Invitae Annual Report 2015

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FY2015 Annual Report · Invitae

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TABLE
OF
CONTENTS

ITEM
8.
Financial
Statements
And
Supplementary
Data.

Table
of
Contents

UNITED
STATES

SECURITIES
AND
EXCHANGE
COMMISSION

Washington,
D.C.
20549

Form
10-K

(Mark
One)

ý
ANNUAL
REPORT
PURSUANT
TO
SECTION
13
OR
15(d)
OF
THE
SECURITIES
EXCHANGE
ACT

OF
1934

For
the
fiscal
year
ended
December
31,
2015

o
TRANSITION
REPORT
PURSUANT
TO
SECTION
13
OR
15(d)
OF
THE
SECURITIES
EXCHANGE
ACT

OF
1934

For
the
transition
period
from

Commission
File
No.
001-36847

Invitae
Corporation

(Exact
name
of
the
registrant
as
specified
in
its
charter)

Delaware

(State
or
other
jurisdiction
of

incorporation
or
organization)

27-1701898

(I.R.S.
Employer

Identification
No.)

458
Brannan
Street,
San
Francisco,
California
94107

(Address
of
principal
executive
offices,
Zip
Code)

(415)
374-7782

(Registrant's
telephone
number,
including
area
code)

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

Title
of
each
class:
Common
Stock,
par
value
$0.0001
per
share

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

None

Name
of
each
exchange
on
which
registered:
The
New
York
Stock
Exchange

Indicate
by
check
mark
if
the
registrant
is
a
well-known
seasoned
issuer,
as
defined
in
Rule
405
of
the
Securities
Act.
Yes

Indicate
by
check
mark
if
the
registrant
is
not
required
to
file
reports
pursuant
to
Section
13
or
15(d)
of
the
Act.
Yes

Indicate
by
check
mark
whether
the
registrant:
(1)
has
filed
all
reports
required
to
be
filed
by
Section
13
or
15(d)
of
the
Securities
Exchange
Act
of
1934
during
the
preceding
12
months
(or
for
such
shorter
period
that
the
registrant
was
required
to
file
such
reports),
and
(2)
has
been
subject
to
such
filing
requirements
for
the
past
90
days.
Yes

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

Indicate
by
check
mark
if
disclosure
of
delinquent
filers
pursuant
to
Item
405
of
Regulation
S-K
is
not
contained
herein,
and
will
not
be
contained,
to
the
best
of
registrant's
knowledge,
in
definitive
proxy
or
information
statements
incorporated
by
reference
in
Part
III
of
this
Form
10-K
or
any
amendment
to
this
Form
10-
K.

Indicate
by
check
mark
whether
the
registrant
is
a
large
accelerated
filer,
an
accelerated
filer,
a
non-accelerated
filer,
or
a
smaller
reporting
company.
See
the
definitions
of
"large
accelerated
filer,"
"accelerated
filer"
and
"smaller
reporting
company"
in
Rule
12b-2
of
the
Exchange
Act.
(Check
one):

Large
accelerated
filer

Accelerated
filer

Non-accelerated
filer

(Do
not
check
if
a

smaller
reporting
company)

Smaller
reporting
company

Indicate
by
check
mark
whether
the
registrant
is
a
shell
company
(as
defined
in
Rule
12b-2
of
the
Exchange
Act).
Yes

As
of
June
30,
2015,
the
aggregate
market
value
of
common
stock
held
by
non-affiliates
of
the
Registrant
was
approximately
$180.7
million,
based
on
the
closing
price
of
the
common
stock
as
reported
on
The
New
York
Stock
Exchange
for
that
date.

The
number
of
shares
of
the
registrant's
Common
Stock
outstanding
as
of
March
2,
2016
was
31,976,501.

Table
of
Contents

Item
No.
PART
I
Item
1.
Item
1A.
Item
1B.
Item
2.
Item
3.
Item
4.
PART
II
Item
5.

TABLE
OF
CONTENTS

Page
No.

Business

Risk
Factors

Unresolved
Staff
Comments

Properties

Legal
Proceedings

Mine
Safety
Disclosure

Market
for
Registrant's
Common
Equity,
Related
Stockholder
Matters
and
Issuer
Purchases
of
Equity

Securities

Selected
Financial
Data

Management's
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations

Qualitative
and
Quantitative
Disclosures
About
Market
Risk

Financial
Statements
and
Supplementary
Data

Changes
in
and
Disagreements
with
Accountants
on
Accounting
and
Financial
Disclosure

Controls
and
Procedures

Other
Information

Directors,
Executive
Officers
and
Corporate
Governance

Executive
Compensation

Security
Ownership
of
Certain
Beneficial
Owners
and
Management
and
Related
Stockholder
Matters

Certain
Relationships
and
Related
Transactions,
and
Director
Independence

Principal
Accountant
Fees
and
Services

Exhibits,
Financial
Statement
Schedules

Item
6.
Item
7.
Item
7A.
Item
8.
Item
9.
Item
9A.
Item
9B.
PART
III
Item
10.
Item
11.
Item
12.
Item
13.
Item
14.
PART
IV
Item
15.
SIGNATURES

100

108

111

114

116

117

120

Table
of
Contents

ITEM
1.

Business.

PART
I

This
report
contains
forward-looking
statements
within
the
meaning
of
the
Private
Securities
Litigation
Reform
Act
of
1995.
All
statements
in
this
report
other
than
statements
of
historical
fact,
including
statements
identified
by
words
such
as
"believe,"
"may,"
"will,"
"estimate,"
"continue,"
"anticipate,"
"intend,"
"expect"
and
similar
expressions,
are
forward-
looking
statements.
Forward-looking
statements
include,
but
are
not
limited
to,
statements
about:

•

our
views
regarding
the
future
of
genetic
testing
and
its
role
in
mainstream
medical
practice;

strategic
plans
for
our
business,
products
and
technology,
including
our
ability
to
expand
our
assay
and
develop
new
assays
while
maintaining
attractive
pricing,
further
enhance
our
genetic
testing
process
and
the
related
user
experience,
build
interest
in
and
demand
for
our
tests
and
attract
potential
partners;

the
implementation
of
our
business
model;

the
rate
and
degree
of
market
acceptance
of
our
tests
and
genetic
testing
generally;

our
ability
to
scale
our
infrastructure
and
operations
in
a
cost-
effective
manner;

the
timing
of
and
our
ability
to
introduce
improvements
to
our
genetic
testing
platform
and
to
expand
our
assay
to
include
additional
genes;

our
expectations
with
respect
to
future
hirings;

the
timing
and
results
of
studies
with
respect
to
our
tests;

developments
and
projections
relating
to
our
competitors
and
our
industry;

the
degree
to
which
individuals
will
share
genetic
information
generally,
as
well
as
share
any
related
potential
economic
opportunities
with
us;

our
commercial
plans,
including
our
sales
and
marketing
expectations;

our
ability
to
obtain
and
maintain
adequate
reimbursement
for
our
tests;

regulatory
developments
in
the
United
States
and
foreign
countries;

our
ability
to
retain
key
scientific
or
management
personnel;

our
expectations
regarding
our
ability
to
obtain
and
maintain
intellectual
property
protection
and
not
infringe
on
the
rights
of
others;

our
expectations
regarding
the
time
during
which
we
will
be
an
emerging
growth
company
under
the
JOBS
Act;

our
ability
to
obtain
funding
for
our
operations;

our
financial
performance;
and

our
expectations
regarding
our
future
revenue,
cost
of
revenue,
operating
expenses
and
capital
expenditures,
and
our
future
capital
requirements.

Forward-looking
statements
are
subject
to
a
number
of
risks
and
uncertainties
that
could
cause
actual
results
to
differ
materially
from
those
expected.
These
risks
and
uncertainties
include,
but
are
not
limited
to,
those
risks
discussed
in
Item
1A
of
this
report.
Although
we
believe
that
the
expectations
and
assumptions
reflected
in
the
forward-looking
statements
are
reasonable,
we
cannot
guarantee
future
results,
level
of
activity,
performance
or
achievements.
In
addition,
neither
we
nor
any
other
person
assumes
responsibility
for
the
accuracy
and
completeness
of
any
of
these
forward-looking

Table
of
Contents

statements.
Any
forward-looking
statements
in
this
report
speak
only
as
of
the
date
of
this
report.
We
expressly
disclaim
any
obligation
or
undertaking
to
update
any
forward-looking
statements.

This
report
contains
statistical
data
and
estimates
that
we
obtained
from
industry
publications
and
reports.
These
publications
typically
indicate
that
they
have
obtained
their
information
from
sources
they
believe
to
be
reliable,
but
do
not
guarantee
the
accuracy
and
completeness
of
their
information.
Some
data
contained
in
this
report
is
also
based
on
our
internal
estimates.
Although
we
have
not
independently
verified
the
third-party
data,
we
believe
it
to
be
reasonable.

In
this
report,
all
references
to
"Invitae,"
"we,"
"us,"
"our,"
or
"the
company"
mean
Invitae
Corporation.

Invitae
and
the
Invitae
logo
are
trademarks
of
Invitae
Corporation.
We
also
refer
to
trademarks
of
other
corporations
and
organizations
in
this
report.

Overview

Invitae's
mission
is
to
bring
comprehensive
genetic
information
into
mainstream
medical
practice
to
improve
the
quality
of
healthcare
for
billions
of
people.
Our
goal
is
to
aggregate
most
of
the
world's
genetic
tests
into
a
single
service
with
higher
quality,
faster
turnaround
time
and
lower
pricing
than
many
single
gene
tests
today.
We
were
founded
on
four
core
principles:

•

Patients
should
own
and
control
their
own
genetic
information;

Healthcare
professionals
are
fundamental
in
ordering
and
interpreting
genetic
information;

Driving
down
the
price
of
genetic
information
will
increase
its
clinical
and
personal
utility;
and

Genetic
information
is
more
valuable
when
shared.

As
the
price
of
DNA
sequencing
has
declined,
the
amount
of
genetic
information
that
can
be
generated
per
dollar
has
increased
exponentially,
enabling
the
generation,
analysis
and
storage
of
more
comprehensive
genetic
information
than
ever
before.
According
to
the
Online
Mendelian
Inheritance
in
Man®,
an
online
catalog
of
human
genes
and
genetic
disorders,
there
are
more
than
4,000
inherited
genetic
conditions
for
which
the
scientific
and
medical
community
has
already
identified
specific
genes
and
variants
useful
for
diagnosis
or
treatment
planning.
By
aggregating
large
numbers
of
currently
available
genetic
tests
into
a
single
service,
we
can
achieve
great
economies
of
scale
that
allow
us
not
only
to
provide
primary
single
gene
or
multi-gene
tests
but
also
to
generate
and
store
additional
genetic
information
on
behalf
of
the
patient
for
future
use.
We
refer
to
the
service
of
managing
genetic
information
over
the
course
of
disease
or
the
lifetime
of
a
patient
as
"genome
management."
In
addition,
as
more
individuals
gain
access
to
their
genetic
information,
we
believe
that
sharing
genetic
information
will
provide
an
economic
opportunity
for
patients
and
us
to
participate
in
advancing
the
understanding
and
treatment
of
disease.
We
believe
that
our
ongoing
investment
in
building
our
infrastructure
and
attracting
talent
across
a
range
of
disciplines
to
generate,
interpret
and
manage
genetic
information
will
position
us
to
be
a
leader
in
the
field
of
genetic
testing
and
genome
management.

In
the
near
term,
we
plan
to
focus
on
the
immediate
market
for
symptomatic
disease
with
the
goal
to
aggregate
testing
for
large
numbers
of
genetic
diseases
into
a
high
quality,
low
cost
service.
We
also
plan
on
expanding
into
the
health
and
wellness
market,
including
carrier
testing
and
newborn
screening.
As
our
market
share
grows
we
expect
that
our
business
will
develop
in
three
stages
over
the
longer
term:

•

Genetic
testing:

making
genetic
testing
more
affordable
and
more
accessible
with
faster
turnaround
time
than
ever
before.
We
believe
that
there
is
a
significant
market
opportunity
for
high
volume,
low
cost
genetic
testing
that
can
allow
us
to
serve
a
large
number
of
clients.

Table
of
Contents

•

Genome
management:

building
a
secure
and
trusted
genome
management
infrastructure.
By
generating
and
storing
large
amounts
of
individualized
genetic
information
for
every
patient
sample,
we
believe
we
can
create
value
over
the
course
of
disease
or
lifetime
of
a
client.

Genome
network:

sharing
genetic
information
on
a
global
scale
to
advance
science
and
medicine.
We
plan
to
help
patients
share
their
genetic
information
in
a
way
that
benefits
them
and
us
by
acting
as
a
permission-based
broker
on
their
behalf.

The
fundamental
challenge
of
the
first
stage
of
our
business
(genetic
testing)
is
to
deliver
sufficiently
comprehensive
and
high
quality
genetic
testing
at
a
price
that
makes
sense
for
broad
healthcare
adoption
and
reimbursement.
We
also
are
providing
turnaround
time
of
less
than
three
weeks
for
the
substantial
majority
of
our
tests,
which
in
most
cases
is
as
good
or
better
than
other
laboratories
offering
genetic
testing.
As
such,
we
believe
we
are
well
positioned
to
address
this
challenge
given
our
investment
in
infrastructure
that
will
allow
us
to
perform
these
complex
tests
in
high
volume
at
low
cost
while
maintaining
high
quality
and
service
levels.
This
infrastructure
includes
the
scientific
curation
of
individual
genetic
disorders,
genes
and
variants—a
rapidly
advancing
area
of
science.
It
also
includes
large-scale
laboratory
processes
and
information
systems
to
store,
analyze
and
manage
the
data;
a
knowledge
database
that
allows
us
to
aggregate
the
role
genetic
variations
play
in
diseases
and
drug
responses;
and
software
tools
to
help
generate
reports
for
clinicians
and
their
patients
while
reducing
the
time
required
by
our
genetic
specialists
for
interpretation
and
report
sign-out.

We
believe
that
the
keys
to
our
future
success
will
be
to
steadily
reduce
the
costs
we
incur
in
providing
test
results,
which
enables
us
to
increase
the
amount
of
genetic
content
we
offer
in
the
form
of
an
expanded
test
menu
for
the
same
or
lower
prices,
thereby
increasing
demand
and
revenues.
Therefore,
we
measured
our
success
in
2015
with
four
key
metrics:

•

lowering
cost
of
goods
sold
(COGS);

increasing
our
content
by
expanding
our
test
menu;

increasing
our
volumes;
and

increasing
our
revenues
and
improving
reimbursement.

We
launched
our
first
commercial
offering
in
November
2013
with
an
offering
of
more
than
200
genes.
In
October
2015,
we
expanded
our
test
menu
with
more
than
600
genes
in
production,
offering
tests
for
more
than
120
disorders
in
cardiovascular,
hereditary
cancer,
neurology,
pediatrics
and
other
rare
diseases.
We
have
a
transparent
pricing
structure,
charging
one
price
per
indication
regardless
the
number
of
genes.
For
third
party
payers
that
are
out
of
contract,
we
charge
$1,500
per
sample;
for
payers
and
institutions
that
are
in
contract
with
us,
the
contracted
price
is
as
low
as
$950
per
indication
depending
on
administrative
criteria;
and
for
patients
who
pay
upfront
and
set
up
an
account
with
us,
we
charge
$475.
We
introduced
this
multi-tiered
pricing
structure
in
June
2015.

Our
volume
has
grown
rapidly.
In
2015
we
delivered
approximately
19,000
billable
tests,
representing
over
400%
year-over-year
annual
growth,
compared
to
the
approximately
3,600
tests
we
delivered
in
2014.
We
also
received
or
"accessioned"
more
than
20,000
commercial
samples
in
2015,
which
is
an
important
leading
indicator
for
future
volume.
Substantiating
a
hypothesis
that
is
fundamental
to
the
success
of
our
business
model,
we
saw
significant
increases
in
our
volume
when
we
expanded
our
test
menu,
including
meaningful
growth
in
the
non-cancer
test
portion
of
our
market.
We
expect
that
will
continue
to
be
the
case
in
2016
as
we
plan
to
increase
our
menu
to
approximately
1,000
genes
in
production
in
the
middle
of
the
year
and
approximately
3,000
genes
in
production
by
the
end
of
the
year.

Importantly,
with
the
growth
in
volume
and
content,
we
have
succeeded
in
driving
down
our
COGS
in
a
meaningful
way.
At
the
beginning
of
2015,
our
COGS
were
approximately
$1,200
per

Table
of
Contents

sample
accessioned,
and
we
brought
down
those
costs
to
less
than
$700
per
sample
accessioned
in
the
fourth
quarter.

In
support
of
our
efforts
to
reduce
COGS,
expand
our
test
menu,
and
develop
a
scalable
laboratory
infrastructure,
we
incurred
research
and
development
expenses
of
$42.8
million,
$22.1
million
and
$16.0
million
in
2015,
2014
and
2013,
respectively.

The
expansion
of
our
test
menu
in
2015,
and
the
resulting
growth
in
testing
volume,
translated
into
rapid
growth
in
revenue.
In
2015
our
revenue
was
$8.4
million,
as
compared
to
revenue
of
$1.6
million
in
2014
representing
over
400%
year-over-year
annual
growth.

We
are
headquartered
in
San
Francisco,
California,
where
we
have
offices
and
a
CLIA-certified,
CAP-accredited
laboratory.
We
also
have
offices
in
Cambridge,
Massachusetts;
Oakland,
California;
and
Palo
Alto,
California.
We
have
a
multi-
disciplinary
team
of
approximately
280
people
as
of
December
31,
2015,
including
bioinformaticians,
clinical
and
medical
geneticists,
commercial
and
managed
care
experts,
genetic
counselors,
scientists,
software
engineers,
web
developers,
graphic
designers
and
lab
automation
specialists,
as
well
as
administrative
and
corporate
personnel.
We
believe
that
creating
a
strong
team
is
a
competitive
advantage,
and
we
strive
to
foster
a
motivating
and
unique
culture
in
which
our
people
can
thrive.

The
global
opportunity
for
genetic
testing

We
believe
that
genes
are
fundamental
particles
of
modern
medicine
and
that
genetic
testing
has
the
potential
to
affect
billions
of
people.
Every
individual
has
a
unique
genome,
and
we
believe
that
comprehensive
knowledge
of
this
genetic
makeup
will
be
foundational
to
the
future
practice
of
medicine.
We
also
believe
that
eventually
many
individuals
in
a
modern
healthcare
system
will
have
their
genomes
sequenced
at
birth
or
during
the
course
of
their
lives,
resulting
in
the
potential
for
dramatic
improvements
in
health
and
wellness
and
an
overall
reduction
in
healthcare
costs
through
preventive
care.

Virtually
everyone
is
carrying
loss
of
function
mutations
in
their
genome,
recessive
genetic
conditions
that
may
affect
their
extended
family
or
genetic
mutations
that
may
affect
their
response
to
various
drugs
or
therapies.
For
example:

•

approximately
5-10%
of
all
cancers
have
a
hereditary
basis;

approximately
0.4%
of
the
population
has
a
cardiac
genetic
condition
that
may
lead
to
early
onset
cardiovascular
disease;

approximately
0.5-5.0%
of
the
population
has
a
factor
V
Leiden
variant
that
increases
the
genetic
risk
for
blood
clots;

approximately
2%
of
new
births
result
in
a
complication
involving
a
genetic
condition;

approximately
0.3%
of
the
population
will
have
an
epileptic
seizure
during
their
lifetime;

approximately
2.0%
of
the
population
has
a
genetic
variant
in
one
of
52
genes
identified
by
the
American
College
of
Medical
Genetics
as
important
incidental
findings
that
should
be
reported
to
patients
in
part
because
they
are
medically
actionable;
and

approximately
2-5%
of
the
population
has
a
gene
mutation
that
puts
them
at
risk
for
a
medically
actionable
condition.

Furthermore,
everyone
is
carrying
mutations
that
can
cause
severe
illness
in
a
child
if
the
child's
other
parent
provides
a
mutation
in
the
same
gene.

The
global
genetic
testing
market
is
growing
rapidly.
According
to
UnitedHealth
Group,
the
U.S.
genetic
testing
and
molecular
diagnostics
market
in
2010
was
estimated
to
be
approximately
$5
billion,

Table
of
Contents

of
which
approximately
60%,
or
$3
billion,
was
genetic
testing.
As
of
December
2014,
genetests.org
estimated
that
there
were
more
than
40,000
different
genetic
tests
available
from
over
650
laboratories.
These
tests
can
identify
a
person's
predisposition
to
a
particular
disease
(predictive
testing),
detect
whether
a
person
has
a
disease
(diagnostic
testing),
predict
the
potential
effectiveness
of
a
therapy
or
drug
(pharmacogenetic
testing),
or
assess
risk
of
disease
progression
(prognostic
testing).
Based
on
UnitedHealth's
estimates
for
the
growth
of
the
genetic
testing
and
molecular
diagnostics
market
and
our
assumption
that
genetic
testing's
share
of
this
market
will
be
held
constant
at
approximately
60%
between
2010
and
2021,
we
expect
the
U.S.
genetic
testing
market
to
grow
to
at
least
$9
billion
by
2021.

While
adoption
of
genetic
testing
has
been
increasing
for
certain
medical
applications,
there
remain
a
number
of
primary
barriers
limiting
broader
adoption.
The
cost
of
genetic
testing
has
been
prohibitively
high
for
broad
market
adoption
and
use
in
routine
medical
practice.
Under
current
pricing,
payers
generally
restrict
reimbursement
of
genetic
testing
to
limited
patient
populations
that
meet
specific
criteria.
In
a
survey
by
UnitedHealth,
approximately
78%
of
clinicians
identified
cost
of
tests
and
reimbursement
as
a
barrier
to
incorporating
genetic
tests
in
their
practice.
We
believe
advances
in
DNA
sequencing,
information
technology
and
capacity
for
analysis
and
high-throughput
data
processing
will
be
key
drivers
for
reducing
the
cost
of
genetic
testing
in
the
future.

Adoption
of
genetic
testing
also
has
been
constrained
by
an
inefficient
testing
process
with
long
turnaround
times.
The
growing
availability
of
genetic
tests
that
are
specific
to
a
single
disease
has
created
a
serial
retesting
process—commonly
referred
to
as
a
diagnostic
odyssey—in
cases
where
initial
tests
return
negative
results
or
where
patients
require
testing
for
more
than
one
condition.
The
retesting
process
is
costly
and
time
consuming,
and
it
commonly
fails
to
reach
a
conclusive
clinical
diagnosis.
The
challenges
with
sequential
retesting
are
further
exacerbated
by
long
and
unpredictable
turnaround
times.
Currently,
patients
and
providers
can
wait
more
than
a
month
to
receive
each
genetic
testing
result,
which
limits
clinical
applicability
of
genetic
testing
for
patients
who
are
in
need
of
pressing
follow-up
treatment.

Our
solution
for
genetic
testing

We
are
focused
on
making
comprehensive,
high
quality
genetic
testing
more
affordable
and
more
accessible
than
ever
before,
pursuing
a
large
and
rapidly
growing
market.
We
aim
to
do
so
for
the
majority
of
genetic
tests,
consolidating
most
of
them
into
a
single
offering
at
a
price
below
the
typical
prices
of
many
single
gene
or
multi-gene
panels.
We
have
learned
that
this
value
proposition
resonates
with
clinicians
and
believe
that
we
can
help
payers
and
the
healthcare
system
significantly
reduce
their
current
testing
expenditures.

