October 4, 2019, by and between
Metropolitan Life Insurance Company and
Genomic Health, Inc.
Lease Agreement, dated September 23,
2005, by and between Metropolitan Life
Insurance Company and Genomic Health,
Inc.
First Amendment to Lease Agreement,
dated September 5, 2006, by and between
Metropolitan Life Insurance Company and
Genomic Health, Inc.
Second Amendment to Lease Agreement,
dated November 30, 2010, by and between
Metropolitan Life Insurance Company and
Genomic Health, Inc.
Third Amendment to Lease Agreement,
dated November 11, 2015, by and between
Metropolitan Life Insurance Company and
Genomic Health, Inc.
133
8-K
(Exhibit 4.2)
1/17/2018
001-35092
8-K
(Exhibit 4.2)
3/8/2019
001-35092
8-K
(Exhibit 4.2)
2/27/2020
001-35902
10-K
(Exhibit 10.1)
10-Q
(Exhibit 10.2)
10-K
(Exhibit 10.3)
2/21/2019
001-35092
8/2/2013
001-35092
2/21/2020
001-35092
10-K
(Exhibit 10.4)
2/21/2020
001-35092
10-K
(Exhibit 10.5)
10-K
(Exhibit 10.6)
2/21/2020
001-35092
2/21/2020
001-35092
10-K
(Exhibit 10.7)
2/21/2020
001-35092
10-K
(Exhibit 10.8)
2/21/2020
001-35092
10.9
Fourth Amendment to Lease Agreement,
dated October 4, 2019, by and between
Metropolitan Life Insurance Company and
Genomic Health, Inc.
Agreements with Executive Officers and Directors
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
Employment Agreement, dated March 18,
2009, by and between Kevin T. Conroy
and the Registrant
Employment Agreement, dated November
8, 2016, by and between Jeffrey T. Elliott
and the Registrant
Employment Agreement, dated April 2,
2018, by and between Mark Stenhouse and
the Registrant
Employment Agreement, dated October
30, 2015, by and between Scott Coward
and the Registrant
First Amendment to Employment
Agreement, dated August 1, 2009, by and
between Graham Lidgard and the
Registrant
Employment Agreement, dated February
18, 2019, by and between Jacob Orville
and the Registrant
Employment Agreement, dated August 22,
2017, by and between Sarah Condella and
the Registrant
Employment Agreement, dated August 28,
2017, by and between Ana Hooker and the
Registrant
Equity Compensation Plans and Policies
10.18*
2000 Stock Option and Incentive Plan
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
The Registrant’s 2010 Employee Stock
Purchase Plan
First Amendment to the Registrant’s 2010
Employee Stock Purchase Plan
Second Amendment to the Registrant’s
2010 Employee Stock Purchase Plan
The Registrant’s 2016 Inducement Award
Plan
The Registrant’s 2016 Inducement Award
Plan Form Restricted Stock Unit Award
Agreement
The Registrant’s 2010 Omnibus
Long‑Term Incentive Plan (As Amended
and Restated Effective July 27, 2017)
The Registrant's Non-Employee Director
Compensation Policy dated October 22,
2020
X
X
X
134
10-K
(Exhibit 10.9)
2/21/2020
001-35092
8-K
(Exhibit 10.1)
10-K
(Exhibit 10.9)
10-Q
(Exhibit 10.2)
3/18/2009
000-32179
2/21/2017
001-35092
10/30/2018
001-35092
10-K
(Exhibit 10.13)
2/24/2016
001-35092
10-Q
(Exhibit 10)
11/12/2009
001-32179
10-K
(Exhibit 10.17)
2/21/2020
001-35092
10-K
(Exhibit 10.2)
DEF 14A
(Appendix B)
DEF 14A
(Appendix A)
DEF 14A
(Appendix A)
10-Q
(Exhibit 10.3)
S-8
(Exhibit 4.7)
10-Q
(Exhibit 10.1)
3/31/2009
000-32179
4/30/2010
000-32179
6/20/2014
001-35092
4/29/2016
001-35092
5/3/2016
001-35092
5/3/2016
333-211099
10/30/2017
001-35092
10-K
(Exhibit 10.22)
10-Q
(Exhibit 10.1)
S-8
(Exhibit 4.4)
10-K
(Exhibit 10.29)
10-K
(Exhibit 10.30)
10-K
(Exhibit 10.31)
S-8
(Exhibit 4.4)
S-8
(Exhibit 4.6)
2/21/2019
001-35092
7/30/2019
001-35092
7/31/2019
333-23916
2/21/2020
001-35092
2/21/2020
001-35092
2/21/2020
001-35092
11/8/2019
333-234608
1/5/2021
333-251900
10-K
(Exhibit 10.39)
3/12/2010
000-32179
10-K
(Exhibit 10.37)
3/1/2013
001-35092
10-Q
(Exhibit 10.1)
10/27/2020
001-35092
8-K
(Exhibit 10.1)
10/7/2020
001-35092
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
The Registrant’s Executive Deferred
Compensation Plan dated January 1, 2019
Third Amendment to the Registrant's 2010
Employee Stock Purchase Plan
The Registrant's 2019 Omnibus Long-
Term Incentive Plan
The Registrant's 2019 Omnibus Long-
Term Incentive Plan Form Stock Option
Award Agreement
The Registrant's 2019 Omnibus Long-
Term Incentive Plan Form Restricted Stock
Unit Award Agreement
The Registrant's 2019 Omnibus Long-
Term Incentive Plan Form Restricted Stock
Award Agreement
Genomic Health, Inc. Amended and
Restated 2005 Stock Incentive Plan, as
amended
10.33*
Thrive Earlier Detection Corp. 2019 Stock
Option and Grant Plan
Other
10.36**
10.37**
10.38**
Technology License Agreement dated as of
October 14, 2009 by and among
Hologic, Inc., Third Wave
Technologies, Inc., and the Registrant
Amendment dated December 7, 2012 to
Technology License Agreement dated
October 14, 2009 by and among
Hologic, Inc., Third Wave
Technologies, Inc., and the Registrant
Amended and Restated License Agreement
dated effective January 1, 2020, by and
between the Registrant and Mayo
Foundation for Medical Education and
Research
10.39
Amended and Restated Promotion
Agreement dated October 6, 2020 between
the Registrant and Pfizer, Inc.