Our products today

We
launched
our
first
commercial
offering
in
late
November
2013,
an
assay
of
216
genes,
and
began
selling
and
marketing
our
multi-gene
panels
with
a
focused
effort
on
hereditary
cancers,
including
breast,
colon
and
pancreatic
cancer.
We
subsequently
expanded
our
test
menu
in
October
2015,
putting
more
than
600
genes
in
production
and
offering
test
panels
for
more
than
120
disorders
in
cardiovascular,
hereditary
cancer,
neurology,
pediatrics
and
other
rare
diseases,

Unlike
most
diagnostic
laboratories,
we
openly
share
our
pricing
structure
with
clinicians,
patients
and
payers,
and
we
charge
one
price
per
indication
regardless
the
number
of
genes.
For
third
party
payers
that
are
out
of
contract,
we
charge
$1,500
per
sample;
for
payers
and
institutions
that
are
in
contract
with
us,
the
contracted
price
is
as
low
as
$950
per
indication
depending
on
their
administrative
requirements;
and
for
patients
who
pay
upfront
and
set
up
an
account
with
us,
we
charge
$475.
We
introduced
this
multi-tiered
pricing
structure
in
June
2015.
We
also
currently
offer
a
free
re-requisition
of
additional
data
within
the
same
indication
when
ordered
within
90
days
of
the
date
of
service.

Table
of
Contents

Importantly,
we
are
providing
turnaround
time
of
less
than
three
weeks
for
the
substantial
majority
of
our
tests.

Today,
our
goal
is
to
provide
clinicians
with
the
information
they
need
to
get
the
right
diagnosis
for
their
patients.
We
have
a
simple
and
powerful
offering
that
is
best
characterized
by:

•

Breadth.

We
offer
comprehensive
panels
for
more
than
120
conditions
in
hereditary
cancer,
cardiology,
neuromuscular,
pediatric
and
rare
diseases.
We
offer
full
gene
sequencing
and
deletion/duplication
analysis
as
a
standard
for
all
of
our
tests
at
no
additional
charge.

Quality.

Collaborations
with
leading
academic
centers
confirm
analytical
and
clinical
concordance
with
established
standards.
In
addition,
our
team
of
genetic
and
medical
experts
have
developed
a
proprietary
score-based
system
enabling
objective,
reproducible
reporting
across
a
wide
range
of
disease
areas.

Affordability.

We
want
to
make
genetic
testing
affordable
and
accessible.
Our
entire
test
menu
is
available
starting
at
$475
per
indication.
By
offering
affordable
testing,
we
are
part
of
a
movement
to
decrease
healthcare
costs
while
improving
quality
of
care.

Substantiating
a
hypothesis
that
is
fundamental
to
the
success
of
our
business
model,
we
saw
significant
increases
in
our
volume
when
we
released
additional
content,
including
meaningful
growth
in
orders
of
non-cancer
tests.
We
expect
that
will
continue
to
be
the
case
in
2016
as
we
plan
to
increase
our
menu
to
approximately
1,000
genes
in
production
in
mid-2016
and
approximately
3,000
genes
in
production
by
the
end
of
the
year.

In
the
cancer
markets,
we
have
expanded
beyond
our
initial
hereditary
breast
and
ovarian
cancer
and
now
offer
more
comprehensive,
high
quality
testing
with
more
than
40
test
panels,
comprised
of
more
than
70
carefully
curated
genes.
Importantly,
through
our
offering,
we
are
able
to
detect
structural
genetic
variations,
including
various
inversions,
segmental
duplications,
insertions,
deletions
and
promoter
region
variants
that
are
important
for
clinical
grade
inherited
genetic
testing
without
needing
to
increase
the
price
of
our
tests.

We
have
been
increasing
our
non-cancer
volume,
as
well.
We
now
provide
a
comprehensive
cardiology
test
menu
with
more
than
30
test
panels,
representing
more
than
190
carefully
curated
genes.
The
expanded
offering
includes
large
combination
panels
for
multiple
conditions,
including
arrhythmias,
cardiomyopathies,
aortopathies,
familial
hypercholesterolemia,
pulmonary
hypertension,
and
congenital
heart
disease.

We
have
also
expanded
our
neuromuscular
test
panels,
comprising
nearly
100
carefully
curated
genes
for
15
major
diagnostic
indications
including
Duchenne/Becker
muscular
dystrophy,
dystonia,
Charcot-Marie-Tooth
disease,
and
hereditary
spastic
paraplegia.
We
also
have
expanded
our
pediatric
and
rare
disorder
test
menu
with
more
than
40
test
panels,
comprised
of
more
than
140
carefully
curated
genes,
for
disorders
including
the
RASopathies
and
primary
ciliary
dyskinesia.

One
of
our
goals
is
to
significantly
expand
our
neuromuscular,
rare
disease
and
pediatric
offerings
in
early
2016,
so
we
can
further
help
the
large
number
of
people
who
suffer
from
these
rare
conditions.
With
our
unique
offering
of
a
comprehensive
test
menu
with
high
quality
and
affordable
prices,
we
believe
that
the
many
hundreds
of
rare
disease
advocacy
organizations,
representing
many
hundreds
of
thousands
of
patients,
will
now
have
a
partner
in
providing
access
to
comprehensive,
high
quality,
truly
affordable
genetic
testing
services.
We
have
demonstrated
that
in
our
model,
new
content
leads
to
more
volume,
which
has
the
possibility
of
having
a
positive
impact
for
our
patients,
providers
and
payers
alike.

We
plan
to
streamline
our
marketing
efforts
in
2016
as
well
as
expand
our
sales
efforts
with
additional
sales
representatives.
We
plan
to
have
approximately
30
sales
representatives
by
mid-2016.
Since
our
initial
commercialization,
we
have
marketed
additional
panels
involved
in
multiple
different
genetic
disorders,
including
cardiology,
hematology,
neurology
and
pediatric
panels.

Table
of
Contents

Commercializing
our
genetic
tests

We
have
developed
an
offering
that
enables
healthcare
professionals
to
customize
a
test,
receive
rapid
test
results
and
pay
a
single
price
at
requisition.
Currently,
we
also
offer
a
free
re-requisition
for
the
same
indication
within
90
days
of
the
date
of
service.
We
believe
that
our
efforts
to
lower
prices
and
expand
our
test
menu
while
maintaining
high
quality
will
allow
us
to
accelerate
market
adoption
of
our
genetic
tests.

Currently,
we
primarily
target
medical
geneticists
and
genetic
counselors,
who
we
believe
are
early
adopters
and
can
influence
broader
clinical
acceptance
of
new
diagnostics,
including
multi-gene
panels.
We
intend
to
expand
our
reach
to
include
oncologists,
neurologists,
cardiologists
and
other
healthcare
professionals
as
we
expand
our
offering
and
our
commercial
organization.

In
order
to
reach
current
and
future
potential
clients,
our
strategy
is
designed
to
expand
our
brand
awareness,
increase
the
availability
of
genetic
content,
increase
traffic
to
our
website,
deliver
an
excellent
user
experience
and
attract
partners.
By
offering
a
compelling
value
proposition
and
a
comprehensive
menu
of
genetic
content
at
competitive
prices,
we
seek
to
increase
the
number
of
clients
that
order
a
test,
to
encourage
repeat
orders
and
to
extend
client
retention.

We
employ
a
variety
of
commercial
strategies
to
achieve
these
goals:

•

Our
model
incorporates
a
smaller
sales
force
than
is
typical
for
other
diagnostic
companies.

Because
we
are
aggregating
large
numbers
of
genetic
tests
into
a
single
service,
our
offering
will
in
most
cases
replace
an
existing
test
already
offered
by
a
third
party.
Where
our
test
is
replacing
an
existing
test
already
offered
by
a
third
party,
clinical
utility
of
the
tests
that
our
service
might
replace
is
generally
well
established
and
accepted
in
medical
practice,
thus
requiring
a
targeted
sales
force
that
manages
relationships
with
our
clients
with
the
support
of
our
in-house
client
services
team.

We
are
building
a
sophisticated
client
services
team.

We
strive
to
deliver
an
enhanced
customer
experience
and
have
hired
a
team
with
deep
clinical
and
scientific
expertise
designed
to
ensure
our
clients
receive
quality
information.
To
supplement
our
client
services
team,
we
provide
our
clients
access
to
our
lab
directors
and
genetic
counselors
for
support
as
needed.
We
believe
that
this
approach
will
allow
us
to
maintain
existing
client
relationships,
allowing
our
sales
force
to
focus
on
generating
new
accounts
and
extending
the
reach
within
existing
accounts.

We
use
innovative
sales
solutions.

We
have
built
an
advanced
web
portal
for
healthcare
professionals
and
their
patients
to
enhance
and
streamline
their
user
experience,
which
we
believe
will
encourage
them
to
become
loyal
clients
of
Invitae.
We
are
also
committed
to
utilizing
innovative
technology
to
complement
our
sales
and
marketing
effort
and
reduce
the
overall
cost
of
client
acquisition.
For
example,
our
Invitae
Family
History
Tool
is
a
family
history
collection
tool
available
in
the
Apple
app
store,
which
enables
genetic
counselors
to
quickly
and
easily
build,
modify,
share
and
save
their
patients'
family
histories.
This
tool
also
helps
drive
awareness
of
Invitae
and
helps
to
facilitate
online
ordering.
We
plan
to
continue
to
build
innovative
sales
solutions
capitalizing
on
the
expertise
of
our
extensive
team
of
software
developers.

We
employ
an
integrated
marketing
approach.

Our
marketing
strategy
is
focused
on
driving
adoption
and
educating
healthcare
professionals
on
the
value
of
multi-gene
panel
testing
for
hereditary
cancers,
cardiac
conditions
and
other
genetic
diseases.
We
work
closely
with
national
and
regional
patient
advocacy
groups
and
medical
professional
societies
to
promote
the
awareness
and
benefits
of
genetic
testing.
Our
marketing
activities
include
presenting
at
medical
conferences
and
scientific
meetings,
advertising
on
leading
websites
and
other
media,
contributing
to
social
media,
conducting
public
relations
campaigns,
developing
business
alliances
and
partnerships
and
sponsoring
continuing
medical
education.

Table
of
Contents

Securing
reimbursement

By
focusing
on
comprehensive,
high
quality
and
affordable
genetic
testing,
we
designed
our
service
offering
to
provide
benefits
to
payers.
Because
we
are
aggregating
large
numbers
of
genetic
tests
into
a
single
service,
our
near-term
offering
will
in
most
cases
replace
an
existing
test
already
offered
by
a
third
party.
In
these
cases,
the
clinical
utility
of
our
service
is
generally
well
established
and
accepted
in
medical
practice,
including
in
relevant
clinical
guidelines.

We
receive
payment
for
our
services
from
three
categories
of
payers:
patients,
institutions
and
third-party
payers.
Given
the
relatively
low
cost
of
our
tests,
a
small
but
consistent
percentage
of
patients
whose
clinicians
order
our
tests
elect
to
pay
for
the
tests
themselves.
Institutions,
which
are
typically
hospitals
or
foreign
healthcare
providers,
account
for
a
meaningful
percentage
of
our
test
orders.
We
bill
these
organizations
for
our
services,
and
they
are
responsible
for
paying
those
bills
and
seeking
reimbursement
where
applicable.
In
the
case
of
distributors,
we
may
discount
our
price
in
exchange
for
marketing
and
sales
services
provided
by
the
distributor
in
the
geographic
market
where
it
operates.

Third-party
payers
are
responsible
for
paying
for
the
largest
percentage
of
tests
we
deliver.
These
third-party
payers
consist
of
private
health
insurers
and
the
Centers
for
Medicare
and
Medicaid
Services,
or
CMS.
We
believe
that
establishing
coverage
from
CMS
will
be
an
important
factor
in
gaining
adoption
by
healthcare
providers.
We
have
been
accepted
as
a
Medicare
provider
and
have
recently
submitted
the
data
package
that
we
believe
is
required
to
complete
Medicare's
MolDx
technical
assessment,
which
is
the
final
step
in
obtaining
payment
from
CMS
for
qualified
testing
services
provided
to
Medicare
patients
under
CMS
criteria.
We
believe
that
completing
this
technical
assessment
and
establishing
coverage
from
CMS
will
be
an
important
factor
in
gaining
adoption
by
private
healthcare
providers.

Further,
as
of
December
31,
2015,
we
had
entered
into
reimbursement
contracts
with
Blue
Shield
of
California,
Capital
Health
Plan,
Ohio
State
University
Health
Plan,
SelectHealth,
Three
Rivers
Provider
Network,
Tufts
Health
Plan,
and
UC
Davis
Health
System.
We
have
also
entered
into
an
agreement
with
Blue
Cross
and
Blue
Shield
Association
which
facilitates
our
ability
to
enter
into
agreements
to
provide
our
tests
to
affiliates
of
the
Association.
We
also
have
an
agreement
with
MultiPlan,
a
large
PPO
Network,
which
provides
for
adjudication
and
payment
of
claims
for
tests
we
deliver
to
members
of
their
network
in
cases
where
we
have
not
yet
contracted
with
the
payers
in
whose
plans
the
test
patients
are
members.

Third-party
payers,
including
both
private
insurers
and
CMS,
require
us
to
identify
the
test
for
which
we
are
seeking
reimbursement
using
a
Current
Procedural
Terminology,
or
CPT,
code
set
maintained
by
the
American
Medical
Association,
or
AMA.
Where
we
offer
a
multi-gene
panel
and
there
is
no
CPT
code
for
the
full
panel,
but
the
panel
includes
a
gene
for
which
the
AMA
has
an
established
CPT
code,
we
identify
the
test
provided
under
that
CPT
code
when
billing
a
third
party
payer
for
that
test.
In
cases
where
there
is
not
a
specific
CPT
code,
our
test
may
be
billed
under
a
miscellaneous
code
for
an
unlisted
molecular
pathology
procedure.
Because
this
miscellaneous
code
does
not
describe
a
specific
service,
the
insurance
claim
must
be
examined
to
determine
what
service
was
provided,
whether
the
service
was
appropriate
and
medically
necessary,
and
whether
payment
should
be
rendered.
This
may
require
a
letter
of
medical
necessity
from
the
ordering
physician
and
it
may
result
in
a
delay
in
processing
the
claim,
a
lower
reimbursement
amount
or
denial
of
the
claim.
Given
the
changing
CPT
coding
environment,
our
practices
regarding
billing
may
change
over
time.

Supporting
clinical
data

We
do
not
typically
develop
new
biomarkers
but
rather
aggregate
already
known
genetic
tests
into
our
genetic
testing
platform.
However,
generating
supporting
clinical
data
is
a
priority
for
us
as
we
seek
to
expand
the
gene
content
and
adoption
of
our
panels
and
provide
supporting
information
to

Table
of
Contents

healthcare
professionals.
We
conduct
clinical
studies
to
confirm
the
analytical
validity
and,
when
appropriate,
clinical
utility
of
our
genetic
testing
platform.
These
data
are
used
in
marketing
materials,
whitepapers,
scientific
presentations
and
publications
as
appropriate.

Some
panels
we
offer
interrogate
known
genes
that
may
be
used
in
a
novel
clinical
context,
for
example,
the
testing
of
genes
that
are
known
to
cause
certain
cancers
but
have
not
been
reported
in
other
types
of
cancer.
In
these
cases
additional
clinical
utility
data
may
influence
both
adoption
and
reimbursement.
We
thus
also
participate
in
studies
to
examine
issues
such
as
prevalence
of
genetic
findings
in
different
clinical
populations
and
clinical
actionability
of
these
findings.
We
have
developed
research
collaborations
with
key
opinion
leaders
and
leading
academic
medical
centers
with
patient-care
expertise
and
the
appropriate
patient
populations
for
clinical
studies.

One
of
our
most
important
collaborations
was
with
the
Stanford
University
School
of
Medicine
and
Massachusetts
General
Hospital.
Multi-gene
panels
for
hereditary
breast
and
ovarian
cancer
risk
assessment
are
gaining
acceptance,
not
only
as
additions
to
but
also
as
replacements
for
traditional
BRCA1
and
BRACA2
testing.
To
help
determine
which
tests
are
appropriate
for
any
given
patient,
it
is
important
to
understand
the
analytic
and
clinical
performance
of
these
tests
by
comparison
with
traditional
testing.
This
study
was
designed
to
assess
concordance
between
our
panel
test
to
traditional
BRCA1
and
BRCA2
tests
in
more
than
1,000
patients.

The
data
from
the
prospective
study
demonstrated
100%
analytic
sensitivity
and
specificity
for
the
Invitae
panel
compared
to
traditional
genetic
test
results
for
both
sequence
alterations
and
deletions/duplications.
Variant
classifications
were
99.8%
concordant.
A
total
of
1,105
individuals
were
tested
using
Invitae's
29-
gene
hereditary
cancer
panel.
Sequence
alterations
and
copy
number
deletions/duplications
were
determined
by
next
generation
sequencing
using
our
custom
biochemical
and
bioinformatics
methodologies.
For
these
1,105
individuals,
high-quality
reference
and
confirmatory
data
were
available
for
direct
comparison.
Variants
were
classified
using
a
framework,
called
Sherloc,
based
on
the
American
College
of
Medical
Genetics
and
Genomics
2015
guidelines
using
only
publicly
available
and
not
proprietary
data
resources.
Classifications
were
compared
for
975
individuals
for
whom
traditional
BRCA1
and
BRACA2
test
results
from
Myriad
Genetics
were
available.
Data
from
this
collaboration
were
published
in
the
Journal
of
Molecular
Diagnostics
in
July
2015.

In
another
collaboration,
we
worked
with
researchers
at
Massachusetts
General
Hospital,
Harvard
Medical
School,
Stanford
University,
and
Beth
Israel
Deaconess
Medical
Center
to
determine
the
clinical
actionability
of
multi-gene
testing
for
hereditary
breast
and
ovarian
cancer,
also
known
as
HBOC,
risk.
Genetic
testing
for
HBOC
is
evolving
rapidly,
owing
to
the
recent
introduction
of
multi-gene
panels.
Compared
with
testing
for
BRCA1
and
BRACA2
alone,
these
tests
identify
a
greater
number
of
individuals
with
genetic
mutations.
This
study
addresses
how
often
and
in
which
ways
the
identification
of
non-BRCA1
and
non-
BRACA2
mutations
would
alter
clinical
management
under
current
practice
guidelines.

In
this
study,
more
than
1,000
patients
were
prospectively
enrolled.
All
patients
met
clinical
criteria
for
HBOC
evaluation
and
all
were
tested
for
BRCA1
and
BRACA2
and
at
least
23
other
cancer
risk
genes.
For
the
63
patients
found
to
have
non-BRCA1
and
non-BRACA2mutations,
detailed
clinical
records
and
family
histories
were
reviewed.
We
determined
whether
the
positive
test
result
would
warrant
consideration
of
a
change
in
management
in
comparison
with
management
recommendations
based
on
personal
and
family
history
alone.
These
analyses
were
based
on
the
most
recent
update
to
the
National
Comprehensive
Cancer
Network
guidelines
for
HBOC
and
other
applicable
current
guidelines.

In
a
clinically
representative
cohort,
we
found
that
multi-gene
panel
testing
for
HBOC
yields
clinically
actionable
findings
across
a
broad
spectrum
of
cancer
risk
genes.
Compared
with
the
results
of
BRCA1
and
BRACA2
testing
alone,
these
findings
are
likely
to
change
risk
assessment
and
management
for
substantially
more
patients
and
their
family
members
under
current
practice

Table
of
Contents

guidelines.
The
results
of
this
research,
published
in
JAMA Oncology in
August
2015,
show
that
positive
panel
test
results
warrant
consideration
of
a
change
in
management
for
the
patient
more
often
than
is
true
for
BRCA1
and
BRCA2
testing
alone.

Clinical
data
from
our
various
research
and
development
efforts
have
been
accepted
for
presentation
at
major
conferences,
including
those
sponsored
by
the
American
College
of
Medical
Genetics
and
Genomics,
Association
for
Molecular
Pathology,
the
American
Society
of
Clinical
Oncology,
the
American
Society
of
Human
Genetics,
and
the
National
Society
of
Genetic
Counselors,
among
others.
Additional
data
have
been
submitted
for
publication
and
new
studies
in
complementary
clinical
areas
are
in
process.

Expanding
genetic
testing
content
while
driving
down
COGS

Aggregating
multiple
genetic
tests
into
one
test
menu
and
one
laboratory
and
medical
interpretation
process
provides
economies
of
scale
and
greater
efficiency.
We
are
focused
on
delivering
a
wide
variety
of
genetic
content
through
our
CLIA-certified
laboratory,
and
plan
to
release
an
increasing
menu
of
content
over
time.
By
providing
large
numbers
of
different
but
related
tests,
such
as
multiple
genes
associated
with
a
broad
genetic
condition
like
hereditary
cancer
or
cardiovascular
disorders,
we
provide
clinicians
with
choice
and
flexibility
in
ordering
tests
for
individual
genes,
panels
of
genes
or
custom
sets
of
genes
at
the
physician's
discretion.
In
addition,
by
adding
genes
relevant
to
new
diseases,
we
are
able
to
expand
our
offering
to
address
new
markets
for
genetic
testing
services.

In
2015,
we
reduced
our
COGS
from
approximately
$1,200
at
the
beginning
of
the
year
to
under
$700
per
sample
accessioned
at
the
end
of
the
year.
This
came
both
as
a
result
of
volume
growth
and
from
our
continued
investment
in
production
infrastructure
to
scale
effectively,
reducing
costs
in
sample
processing
and
medical
interpretation
while
meeting
what
we
believe
to
be
the
highest
standards
of
quality.
We
plan
to
continue
driving
down
COGS
in
2016
to
below
$500
by
the
end
of
the
year.
Given
our
ambitious
content
goals
for
the
year,
we
do
not
expect
this
to
be
a
linear
path,
but
given
our
lineup
of
improvements
to
our
production
process,
we
expect
to
exit
2016
at
this
level
or
below.

The
evolution
of
our
business

We
believe
there
is
a
substantial
opportunity
for
genetic
tests
and
information
to
be
aggregated
and
then
ultimately
captured
in
comprehensive
genome
management
services.
We
envision
that
this
shift
will
enable
the
medical
community
to
use
genetic
information
on
an
ongoing
basis,
as
part
of
mainstream
medical
practice,
to
improve
patient
care.

Genome management

We
are
building
a
genome
data
management
infrastructure
to
provide
clinicians
and
their
patients
with
an
ongoing
resource
for
pertinent
genetic
information
over
the
course
of
disease
or
life
of
a
patient.
In
the
future
we
plan
to
work
with
clinicians
to
establish
a
system
where
this
genetic
information
is
linked
at
the
point
of
care
for
appropriate
use
as
needs
arise.

As
the
amount
of
information
available
for
each
patient
expands,
we
envision
a
genome
management
program
to
provide
clinicians
and
their
patients
with
access
to
that
additional
information
to
answer
healthcare
questions
as
they
arise.
We
expect
to
make
additional
genetic
content
accessible
to
clinicians
and
their
patients
along
with
educational
materials
on
the
conditions,
genes
and
variants.
Because
the
raw
DNA
sequence
information
has
already
been
derived
from
our
laboratory
processes,
the
cost
of
delivering
an
additional
clinical
report
will
involve
only
information
management
and
clinical
interpretation,
and
as
a
consequence
will
be
significantly
lower
than
running
a
new
test.

Table
of
Contents

Ultimately,
we
believe
we
can
significantly
improve
patient
care
by
offering
comprehensive
genetic
testing,
where
reports
for
large
numbers
of
genetic
conditions
can
be
available
for
additional
charges
over
the
lifetime
of
a
patient.

The genome network

As
our
genetic
testing
and
genome
management
offerings
grow
in
scale,
we
intend
to
continue
to
invest
in
informatics
solutions
that
enable
sharing
of
genetic
information
to
improve
healthcare
and
clinical
outcomes.
Participants
in
our
genome
network
may
include
patients,
family
members,
healthcare
professionals,
payers,
industry
professionals,
researchers
and
clinical
trial
sponsors.

The
first
application
of
our
network
strategy
is
our
Invitae
Family
History
Tool,
which
is
available
as
a
free
web
or
iPad
application.
This
application
enables
users
to
quickly
and
easily
build,
modify,
share
and
save
relevant
family
genetic
and
health
history
information.
All
data
is
stored
in
a
HIPAA-compliant
cloud
computing
environment.
A
second
part
of
our
network
strategy
is
Clinvitae,
a
web
property
that
allows
clinicians
or
patients
to
look
up
individual
genes
and
variants
in
order
to
find
out
additional
genetic
information.
In
the
future,
we
plan
to
add
functionality
to
allow
patients
and
clinicians
to
share
more
information
about
their
variants
and
connect
with
other
patients
or
clinicians
who
might
be
able
to
contribute
additional
information
that
could
affect
their
health
and
wellness.
Pharmaceutical
companies
may
seek
to
identify
individuals
with
a
particular
genetic
profile
and
medical
history
to
participate
in
clinical
trials
of
new
treatments.
Patients
may
be
interested
in
accessing
marketing
information
on
healthcare
products
appropriate
for
their
healthcare
needs.

We
do
not
believe
that
the
genome
network
will
contribute
to
our
financial
results
for
several
years.
The
success
of
any
network
offering
will
depend
on
our
ability
to
achieve
scale
in
our
genetic
testing
and
genome
management
businesses.
The
success
of
the
genome
network
will
also
require
that
we
deliver
infrastructure
to
enable
the
market
for
the
permission-based
sharing
of
genomic
data
in
a
way
that
is
consistent
with
our
core
principles
regarding
patients'
ownership
and
control
of
their
data.

Our strategy

Our
strategy
for
long-term
growth
is
focused
on
five
key
drivers
of
our
business,
which
we
believe
cumulate
to
create
a
flywheel
effect:

•

Lower
the
cost
and
price
of
genetic
information.

Our
goal
is
to
provide
clients
with
a
broad
menu
of
genetic
content
at
a
reasonable
price
and
rapid
turn-around
time
in
order
to
grow
volume
and
further
achieve
economies
of
scale.
As
we
do
so
and
experience
further
cost
savings,

Table
of
Contents

•

we
expect
that
those
cost
savings
will
allow
us
to
deliver
more
comprehensive
information
at
decreasing
prices
per
gene.

Expand
our
genetic
testing
content.

Create
a
unique
user
experience.

A
state-of-the-
art
interactive
platform
will
enhance
our
service
offering,
leverage
the
uniquely
empowering
characteristics
of
online
sharing
of
genetic
information
and,
we
believe,
enable
a
superior
economic
offering
to
clients.
We
intend
to
continue
to
expend
substantial
efforts
developing,
acquiring
and
implementing
technology-driven
enhancements
to
our
web
properties
and
transaction-
processing
systems.
We
believe
that
an
enhanced
user
experience
and
the
resulting
benefits
to
our
brand
and
reputation
will
help
draw
clients
to
us.

Drive
traffic.

We
intend
to
increase
our
brand
equity
and
visibility
through
excellent
service
and
a
variety
of
marketing
and
promotional
techniques,
including
scientific
publication
and
presentation,
sales,
marketing,
public
relations,
social
media
and
web
technology
vehicles.
We
expect
that
increased
traffic
to
our
website
and
eventual
increases
in
the
volume
of
tests
ordered
will
help
us
to
attract
partners
and
increase
our
revenue.

Attract
partners.

As
we
release
additional
genetic
content
and
attract
more
clients,
we
believe
our
business
becomes
particularly
attractive
to
potential
partners
that
can
help
the
patients
in
our
network
further
benefit
from
their
genetic
information
or
that
provide
us
access
to
new
clients
who
may
wish
to
join
our
network.
The
cumulative
effect
of
the
increased
volume
brought
by
all
of
these
strategic
components
will
allow
us
to
lower
the
cost
of
our
service.

We
seek
to
differentiate
our
service
in
the
market
by
establishing
an
exceptional
client
experience.
To
that
end,
we
believe
that
elevating
the
needs
of
the
client
over
those
of
our
other
stakeholders
is
essential
to
our
success.
Thus,
in
our
decision-making
processes,
we
will
strive
to
prioritize,
in
order:
(1)
the
needs
of
our
clients;
(2)
motivating
our
employees
to
serve
our
clients;
and
(3)
our
long-term
stockholder
value.
We
believe
that
focusing
on
clients
as
our
top
priority
rather
than
short-term
financial
goals
is
the
best
way
to
build
and
operate
an
organization
for
maximum
long-term
value
creation.

Competition

Our
competitors
include
companies
that
offer
molecular
genetic
testing
services,
including
specialty
and
reference
laboratories
that
offer
traditional
single
and
multi-gene
tests.
Principal
competitors
include
companies
such
as
Ambry
Genetics,
Inc.;
Athena
Diagnostics;
Counsyl;
GeneDx,
a
subsidiary
of
OPKO
Health,
Inc.;
Myriad
Genetics,
Inc.;
Laboratory
Corporation
of
America
Holdings;
and
Quest
Diagnostics
Incorporated
as
well
as
other
commercial
and
academic
labs.
In
addition
to
the
companies
that
currently
offer
traditional
genetic
testing
services
and
research
centers,
other
established
and
emerging
healthcare,
information
technology
and
service
companies
may
commercialize
competitive
products
including
informatics,
analysis,
integrated
genetic
tools
and
services
for
health
and
wellness.

We
believe
the
principal
competitive
factors
in
our
market
are:

•

breadth
and
depth
of
content;

reliability;

accessibility
of
results;

turnaround
time
of
testing
results;

Table
of
Contents

•

price
and
quality
of
tests;

coverage
and
reimbursement
arrangements
with
third-party
payers;

convenience
of
testing;

brand
recognition
of
test
provider;

additional
value-added
services
and
informatics
tools;

client
service;
and

quality
of
website
content.

We
believe
that
we
compare
favorably
with
our
competitors
on
the
basis
of
these
factors.
However,
many
of
our
competitors
and
potential
competitors
have
longer
operating
histories,
larger
customer
bases,
greater
brand
recognition
and
market
penetration,
substantially
greater
financial,
technological
and
research
and
development
resources
and
selling
and
marketing
capabilities,
more
experience
dealing
with
third-party
payers.
As
a
result,
they
may
be
able
to
respond
more
quickly
to
changes
in
customer
requirements,
devote
greater
resources
to
the
development,
promotion
and
sale
of
their
tests
than
we
do,
or
sell
their
tests
at
prices
designed
to
win
significant
levels
of
market
share.
We
may
not
be
able
to
compete
effectively
against
these
organizations.

Regulation

Reimbursement

In
September
2014,
the
American
Medical
Association
published
new
CPT
codes
for
genomic
sequencing
procedures
that
are
effective
for
dates
of
service
on
or
after
January
1,
2015.
These
include
genomic
sequencing
procedure
codes
for
panels,
including
hereditary
colon
cancer
syndromes,
targeted
genomic
sequence
analysis
panels
for
solid
organ
neoplasms,
targeted
genomic
sequence
analysis
panels
for
hematolymphoid
neoplasm
or
disorders,
whole
exome
analyses,
and
whole
genome
analyses.
In
a
final
determination
under
the
Medicare
Clinical
Laboratory
Fee
Schedule,
or
CLFS,
published
in
November
2014,
CMS
set
the
2015
payment
rate
for
these
codes
by
the
gap-fill
process.
Under
the
gap-fill
process,
local
Medicare
Administrative
Contractors,
or
MACs,
establish
rates
for
those
codes
that
each
MAC
believes
meet
the
criteria
for
Medicare
coverage
and
considering
laboratory
charges
and
discounts
to
charges,
resources,
amounts
paid
by
other
payers
for
the
tests,
and
amounts
paid
by
the
MAC
for
similar
tests.
In
2015,
gapfilled
payment
rates
were
established
for
some,
but
not
all,
of
the
above-
referenced
codes.
For
those
codes
for
which
local
gap-filled
rates
were
established
in
2015,
a
national
limitation
amount
for
Medicare
has
been
established
for
2016.
Codes
for
which
local
gap-filled
rates
were
not
established
in
2015
will
be
priced
by
the
local
MACs
in
2016
insofar
as
an
individual
MAC
determines
that
such
codes
should
be
covered.
Where
available,
the
national
limitation
amount
serves
as
a
cap
on
the
Medicare
and
Medicaid
payment
rates
for
a
test
procedure.
If
we
are
required
to
report
our
tests
under
these
codes,
there
can
be
no
guarantees
that
Medicare
(or
its
contractors)
has
or
will
set
adequate
reimbursement
rates
for
these
codes.

In
April
2014,
Congress
passed
the
Protecting
Access
to
Medicare
Act
of
2014,
or
PAMA,
which
included
substantial
changes
to
the
way
in
which
clinical
laboratory
services
will
be
paid
under
Medicare.
Under
PAMA,
laboratories
that
receive
the
majority
of
their
Medicare
revenue
from
payments
made
under
the
CLFS
or
the
Physician
Fee
Schedule
would
report,
beginning
in
2016,
and
then
every
three
years
thereafter
(or
annually
for
"advanced
diagnostic
laboratory
tests"),
private
payer
payment
rates
and
volumes
for
their
tests.
We
do
not
believe
that
our
tests
meet
the
current
definition
of
advanced
diagnostic
laboratory
tests,
and
therefore
believe
we
will
be
required
to
report
private
payer
rates
for
our
tests
on
an
every
three
years
basis.
CMS
will
use
the
rates
and
volumes
reported
by
laboratories
to
develop
Medicare
payment
rates
for
the
tests
equal
to
the
volume-weighted
median
of
the
private
payer
payment
rates
for
the
tests.
Laboratories
that
fail
to
report
the
required
payment
information
may
be
subject
to
substantial
civil
money
penalties.
CMS
has
not
yet
issued
a
final
rule
implementing
the
reporting
and
rate-setting
requirements
under
PAMA.

Table
of
Contents

As
set
forth
under
PAMA,
for
tests
furnished
on
or
after
January
1,
2017,
Medicare
payments
for
clinical
diagnostic
laboratory
tests
will
be
paid
based
upon
these
reported
private
payer
rates.
For
clinical
diagnostic
laboratory
tests
that
are
assigned
a
new
or
substantially
revised
code,
initial
payment
rates
for
clinical
diagnostic
laboratory
tests
that
are
not
advanced
diagnostic
laboratory
tests
will
be
assigned
by
the
cross-walk
or
gap-fill
methodology,
as
under
prior
law.
Initial
payment
rates
for
new
advanced
diagnostic
laboratory
tests
will
be
based
on
the
actual
list
charge
for
the
laboratory
test.

The
payment
rates
calculated
under
PAMA
are
set
to
be
effective
starting
January
1,
2017,
however,
given
the
delay
in
release
of
rulemaking
to
implement
PAMA,
it
is
possible
that
implementation
will
be
delayed
beyond
January
1,
2017.
Any
reductions
to
payment
rates
resulting
from
the
new
methodology
are
limited
to
10%
per
test
per
year
in
each
of
the
years
2017
through
2019
and
to
15%
per
test
per
year
in
each
of
2020
through
2022.

PAMA
codified
Medicare
coverage
rules
for
laboratory
tests
by
requiring
any
local
coverage
determination
to
be
made
following
the
local
coverage
determination
process.
PAMA
also
authorizes
CMS
to
consolidate
coverage
policies
for
clinical
laboratory
tests
among
one
to
four
laboratory-specific
MACs.
These
same
contractors
may
also
be
designated
to
process
claims
if
CMS
determines
that
such
a
model
is
appropriate.
It
is
unclear
whether
CMS
will
proceed
with
contractor
consolidation
under
this
authorization.

PAMA
also
authorized
the
adoption
of
new,
temporary
billing
codes
and/or
unique
test
identifiers
for
FDA-cleared
or
approved
tests
as
well
as
advanced
diagnostic
laboratory
tests.
The
American
Medical
Association's
Current
Procedural
Terminology
(CPT®)
Editorial
Panel
has
approved
a
proposal
to
create
a
new
section
of
billing
codes
to
facilitate
implementation
of
this
section
of
PAMA.
At
this
time,
it
is
unclear
whether
or
when
the
new
section
of
billing
codes
will
be
implemented
nor
is
it
clear
how
these
codes
would
apply
to
our
tests.

Clinical Laboratory Improvement Amendments of 1988, or CLIA

Our
clinical
reference
laboratory
in
California
is
required
to
hold
certain
federal
certificates
to
conduct
our
business.
Under
CLIA,
we
are
required
to
hold
a
certificate
applicable
to
the
type
of
laboratory
examinations
we
perform
and
to
comply
with
standards
covering
personnel,
facilities
administration,
inspections,
quality
control,
quality
assurance
and
proficiency
testing.

We
have
current
certification
under
CLIA
to
perform
testing
at
our
laboratory
location
in
San
Francisco.
To
renew
our
CLIA
certification,
we
are
subject
to
survey
and
inspection
every
two
years
to
assess
compliance
with
program
standards.
Moreover,
CLIA
inspectors
may
make
random
inspections
of
our
clinical
reference
laboratory
in
California.
The
regulatory
and
compliance
standards
applicable
to
the
testing
we
perform
may
change
over
time,
and
any
such
changes
could
have
a
material
effect
on
our
business.

If
our
clinical
reference
laboratory
is
out
of
compliance
with
CLIA
requirements,
we
may
be
subject
to
sanctions
such
as
suspension,
limitation
or
revocation
of
our
CLIA
certificate,
as
well
as
directed
plan
of
correction,
state
on-site
monitoring,
civil
money
penalties,
civil
injunctive
suit
or
criminal
penalties.
We
must
maintain
CLIA
compliance
and
certification
to
be
eligible
to
bill
for
diagnostic
services
provided
to
Medicare
and
Medicaid
beneficiaries.
If
we
were
to
be
found
out
of
compliance
with
CLIA
requirements
and
subjected
to
sanction,
our
business
could
be
harmed.

State laboratory licensure

We
are
required
to
maintain
a
license
to
conduct
testing
in
California.
California
laws
establish
standards
for
day-to-day
operations
of
our
laboratory
in
San
Francisco.
California
laws
mandate
proficiency
testing,
which
involves
testing
of
specimens
that
have
been
specifically
prepared
for
the
laboratory.
If
our
clinical
reference
laboratory
is
out
of
compliance
with
California
standards,
the

Table
of
Contents

California
Department
of
Health
Services,
or
DHS,
may
suspend,
restrict
or
revoke
our
license
to
operate
our
clinical
reference
laboratory,
assess
substantial
civil
money
penalties,
or
impose
specific
corrective
action
plans.
Any
such
actions
could
materially
affect
our
business.
We
maintain
a
current
license
in
good
standing
with
DHS.
However,
we
cannot
provide
assurance
that
DHS
will
at
all
times
in
the
future
find
us
to
be
in
compliance
with
all
such
laws.

Several
states
require
the
licensure
of
out-of-state
laboratories
that
accept
specimens
from
those
states
and/or
receive
specimens
from
laboratories
in
those
states.
Our
laboratory
holds
the
required
out-of-state
laboratory
licenses
for
Florida,
Maryland,
New
York,
Pennsylvania
and
Rhode
Island.

In
addition
to
having
a
laboratory
license
in
New
York,
our
clinical
reference
laboratory
in
California
is
also
required
to
obtain
approval
on
a
test-specific
basis
by
the
New
York
State
Department
of
Health,
or
NYDOH,
before
specific
testing
is
performed
on
samples
from
New
York.
Because
our
genomic
sequencing
panels
are
not
approved
by
New
York,
we
are
currently
prohibited
from
performing
genomic
sequencing
panels
on
samples
from
New
York.

Other
states
may
adopt
similar
licensure
requirements
in
the
future,
which
may
require
us
to
modify,
delay
or
stop
our
operations
in
such
jurisdictions.
Complying
with
licensure
requirements
in
new
jurisdictions
may
be
expensive,
time-consuming,
and
subject
us
to
significant
and
unanticipated
delays.
If
we
identify
any
other
state
with
such
requirements,
or
if
we
are
contacted
by
any
other
state
advising
us
of
such
requirements,
we
intend
to
follow
instructions
from
the
state
regulators
as
to
how
we
should
comply
with
such
requirements.

We
may
also
be
subject
to
regulation
in
foreign
jurisdictions
as
we
seek
to
expand
international
utilization
of
our
tests
or
such
jurisdictions
adopt
new
licensure
requirements,
which
may
require
review
of
our
tests
in
order
to
offer
them
or
may
have
other
limitations
such
as
restrictions
on
the
transport
of
human
blood
necessary
for
us
to
perform
our
tests
that
may
limit
our
ability
to
make
our
tests
available
outside
of
the
United
States.

U.S. Food and Drug Administration, or FDA

We
provide
our
tests
as
laboratory-developed
tests,
or
LDTs.
CMS
and
certain
state
agencies
regulate
the
performance
of
LDTs
(as
authorized
by
CLIA
and
state
law,
respectively).

Historically,
the
FDA,
has
exercised
enforcement
discretion
with
respect
to
most
LDTs
and
has
not
required
laboratories
that
furnish
LDTs
to
comply
with
the
agency's
requirements
for
medical
devices
(e.g.,
establishment
registration,
device
listing,
quality
systems
regulations,
premarket
clearance
or
premarket
approval,
and
post-
market
controls).
In
recent
years,
however,
the
FDA
has
stated
it
intends
to
end
its
policy
of
general
enforcement
discretion
and
regulate
certain
LDTs
as
medical
devices.
To
this
end,
on
October
3,
2014,
the
FDA
issued
two
draft
guidance
documents,
entitled
"Framework
for
Regulatory
Oversight
of
Laboratory
Developed
Tests
(LDTs)"
and
"FDA
Notification
and
Medical
Device
Reporting
for
Laboratory
Developed
Tests
(LDTs)",
respectively,
that
set
forth
a
proposed
risk-based
regulatory
framework
that
would
apply
varying
levels
of
FDA
oversight
to
LDTs.
The
FDA
has
indicated
that
it
does
not
intend
to
modify
its
policy
of
enforcement
discretion
until
the
draft
guidance
documents
are
finalized.
It
is
unclear
at
this
time
when,
or
if,
the
draft
guidance
documents
will
be
finalized,
and
even
then,
the
new
regulatory
requirements
are
proposed
to
be
phased-in
consistent
with
the
schedule
set
forth
in
the
guidance
(in
as
little
as
12
months
after
the
draft
guidance
is
finalized
for
certain
high-priority
LDTs).
Nevertheless,
the
FDA
may
decide
to
regulate
certain
LDTs
on
a
case-by-case
basis
at
any
time.

Legislative
proposals
addressing
the
FDA's
oversight
of
LDTs
have
been
introduced
in
previous
Congresses,
and
we
expect
that
new
legislative
proposals
will
be
introduced
from
time-to-time.
The
likelihood
that
Congress
will
pass
such
legislation
and
the
extent
to
which
such
legislation
may
affect
the
FDA's
plans
to
regulate
certain
LDTs
as
medical
devices
is
difficult
to
predict
at
this
time.

Table
of
Contents

If
the
FDA
ultimately
regulates
certain
LDTs
as
medical
devices,
whether
via
final
guidance,
final
regulation,
or
as
instructed
by
Congress,
our
tests
may
be
subject
to
certain
additional
regulatory
requirements.
Complying
with
the
FDA's
requirements
for
medical
devices
can
be
expensive,
time-consuming,
and
subject
us
to
significant
or
unanticipated
delays.
Insofar
as
we
may
be
required
to
obtain
premarket
clearance
or
approval
to
perform
or
continue
performing
an
LDT,
we
cannot
assure
you
that
we
will
be
able
to
obtain
such
authorization.
Even
if
we
obtain
regulatory
clearance
or
approval
where
required,
such
authorization
may
not
be
for
the
intended
uses
that
we
believe
are
commercially
attractive
or
are
critical
to
the
commercial
success
of
our
tests.
As
a
result,
the
application
of
the
FDA's
medical
device
requirements
to
our
tests
could
materially
and
adversely
affect
our
business,
financial
condition,
and
results
of
operations.

Failure
to
comply
with
applicable
FDA
regulatory
requirements
may
trigger
a
range
of
enforcement
actions
by
the
FDA
including
warning
letters,
civil
monetary
penalties,
injunctions,
criminal
prosecution,
recall
or
seizure,
operating
restrictions,
partial
suspension
or
total
shutdown
of
operations,
and
denial
of
or
challenges
to
applications
for
clearance
or
approval,
as
well
as
significant
adverse
publicity.

In
addition,
in
November
2013,
the
FDA
issued
final
guidance
regarding
the
distribution
of
products
labeled
for
research
use
only.
Certain
of
the
reagents
and
other
products
we
use
in
our
tests
are
labeled
as
research
use
only
products.
Certain
of
our
suppliers
may
cease
selling
research
use
only
products
to
us
and
any
failure
to
obtain
an
acceptable
substitute
could
significantly
and
adversely
affect
our
business,
financial
condition
and
results
of
operations.

HIPAA and HITECH

Under
the
administrative
simplification
provisions
of
the
Health
Insurance
Portability
and
Accountability
Act
of
1996,
or
HIPAA,
as
amended
by
the
Health
Information
Technology
for
Economic
and
Clinical
Health
Act,
or
HITECH,
the
U.S.
Department
of
Health
and
Human
Services
issued
regulations
that
establish
uniform
standards
governing
the
conduct
of
certain
electronic
healthcare
transactions
and
requirements
for
protecting
the
privacy
and
security
of
protected
health
information
used
or
disclosed
by
most
healthcare
providers
and
other
covered
entities
and
their
respective
business
associates,
including
the
business
associates'
subcontractors.
Four
principal
regulations
with
which
we
are
required
to
comply
have
been
issued
in
final
form
under
HIPAA
and
HITECH:
privacy
regulations,
security
regulations,
the
breach
notification
rule,
and
standards
for
electronic
transactions,
which
establish
standards
for
common
healthcare
transactions.

The
privacy
regulations
cover
the
use
and
disclosure
of
protected
health
information
by
covered
entities
as
well
as
business
associates,
which
are
defined
to
include
subcontractors
that
create,
receive,
maintain,
or
transmit
protected
health
information
on
behalf
of
a
business
associate.
A
subcontractor
means
any
person
to
whom
a
business
associate
delegates
a
function,
activity,
or
service,
other
than
in
the
capacity
of
the
business
associate's
workforce.
As
a
general
rule,
a
covered
entity
or
business
associate
may
not
use
or
disclose
protected
health
information
except
as
permitted
under
the
privacy
regulations.
The
privacy
regulations
also
set
forth
certain
rights
that
an
individual
has
with
respect
to
his
or
her
protected
health
information
maintained
by
a
covered
entity
or
business
associate,
including
the
right
to
access
or
amend
certain
records
containing
his
or
her
protected
health
information,
or
to
request
restrictions
on
the
use
or
disclosure
of
his
or
her
protected
health
information.

Covered
entities
and
business
associates
also
must
comply
with
the
security
regulations,
which
establish
requirements
for
safeguarding
the
confidentiality,
integrity,
and
availability
of
protected
health
information
that
is
electronically
transmitted
or
electronically
stored.
In
addition,
HITECH
established,
among
other
things,
certain
breach
notification
requirements
with
which
covered
entities
and
business
associates
must
comply.
In
particular,
a
covered
entity
must
notify
any
individual
whose
unsecured
protected
health
information
is
breached
according
to
the
specifications
set
forth
in
the
breach

Table
of
Contents

notification
rule.
A
covered
entity
must
also
notify
the
Secretary
of
the
U.S.
Department
of
Health
and
Human
Services
and,
under
certain
circumstances,
the
media.

The
HIPAA
privacy,
security,
and
breach
notification
regulations
establish
a
uniform
federal
"floor"
and
do
not
supersede
state
laws
that
are
more
stringent
or
provide
individuals
with
greater
rights
with
respect
to
the
privacy
or
security
of,
and
access
to,
their
records
containing
protected
health
information
or
insofar
as
such
state
laws
apply
to
personal
information
that
is
broader
in
scope
than
protected
health
information
as
defined
under
HIPAA.
Massachusetts,
for
example,
has
a
state
law
that
protects
the
privacy
and
security
of
personal
information
of
Massachusetts
residents.

There
are
significant
civil
and
criminal
fines
and
other
penalties
that
may
be
imposed
for
violating
HIPAA.
A
covered
entity
or
business
associate
is
also
liable
for
civil
money
penalties
for
a
violation
that
is
based
on
an
act
or
omission
of
any
of
its
agents,
including
a
downstream
business
associate,
as
determined
according
to
the
federal
common
law
of
agency.
Additionally,
to
the
extent
that
we
submit
electronic
healthcare
claims
and
payment
transactions
that
do
not
comply
with
the
electronic
data
transmission
standards
established
under
HIPAA
and
HITECH,
payments
to
us
may
be
delayed
or
denied.