21
23.1
23.2
24.1
31.1
31.2
Subsidiaries of the Registrant
Consent of PricewaterhouseCoopers, LLP
Consent of BDO USA, LLP
Power of Attorney (included on signature
page)
Certification Pursuant to Rule 13a‑14(a) or
Rule 15d‑14(a) of the Securities Exchange
Act of 1934
Certification Pursuant to Rule 13a‑14(a) or
Rule 15d‑14(a) of the Securities Exchange
Act of 1934
X
X
X
X
X
X
135
32
Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
The following materials from the Annual
Report on Form 10-K of Exact Sciences
Corporation for the year ended December
31, 2020 filed with the Securities and
Exchange Commission on February 21,
2020, formatted in Inline eXtensible
Business Reporting Language (“iXBRL”):
(i) Consolidated Balance Sheets, (ii)
Consolidated Statements of Operations,
(iii) Consolidated Statement of Changes in
Stockholders’ Equity, (iv) Consolidated
Statements of Cash Flows and (v) related
notes to these financial statements
The cover page from the Annual Report on
Form 10-K of Exact Sciences Corporation
for the year ended December 31, 2020 filed
with the Securities and Exchange
Commission on February 21, 2020,
formatted in Inline eXtensible Business
Reporting Language (“iXBRL”)
101
104
X
X
X
(*)
Indicates a management contract or any compensatory plan, contract or arrangement.
(**) Confidential Treatment requested for certain portions of this Agreement.
Item 16. Form 10-K Summary
Not applicable.
136
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EXACT SCIENCES CORPORATION
Date: February 16, 2021
By:
/s/ Kevin T. Conroy
Kevin T. Conroy
President & Chief Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Exact Sciences Corporation, hereby severally constitute and appoint Kevin T.
Conroy our true and lawful attorney, with full power to him to sign for us and in our names in the capacities indicated below, any
amendments to this Annual Report on Form 10‑K, and generally to do all things in our names and on our behalf in such capacities to
enable Exact Sciences Corporation to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all the
requirements of the Securities Exchange Commission.
Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
s/ Kevin T. Conroy
Kevin T. Conroy
/s/ Jeffrey T. Elliott
Jeffrey T. Elliott
/s/ Thomas D. Carey
Thomas D. Carey
/s/ James E. Doyle
James E. Doyle
/s/ Freda Lewis-Hall
Freda Lewis-Hall
/s/ Pierre Jacquet
Pierre Jacquet
/s/ Daniel J. Levangie
Daniel J. Levangie
/s/ Shacey Petrovic
Shacey Petrovic
/s/ Kathleen Sebelius
Kathleen Sebelius
/s/ Michael S. Wyzga
Michael S. Wyzga
/s/ Katherine Zanotti
Katherine Zanotti
Title
President and Chief Executive Officer
(Principal Executive Officer) and
Chairman of the Board
Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
Date
February 16, 2021
February 16, 2021
Director
February 16, 2021
Lead Independent Director
February 16, 2021
February 16, 2021
February 16, 2021
February 16, 2021
February 16, 2021
February 16, 2021
February 16, 2021
February 16, 2021
Director
Director
Director
Director
Director
Director
Director
137
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Exact Sciences Corporation, The NASDAQ Composite Index,
and The NASDAQ Biotechnology Index
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
12/15
12/16
12/17
12/18
12/19
12/20
Exact Sciences Corporation
NASDAQ Composite
NASDAQ Biotechnology
*$100 invested on 12/31/15 in stock or index including reinvestment of dividends.