Federal, state and foreign fraud and abuse laws

In
the
United
States,
there
are
various
fraud
and
abuse
laws
with
which
we
must
comply,
and
we
are
potentially
subject
to
regulation
by
various
federal,
state
and
local
authorities,
including
CMS,
other
divisions
of
the
U.S.
Department
of
Health
and
Human
Services
(e.g.,
the
Office
of
Inspector
General),
the
U.S.
Department
of
Justice,
and
individual
U.S.
Attorney
offices
within
the
Department
of
Justice,
and
state
and
local
governments.
We
also
may
be
subject
to
foreign
fraud
and
abuse
laws.

In
the
United
States,
the
federal
Anti-Kickback
Statute
prohibits,
among
other
things,
knowingly
and
willfully
offering,
paying,
soliciting
or
receiving
remuneration,
directly
or
indirectly,
overtly
or
covertly,
in
cash
or
in
kind,
in
order
to
induce
or
in
return
for
the
referral
of
an
individual
for
the
furnishing
of
or
arranging
for
the
furnishing
of,
purchasing,
leasing,
ordering
or
arranging
for
or
recommending
purchasing,
leasing
or
ordering
of
any
good,
facility,
service
or
item
for
which
payment
may
be
made
in
whole
or
in
part
by
a
federal
healthcare
program.
Courts
have
stated
that
a
financial
arrangement
may
violate
the
Anti-
Kickback
Statute
if
any
one
purpose
of
the
arrangement
is
to
encourage
patient
referrals
or
other
federal
healthcare
program
business,
regardless
of
whether
there
are
other
legitimate
purposes
for
the
arrangement.
The
definition
of
"remuneration"
has
been
broadly
interpreted
to
include
anything
of
value,
including
gifts,
discounts,
credit
arrangements,
payments
of
cash,
consulting
fees,
waivers
of
co-payments,
ownership
interests,
and
providing
anything
at
less
than
its
fair
market
value.
Although
the
Anti-Kickback
Statute
contains
several
exceptions,
it
is
broad
and
may
technically
prohibit
many
innocuous
or
beneficial
arrangements
within
the
healthcare
industry.
Further,
the
U.S.
Department
of
Health
and
Human
Services
issued
a
series
of
regulatory
"safe
harbors."
These
safe
harbor
regulations
set
forth
certain
provisions,
which,
if
met,
will
assure
healthcare
providers
and
other
parties
that
they
will
not
be
prosecuted
under
the
federal
Anti-Kickback
Statute.
Although
full
compliance
with
the
statutory
exceptions
or
regulatory
safe
harbors
ensures
against
prosecution
under
the
federal
Anti-Kickback
Statute,
the
failure
of
a
transaction
or
arrangement
to
fit
within
a
specific
statutory
exception
or
regulatory
safe
harbor
does
not
necessarily
mean
that
the
transaction
or
arrangement
is
illegal
or
that
prosecution
under
the
federal
Anti-Kickback
Statute
will
be
pursued.
Penalties
for
federal
anti-kickback
violations
are
severe,
and
include
imprisonment,
criminal
fines,
civil
money
penalties,
and
exclusion
from
participation
in
federal
healthcare
programs.
Many
states
also
have
anti-kickback
statutes,
some
of
which
may
apply
to
items
or
services
reimbursed
by
any
third-party
payer,
including
commercial
insurers.

There
are
also
federal
laws
related
to
healthcare
fraud
and
false
statements,
among
others,
relating
to
healthcare
matters.
The
healthcare
fraud
statute
prohibits,
among
other
things,
knowingly
and

Table
of
Contents

willfully
executing
a
scheme
to
defraud
any
healthcare
benefit
program,
including
private
payers.
A
violation
of
this
statute
is
a
felony
and
may
result
in
fines,
imprisonment,
or
exclusion
from
governmental
payer
programs
such
as
the
Medicare
and
Medicaid
programs.
The
false
statements
statute
prohibits
knowingly
and
willfully
falsifying,
concealing
or
covering
up
a
material
fact,
or
making
any
materially
false,
fictitious
or
fraudulent
statement
in
connection
with
the
delivery
of
or
payment
for
healthcare
benefits,
items,
or
services.
A
violation
of
this
statute
is
a
felony
and
may
result
in
fines,
imprisonment,
or
exclusion
from
governmental
payer
programs.

Another
development
affecting
the
healthcare
industry
is
the
increased
enforcement
of
the
federal
False
Claims
Act
and,
in
particular,
actions
brought
pursuant
to
the
False
Claims
Act's
"whistleblower"
or
"qui
tam"
provisions.
The
False
Claims
Act
imposes
liability
on
any
person
or
entity
that,
among
other
things,
knowingly
presents,
or
causes
to
be
presented,
a
false
or
fraudulent
claim
for
payment
by
a
federal
governmental
payer
program.
The
qui
tam
provisions
of
the
False
Claims
Act
allow
a
private
individual
to
bring
actions
on
behalf
of
the
federal
government
alleging
that
the
defendant
has
defrauded
the
federal
government
by
submitting
a
false
claim
to
the
federal
government
and
permit
such
individuals
to
share
in
any
amounts
paid
by
the
entity
to
the
government
in
fines
or
settlement.
When
an
entity
is
determined
to
have
violated
the
False
Claims
Act,
it
may
be
required
to
pay
up
to
three
times
the
actual
damages
sustained
by
the
government,
plus
civil
penalties
ranging
from
$5,500
to
$11,000
for
each
false
claim.

In
addition,
various
states
have
enacted
false
claim
laws
analogous
to
the
federal
False
Claims
Act,
although
many
of
these
state
laws
apply
where
a
claim
is
submitted
to
any
third-party
payer
and
not
merely
a
governmental
payer
program.

Additionally,
the
civil
monetary
penalties
statute
imposes
penalties
against
any
person
or
entity
that,
among
other
things,
is
determined
to
have
presented
or
caused
to
be
presented
a
claim
to
a
federal
health
program
that
the
person
knows
or
should
know
is
for
an
item
or
service
that
was
not
provided
as
claimed
or
for
a
claim
that
is
false
or
fraudulent.
This
law
also
prohibits
the
offering
or
transfer
of
remuneration
to
a
Medicare
or
state
healthcare
program
beneficiary
if
the
person
knows
or
should
know
it
is
likely
to
influence
the
beneficiary's
selection
of
a
particular
provider,
practitioner,
or
supplier
for
items
or
services
reimbursable
by
Medicare
or
a
state
healthcare
program,
unless
an
exception
applies.

In
Europe
various
countries
have
adopted
anti-bribery
laws
providing
for
severe
consequences,
in
the
form
of
criminal
penalties
and/or
significant
fines,
for
individuals
and/or
companies
committing
a
bribery
offence.
Violations
of
these
anti-bribery
laws,
or
allegations
of
such
violations,
could
have
a
negative
impact
on
our
business,
results
of
operations
and
reputation.
For
instance,
in
the
United
Kingdom,
under
the
Bribery
Act
2010,
which
went
into
effect
in
July
2011,
a
bribery
occurs
when
a
person
offers,
gives
or
promises
to
give
a
financial
or
other
advantage
to
induce
or
reward
another
individual
to
improperly
perform
certain
functions
or
activities,
including
any
function
of
a
public
nature.
Bribery
of
foreign
public
officials
also
falls
within
the
scope
of
the
Bribery
Act
2010.
Under
the
new
regime,
an
individual
found
in
violation
of
the
Bribery
Act
2010,
faces
imprisonment
of
up
to
10
years.
In
addition,
the
individual
can
be
subject
to
an
unlimited
fine,
as
can
commercial
organizations
for
failure
to
prevent
bribery.

Physician referral prohibitions

UA
federal
law
directed
at
"self-referrals,"
commonly
known
as
the
"Stark
Law,"
prohibits
a
physician
from
making
referrals
for
certain
designated
health
services,
including
laboratory
services,
to
an
entity
with
which
the
physician,
or
an
immediate
family
member,
has
a
direct
or
indirect
financial
relationship,
unless
an
exception
applies.
The
prohibition
also
extends
to
payment
for
any
services
referred
in
violation
of
the
Stark
Law.
A
physician
or
entity
that
engages
in
a
scheme
to
circumvent
the
Stark
Law's
referral
prohibition
may
be
fined
up
to
$100,000
for
each
such
arrangement
or
scheme.
In

Table
of
Contents

addition,
any
person
who
presents
or
causes
to
be
presented
a
claim
to
the
Medicare
program
in
violation
of
the
Stark
Law
is
subject
to
civil
monetary
penalties
of
up
to
$15,000
per
service,
an
assessment
of
up
to
three
times
the
amount
claimed
and
possible
exclusion
from
participation
in
federal
healthcare
programs.
Bills
submitted
in
violation
of
the
Stark
Law
may
not
be
paid
by
Medicare,
and
any
person
collecting
any
amounts
with
respect
to
any
such
prohibited
bill
is
obligated
to
refund
such
amounts.
Many
states
have
comparable
laws
that
are
not
limited
to
Medicare
referrals.
The
Stark
Law
also
prohibits
state
receipt
of
Federal
Medicaid
matching
funds
for
services
furnished
pursuant
to
a
prohibited
referral,
but
this
provision
of
the
Stark
Law
has
not
been
implemented
by
regulations.
In
addition,
some
courts
have
held
that
the
submission
of
claims
to
Medicaid
that
would
be
prohibited
as
self-referrals
under
the
Stark
Law
for
Medicare
could
implicate
the
False
Claims
Act.

Corporate practice of medicine

Numerous
states
have
enacted
laws
prohibiting
business
corporations,
such
as
us,
from
practicing
medicine
and
employing
or
engaging
clinicians
to
practice
medicine,
generally
referred
to
as
the
prohibition
against
the
corporate
practice
of
medicine.
These
laws
are
designed
to
prevent
interference
in
the
medical
decision-making
process
by
anyone
who
is
not
a
licensed
physician.
For
example,
California's
Medical
Board
has
indicated
that
determining
what
diagnostic
tests
are
appropriate
for
a
particular
condition
and
taking
responsibility
for
the
ultimate
overall
care
of
the
patient,
including
providing
treatment
options
available
to
the
patient,
would
constitute
the
unlicensed
practice
of
medicine
if
performed
by
an
unlicensed
person.
Violation
of
these
corporate
practice
of
medicine
laws
may
result
in
civil
or
criminal
fines,
as
well
as
sanctions
imposed
against
us
and/or
the
professional
through
licensure
proceedings.
Typically
such
laws
are
only
applicable
to
entities
that
have
a
physical
presence
in
the
state.

Intellectual
property

We
rely
on
a
combination
of
intellectual
property
rights,
including
trade
secrets,
copyrights,
trademarks,
customary
contractual
protections
and,
to
a
lesser
extent,
patents,
to
protect
our
core
technology
and
intellectual
property.
With
respect
to
patents,
we
believe
that
the
practice
of
patenting
individual
genes,
along
with
patenting
tools
and
methods
specific
to
individual
genes,
has
impeded
the
progress
of
the
genetic
testing
industry
beyond
single
gene
tests
and
is
antithetical
to
our
core
principle
that
patients
should
own
and
control
their
own
genomic
information.
Over
the
past
three
years
the
U.S.
Supreme
Court
has
issued
a
series
of
unanimous
(9-0)
decisions
setting
forth
limits
on
the
patentability
of
natural
phenomena,
natural
laws,
abstract
ideas
and
their
applications—
i.e. ,
Mayo
Collaborative v. Prometheus Laboratories (2012) ,
or
Mayo ,
Association for Molecular Pathology v. Myriad Genetics (2013) ,
or
Myriad ,
and
Alice Corporation
v. CLS Bank (2014) ,
or
Alice. As
discussed
below,
we
believe
the
Mayo ,
Myriad and
Alice decisions
bring
clarity
to
the
limits
to
which
patents
may
cover
specific
genes,
mutations
of
such
genes,
or
gene-specific
technology
for
determining
a
patient's
genomic
information.

Patents

Recent
U.S.
Supreme
Court
cases
have
clarified
that
naturally
occurring
DNA
sequences
are
natural
phenomena
which
should
not
be
patentable.
On
June
13,
2013,
the
U.S.
Supreme
Court
decided
Myriad ,
a
case
challenging
the
validity
of
patent
claims
held
by
Myriad
relating
to
the
cancer
genes
BRCA1
and
BRCA2.
The
Myriad Court
held
that
genomic
DNAs
that
have
been
isolated
from,
or
have
the
same
sequence
as,
naturally
occurring
samples,
such
as
the
DNA
constituting
the
BRCA1
and
BRCA2
genes
or
fragments
thereof,
are
not
eligible
for
patent
protection.
Instead,
the
Myriad Court
held
that
only
those
complementary
DNAs
(cDNAs)
which
have
a
sequence
that
differs
from
a
naturally
occurring
fragment
of
genomic
DNA
may
be
patent
eligible.
Because
it
will
be
applied
by
other
courts
to
all
gene
patents,
the
holding
in
Myriad also
invalidates
patent
claims
to
other
genes
and

Table
of
Contents

gene
variants.
Prior
to
Myriad ,
on
August
16,
2012,
the
U.S.
Court
of
Appeals
for
the
Federal
Circuit
had
held
that
certain
patent
claims
of
Myriad
directed
to
methods
of
comparing
or
analyzing
BRCA1
and
BRCA2
sequences
to
determine
whether
or
not
a
person
has
a
variant
or
mutation
are
unpatentable
abstract
processes,
and
Myriad
did
not
appeal
such
ruling.

We
do
not
currently
have
any
patents
or
patent
applications
directed
to
the
sequences
of
specific
genes
or
variants
of
such
genes,
nor
have
we
in-licensed
such
patents
rights
of
any
third
party.
We
believe
that
correlations
between
specific
gene
variants
and
a
person's
susceptibility
to
certain
conditions
or
diseases
are
natural
laws
that
are
not
patentable
under
the
U.S.
Supreme
Court's
decision
in
Mayo .
The
Mayo case
involved
patent
claims
directed
to
optimizing,
on
a
patient-
specific
basis,
the
dosage
of
a
certain
drug
by
measuring
its
metabolites
in
a
patient.
The
Mayo Court
determined
that
patent
claims
directed
at
detection
of
natural
correlations,
such
as
the
correlation
between
drug
metabolite
levels
in
a
patient
and
that
drug's
optimal
dosage
for
such
patient,
are
not
eligible
for
patent
protection.
The
Mayo Court
held
that
claims
based
on
this
type
of
comparison
between
an
observed
fact
and
an
understanding
of
that
fact's
implications
represent
attempts
to
patent
a
natural
law
and,
moreover,
when
the
processes
for
making
the
comparison
are
not
themselves
sufficiently
inventive,
claims
to
such
processes
are
similarly
patent-ineligible.
On
June
19,
2014,
the
U.S.
Supreme
Court
decided
Alice ,
where
it
amplified
its
Mayo and
Myriad decisions
and
clarified
the
analytical
framework
for
distinguishing
between
patents
that
claim
laws
of
nature,
natural
phenomena
and
abstract
ideas
and
those
that
claim
patent-eligible
applications
of
such
concepts.
According
to
the
Alice Court,
the
analysis
depends
on
whether
a
patent
claim
directed
to
a
law
of
nature,
a
natural
phenomenon
or
an
abstract
idea
contains
additional
elements,
an
"inventive
concept,"
that
"is
'sufficient
to
ensure
that
the
patent
in
practice
amounts
to
significantly
more
than
a
patent
upon
the
[ineligible
concept]
itself;"
(citing
Mayo ).

We
believe
that
Mayo ,
Myriad and
Alice not
only
render
as
unpatentable
genes,
gene
fragments
and
the
detection
of
a
person's
sequence
for
a
gene,
but
also
have
the
same
effect
on
generic
applications
of
conventional
technology
to
specific
gene
sequences.
For
example,
we
believe
that
generic
claims
to
primers
or
probes
directed
to
specific
gene
sequences
and
uses
of
such
primers
and
probes
in
determining
a
person's
genetic
information
are
not
patentable.
We
do
not
currently
have
any
patents
or
patent
applications
directed
to
such
subject
matter
nor
have
we
in-licensed
such
patents
rights
of
any
third
party.

Unlike
patents
directed
to
specific
genes,
we
do
rely
upon,
in
part,
patent
protection
to
protect
technology
that
is
not
gene-specific
and
that
provides
us
with
a
potential
competitive
advantage
as
we
focus
on
making
comprehensive
genetic
information
less
expensive
and
more
broadly
available
to
our
clients.
In
this
regard,
we
have
one
issued
U.S.
patent,
two
pending
U.S.
utility
patent
applications,
two
pending
PCT
applications,
one
pending
U.S.
provisional
patent
application
and
eight
pending
non-U.S.
applications
directed
to
various
aspects
of
our
laboratory,
analytic
and
business
practices.
We
intend
to
pursue
further
patent
protection
where
appropriate.

Trade secrets

In
addition
to
seeking
patent
protection
for
some
of
our
laboratory,
analytic
and
business
practices,
we
also
rely
on
trade
secrets,
including
unpatented
know-
how,
technology
and
other
proprietary
information,
to
maintain
and
develop
our
competitive
position.
We
have
developed
proprietary
procedures
for
both
the
laboratory
processing
of
patient
samples
and
the
analysis
of
the
resulting
data
to
generate
clinical
reports.
For
example,
we
have
automated
aspects
of
our
processes
for
curating
information
about
known
variants,
identifying
variants
in
an
individual's
sequence
information,
associating
those
variants
with
known
information
about
their
potential
effects
on
disease,
and
presenting
that
information
for
review
by
personnel
responsible
for
its
interpretation
and
for
the
delivery
of
test
reports
to
clinicians.
We
try
to
protect
these
trade
secrets,
in
part,
by
taking
reasonable
steps
to
keep
them
confidential.
This
includes
entering
into
nondisclosure
and
confidentiality

Table
of
Contents

agreements
with
parties
who
have
access
to
them,
such
as
our
employees
and
certain
third
parties.
We
also
enter
into
invention
or
patent
assignment
agreements
with
our
employees
and
consultants
that
obligate
them
to
assign
to
us
any
inventions
developed
in
the
course
of
their
work
for
us.
However,
we
may
not
enter
into
such
agreements
with
all
relevant
parties,
and
these
parties
may
not
abide
by
the
terms
of
their
agreements.
Despite
measures
taken
to
protect
our
intellectual
property,
unauthorized
parties
might
copy
or
independently
develop
and
commercially
exploit
aspects
of
our
technology
or
obtain
and
use
information
that
we
regard
as
proprietary.

Trademarks

We
work
hard
to
achieve
a
high
level
of
quality
in
our
operations
and
to
provide
our
clients
with
a
superior
experience
when
interacting
with
us.
As
a
consequence,
our
brand
is
very
important
to
us,
as
it
is
a
symbol
of
our
reputation
and
representative
of
the
goodwill
we
seek
to
generate
with
our
clients.
As
a
consequence,
we
have
invested
significant
resources
in
protection
of
our
trademarks.
To
date,
we
have
filed
for
trademark
protection
for
INVITAE
as
well
as
our
logo
(circle
design)
and
INVITAE
with
the
logo.
Registrations
for
INVITAE
have
been
obtained
in
28
countries
and
are
currently
pending
in
more
than
five
countries.
Applications
for
our
logo
(circle
design)
have
been
obtained
in
18
countries
and
are
currently
pending
in
more
than
13
countries,
and
one
application
is
pending
for
INVITAE
with
the
logo.

Environmental
matters

Our
operations
require
the
use
of
hazardous
materials
(including
biological
materials)
which
subject
us
to
a
variety
of
federal,
state
and
local
environmental
and
safety
laws
and
regulations.
Some
of
these
regulations
provide
for
strict
liability,
holding
a
party
potentially
liable
without
regard
to
fault
or
negligence.
We
could
be
held
liable
for
damages
and
fines
as
a
result
of
our,
or
others',
business
operations
should
contamination
of
the
environment
or
individual
exposure
to
hazardous
substances
occur.
We
cannot
predict
how
changes
in
laws
or
new
regulations
will
affect
our
business,
operations
or
the
cost
of
compliance.

Raw
materials
and
suppliers

We
rely
on
a
limited
number
of
suppliers,
or,
in
some
cases,
sole
suppliers,
including
Agilent
Technologies,
Inc.,
Illumina,
Inc.,
Integrated
DNA
Technologies
Incorporated,
Qiagen
N.V.
and
Roche
Holdings
Ltd.
for
certain
laboratory
reagents,
as
well
as
sequencers
and
other
equipment
and
materials
which
we
use
in
our
laboratory
operations.
We
rely
on
Illumina
as
the
sole
supplier
of
next
generation
sequencers
and
associated
reagents
and
as
the
sole
provider
of
maintenance
and
repair
services
for
these
sequencers.
Our
laboratory
operations
could
be
interrupted
if
we
encounter
delays
or
difficulties
in
securing
these
reagents,
sequencers
or
other
equipment
or
materials,
and
if
we
cannot
obtain
an
acceptable
substitute.
Any
such
interruption
could
significantly
affect
our
business,
financial
condition,
results
of
operations
and
reputation.
We
believe
that
there
are
only
a
few
other
manufacturers
that
are
currently
capable
of
supplying
and
servicing
the
equipment
necessary
for
our
laboratory
operations,
including
sequencers
and
various
associated
reagents.
The
use
of
equipment
or
materials
provided
by
these
replacement
suppliers
would
require
us
to
alter
our
laboratory
operations.
Transitioning
to
a
new
supplier
would
be
time
consuming
and
expensive,
may
result
in
interruptions
in
our
laboratory
operations,
could
affect
the
performance
specifications
of
our
laboratory
operations
or
could
require
that
we
revalidate
our
tests.
We
cannot
assure
you
that
we
would
be
able
to
secure
alternative
equipment,
reagents
and
other
materials,
or
bring
such
equipment,
reagents
and
materials
on
line
and
revalidate
them
without
experiencing
interruptions
in
our
workflow.
If
we
encounter
delays
or
difficulties
in
securing,
reconfiguring
or
revalidating
the
equipment
and
reagents
we
require
for
our
tests,
our
business
and
reputation
could
be
adversely
affected.

Table
of
Contents

Customer
and
geographic
concentrations

For
the
years
ended
December
31,
2015,
2014
and
2013
the
percentages
of
our
revenue
attributable
to
sources
in
the
United
States
were
65%,
67%
and
42%
respectively;
the
percentages
of
our
revenue
attributable
to
sources
in
Canada
were
25%,
19%
and
1%
respectively;
the
percentages
of
our
revenue
attributable
to
sources
in
Israel
were
2%,
7%
and
44%
respectively;
and
the
percentages
of
our
revenue
attributable
to
countries
excluding
the
United
States,
Canada
and
Israel
were
8%,
7%
and
13%
respectively.

As
of
December
31,
2015
and
2014,
we
had
net
long-lived
assets
in
the
United
States
of
$17.2
million
and
$13.9
million,
respectively,
and
net
long-lived
assets
in
Chile
of
$1.5
million
and
$1.8
million,
respectively.
As
of
December
31,
2015
and
2014,
we
did
not
have
long-
lived
assets
outside
of
the
United
States
and
Chile.

As
of
December
31,
2015,
all
of
our
revenue
has
been
derived
from
sales
of
our
assay.
A
single
customer
accounted
for
13%
of
our
revenue
for
the
year
ended
December
31,
2015,
a
second
single
customer
accounted
for
15%
of
our
revenue
for
the
year
ended
December
31,
2014
and
a
third
single
customer
accounted
for
44%
of
our
revenue
for
the
year
ended
December
31,
2013.

General
Information

We
were
incorporated
in
the
State
of
Delaware
on
January
13,
2010
under
the
name
Locus
Development,
Inc.
and
changed
our
name
to
Invitae
Corporation
in
2012.
Our
principal
executive
offices
are
located
at
458
Brannan
Street,
San
Francisco,
California
94107,
and
our
telephone
number
is
(415)
374-7782.
Our
website
address
is
www.invitae.com.
The
information
contained
on,
or
that
can
be
accessed
through,
our
website
is
not
part
of
this
annual
report
on
Form
10-K.

We
make
available
free
of
charge
on
our
website
our
annual
reports
on
Form
10-K,
quarterly
reports
on
Form
10-Q,
current
reports
on
Form
8-K
and
amendments
to
those
reports,
as
soon
as
reasonably
practicable
after
we
electronically
file
or
furnish
such
materials
to
the
Securities
and
Exchange
Commission,
or
SEC.
You
may
obtain
a
free
copy
of
these
reports
in
the
Investor
Relations
section
of
our
website,
www.invitae.com.
All
reports
that
we
file
with
the
SEC
may
be
read
and
copied
at
the
SEC's
Public
Reference
Room
at
100
F
Street,
N.E.,
Washington,
DC,
20549.
Information
about
the
operation
of
the
Public
Reference
Room
can
be
obtained
by
calling
the
SEC
at
1-800-SEC-0330.
All
reports
that
we
file
are
also
available
at
www.sec.gov.

Table
of
Contents

ITEM
1A.

Risk
Factors.

Risks
related
to
our
business
and
strategy

We are an early-stage company with a history of losses, we expect to incur significant losses for the foreseeable future, and we may not be able to achieve or
sustain profitability.

We
have
incurred
substantial
losses
since
our
inception.
For
the
years
ended
December
31,
2015,
2014
and
2013,
we
had
net
losses
of
$89.8
million,
$47.5
million
and
$24.8
million,
respectively.
As
of
December
31,
2015,
we
had
an
accumulated
deficit
of
$175.0
million.
To
date,
we
have
generated
limited
revenue,
and
we
may
never
achieve
revenue
sufficient
to
offset
our
expenses.
In
addition,
we
expect
to
continue
to
incur
significant
losses
for
the
foreseeable
future,
and
we
expect
these
losses
to
increase
as
we
focus
on
scaling
our
business
and
operations.
Our
prior
losses
and
expected
future
losses
have
had
and
will
continue
to
have
an
adverse
effect
on
our
stockholders'
equity
and
working
capital.
Our
failure
to
achieve
and
sustain
profitability
in
the
future
would
negatively
affect
our
business,
financial
condition,
results
of
operations
and
cash
flows,
and
could
cause
the
market
price
of
our
common
stock
to
decline.

We
began
operations
in
January
2010,
and
commercially
launched
our
initial
assay
in
late
November
2013;
accordingly,
we
have
only
a
limited
operating
history
upon
which
you
can
evaluate
our
business
and
prospects.
Our
limited
commercial
history
makes
it
difficult
to
evaluate
our
current
business
and
makes
predictions
about
our
future
results,
prospects
or
viability
subject
to
significant
uncertainty.
Our
prospects
must
be
considered
in
light
of
the
risks
and
difficulties
frequently
encountered
by
companies
in
their
early
stage
of
development,
particularly
companies
in
new
and
rapidly
evolving
markets
such
as
ours.
These
risks
include
an
evolving
and
unpredictable
business
model
and
the
management
of
growth.
To
address
these
risks,
we
must,
among
other
things,
increase
our
customer
base,
implement
and
successfully
execute
our
business
and
marketing
strategy,
continue
to
expand,
automate
and
upgrade
our
laboratory,
technology
and
data
systems,
obtain
coverage
and
reimbursement
by
healthcare
payers
such
as
Medicare
and
private
health
insurers,
provide
rapid
test
turnaround
times
with
accurate
results
at
low
prices,
provide
superior
customer
service,
respond
to
competitive
developments
and
attract,
retain
and
motivate
qualified
personnel.
We
cannot
assure
you
that
we
will
be
successful
in
addressing
these
risks,
and
the
failure
to
do
so
could
have
a
material
adverse
effect
on
our
business,
prospects,
financial
condition
and
results
of
operations.

We will need to scale our infrastructure in advance of demand for our tests, and our failure to generate sufficient demand for our tests would have a negative
impact on our business and our ability to attain profitability.

Our
success
will
depend
in
large
part
on
our
ability
to
extend
our
market
position,
to
provide
customers
with
high
quality
test
reports
quickly
and
at
a
lower
price
than
our
competitors,
and
to
achieve
sufficient
test
volume
to
realize
economies
of
scale.
In
order
to
execute
our
business
model,
we
intend
to
invest
heavily
in
order
to
significantly
scale
our
infrastructure,
including
our
testing
capacity
and
information
systems,
expand
our
customer
service,
billing
and
systems
processes
and
enhance
our
internal
quality
assurance
program.
We
entered
into
a
lease
agreement
for
a
new
laboratory
and
headquarters
in
San
Francisco,
California
and
we
will
need
to
build
out
our
new
laboratory.
We
will
also
need
to
hire
and
retain
sufficient
numbers
of
skilled
personnel,
including
geneticists,
biostatisticians,
certified
laboratory
scientists
and
other
scientific
and
technical
personnel
to
process
and
interpret
our
genetic
tests.
We
expect
that
much
of
this
growth
will
be
in
advance
of
demand
for
our
tests.
Our
current
and
future
expense
levels
are
to
a
large
extent
fixed
and
are
largely
based
on
our
investment
plans
and
our
estimates
of
future
revenue.
Because
the
timing
and
amount
of
revenue
from
our
tests
is
difficult
to
forecast,
when
revenue
does
not
meet
our
expectations
we
may
not
be
able
to
adjust
our
spending
promptly
or
reduce
our
spending
to
levels
commensurate
with
our
revenue.
Even
if
we
are
able
to
successfully
scale
our
infrastructure
and
operations,
we
cannot
assure
you
that
demand
for
our
tests
will
increase
at
levels
consistent
with
the
growth
of
our
infrastructure.
If
we
fail
to

Table
of
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generate
demand
commensurate
with
this
growth
or
if
we
fail
to
scale
our
infrastructure
sufficiently
in
advance
of
demand
to
successfully
meet
such
demand,
our
business,
prospects,
financial
condition
and
results
of
operations
could
be
adversely
affected.

If third-party payers, including managed care organizations, private health insurers and government health plans do not provide coverage and adequate
reimbursement for our tests, our commercial success could be negatively affected.

Our
ability
to
increase
the
number
of
billable
tests
and
our
revenue
will
depend
on
our
success
achieving
broad
reimbursement
for
our
tests
from
third-party
payers.
Physicians
may
not
order
our
tests
unless
third-party
payers,
such
as
managed
care
organizations,
private
health
insurers
and
government
healthcare
programs,
such
as
Medicare
and
Medicaid,
cover
and
provide
adequate
reimbursement
for
a
substantial
portion
of
the
price
of
our
tests.
Reimbursement
by
a
payer
may
depend
on
a
number
of
factors,
including
a
payer's
determination
that
a
test
is
appropriate,
medically
necessary,
and
cost-effective.

Since
each
payer
makes
its
own
decision
as
to
whether
to
establish
a
policy
or
enter
into
a
contract
to
cover
our
tests,
as
well
as
the
amount
it
will
reimburse
for
a
test,
seeking
these
approvals
is
a
time-consuming
and
costly
process.
In
addition,
the
determination
by
a
payer
to
cover
and
the
amount
it
will
reimburse
for
our
tests
will
likely
be
made
on
an
indication
by
indication
basis.
To
date,
we
have
obtained
policy-level
reimbursement
approval
or
contractual
reimbursement
for
some
indications
for
our
test
from
a
small
number
of
commercial
third-party
payers,
and
have
not
obtained
coverage
from
Medicare
or
any
state
Medicaid
program.
Further,
we
believe
that
establishing
adequate
reimbursement
from
Medicare
is
an
important
factor
in
gaining
adoption
from
healthcare
providers.
Our
claims
for
reimbursement
from
commercial
payers
may
be
denied
upon
submission,
and
we
must
appeal
the
claims.
The
appeals
process
is
time
consuming
and
expensive,
and
may
not
result
in
payment.
In
cases
where
there
is
not
a
contracted
rate
for
reimbursement,
there
is
typically
a
greater
co-insurance
or
co-payment
requirement
from
the
patient
which
may
result
in
further
delay
or
decreased
likelihood
of
collection.

We
expect
to
continue
to
focus
substantial
resources
on
increasing
adoption
of,
and
coverage
and
reimbursement
for,
our
current
tests
and
any
future
tests
we
may
develop.
We
believe
it
may
take
several
years
to
achieve
coverage
and
adequate
contracted
reimbursement
with
a
majority
of
third-party
payers.
However,
we
cannot
predict
whether,
under
what
circumstances,
or
at
what
payment
levels
payers
will
reimburse
for
our
tests.
If
we
fail
to
establish
and
maintain
broad
adoption
of,
and
coverage
and
reimbursement
for,
our
tests,
our
ability
to
generate
revenue
could
be
harmed
and
our
future
prospects
and
our
business
could
suffer.

We face intense competition, which is likely to intensify further as existing competitors devote additional resources to, and new participants enter, the market.
If we cannot compete successfully, we may be unable to increase our revenue or achieve and sustain profitability.

With
the
development
of
next
generation
sequencing,
the
clinical
genetics
market
is
becoming
increasingly
competitive,
and
we
expect
this
competition
to
intensify
in
the
future.
We
face
competition
from
a
variety
of
sources,
including:

•

dozens
of
relatively
specialized
competitors
focused
on
inherited
clinical
genetics
and
gene
sequencing,
such
as
Ambry
Genetics,
Inc.,
Athena
Diagnostics,
Counsyl,
GeneDx,
a
subsidiary
of
OPKO
Health,
Inc.,
Myriad
Genetics,
Inc.,
or
Myriad,

a
few
large,
established
general
testing
companies
with
large
market
share
and
significant
channel
power,
such
as
Laboratory
Corporation
of
America
Holdings
and
Quest
Diagnostics
Incorporated;

Table
of
Contents

•

a
large
number
of
clinical
laboratories
in
an
academic
or
healthcare
provider
setting
that
perform
clinical
genetic
testing
on
behalf
of
their
affiliated
institutions
and
often
sell
and
market
more
broadly;
and

a
large
number
of
new
entrants
into
the
market
for
genetic
information
ranging
from
informatics
and
analysis
pipeline
developers
to
focused,
integrated
providers
of
genetic
tools
and
services
for
health
and
wellness
including
Illumina,
Inc.,
who
is
also
one
of
our
suppliers.

Hospitals,
academic
medical
centers
and
eventually
physician
practice
groups
and
individual
clinicians
may
also
seek
to
perform
at
their
own
facilities
the
type
of
genetic
testing
we
would
otherwise
perform
for
them.
In
this
regard,
continued
development
of
equipment,
reagents,
and
other
materials
as
well
as
databases
and
interpretation
services
may
enable
broader
direct
participation
in
genetic
testing
and
analysis.

Participants
in
closely
related
markets
such
as
prenatal
testing
and
clinical
trial
or
companion
diagnostic
testing
could
converge
on
offerings
that
are
competitive
with
the
type
of
tests
we
perform.
Instances
where
potential
competitors
are
aligned
with
key
suppliers
or
are
themselves
suppliers
could
provide
such
potential
competitors
with
significant
advantages.

In
addition,
the
biotechnology
and
genetic
testing
fields
are
intensely
competitive
both
in
terms
of
service
and
price,
and
continue
to
undergo
significant
consolidation,
permitting
larger
clinical
laboratory
service
providers
to
increase
cost
efficiencies
and
service
levels,
resulting
in
more
intense
competition.

We
believe
the
principal
competitive
factors
in
our
market
are:

•

breadth
and
depth
of
content;

reliability;

accessibility
of
results;

turnaround
time
of
testing
results;

price
and
quality
of
tests;

coverage
and
reimbursement
arrangements
with
third-party
payers;

convenience
of
testing;

brand
recognition
of
test
provider;

additional
value-added
services
and
informatics
tools;

client
service;
and

quality
of
website
content.

Many
of
our
competitors
and
potential
competitors
have
longer
operating
histories,
larger
customer
bases,
greater
brand
recognition
and
market
penetration,
higher
margins
on
their
tests,
substantially
greater
financial,
technological
and
research
and
development
resources
and
selling
and
marketing
capabilities,
and
more
experience
dealing
with
third-party
payers.
As
a
result,
they
may
be
able
to
respond
more
quickly
to
changes
in
customer
requirements,
devote
greater
resources
to
the
development,
promotion
and
sale
of
their
tests
than
we
do,
or
sell
their
tests
at
prices
designed
to
win
significant
levels
of
market
share.
We
may
not
be
able
to
compete
effectively
against
these
organizations.
Increased
competition
and
cost-saving
initiatives
on
the
part
of
governmental
entities
and
other
third-party
payers
are
likely
to
result
in
pricing
pressures,
which
could
harm
our
sales,
profitability
or
ability
to
gain
market
share.
In
addition,
competitors
may
be
acquired
by,
receive
investments
from
or
enter
into
other
commercial
relationships
with
larger,
well-established
and
well-financed
companies
as
use
of
next
generation
sequencing
for
clinical
diagnosis
and
preventative

Table
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care
increases.
Certain
of
our
competitors
may
be
able
to
secure
key
inputs
from
vendors
on
more
favorable
terms,
devote
greater
resources
to
marketing
and
promotional
campaigns,
adopt
more
aggressive
pricing
policies
and
devote
substantially
more
resources
to
website
and
systems
development
than
we
can.
In
addition,
companies
or
governments
that
control
access
to
genetic
testing
through
umbrella
contracts
or
regional
preferences
could
promote
our
competitors
or
prevent
us
from
performing
certain
services.
If
we
are
unable
to
compete
successfully
against
current
and
future
competitors,
we
may
be
unable
to
increase
market
acceptance
and
sales
of
our
tests,
which
could
prevent
us
from
increasing
our
revenue
or
achieving
profitability
and
could
cause
our
stock
price
to
decline.

We may not be able to manage our future growth effectively, which could make it difficult to execute our business strategy.

Our
expected
future
growth
could
create
a
strain
on
our
organizational,
administrative
and
operational
infrastructure,
including
laboratory
operations,
quality
control,
customer
service,
marketing
and
sales,
and
management.
We
plan
to
move
into
a
new
laboratory
and
headquarters
facility
in
2016,
which
could
also
affect
our
business
operations
and
our
ability
to
perform
our
tests.
We
may
not
be
able
to
maintain
the
quality
of
or
expected
turnaround
times
for
our
tests,
or
satisfy
customer
demand
as
it
grows.
Our
ability
to
manage
our
growth
properly
will
require
us
to
continue
to
improve
our
operational,
financial
and
management
controls,
as
well
as
our
reporting
systems
and
procedures.
We
plan
to
implement
new
enterprise
software
systems
in
a
number
of
areas
affecting
a
broad
range
of
business
processes
and
functional
areas.
The
time
and
resources
required
to
implement
these
new
systems
is
uncertain,
and
failure
to
complete
these
activities
in
a
timely
and
efficient
manner
could
adversely
affect
our
operations.
In
addition,
we
plan
to
hire
additional
geneticists,
biostatisticians,
certified
laboratory
scientists
and
other
scientific
and
technical
personnel.
If
we
are
unable
to
manage
our
growth
effectively,
it
may
be
difficult
for
us
to
execute
our
business
strategy
and
our
business
could
be
harmed.
Future
growth
in
our
business
could
also
make
it
difficult
for
us
to
maintain
our
corporate
culture.

Our inability to raise additional capital on acceptable terms in the future may limit our ability to develop and commercialize new tests and expand our
operations.

We
expect
capital
expenditures
and
operating
expenses
to
increase
over
the
next
several
years
as
we
expand
our
infrastructure,
commercial
operations
and
research
and
development
activities.
The
proceeds
from
our
initial
public
offering
will
not
be
sufficient
to
fully
fund
our
business
and
growth
strategy.
We
may
seek
to
raise
additional
capital
through
equity
offerings,
debt
financings,
collaborations
or
licensing
arrangements.
Additional
funding
may
not
be
available
to
us
on
acceptable
terms,
or
at
all.
If
we
raise
funds
by
issuing
equity
securities,
dilution
to
our
stockholders
would
result.
Any
equity
securities
issued
also
may
provide
for
rights,
preferences
or
privileges
senior
to
those
of
holders
of
our
common
stock.
The
terms
of
debt
securities
issued
or
borrowings,
if
available,
could
impose
significant
restrictions
on
our
operations.
The
incurrence
of
additional
indebtedness
or
the
issuance
of
certain
equity
securities
could
result
in
increased
fixed
payment
obligations
and
could
also
result
in
restrictive
covenants,
such
as
limitations
on
our
ability
to
incur
additional
debt
or
issue
additional
equity,
limitations
on
our
ability
to
acquire
or
license
intellectual
property
rights,
and
other
operating
restrictions
that
could
adversely
affect
our
ability
to
conduct
our
business.
In
addition,
the
issuance
of
additional
equity
securities
by
us,
or
the
possibility
of
such
issuance,
may
cause
the
market
price
of
our
common
stock
to
decline.
In
the
event
that
we
enter
into
collaborations
or
licensing
arrangements
to
raise
capital,
we
may
be
required
to
accept
unfavorable
terms.
These
agreements
may
require
that
we
relinquish
or
license
to
a
third
party
on
unfavorable
terms
our
rights
to
tests
we
otherwise
would
seek
to
develop
or
commercialize
ourselves,
or
reserve
certain
opportunities
for
future
potential
arrangements
when
we
might
be
able
to
achieve
more
favorable
terms.
If
we
are
not
able
to
secure
additional
funding
when
needed,
we
may
have
to
delay,
reduce
the
scope
of
or
eliminate
one
or

Table
of
Contents

more
research
and
development
programs
or
selling
and
marketing
initiatives.
In
addition,
we
may
have
to
work
with
a
partner
on
one
or
more
aspects
of
our
tests
or
market
development
programs,
which
could
lower
the
economic
value
of
those
tests
or
programs
to
our
company.

We rely on highly skilled personnel in a broad array of disciplines and, if we are unable to hire, retain or motivate these individuals, or maintain our corporate
culture, we may not be able to maintain the quality of our services or grow effectively.

Our
performance,
including
our
research
and
development
programs
and
laboratory
operations,
largely
depend
on
our
continuing
ability
to
identify,
hire,
develop,
motivate,
and
retain
highly
skilled
personnel
for
all
areas
of
our
organization,
including
scientists,
biostatisticians
and
technicians.
Competition
in
our
industry
for
qualified
employees
is
intense,
and
we
may
not
be
able
to
attract
or
retain
qualified
personnel
in
the
future,
including
scientists,
biostatisticians
and
technicians,
due
to
the
competition
for
qualified
personnel
among
life
science
businesses
as
well
as
universities
and
public
and
private
research
institutions,
particularly
in
the
San
Francisco
Bay
Area.
In
addition,
our
compensation
arrangements,
such
as
our
equity
award
programs,
may
not
always
be
successful
in
attracting
new
employees
and
retaining
and
motivating
our
existing
employees.
If
we
are
not
able
to
attract
and
retain
the
necessary
personnel
to
accomplish
our
business
objectives,
we
may
experience
constraints
that
could
adversely
affect
our
ability
to
scale
our
business,
support
our
research
and
development
efforts
and
our
clinical
laboratory.
We
believe
that
our
corporate
culture
fosters
innovation,
creativity
and
teamwork.
However,
as
our
organization
grows,
we
may
find
it
increasingly
difficult
to
maintain
the
beneficial
aspects
of
our
corporate
culture.
This
could
negatively
impact
our
ability
to
retain
and
attract
employees
and
our
future
success.

If we are not able to generate substantial demand of our tests, our commercial success will be negatively affected.

Our
business
model
assumes
that
we
will
be
able
to
generate
significant
test
volume,
and
we
may
not
succeed
in
driving
clinical
adoption
of
our
test
to
achieve
sufficient
volumes.
Inasmuch
as
detailed
genetic
data
from
broad-based
testing
panels
such
as
our
tests
have
only
recently
become
available
at
relatively
affordable
prices,
the
pace
and
degree
of
clinical
acceptance
of
the
utility
of
such
testing
is
uncertain.
Specifically,
it
is
uncertain
how
much
genetic
data
will
be
accepted
as
necessary
or
useful,
as
well
as
how
detailed
that
data
should
be,
particularly
since
medical
practitioners
may
have
become
accustomed
to
genetic
testing
that
is
specific
to
one
or
a
few
genes.
Given
the
substantial
amount
of
additional
information
available
from
a
broad-based
testing
panel
such
as
ours,
there
may
be
distrust
as
to
the
reliability
of
such
information
when
compared
with
more
limited
and
focused
genetic
tests.
To
generate
demand
for
our
tests,
we
will
need
to
continue
to
make
clinicians
aware
of
the
benefits
of
our
tests,
including
the
price,
the
breadth
of
our
testing
options,
and
the
benefits
of
having
additional
genetic
data
available
from
which
to
make
treatment
decisions.
Because
broad-based
testing
panels
are
relatively
new,
it
may
be
more
difficult
or
take
more
time
for
us
to
expand
clinical
adoption
of
our
assay
beyond
a
relatively
small
number
of
early
adopters.
In
addition,
clinicians
in
other
areas
of
medicine
may
not
adopt
genetic
testing
for
hereditary
disease
as
readily
as
it
has
been
adopted
in
hereditary
cancer
and
our
efforts
to
sell
our
tests
to
clinicians
outside
of
oncology
may
not
be
successful.
A
lack
of
or
delay
in
clinical
acceptance
of
broad-based
panels
such
as
our
tests
would
negatively
impact
sales
and
market
acceptance
of
our
tests
and
limit
our
revenue
growth
and
potential
profitability.
Genetic
testing
is
expensive
and
many
potential
customers
may
be
sensitive
to
pricing.
In
addition,
potential
customers
may
not
adopt
our
tests
if
adequate
reimbursement
is
not
available,
or
if
we
are
not
able
to
maintain
low
prices
relative
to
our
competitors.
If
we
are
not
able
to
generate
demand
for
our
tests
at
sufficient
volume,
or
if
it
takes
significantly
more
time
to
generate
this
demand
than
we
anticipate,
our
business,
prospects,
financial
condition
and
results
of
operations
could
be
materially
harmed.

Table
of
Contents

Our success will depend on our ability to use rapidly changing genetic data to interpret test results accurately and consistently, and our failure to do so would
have an adverse effect on our operating results and business, harm our reputation and could result in substantial liabilities that exceed our resources.

Our
success
depends
on
our
ability
to
provide
reliable,
high-quality
tests
that
incorporate
rapidly
evolving
information
about
the
role
of
genes
and
gene
variants
in
disease
and
clinically
relevant
outcomes
associated
with
those
variants.
Errors,
including
if
our
tests
fail
to
detect
genomic
variants
with
high
accuracy,
or
mistakes,
including
if
we
fail
to
or
incompletely
or
incorrectly
identify
the
significance
of
gene
variants,
could
have
a
significant
adverse
impact
on
our
business.
Hundreds
of
genes
can
be
implicated
in
some
disorders,
and
overlapping
networks
of
genes
and
symptoms
can
be
implicated
in
multiple
conditions.
As
a
result,
a
substantial
amount
of
judgment
is
required
in
order
to
interpret
testing
results
for
an
individual
patient
and
to
develop
an
appropriate
patient
report.
We
classify
variants
in
accordance
with
published
guidelines
as
benign,
likely
benign,
variants
of
uncertain
significance,
likely
pathogenic
or
pathogenic,
and
these
guidelines
are
subject
to
change.
In
addition,
it
is
our
practice
to
offer
support
to
clinicians
and
geneticists
ordering
our
tests
around
which
genes
or
panels
to
order
as
well
as
interpretation
of
genetic
variants.
We
also
rely
on
clinicians
to
interpret
what
we
report
and
to
incorporate
specific
information
about
an
individual
patient
into
the
physician's
treatment
decision.

The
marketing,
sale
and
use
of
our
genetic
tests
could
subject
us
to
liability
for
errors
in,
misunderstandings
of,
or
inappropriate
reliance
on,
information
we
provide
to
clinicians
or
geneticists,
and
lead
to
claims
against
us
if
someone
were
to
allege
that
our
test
failed
to
perform
as
it
was
designed,
if
we
failed
to
correctly
interpret
the
test
results,
or
if
the
ordering
physician
were
to
misinterpret
test
results
or
improperly
rely
on
them
when
making
a
clinical
decision.
A
product
liability
or
professional
liability
claim
could
result
in
substantial
damages
and
be
costly
and
time-consuming
for
us
to
defend.
Although
we
maintain
liability
insurance,
including
for
errors
and
omissions,
we
cannot
assure
you
that
our
insurance
would
fully
protect
us
from
the
financial
impact
of
defending
against
these
types
of
claims
or
any
judgments,
fines
or
settlement
costs
arising
out
of
any
such
claims.
Any
liability
claim,
including
an
errors
and
omissions
liability
claim,
brought
against
us,
with
or
without
merit,
could
increase
our
insurance
rates
or
prevent
us
from
securing
insurance
coverage
in
the
future.
Additionally,
any
liability
lawsuit
could
cause
injury
to
our
reputation
or
cause
us
to
suspend
sales
of
our
tests.
The
occurrence
of
any
of
these
events
could
have
an
adverse
effect
on
our
business,
reputation
and
results
of
operations.

Our industry is subject to rapidly changing technology and new and increasing amounts of scientific data related to genes and genetic variants and their role
in disease. Our failure to develop tests to keep pace with these changes could make us obsolete.

In
recent
years,
there
have
been
numerous
advances
in
methods
used
to
analyze
very
large
amounts
of
genomic
information
and
the
role
of
genetics
and
gene
variants
in
disease
and
treatment
therapies.
Our
industry
has
and
will
continue
to
be
characterized
by
rapid
technological
change,
increasingly
larger
amounts
of
data,
frequent
new
testing
service
introductions
and
evolving
industry
standards,
all
of
which
could
make
our
tests
obsolete.
Our
future
success
will
also
depend
on
our
ability
to
keep
pace
with
the
evolving
needs
of
our
customers
on
a
timely
and
cost-effective
basis
and
to
pursue
new
market
opportunities
that
develop
as
a
result
of
technological
and
scientific
advances.
Our
tests
could
become
obsolete
unless
we
continually
update
our
offerings
to
reflect
new
scientific
knowledge
about
genes
and
genetic
variations
and
their
role
in
diseases
and
treatment
therapies.

Table
of
Contents

Security breaches, loss of data and other disruptions could compromise sensitive information related to our business or prevent us from accessing critical
information and expose us to liability, which could adversely affect our business and our reputation.

In
the
ordinary
course
of
our
business,
we
and
our
third-party
billing
and
collections
provider
collect
and
store
sensitive
data,
including
legally
protected
health
information,
personally
identifiable
information,
intellectual
property
and
proprietary
business
information
owned
or
controlled
by
ourselves
or
our
customers,
payers,
and
other
parties.
We
manage
and
maintain
our
applications
and
data
utilizing
a
combination
of
on-site
systems,
managed
data
center
systems,
and
cloud-based
data
center
systems.
We
also
communicate
sensitive
patient
data
through
our
Invitae
Family
History
Tool.
These
applications
and
data
encompass
a
wide
variety
of
business-critical
information
including
research
and
development
information,
commercial
information,
and
business
and
financial
information.
We
face
a
number
of
risks
relative
to
protecting
this
critical
information,
including
loss
of
access
risk,
inappropriate
disclosure,
inappropriate
modification,
and
the
risk
of
our
being
unable
to
adequately
monitor
and
modify
our
controls
over
our
critical
information.

The
secure
processing,
storage,
maintenance
and
transmission
of
this
critical
information
are
vital
to
our
operations
and
business
strategy,
and
we
devote
significant
resources
to
protecting
such
information.
Although
we
take
measures
to
protect
sensitive
information
from
unauthorized
access
or
disclosure,
our
information
technology
and
infrastructure,
and
that
of
our
third-party
billing
and
collections
provider,
may
be
vulnerable
to
attacks
by
hackers
or
viruses
or
breached
due
to
employee
error,
malfeasance,
or
other
disruptions.
Any
such
breach
or
interruption
could
compromise
our
networks
and
the
information
stored
there
could
be
accessed
by
unauthorized
parties,
publicly
disclosed,
lost,
or
stolen.
Any
such
access,
disclosure
or
other
loss
of
information
could
result
in
legal
claims
or
proceedings,
liability
under
federal
or
state
laws
that
protect
the
privacy
of
personal
information,
such
as
the
Health
Insurance
Portability
and
Accountability
Act
of
1996,
or
HIPAA,
the
Health
Information
Technology
for
Economic
and
Clinical
Heath
Act,
or
HITECH,
and
regulatory
penalties.
Although
we
have
implemented
security
measures
and
a
formal,
dedicated
enterprise
security
program
to
prevent
unauthorized
access
to
patient
data,
our
Invitae
Family
History
Tool
is
currently
accessible
through
our
online
portal
and
through
our
mobile
applications,
and
there
is
no
guarantee
we
can
protect
our
online
portal
or
our
mobile
applications
from
breach.
Unauthorized
access,
loss
or
dissemination
could
also
disrupt
our
operations
(including
our
ability
to
conduct
our
analyses,
provide
test
results,
bill
payers
or
patients,
process
claims
and
appeals,
provide
customer
assistance,
conduct
research
and
development
activities,
collect,
process,
and
prepare
company
financial
information,
provide
information
about
our
tests
and
other
patient
and
physician
education
and
outreach
efforts
through
our
website,
and
manage
the
administrative
aspects
of
our
business)
and
damage
our
reputation,
any
of
which
could
adversely
affect
our
business.

Penalties
for
failure
to
comply
with
a
requirement
of
HIPAA
and
HITECH
vary
significantly,
and
include
civil
monetary
penalties
of
up
to
$1.5
million
per
calendar
year
for
each
provision
of
HIPAA
that
is
violated.
A
person
who
knowingly
obtains
or
discloses
individually
identifiable
health
information
in
violation
of
HIPAA
may
face
a
criminal
penalty
of
up
to
$50,000
and
up
to
one-year
imprisonment.
The
criminal
penalties
increase
if
the
wrongful
conduct
involves
false
pretenses
or
the
intent
to
sell,
transfer,
or
use
identifiable
health
information
for
commercial
advantage,
personal
gain,
or
malicious
harm.

In
addition,
the
interpretation
and
application
of
consumer,
health-related,
and
data
protection
laws
in
the
United
States,
Europe
and
elsewhere
are
often
uncertain,
contradictory,
and
in
flux.
In
addition,
in
October
2015,
the
European
Court
of
Justice
invalidated
a
safe
harbor
agreement
between
the
United
States
and
European
Union
member
states
which
addressed
how
many
U.S.
companies
handle
personal
information
of
their
European
customers.
In
October
2015,
the
Court
of
Justice
of
the
European
Union
declared
the
Safe
Harbor
invalid.
In
February
2016,
the
European
Commission
announced
an
agreement
with
the
U.
S.
Department
of
Commerce
to
replace
the
invalidated
Safe

Table
of
Contents

Harbor
agreement
on
transatlantic
data
flows
with
a
new
E.U.-U.S.
"Privacy
Shield."
Nevertheless,
legal
uncertainty
remains
concerning
E.U.-to-U.S.
data
transfers.
The
Privacy
Shield
will
not
be
effective
until
it
is
approved
by
the
E.U.'s
28
member
states.
Laws
governing
data
privacy
and
security
are
constantly
evolving.
In
addition,
it
is
possible
that
laws
may
be
interpreted
and
applied
in
a
manner
that
is
inconsistent
with
our
practices.
If
so,
this
could
result
in
government-imposed
fines
or
orders
requiring
that
we
change
our
practices,
which
could
adversely
affect
our
business.
In
addition,
these
privacy
regulations
may
differ
from
country
to
country,
and
may
vary
based
on
whether
testing
is
performed
in
the
United
States
or
in
the
local
country.
Complying
with
these
various
laws
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.
We
can
provide
no
assurance
that
we
are
or
will
remain
in
compliance
with
diverse
privacy
and
security
requirements
in
all
of
the
jurisdictions
in
which
we
do
business.
Failure
to
comply
with
privacy
and
security
requirements
could
result
in
civil
or
criminal
penalties,
which
could
have
a
material
adverse
effect
on
our
business.

We have limited experience in marketing and selling our tests, and our success will depend in part on our ability to generate sales using a relatively small
internal sales team and through alternative marketing strategies.

We
have
limited
experience
marketing
and
selling
our
tests,
which
we
began
selling
in
late
2013.
We
may
not
be
able
to
market
or
sell
our
current
tests
and
any
future
tests
we
may
develop
effectively
enough
to
drive
demand
sufficient
to
support
our
planned
growth.
We
currently
sell
our
tests
in
the
United
States
through
a
relatively
small
internal
sales
force
and
outside
the
United
States
with
the
assistance
of
distributors.
Historically,
our
sales
efforts
have
been
focused
primarily
on
hereditary
cancer
and
our
efforts
to
sell
our
tests
to
clinicians
outside
of
oncology
may
not
be
successful,
or
may
be
difficult
to
do
successfully
without
significant
additional
selling
and
marketing
efforts
and
expense.
As
part
of
our
strategy
to
reduce
the
cost
of
genetic
testing,
we
will
need
to
maintain
our
selling
and
marketing
expenses
at
levels
that
are
lower
than
many
of
our
competitors
through
the
use
of
focused
sales
efforts.
Our
future
sales
will
depend
in
large
part
on
our
ability
to
develop
and
substantially
expand
awareness
of
our
company
and
our
tests
through
alternative
strategies
including
through
education
of
key
opinion
leaders,
through
social
media-related
and
online
outreach,
education
and
marketing
efforts,
and
through
focused
channel
partner
strategies
designed
to
drive
demand
for
our
tests.
We
have
limited
experience
implementing
these
types
of
alternative
marketing
efforts.
We
may
not
be
able
to
drive
sufficient
levels
of
revenue
using
these
sales
and
marketing
methods
and
strategies
necessary
to
support
our
planned
growth,
and
our
failure
to
do
so
could
limit
our
revenue
and
potential
profitability.

Outside
the
United
States
we
use
and
intend
to
continue
to
use
distributors
to
assist
with
sales,
logistics,
education,
and
customer
support.
Identifying,
qualifying,
and
engaging
distributors
with
local
industry
experience
and
knowledge
will
be
necessary
to
effectively
market
and
sell
our
tests
outside
the
United
States.
We
may
not
be
successful
in
finding,
attracting
and
retaining
additional
distributors,
or
we
may
not
be
able
to
enter
into
additional
distribution
arrangements
on
favorable
terms.
Sales
practices
utilized
by
our
distributors
that
are
locally
acceptable
may
not
comply
with
sales
practices
standards
required
under
U.S.
laws
that
apply
to
us,
which
could
create
additional
compliance
risk.
If
our
sales
and
marketing
efforts
are
not
successful
outside
the
United
States,
we
may
not
achieve
significant
market
acceptance
for
our
tests
outside
the
United
States,
which
could
materially
and
adversely
impact
our
business
operations.

We rely on a limited number of suppliers or, in some cases, sole suppliers, for some of our laboratory instruments and materials, and we may not be able to
find replacements or immediately transition to alternative suppliers.

We
rely
on
a
limited
number
of
suppliers,
or,
in
some
cases,
sole
suppliers,
including
Agilent
Technologies,
Inc.,
Illumina,
Inc.,
Integrated
DNA
Technologies
Incorporated,
Qiagen
N.V.,
and
Roche

Table
of
Contents

Holdings
Ltd.
for
certain
laboratory
substances
used
in
the
chemical
reactions
incorporated
into
our
processes,
which
we
refer
to
as
reagents,
as
well
as
sequencers
and
other
equipment
and
materials
which
we
use
in
our
laboratory
operations.
We
do
not
have
any
short-
or
long-term
agreements
with
our
suppliers,
and
our
suppliers
could
cease
supplying
these
materials
and
equipment
at
any
time,
or
fail
to
provide
us
with
sufficient
quantities
of
materials
or
materials
that
meet
our
specifications.
Our
laboratory
operations
could
be
interrupted
if
we
encounter
delays
or
difficulties
in
securing
these
reagents,
sequencers
or
other
equipment
or
materials,
and
if
we
cannot
obtain
an
acceptable
substitute.
Any
such
interruption
could
significantly
affect
our
business,
financial
condition,
results
of
operations
and
reputation.
We
rely
on
Illumina
as
the
sole
supplier
of
next
generation
sequencers
and
associated
reagents
and
as
the
sole
provider
of
maintenance
and
repair
services
for
these
sequencers.
Any
disruption
in
Illumina's
operations
could
impact
our
supply
chain
and
laboratory
operations
as
well
as
our
ability
to
conduct
our
tests,
and
it
could
take
a
substantial
amount
of
time
to
integrate
replacement
equipment
into
our
laboratory
operations.

We
believe
that
there
are
only
a
few
other
manufacturers
that
are
currently
capable
of
supplying
and
servicing
the
equipment
necessary
for
our
laboratory
operations,
including
sequencers
and
various
associated
reagents.
The
use
of
equipment
or
materials
provided
by
these
replacement
suppliers
would
require
us
to
alter
our
laboratory
operations.
Transitioning
to
a
new
supplier
would
be
time
consuming
and
expensive,
may
result
in
interruptions
in
our
laboratory
operations,
could
affect
the
performance
specifications
of
our
laboratory
operations
or
could
require
that
we
revalidate
our
tests.
We
cannot
assure
you
that
we
will
be
able
to
secure
alternative
equipment,
reagents
and
other
materials,
and
bring
such
equipment,
reagents
and
materials
on
line
and
revalidate
them
without
experiencing
interruptions
in
our
workflow.
In
the
case
of
an
alternative
supplier
for
Illumina,
we
cannot
assure
you
that
replacement
sequencers
and
associated
reagents
will
be
available
or
will
meet
our
quality
control
and
performance
requirements
for
our
laboratory
operations.
If
we
encounter
delays
or
difficulties
in
securing,
reconfiguring
or
revalidating
the
equipment
and
reagents
we
require
for
our
tests,
our
business,
financial
condition,
results
of
operations
and
reputation
could
be
adversely
affected.

If our laboratory in San Francisco becomes inoperable due to an earthquake or for any other reason, we will be unable to perform our tests and our business
will be harmed.

We
perform
all
of
our
tests
at
our
laboratory
in
San
Francisco,
California.
We
plan
to
move
into
a
new
laboratory
and
headquarters
facility
in
2016,
also
located
in
San
Francisco.
Our
laboratory
and
the
equipment
we
use
to
perform
our
tests
would
be
costly
to
replace
and
could
require
substantial
lead
time
to
replace
and
qualify
for
use.
Our
laboratory
may
be
harmed
or
rendered
inoperable
by
natural
or
man-made
disasters,
including
earthquakes,
flooding,
fire
and
power
outages,
which
may
render
it
difficult
or
impossible
for
us
to
perform
our
tests
for
some
period
of
time.
The
inability
to
perform
our
tests
or
the
backlog
that
could
develop
if
our
laboratory
is
inoperable
for
even
a
short
period
of
time
may
result
in
the
loss
of
customers
or
harm
our
reputation.
Although
we
maintain
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.

The loss of any member of our senior management team could adversely affect our business.

Our
success
depends
in
large
part
upon
the
skills,
experience
and
performance
of
members
of
our
executive
management
team
and
others
in
key
leadership
positions.
The
efforts
of
these
persons
will
be
critical
to
us
as
we
continue
to
develop
our
technologies
and
test
processes
and
focus
on
scaling
our
business.
If
we
were
to
lose
one
or
more
key
executives,
we
may
experience
difficulties
in
competing
effectively,
developing
our
technologies
and
implementing
our
business
strategy.
All
of
our
executives
and
employees
are
at-will,
which
means
that
either
we
or
the
executive
or
employee
may
terminate
their
employment
at
any
time.
We
do
not
carry
key
man
insurance
for
any
of
our
executives
or
employees.
In
addition,
we
do
not
have
a
long-term
retention
agreement
or
long-term
equity
incentives
in
place
with
our
chief
executive
officer.

Table
of
Contents

Development of new tests is a complex process, and we may be unable to commercialize new tests on a timely basis, or at all.

We
cannot
assure
you
that
we
will
be
able
to
develop
and
commercialize
new
tests
on
a
timely
basis.
Before
we
can
commercialize
any
new
tests,
we
will
need
to
expend
significant
funds
in
order
to:

•

conduct
research
and
development;

further
develop
and
scale
our
laboratory
processes;
and

further
develop
and
scale
our
infrastructure
to
be
able
to
analyze
increasingly
larger
and
more
diverse
amounts
of
data.

Our
testing
service
development
process
involves
risk,
and
development
efforts
may
fail
for
many
reasons,
including:

•

failure
of
any
test
to
perform
as
expected;

lack
of
validation
or
reference
data;
or

failure
to
demonstrate
utility
of
a
test.

As
we
develop
tests,
we
will
have
to
make
significant
investments
in
development,
marketing
and
selling
resources.
In
addition,
competitors
may
develop
and
commercialize
competing
tests
faster
than
we
are
able
to
do
so.

We may acquire businesses or assets, form joint ventures or make investments in other companies or technologies that could harm our operating results, dilute
our stockholders' ownership, or cause us to incur debt or significant expense.

As
part
of
our
business
strategy,
we
may
pursue
acquisitions
of
complementary
businesses
or
assets,
as
well
as
technology
licensing
arrangements.
We
also
may
pursue
strategic
alliances
that
leverage
our
core
technology
and
industry
experience
to
expand
our
offerings
or
distribution,
or
make
investments
in
other
companies.
As
an
organization,
we
have
limited
experience
with
respect
to
acquisitions
as
well
as
the
formation
of
strategic
alliances
and
joint
ventures.
If
we
make
any
acquisitions
in
the
future,
we
may
not
be
able
to
integrate
these
acquisitions
successfully
into
our
existing
business,
and
we
could
assume
unknown
or
contingent
liabilities.
Any
future
acquisitions
by
us
also
could
result
in
significant
write-offs
or
the
incurrence
of
debt
and
contingent
liabilities,
any
of
which
could
harm
our
operating
results.
Integration
of
an
acquired
company
or
business
also
may
require
management
resources
that
otherwise
would
be
available
for
ongoing
development
of
our
existing
business.
We
may
not
identify
or
complete
these
transactions
in
a
timely
manner,
on
a
cost-effective
basis,
or
at
all,
and
we
may
not
realize
the
anticipated
benefits
of
any
acquisition,
technology
license,
strategic
alliance,
joint
venture
or
investment.

To
finance
any
acquisitions
or
investments,
we
may
choose
to
raise
additional
funds.
If
we
raise
funds
by
issuing
equity
securities,
dilution
to
our
stockholders
could
result.
Any
equity
securities
issued
also
may
provide
for
rights,
preferences
or
privileges
senior
to
those
of
holders
of
our
common
stock.
If
we
raise
funds
by
issuing
debt
securities,
these
debt
securities
would
have
rights,
preferences
and
privileges
senior
to
those
of
holders
of
our
common
stock.
The
terms
of
debt
securities
issued
or
borrowings
could
impose
significant
restrictions
on
our
operations.
If
we
raise
funds
through
collaborations
and
licensing
arrangements,
we
might
be
required
to
relinquish
significant
rights
to
our
technologies
or
products,
or
grant
licenses
on
terms
that
are
not
favorable
to
us.
Once
we
become
a
public
company,
if
the
price
of
our
common
stock
is
low
or
volatile,
we
may
not
be
able
to
acquire
other
companies
for
stock.
Alternatively,
it
may
be
necessary
for
us
to
raise
additional
funds
for
these
activities
through
public
or
private
financings.
Additional
funds
may
not
be
available
on
terms
that
are
favorable
to
us,
or
at
all.

Table
of
Contents

We depend on our information technology systems, and any failure of these systems could harm our business.

We
depend
on
information
technology
and
telecommunications
systems
for
significant
elements
of
our
operations,
including
our
laboratory
information
management
system,
our
bioinformatics
analytical
software
systems,
our
database
of
information
relating
to
genetic
variations
and
their
role
in
disease
process
and
drug
metabolism,
our
clinical
report
optimization
systems,
our
customer-
facing
web-based
software,
our
customer
reporting,
and
our
family
history
and
risk
assessment
tools.
We
have
installed,
and
expect
to
expand,
a
number
of
enterprise
software
systems
that
affect
a
broad
range
of
business
processes
and
functional
areas,
including
for
example,
systems
handling
human
resources,
financial
controls
and
reporting,
customer
relationship
management,
regulatory
compliance,
and
other
infrastructure
operations.
In
addition,
we
intend
to
extend
the
capabilities
of
both
our
preventative
and
detective
security
controls
by
augmenting
the
monitoring
and
alerting
functions,
the
network
design,
and
the
automatic
countermeasure
operations
of
our
technical
systems.
These
information
technology
and
telecommunications
systems
support
a
variety
of
functions,
including
laboratory
operations,
test
validation,
sample
tracking,
quality
control,
customer
service
support,
billing
and
reimbursement,
research
and
development
activities,
scientific
and
medical
curation,
and
general
administrative
activities.
In
addition,
our
third-party
billing
and
collections
provider
depends
upon
technology
and
telecommunications
systems
provided
by
outside
vendors.

Information
technology
and
telecommunications
systems
are
vulnerable
to
damage
from
a
variety
of
sources,
including
telecommunications
or
network
failures,
malicious
human
acts
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.
Despite
the
precautionary
measures
we
have
taken
to
prevent
unanticipated
problems
that
could
affect
our
information
technology
and
telecommunications
systems,
failures
or
significant
downtime
of
our
information
technology
or
telecommunications
systems
or
those
used
by
our
third-party
service
providers
could
prevent
us
from
conducting
tests,
preparing
and
providing
reports
to
clinicians,
billing
payers,
processing
reimbursement
appeals,
handling
physician
or
patient
inquiries,
conducting
research
and
development
activities,
and
managing
the
administrative
aspects
of
our
business.
Any
disruption
or
loss
of
information
technology
or
telecommunications
systems
on
which
critical
aspects
of
our
operations
depend
could
have
an
adverse
effect
on
our
business.

International expansion of our business exposes us to business, regulatory, political, operational, financial, and economic risks associated with doing business
outside of the United States.

We
currently
have
distribution
arrangements
in
several
countries,
and
our
business
strategy
contemplates
significant
international
expansion.
We
plan
to
enter
into
additional
distribution
relationships
to
conduct
physician
outreach
activities
and
to
develop
and
expand
payer
relationships
outside
of
the
United
States.
Doing
business
internationally
involves
a
number
of
risks,
including:

•

multiple,
conflicting
and
changing
laws
and
regulations
such
as
privacy
regulations,
tax
laws,
export
and
import
restrictions,
employment
laws,
regulatory
requirements,
and
other
governmental
approvals,
permits
and
licenses;

failure
by
us
or
our
distributors
to
obtain
regulatory
approvals
for
the
use
of
our
tests
in
various
countries;

complexities
and
difficulties
in
obtaining
protection
and
enforcing
our
intellectual
property;

difficulties
in
staffing
and
managing
foreign
operations;

complexities
associated
with
managing
multiple
payer
reimbursement
regimes,
government
payers,
or
patient
self-pay
systems;

logistics
and
regulations
associated
with
shipping
blood
samples,
including
infrastructure
conditions
and
transportation
delays;

Table
of
Contents

•

limits
on
our
ability
to
penetrate
international
markets
if
we
do
not
to
conduct
our
tests
locally;

financial
risks,
such
as
longer
payment
cycles,
difficulty
collecting
accounts
receivable,
the
impact
of
local
and
regional
financial
conditions
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;
and

regulatory
and
compliance
risks
that
relate
to
maintaining
accurate
information
and
control
over
activities
that
may
fall
within
the
purview
of
the
U.S.
Foreign
Corrupt
Practices
Act,
or
FCPA,
its
books
and
records
provisions,
or
its
anti-bribery
provisions.

Any
of
these
factors
could
significantly
harm
our
future
international
expansion
and
operations
and,
consequently,
our
revenue
and
results
of
operations.

In
addition,
applicable
export
or
import
laws
and
regulations
such
as
prohibitions
on
the
export
of
blood
imposed
by
countries
outside
of
the
United
States,
or
international
privacy
or
data
restrictions
that
are
different
or
more
stringent
than
those
of
the
United
States,
may
require
that
we
build
additional
laboratories
or
engage
in
joint
ventures
or
other
business
partnerships
in
order
to
offer
our
tests
internationally
in
the
future.
Any
such
restrictions
would
impair
our
ability
to
offer
our
tests
in
such
countries
and
could
have
an
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.

Ethical, legal and social concerns related to the use of genetic information could reduce demand for our tests.

Genetic
testing
has
raised
ethical,
legal,
and
social
issues
regarding
privacy
and
the
appropriate
uses
of
the
resulting
information.
Governmental
authorities
could,
for
social
or
other
purposes,
limit
or
regulate
the
use
of
genetic
information
or
genetic
testing
or
prohibit
testing
for
genetic
predisposition
to
certain
conditions,
particularly
for
those
that
have
no
known
cure.
Similarly,
these
concerns
may
lead
patients
to
refuse
to
use,
or
clinicians
to
be
reluctant
to
order,
genomic
tests
even
if
permissible.
These
and
other
ethical,
legal
and
social
concerns
may
limit
market
acceptance
of
our
tests
or
reduce
the
potential
markets
for
our
tests,
either
of
which
could
have
an
adverse
effect
on
our
business,
financial
condition,
or
results
of
operations.

Risks
related
to
government
regulation

If the FDA regulates our tests as medical devices, we could incur substantial costs and our business, financial condition, and results of operations could be
adversely affected.

We
provide
our
tests
as
laboratory-developed
tests,
or
LDTs.
The
Centers
for
Medicare
and
Medicaid
Services,
or
CMS,
and
certain
state
agencies
regulate
the
performance
of
LDTs
(as
authorized
by
the
Clinical
Laboratory
Improvement
Amendments
of
1988,
or
CLIA,
and
state
law,
respectively).

Historically,
the
U.S.
Food
and
Drug
Administration,
or
FDA,
has
exercised
enforcement
discretion
with
respect
to
most
LDTs
and
has
not
required
laboratories
that
furnish
LDTs
to
comply
with
the
agency's
requirements
for
medical
devices
(e.g.,
establishment
registration,
device
listing,
quality
systems
regulations,
premarket
clearance
or
premarket
approval,
and
post-
market
controls).
In
recent
years,
however,
the
FDA
has
stated
it
intends
to
end
its
policy
of
general
enforcement
discretion
and
regulate
certain
LDTs
as
medical
devices.
To
this
end,
on
October
3,
2014,
the
FDA
issued
two
draft
guidance
documents,
entitled
"Framework
for
Regulatory
Oversight
of
Laboratory
Developed
Tests
(LDTs)"
and
"FDA
Notification
and
Medical
Device
Reporting
for
Laboratory
Developed
Tests
(LDTs)",
respectively,
that
set
forth
a
proposed
risk-based
regulatory
framework
that
would
apply
varying
levels
of
FDA
oversight
to
LDTs.
The
FDA
has
indicated
that
it
does
not
intend
to
modify
its
policy
of
enforcement
discretion
until
the
draft
guidance
documents
are
finalized.
It
is
unclear
at
this

Table
of
Contents

time
when,
or
if,
the
draft
guidance
documents
will
be
finalized,
and
even
then,
the
new
regulatory
requirements
are
proposed
to
be
phased-in
consistent
with
the
schedule
set
forth
in
the
guidance
(in
as
little
as
12
months
after
the
draft
guidance
is
finalized
for
certain
high-priority
LDTs).
Nevertheless,
the
FDA
may
decide
to
regulate
certain
LDTs
on
a
case-by-case
basis
at
any
time.

If we fail to comply with federal, state and foreign laboratory licensing requirements, we could lose the ability to perform our tests or experience disruptions to
our business.

We
are
subject
to
CLIA,
a
federal
law
that
regulates
clinical
laboratories
that
perform
testing
on
specimens
derived
from
humans
for
the
purpose
of
providing
information
for
the
diagnosis,
prevention,
or
treatment
of
disease.
CLIA
regulations
establish
specific
standards
with
respect
to
personnel
qualifications,
facility
administration,
proficiency
testing,
quality
control,
quality
assurance,
and
inspections.
CLIA
certification
is
also
required
in
order
for
us
to
be
eligible
to
bill
state
and
federal
healthcare
programs,
as
well
as
many
private
third-party
payers,
for
our
tests.
We
have
current
CLIA
certification
to
conduct
our
tests
at
our
laboratory
in
San
Francisco.
To
renew
this
certification,
we
are
subject
to
survey
and
inspection
every
two
years.
Moreover,
CLIA
inspectors
may
make
random
inspections
of
our
clinical
reference
laboratory.

We
are
also
required
to
maintain
a
license
to
conduct
testing
in
California.
California
laws
establish
standards
for
day-to-day
operation
of
our
clinical
reference
laboratory
in
San
Francisco,
including
the
training
and
skills
required
of
personnel
and
quality
control.
We
also
maintain
out-of-state
laboratory
licenses
to
conduct
testing
on
specimens
from
Florida,
Maryland,
New
York,
Pennsylvania
and
Rhode
Island.
In
addition
to
having
a
laboratory
license
in
New
York,
our
clinical
reference
laboratories
are
required
to
be
approved
on
a
test-
specific
basis
by
the
New
York
State
Department
of
Health,
or
NYDOH,
before
the
specific
tests
are
performed
on
specimens
from
New
York.
Because
our
genomic
sequencing
panels
are
not
approved
by
New
York,
we
are
currently

Table
of
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prohibited
from
performing
these
tests
on
samples
from
New
York.
Other
states
may
adopt
similar
licensure
requirements
in
the
future,
which
may
require
us
to
modify,
delay
or
stop
our
operations
in
such
jurisdictions.
We
may
also
be
subject
to
regulation
in
foreign
jurisdictions
as
we
seek
to
expand
international
utilization
of
our
tests
or
such
jurisdictions
adopt
new
licensure
requirements,
which
may
require
review
of
our
tests
in
order
to
offer
them
or
may
have
other
limitations
such
as
restrictions
on
the
transport
of
human
blood
necessary
for
us
to
perform
our
tests
that
may
limit
our
ability
to
make
our
tests
available
outside
of
the
United
States.
Complying
with
licensure
requirements
in
new
jurisdictions
may
be
expensive,
time-consuming,
and
subject
us
to
significant
and
unanticipated
delays.

Failure
to
comply
with
applicable
clinical
laboratory
licensure
requirements
may
result
in
a
range
of
enforcement
actions,
including
license
suspension,
limitation,
or
revocation,
directed
plan
of
action,
onsite
monitoring,
civil
monetary
penalties,
criminal
sanctions,
and
cancellation
of
the
laboratory's
approval
to
receive
Medicare
and
Medicaid
payment
for
its
services,
as
well
as
significant
adverse
publicity.
Any
sanction
imposed
under
CLIA,
its
implementing
regulations,
or
state
or
foreign
laws
or
regulations
governing
clinical
laboratory
licensure,
or
our
failure
to
renew
our
CLIA
certificate,
a
state
or
foreign
license,
or
accreditation,
could
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.
Even
if
we
were
able
to
bring
our
laboratory
back
into
compliance,
we
could
incur
significant
expenses
and
potentially
lose
revenue
in
doing
so.

The
College
of
American
Pathologists,
or
CAP,
maintains
a
clinical
laboratory
accreditation
program.
CAP
asserts
that
its
program
is
"designed
to
go
well
beyond
regulatory
compliance"
and
helps
laboratories
achieve
the
highest
standards
of
excellence
to
positively
impact
patient
care.
While
not
required
to
operate
a
CLIA-certified
laboratory,
many
private
insurers
require
CAP
accreditation
as
a
condition
to
contracting
with
clinical
laboratories
to
cover
their
tests.
In
addition,
some
countries
outside
the
United
States
require
CAP
accreditation
as
a
condition
to
permitting
clinical
laboratories
to
test
samples
taken
from
their
citizens.
In
November
2014,
we
obtained
CAP
accreditation
for
our
San
Francisco
laboratory.
Failure
to
maintain
CAP
accreditation
could
have
a
material
adverse
effect
on
the
sales
of
our
tests
and
the
results
of
our
operations.

Complying with numerous statutes and regulations pertaining to our business is an expensive and time-consuming process, and any failure to comply could
result in substantial penalties.

Our
operations
are
subject
to
other
extensive
federal,
state,
local
and
foreign
laws
and
regulations,
all
of
which
are
subject
to
change.
These
laws
and
regulations
currently
include,
among
others:

•

HIPAA,
which
established
comprehensive
federal
standards
with
respect
to
the
privacy
and
security
of
protected
health
information
and
requirements
for
the
use
of
certain
standardized
electronic
transactions;

amendments
to
HIPAA
under
HITECH,
which
strengthen
and
expand
HIPAA
privacy
and
security
compliance
requirements,
increase
penalties
for
violators
and
expand
vicarious
liability,
extend
enforcement
authority
to
state
attorneys
general,
and
impose
requirements
for
breach
notification;

the
federal
Anti-Kickback
Statute,
which
prohibits
knowingly
and
willfully
offering,
paying,
soliciting,
or
receiving
remuneration,
directly
or
indirectly,
overtly
or
covertly,
in
cash
or
in
kind,
in
return
for
or
to
induce
such
person
to
refer
an
individual,
or
to
purchase,
lease,
order,
arrange
for,
or
recommend
purchasing,
leasing
or
ordering,
any
good,
facility,
item
or
service
that
is
reimbursable,
in
whole
or
in
part,
under
a
federal
healthcare
program;

the
federal
Stark
physician
self-referral
law,
which
prohibits
a
physician
from
making
a
referral
for
certain
designated
health
services
covered
by
the
Medicare
program,
including
laboratory
and
pathology
services,
if
the
physician
or
an
immediate
family
member
has
a
financial
relationship
with
the
entity
providing
the
designated
health
services,
and
prohibits
that
entity

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of
Contents

from
billing
or
presenting
a
claim
for
the
designated
health
services
furnished
pursuant
to
the
prohibited
referral,
unless
an
exception
applies;

the
federal
false
claims
laws,
which
impose
liability
on
any
person
or
entity
that,
among
other
things,
knowingly
presents,
or
causes
to
be
presented,
a
false
or
fraudulent
claim
for
payment
to
the
federal
government;

the
federal
Civil
Monetary
Penalties
Law,
which
prohibits,
among
other
things,
the
offering
or
transfer
of
remuneration
to
a
Medicare
or
state
healthcare
program
beneficiary
if
the
person
knows
or
should
know
it
is
likely
to
influence
the
beneficiary's
selection
of
a
particular
provider,
practitioner,
or
supplier
of
services
reimbursable
by
Medicare
or
a
state
healthcare
program,
unless
an
exception
applies;

the
HIPAA
fraud
and
abuse
provisions,
which
created
new
federal
criminal
statutes
that
prohibit,
among
other
things,
defrauding
healthcare
programs,
willfully
obstructing
a
criminal
investigation
of
a
healthcare
offense
and
falsifying
or
concealing
a
material
fact
or
making
any
materially
false
statements
in
connection
with
the
payment
for
healthcare
benefits,
items
or
services;

other
federal
and
state
fraud
and
abuse
laws,
such
as
anti-kickback
laws,
prohibitions
on
self-referral,
fee-splitting
restrictions,
insurance
fraud
laws,
anti-markup
laws,
prohibitions
on
the
provision
of
tests
at
no
or
discounted
cost
to
induce
physician
or
patient
adoption,
and
false
claims
acts,
which
may
extend
to
services
reimbursable
by
any
third-party
payer,
including
private
insurers;

the
prohibition
on
reassignment
of
Medicare
claims,
which,
subject
to
certain
exceptions,
precludes
the
reassignment
of
Medicare
claims
to
any
other
party;

state
laws
that
prohibit
other
specified
practices,
such
as
billing
clinicians
for
testing
that
they
order;
waiving
coinsurance,
copayments,
deductibles,
and
other
amounts
owed
by
patients;
billing
a
state
Medicaid
program
at
a
price
that
is
higher
than
what
is
charged
to
one
or
more
other
payers;
and

similar
foreign
laws
and
regulations
that
apply
to
us
in
the
countries
in
which
we
operate
or
may
operate
in
the
future.

•

We
have
adopted
policies
and
procedures
designed
to
comply
with
these
laws
and
regulations.
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
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
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
administrative,
civil
and
criminal
penalties,
damages,
fines,
individual
imprisonment,
exclusion
from
participation
in
Federal
healthcare
programs,
refunding
of
payments
received
by
us,
and
curtailment
or
cessation
of
our
operations.
Any
of
the
foregoing
consequences
could
seriously
harm
our
business
and
our
financial
results.

Healthcare policy changes, including recently enacted legislation reforming the U.S. healthcare system, may have a material adverse effect on our financial
condition, results of operations and cash flows.

In
March
2010,
the
Patient
Protection
and
Affordable
Care
Act,
as
amended
by
the
Health
Care
and
Education
Reconciliation
Act,
collectively
referred
to
as
the
Affordable
Care
Act,
was
enacted
in

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of
Contents

the
United
States,
which
made
a
number
of
substantial
changes
in
the
way
healthcare
is
financed
by
both
governmental
and
private
insurers.
Among
other
things,
the
Affordable
Care
Act:

•

requires
each
medical
device
manufacturer
to
pay
a
sales
tax
equal
to
2.3%
of
the
price
for
which
such
manufacturer
sells
its
medical
devices,
and
applied
to
sales
of
taxable
medical
devices
from
January
1,
2013
through
December
31,
2015.
The
medical
device
tax
has
been
suspended
for
2016
and
2017,
but
is
scheduled
to
return
beginning
in
2018.
It
is
unclear
at
this
time
when,
or
if,
the
provision
of
our
LDTs
will
trigger
the
medical
device
tax
if
the
FDA
ends
its
policy
of
general
enforcement
discretion
and
regulates
certain
LDTs
as
medical
devices.
It
is
possible,
however,
that
this
tax
will
apply
to
some
or
all
of
our
tests
or
tests
which
are
in
development.

establishes
an
Independent
Payment
Advisory
Board,
or
IPAB,
to
reduce
the
per
capita
rate
of
growth
in
Medicare
spending
if
expenditures
exceed
certain
targets.
At
this
point,
the
triggers
for
IPAB
proposals
have
not
been
met;
it
is
unclear
when
such
triggers
may
be
made
met
in
the
future
and
when
any
IPAB-proposed
reductions
to
payments
could
take
effect.

Many
of
the
Current
Procedure
Terminology,
or
CPT,
procedure
codes
that
we
use
to
bill
our
tests
were
revised
by
the
American
Medical
Association,
effective
January
1,
2013.
Moreover,
the
AMA
recently
released
new
codes
to
report
genomic
sequencing
procedures.
In
a
final
determination
under
the
Medicare
Clinical
Laboratory
Fee
Schedule,
or
CLFS,
published
in
November
2014,
CMS
set
the
2015
payment
rate
for
these
codes
by
the
gap-fill
process.
Under
the
gap-
fill
process,
local
Medicare
Administrative
Contractors,
or
MACs,
establish
rates
for
those
codes
that
each
MAC
believes
meet
the
criteria
for
Medicare
coverage
and
considering
laboratory
charges
and
discounts
to
charges,
resources,
amounts
paid
by
other
payers
for
the
tests,
and
amounts
paid
by
the
MAC
for
similar
tests.
In
2015,
gapfilled
payment
rates
were
established
for
some,
but
not
all,
of
the
above-described
codes.
For
those
codes
for
which
local
gap-filled
rate(s)
were
established
in
2015,
a
national
limitation
amount
for
Medicare
has
been
established
for
2016.
Codes
for
which
local
gap-filled
rates
were
not
established
in
2015
will
be
priced
by
the
local
MACs
in
2016
insofar
as
an
individual
MAC
determines
that
such
codes
should
be
covered.
Where
available,
the
national
limitation
amount
serves
as
a
cap
on
the
Medicare
and
Medicaid
payment
rates
for
a
test
procedure.
We
do
not
yet
know
how
our
tests
may
fit
under
these
new
codes,
but
if
we
are
required
to
report
our
tests
under
these
codes,
we
cannot
assure
you
that
Medicare
or
its
contractors
have
or
will
set
adequate
reimbursement
rates
for
these
new
codes.

In
April
2014,
Congress
passed
the
Protecting
Access
to
Medicare
Act
of
2014,
or
PAMA,
which
included
substantial
changes
to
the
way
in
which
clinical
laboratory
services
will
be
paid
under
Medicare.
Under
PAMA,
clinical
laboratories
must
report
to
Medicare
private
payer
rates
beginning
in
2016
and
every
three
years
thereafter
for
clinical
diagnostic
laboratory
tests
that
are
not
advanced
diagnostic
laboratory
tests
and
every
year
for
advanced
diagnostic
laboratory
tests.

We
do
not
believe
that
our
tests
meet
the
current
definition
of
advanced
diagnostic
laboratory
tests,
but
in
the
event
that
our
tests
are
determined
by
CMS
to
meet
these
criteria
or
new
criteria
developed
by
CMS,
we
would
be
required
to
report
private
payer
data
for
those
tests
annually.
Otherwise,
we
will
be
required
to
report
private
payer
rates
for
our
tests
on
an
every
three
years
basis.
Laboratories
that
fail
to
report
the
required
payment
information
may
be
subject
to
substantial
civil
money
penalties.
CMS
has
not
yet
issued
a
final
rule
implementing
the
reporting
and
rate-setting
requirements
under
PAMA.

As
set
forth
in
PAMA,
for
tests
furnished
on
or
after
January
1,
2017,
Medicare
payments
for
clinical
diagnostic
laboratory
tests
will
be
paid
based
upon
these
reported
private
payer
rates.
For
clinical
diagnostic
laboratory
tests
that
are
assigned
a
new
or
substantially
revised
code,
initial
payment
rates
for
clinical
diagnostic
laboratory
tests
that
are
not
advanced
diagnostic
laboratory
tests
will
be
assigned
by
the
cross-walk
or
gap-fill
methodology,
as
under
prior
law.
Initial
payment
rates
for
new
advanced
diagnostic
laboratory
tests
will
be
based
on
the
actual
list
charge
for
the
laboratory
test.
The

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impact
of
the
new
payment
system
on
rates
for
our
tests,
including
any
current
or
future
clinical
diagnostic
laboratory
tests
or
advanced
diagnostic
laboratory
tests
we
develop,
is
not
clear
at
this
time.

PAMA
also
authorized
the
adoption
of
new,
temporary
billing
codes
and/or
unique
test
identifiers
for
FDA-cleared
or
approved
tests
as
well
as
advanced
diagnostic
laboratory
tests.
The
CPT®
Editorial
Panel
approved
a
proposal
to
create
a
new
section
of
billing
codes
to
facilitate
implementation
of
this
section
of
PAMA,
but
it
is
unclear
whether
or
when
the
new
section
of
billing
codes
will
be
implemented,
and
it
is
unclear
how
these
codes
would
apply
to
our
tests.

We
cannot
predict
whether
future
healthcare
initiatives
will
be
implemented
at
the
federal
or
state
level,
or
how
any
future
legislation
or
regulation
may
affect
us.
For
instance,
the
payment
reductions
imposed
by
the
Affordable
Care
Act
and
the
expansion
of
the
federal
and
state
governments'
role
in
the
U.S.
healthcare
industry
as
well
as
changes
to
the
reimbursement
amounts
paid
by
payers
for
our
tests
and
future
tests
or
our
medical
procedure
volumes
may
reduce
our
profits
and
have
a
materially
adverse
effect
on
our
business,
financial
condition,
results
of
operations,
and
cash
flows.
Moreover,
Congress
has
proposed
on
several
occasions
to
impose
a
20%
coinsurance
on
patients
for
clinical
laboratory
tests
reimbursed
under
the
clinical
laboratory
fee
schedule,
which
would
increase
our
billing
and
collecting
costs
and
decrease
our
revenue.

If we use hazardous materials in a manner that causes injury, we could be liable for resulting damages.

Our
activities
currently
require
the
use
of
hazardous
chemicals
and
biological
material.
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.
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
on
an
ongoing
basis
to
federal,
state,
and
local
laws
and
regulations
governing
the
use,
storage,
handling
and
disposal
of
these
materials
and
specified
waste
products.
The
cost
of
compliance
with
these
laws
and
regulations
may
become
significant,
and
our
failure
to
comply
may
result
in
substantial
fines
or
other
consequences,
and
either
could
negatively
affect
our
operating
results.

We could be adversely affected by violations of the FCPA and other worldwide anti-bribery laws.

We
are
subject
to
the
FCPA,
which
prohibits
companies
and
their
intermediaries
from
making
payments
in
violation
of
law
to
non-U.S.
government
officials
for
the
purpose
of
obtaining
or
retaining
business
or
securing
any
other
improper
advantage.
Our
reliance
on
independent
distributors
to
sell
our
tests
internationally
demands
a
high
degree
of
vigilance
in
maintaining
our
policy
against
participation
in
corrupt
activity,
because
these
distributors
could
be
deemed
to
be
our
agents,
and
we
could
be
held
responsible
for
their
actions.
Other
U.S.
companies
in
the
medical
device
and
pharmaceutical
fields
have
faced
criminal
penalties
under
the
FCPA
for
allowing
their
agents
to
deviate
from
appropriate
practices
in
doing
business
with
these
individuals.
We
are
also
subject
to
similar
anti-bribery
laws
in
the
jurisdictions
in
which
we
operate,
including
the
United
Kingdom's
Bribery
Act
of
2010,
which
also
prohibits
commercial
bribery
and
makes
it
a
crime
for
companies
to
fail
to
prevent
bribery.
These
laws
are
complex
and
far-reaching
in
nature,
and,
as
a
result,
we
cannot
assure
you
that
we
would
not
be
required
in
the
future
to
alter
one
or
more
of
our
practices
to
be
in
compliance
with
these
laws
or
any
changes
in
these
laws
or
the
interpretation
thereof.
Any
violations
of
these
laws,
or
allegations
of
such
violations,
could
disrupt
our
operations,
involve
significant
management
distraction,
involve
significant
costs
and
expenses,
including
legal
fees,
and
could
result
in
a
material
adverse
effect
on
our
business,
prospects,
financial
condition,
or
results
of
operations.
We
could
also
incur
severe
penalties,
including
criminal
and
civil
penalties,
disgorgement,
and
other
remedial
measures.

Table
of
Contents

Risks
related
to
our
intellectual
property

Litigation or other proceedings or third-party claims of intellectual property infringement or misappropriation have and may continue to require us to spend
significant time and money, and could in the future prevent us from selling our tests or impact our stock price.

Our
commercial
success
will
depend
in
part
on
our
avoiding
infringement
of
patents
and
proprietary
rights
of
third
parties,
including
for
example
the
intellectual
property
rights
of
competitors.
Our
activities
may
be
subject
to
claims
that
we
infringe
or
otherwise
violate
patents
owned
or
controlled
by
third
parties.
Numerous
U.S.
and
foreign
patents
and
pending
patent
applications
exist
in
the
genetic
testing
market
and
are
owned
by
third
parties.
We
cannot
assure
you
that
our
operations
do
not,
or
will
not
in
the
future,
infringe
existing
or
future
patents.
We
may
be
unaware
of
patents
that
a
third
party,
including
for
example
a
competitor
in
the
genetic
testing
market,
might
assert
are
infringed
by
our
business.
There
may
also
be
patent
applications
that,
if
issued
as
patents,
could
be
asserted
against
us.
Third
parties
making
claims
against
us
for
infringement
or
misappropriation
of
their
intellectual
property
rights
may
seek
and
obtain
injunctive
or
other
equitable
relief,
which
could
effectively
block
our
ability
to
perform
our
tests.
Further,
if
a
patent
infringement
suit
were
brought
against
us,
we
could
be
forced
to
stop
or
delay
our
development
or
sales
of
any
tests
or
other
activities
that
are
the
subject
of
such
suit.
Defense
of
these
claims,
regardless
of
merit,
could
cause
us
to
incur
substantial
expenses
and
be
a
substantial
diversion
of
our
employee
resources.
In
the
event
of
a
successful
claim
of
infringement
against
us
by
a
third
party,
we
may
have
to
(1)
pay
substantial
damages,
including
treble
damages
and
attorneys'
fees
if
we
are
found
to
have
willfully
infringed
patents;
(2)
obtain
one
or
more
licenses,
which
may
not
be
available
on
commercially
reasonable
terms
(if
at
all);
(3)
pay
royalties;
and
(4)
redesign
any
infringing
tests
or
other
activities,
which
may
be
impossible
or
require
substantial
time
and
monetary
expenditure.

On
November
26,
2013,
in
response
to
infringement
allegations
by
Myriad
we
sued
Myriad
in
the
Northern
District
of
California
for
declaratory
judgment
that
certain
of
its
U.S.
patents
are
invalid
and
not
infringed
by
our
tests.
Myriad
together
with
certain
of
its
licensors,
the
Myriad
Plaintiffs,
counterclaimed
against
us,
alleging
that
our
tests
infringe
those
patents
and
alleging
that
we
are
willfully
infringing
those
patents.
On
January
23,
2015,
the
Myriad
Plaintiffs
stipulated
to
the
dismissal
with
prejudice
of
all
of
their
claims
and
granted
us
a
covenant
not
to
sue
for
all
of
the
patents
they
had
asserted
against
us,
and
on
January
26,
2015,
the
court
issued
an
order
dismissing
the
case
with
prejudice
thereby
ending
the
litigation.

As
we
continue
to
commercialize
our
tests
in
their
current
or
an
updated
form,
launch
different
and
expanded
tests,
and
enter
new
markets,
other
competitors
might
claim
that
our
tests
infringe
or
misappropriate
their
intellectual
property
rights
as
part
of
business
strategies
designed
to
impede
our
successful
commercialization
and
entry
into
new
markets.
If
such
a
suit
were
brought,
regardless
of
merit,
we
could
incur
substantial
costs
and
diversion
of
the
attention
of
our
management
and
technical
personnel
in
defending
ourselves
against
such
claims.
Any
adverse
ruling
or
perception
of
an
adverse
ruling
in
defending
ourselves
could
have
a
material
adverse
impact
on
our
cash
position
and
stock
price.
Furthermore,
parties
making
claims
against
us
may
seek
and
thereby
potentially
obtain
injunctive
or
other
relief,
which
could
block
our
ability
to
commercialize
our
tests,
and
could
result
in
the
award
of
substantial
damages
against
us.
In
the
event
of
a
successful
claim
of
infringement
or
misappropriation
against
us,
we
may
be
required
to
pay
damages
and
obtain
one
or
more
licenses
from
third
parties,
or
be
prohibited
from
commercializing
certain
tests,
all
of
which
could
have
a
material
adverse
impact
on
our
cash
position
and
business
and
financial
condition.

If
licenses
to
third-party
intellectual
property
rights
are
or
become
required
for
us
to
engage
in
our
business,
we
may
be
unable
to
obtain
them
at
a
reasonable
cost,
if
at
all.
Even
if
such
licenses
are
available,
we
could
incur
substantial
costs
related
to
royalty
payments
for
licenses
obtained
from
third
parties,
which
could
negatively
affect
our
gross
margins.
Moreover,
we
could
encounter
delays
in
the

Table
of
Contents

introduction
of
tests
while
we
attempt
to
develop
alternatives.
Defense
of
any
lawsuit
or
failure
to
obtain
any
of
these
licenses
on
favorable
terms
could
prevent
us
from
commercializing
tests,
which
could
materially
affect
our
ability
to
grow
and
thus
adversely
affect
our
business
and
financial
condition.

Developments in patent law could have a negative impact on our business.

We
believe
that
naturally
occurring
DNA
sequences
should
not
be
patentable,
and
we
do
not
currently
have
any
patents
or
patent
applications
directed
to
such
sequences
nor
have
we
in-licensed
such
patents
rights
of
any
third
party.
In
this
regard,
a
few
key
cases
involving
diagnostic
method
claims
and
"gene
patents"
have
recently
been
decided
by
the
U.S.
Supreme
Court.
On
March
20,
2012,
the
U.S.
Supreme
Court
issued
a
decision
in
Mayo Collaborative v. Prometheus
Laboratories ,
or
Mayo ,
a
case
involving
patent
claims
directed
to
optimizing
on
a
patient-specific
basis
the
dosage
of
a
certain
drug
by
measuring
its
metabolites
in
a
patient.
In
Mayo ,
the
U.S.
Supreme
Court
determined
that
patent
claims
directed
at
detection
of
natural
correlations,
such
as
the
correlation
between
drug
metabolite
levels
in
a
patient
and
that
drug's
optimal
dosage
for
such
patient,
are
not
eligible
for
patent
protection.
The
Mayo Court
held
that
claims
based
on
this
type
of
comparison
between
an
observed
fact
and
an
understanding
of
that
fact's
implications
represent
attempts
to
patent
a
natural
law
and,
moreover,
when
the
processes
for
making
the
comparison
are
not
themselves
sufficiently
inventive,
claims
to
such
processes
are
similarly
patent-ineligible.
On
June
13,
2013,
the
U.S.
Supreme
Court
decided
Association for Molecular Pathology v. Myriad Genetics ,
or
Myriad ,
a
case
brought
by
multiple
plaintiffs
challenging
the
validity
of
certain
patent
claims
held
by
Myriad
relating
to
the
breast
cancer
susceptibility
genes
BRCA1
and
BRCA2.
In
Myriad ,
the
U.S.
Supreme
Court
held
that
genomic
DNAs
that
have
been
isolated
from,
or
have
the
same
sequence
as,
naturally
occurring
samples,
such
as
the
DNA
constituting
the
BRCA1
and
BRCA2
genes
or
fragments
thereof,
are
not
eligible
for
patent
protection.
Instead,
the
Myriad Court
held
that
only
those
complementary
DNAs,
or
cDNAs,
which
have
a
sequence
that
differs
from
a
naturally
occurring
fragment
of
genomic
DNA
may
be
patent
eligible.
Because
it
will
be
applied
by
other
courts
to
all
gene
patents,
the
holding
in
Myriad also
invalidates
patent
claims
to
other
genes
and
gene
variants.
On
June
19,
2014,
the
U.S.
Supreme
Court
decided
Alice Corporation v. CLS Bank
(2014), or Alice ,
where
it
amplified
its
Mayo and
Myriad decisions
and
clarified
the
analytical
framework
for
distinguishing
between
patents
that
claim
laws
of
nature,
natural
phenomena
and
abstract
ideas
and
those
that
claim
patent-eligible
applications
of
such
concepts.
According
to
the
Alice Court,
the
analysis
depends
on
whether
a
patent
claim
directed
to
a
law
of
nature,
a
natural
phenomenon
or
an
abstract
idea
contains
additional
elements,
an
"inventive
concept,"
that
"is
'sufficient
to
ensure
that
the
patent
in
practice
amounts
to
significantly
more
than
a
patent
upon
the
[ineligible
concept]
itself"
(citing
Mayo ).

Although
we
view
the
Mayo, Myriad and
Alice cases
as
aligned
with
our
belief
that
naturally
occurring
DNA
sequences
should
not
be
patentable,
it
is
possible
that
subsequent
determinations
by
the
U.S.
Supreme
Court
or
other
federal
courts
could
limit,
alter
or
potentially
overrule
the
holdings
of
such
cases.
Moreover,
from
time
to
time
the
U.S.
Supreme
Court,
other
federal
courts,
the
United
States
Congress
or
the
U.S.
Patent
and
Trademark
Office,
or
USPTO,
may
change
the
standards
of
patentability,
and
any
such
changes
could
run
contrary
to,
or
otherwise
be
inconsistent
with,
our
belief
that
naturally
occurring
DNA
sequences
should
not
be
patentable.

We
cannot
fully
predict
what
impact
the
U.S.
Supreme
Court's
decisions
in
Mayo, Myriad and
Alice may
have
on
the
ability
of
various
third
parties,
including
competitors
with
substantial
resources,
to
obtain
or
enforce
patents
relating
to
genes,
genomic
discoveries
or
genetic
testing
services
currently
or
in
the
future.
The
Mayo, Myriad and
Alice decisions
are
relatively
new,
and
the
precise
contours
of
patent
eligibility
with
respect
to
claims
to
laws
of
nature,
natural
phenomena
or
abstract
ideas
are
not
yet
fully
settled
and
may
take
many
years
to
develop,
including
through
further
interpretation
in
the
courts.
There
are
many
patents
claiming
testing
methods
based
on
similar
or
related
correlations
that

Table
of
Contents

issued
before
Mayo ,
and
although
some
or
many
of
these
patents
may
be
invalid
under
the
standard
set
forth
in
Mayo ,
until
successfully
challenged,
these
patents
may
be
entitled
to
a
presumption
of
validity
and
enforceability
in
litigation,
and
certain
third
parties
could
allege
that
we
infringe,
or
request
that
we
obtain
a
license
to,
these
patents.
Whether
based
on
patents
issued
prior
to
or
after
Mayo ,
we
could
have
to
defend
ourselves
against
claims
of
patent
infringement,
or
choose
to
license
rights,
if
available,
under
patents
claiming
such
methods.
Moreover,
although
the
U.S.
Supreme
Court
has
held
in
Myriad that
isolated
genomic
DNA
is
not
patent-eligible
subject
matter,
certain
third
parties
could
allege
that
activities
that
we
may
undertake
infringe
other
classes
of
gene-related
patent
claims,
and
we
could
have
to
defend
ourselves
against
these
claims
by
asserting
non-infringement
or
invalidity
positions,
or
pay
to
obtain
a
license
to
these
claims.
In
any
of
the
foregoing
or
in
other
situations
involving
third-party
intellectual
property
rights,
if
we
are
unsuccessful
in
defending
against
claims
of
patent
infringement,
we
could
be
forced
to
pay
damages
or
be
subjected
to
an
injunction
that
would
prevent
us
from
utilizing
the
patented
subject
matter
in
question
if
we
are
unable
to
obtain
a
license
on
reasonable
terms.
Such
outcomes
could
materially
affect
our
ability
to
offer
our
tests
and
have
a
material
adverse
impact
on
our
business.
Even
if
we
are
able
to
obtain
a
license
or
successfully
defend
against
claims
of
patent
infringement,
the
cost
and
distraction
associated
with
the
defense
or
settlement
of
these
claims
could
have
a
material
adverse
impact
on
our
business.

With
respect
to
our
own
patent
protection,
recent
patent
reform
legislation
could
increase
the
uncertainties
and
costs
surrounding
the
prosecution
of
any
patent
applications
and
the
enforcement
or
defense
of
any
patents
that
issue.
On
September
16,
2011,
the
Leahy-Smith
America
Invents
Act,
or
the
Leahy-Smith
Act,
was
signed
into
law.
The
Leahy-Smith
Act
includes
a
number
of
significant
changes
to
U.S.
patent
law.
These
include
provisions
that
affect
the
way
patent
applications
are
prosecuted,
redefine
prior
art,
may
affect
patent
litigation
and
switch
the
U.S.
patent
system
from
a
"first-to-invent"
system
to
a
"first-to-file"
system.
Under
a
"first-to-file"
system,
assuming
the
other
requirements
for
patentability
are
met,
the
first
inventor
to
file
a
patent
application
generally
will
be
entitled
to
the
patent
on
an
invention
regardless
of
whether
another
inventor
had
made
the
invention
earlier.
The
USPTO
has
developed
new
regulations
and
procedures
to
govern
administration
of
the
Leahy-Smith
Act,
and
many
of
the
substantive
changes
to
patent
law
associated
with
the
Leahy-Smith
Act,
including
in
particular
the
first-
to-
file
provisions,
became
effective
on
March
16,
2013.
Among
other
changes
to
the
patent
laws
are
features
that
limit
where
a
patentee
may
file
a
patent
infringement
suit
and
that
provide
opportunities
for
third
parties
to
challenge
any
issued
patent
in
the
USPTO.
The
Leahy-Smith
Act
and
its
implementation
could
increase
the
uncertainties
and
costs
surrounding
the
prosecution
of
our
patent
applications
and
the
enforcement
or
defense
of
any
patents
that
issue,
all
of
which
could
harm
our
business
and
financial
condition.
In
addition,
further
patent
reform
legislation
may
pass
in
the
future
that
could
lead
to
additional
uncertainties
and
increased
costs
surrounding
the
prosecution,
enforcement
and
defense
of
patent
applications
and
any
patents
we
may
obtain.

Our inability to effectively protect our proprietary technologies, including the confidentiality of our trade secrets, could harm our competitive position.

We
currently
rely
upon
trade
secret
protection
and
copyright,
as
well
as
non-disclosure
agreements
and
invention
assignment
agreements
with
our
employees,
consultants
and
third-parties,
and
to
a
limited
extent
patent
protection,
to
protect
our
confidential
and
proprietary
information.
Although
our
competitors
have
utilized
and
are
expected
to
continue
utilizing
similar
methods
and
have
aggregated
and
are
expected
to
continue
to
aggregate
similar
databases
of
genetic
testing
information,
our
success
will
depend
upon
our
ability
to
develop
proprietary
methods
and
databases
and
to
defend
any
advantages
afforded
to
us
by
such
methods
and
databases
relative
to
our
competitors.
If
we
do
not
protect
our
intellectual
property
adequately,
competitors
may
be
able
to
use
our
methods
and
databases
and
thereby
erode
any
competitive
advantages
we
may
have.

Table
of
Contents

We
will
be
able
to
protect
our
proprietary
rights
from
unauthorized
use
by
third
parties
only
to
the
extent
that
our
proprietary
technologies
are
covered
by
valid
and
enforceable
patents
or
are
effectively
maintained
as
trade
secrets.
In
this
regard,
we
have
applied,
and
we
intend
to
continue
applying,
for
patents
covering
such
aspects
of
our
technologies
as
we
deem
appropriate.
However,
we
expect
that
potential
patent
coverage
we
may
obtain
will
not
be
sufficient
to
prevent
substantial
competition.
In
this
regard,
we
believe
it
is
probable
that
others
will
independently
develop
similar
or
alternative
technologies
or
design
around
technologies
for
which
we
may
obtain
patent
protection.
In
addition,
any
patent
applications
we
file
may
be
challenged
and
may
not
result
in
issued
patents
or
may
be
invalidated
or
narrowed
in
scope
after
they
are
issued.
Questions
as
to
inventorship
or
ownership
may
also
arise.
Any
finding
that
our
patents
or
applications
are
unenforceable
could
harm
our
ability
to
prevent
others
from
practicing
the
related
technology,
and
a
finding
that
others
have
inventorship
or
ownership
rights
to
our
patents
and
applications
could
require
us
to
obtain
certain
rights
to
practice
related
technologies,
which
may
not
be
available
on
favorable
terms,
if
at
all.
If
we
initiate
lawsuits
to
protect
or
enforce
our
patents,
or
litigate
against
third
party
claims,
which
would
be
expensive,
and,
if
we
lose,
we
may
lose
some
of
our
intellectual
property
rights.
Furthermore,
these
lawsuits
may
divert
the
attention
of
our
management
and
technical
personnel.

We
expect
to
rely
primarily
upon
trade
secrets
and
proprietary
know-how
protection
for
our
confidential
and
proprietary
information,
and
we
have
taken
security
measures
to
protect
this
information.
These
measures,
however,
may
not
provide
adequate
protection
for
our
trade
secrets,
know-how,
or
other
confidential
information.
Among
other
things,
we
seek
to
protect
our
trade
secrets
and
confidential
information
by
entering
into
confidentiality
agreements
with
employees
and
consultants.
There
can
be
no
assurance
that
any
confidentiality
agreements
that
we
have
with
our
employees
and
consultants
will
provide
meaningful
protection
for
our
trade
secrets
and
confidential
information
or
will
provide
adequate
remedies
in
the
event
of
unauthorized
use
or
disclosure
of
such
information.
Accordingly,
there
also
can
be
no
assurance
that
our
trade
secrets
will
not
otherwise
become
known
or
be
independently
developed
by
competitors.
Enforcing
a
claim
that
a
party
illegally
disclosed
or
misappropriated
a
trade
secret
can
be
difficult,
expensive,
and
time-
consuming,
and
the
outcome
is
unpredictable.
In
addition,
trade
secrets
may
be
independently
developed
by
others
in
a
manner
that
could
prevent
legal
recourse
by
us.
If
any
of
our
confidential
or
proprietary
information,
such
as
our
trade
secrets,
were
to
be
disclosed
or
misappropriated,
or
if
any
such
information
was
independently
developed
by
a
competitor,
our
competitive
position
could
be
harmed.

We may not be able to enforce our intellectual property rights throughout the world.

The
laws
of
some
foreign
countries
do
not
protect
proprietary
rights
to
the
same
extent
as
the
laws
of
the
United
States,
and
many
companies
have
encountered
significant
challenges
in
establishing
and
enforcing
their
proprietary
rights
outside
of
the
United
States.
These
challenges
can
be
caused
by
the
absence
of
rules
and
methods
for
the
establishment
and
enforcement
of
intellectual
property
rights
outside
of
the
United
States.
In
addition,
the
legal
systems
of
some
countries,
particularly
developing
countries,
do
not
favor
the
enforcement
of
patents
and
other
intellectual
property
protection,
especially
those
relating
to
healthcare.
This
could
make
it
difficult
for
us
to
stop
the
infringement
of
our
patents,
if
obtained,
or
the
misappropriation
of
our
other
intellectual
property
rights.
For
example,
many
foreign
countries
have
compulsory
licensing
laws
under
which
a
patent
owner
must
grant
licenses
to
third
parties.
In
addition,
many
countries
limit
the
enforceability
of
patents
against
third
parties,
including
government
agencies
or
government
contractors.
In
these
countries,
patents
may
provide
limited
or
no
benefit.
Patent
protection
must
ultimately
be
sought
on
a
country-by-country
basis,
which
is
an
expensive
and
time-consuming
process
with
uncertain
outcomes.
Accordingly,
we
may
choose
not
to
seek
patent
protection
in
certain
countries,
and
we
will
not
have
the
benefit
of
patent
protection
in
such
countries.
Proceedings
to
enforce
our
patent
rights
in
foreign
jurisdictions
could
result
in
substantial
costs
and
divert
our
efforts
and
attention
from
other
aspects
of
our
business.
Accordingly,
our
efforts
to
protect
our
intellectual
property
rights
in
such
countries
may
be
inadequate.
In
addition,

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of
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changes
in
the
law
and
legal
decisions
by
courts
in
the
United
States
and
foreign
countries
may
affect
our
ability
to
obtain
adequate
protection
for
our
technology
and
the
enforcement
of
intellectual
property.

Third parties may assert that our employees or consultants have wrongfully used or disclosed confidential information or misappropriated trade secrets.

We
employ
individuals
who
were
previously
employed
at
universities
or
genetic
testing,
diagnostic
or
other
healthcare
companies,
including
our
competitors
or
potential
competitors.
Although
we
try
to
ensure
that
our
employees
and
consultants
do
not
use
the
proprietary
information
or
know-how
of
others
in
their
work
for
us,
we
may
be
subject
to
claims
that
we
or
our
employees
or
consultants
have
inadvertently
or
otherwise
used
or
disclosed
intellectual
property,
including
trade
secrets
or
other
proprietary
information,
of
a
former
employer
or
other
third
parties.
Further,
we
may
be
subject
to
ownership
disputes
in
the
future
arising,
for
example,
from
conflicting
obligations
of
consultants
or
others
who
are
involved
in
developing
our
intellectual
property.
Litigation
may
be
necessary
to
defend
against
these
claims.
If
we
fail
in
defending
any
such
claims,
in
addition
to
paying
monetary
damages,
we
may
lose
valuable
intellectual
property
rights
or
personnel.
Even
if
we
are
successful
in
defending
against
such
claims,
litigation
could
result
in
substantial
costs
and
be
a
distraction
to
management
and
other
employees.

On
September
16,
2015,
GeneDx,
Inc.
and
Bio-Reference
Laboratories,
Inc.
filed
an
action
against
us
in
the
U.S.
District
Court
for
the
District
of
New
Jersey.
The
Complaint
alleges
that
Invitae
wrongfully
solicited
and
hired
employees
away
from
the
plaintiffs
in
order
to
acquire
access
to
trade
secrets
and
other
confidential
business
information
belonging
to
the
plaintiffs.
The
Complaint
alleges
claims
for
relief
based
on
legal
theories
of
unfair
competition,
tortious
interference
with
prospective
economic
advantage,
tortious
interference
with
contract,
and
trade
secret
misappropriation,
and
seeks
injunctive
relief;
damages,
including
punitive
damages;
and
attorneys'
fees
and
costs.
On
October
22,
2015,
we
filed
a
motion
to
dismiss
the
action
for
lack
of
personal
jurisdiction
and,
in
the
alternative,
to
transfer
the
action
to
the
U.S.
District
Court
for
the
Northern
District
of
California.
On
November
13,
2015,
the
plaintiffs
filed
their
First
Amended
Complaint.
On
December
14,
2015,
we
responded
by
again
filing
a
motion
to
dismiss
the
action
for
lack
of
personal
jurisdiction
and,
in
the
alternative,
to
transfer
the
action
to
the
U.S.
District
Court
for
the
Northern
District
of
California.
The
parties
are
negotiating
the
exchange
of
information
regarding
the
issue
of
personal
jurisdiction,
and
have
extended
the
plaintiffs'
deadline
to
respond
to
the
motion
pending
the
outcome
of
that
negotiation.
The
current
due
date
for
the
plaintiffs'
response
is
March
21,
2016.
We
believe
the
action
is
without
merit
and
intend
to
defend
ourselves
vigorously.

Risks
related
to
being
a
public
company

We will incur increased costs and demands on management as a result of compliance with laws and regulations applicable to public companies, which could
harm our operating results.

As
a
public
company,
we
will
incur
significant
legal,
accounting
and
other
expenses
that
we
did
not
incur
as
a
private
company,
including
costs
associated
with
public
company
reporting
requirements.
In
addition,
the
Sarbanes-Oxley
Act
of
2002,
or
the
Sarbanes-Oxley
Act,
as
well
as
rules
implemented
by
the
SEC
and
the
New
York
Stock
Exchange,
or
NYSE,
impose
a
number
of
requirements
on
public
companies,
including
with
respect
to
corporate
governance
practices.
The
SEC
and
other
regulators
have
continued
to
adopt
new
rules
and
regulations
and
make
additional
changes
to
existing
regulations
that
require
our
compliance.
In
July
2010,
the
Dodd-Frank
Wall
Street
Reform
and
Consumer
Protection
Act,
or
the
Dodd-Frank
Act,
was
enacted.
There
are
significant
corporate
governance
and
executive-compensation-related
provisions
in
the
Dodd-Frank
Act
that
require
the
SEC
to
adopt
additional
rules
and
regulations
in
these
areas.
Our
management
and
other
personnel
will
need
to
devote
a
substantial
amount
of
time
to
these
compliance
and
disclosure
obligations.
If
these

Table
of
Contents

requirements
divert
the
attention
of
our
management
and
personnel
from
other
aspects
of
our
business
concerns,
they
could
have
a
material
adverse
effect
on
our
business,
financial
condition
and
results
of
operations.
Moreover,
these
rules
and
regulations
applicable
to
public
companies
will
substantially
increase
our
legal,
accounting
and
financial
compliance
costs,
require
that
we
hire
additional
personnel
and
make
some
activities
more
time-consuming
and
costly.
We
also
expect
that
it
will
be
more
expensive
for
us
to
obtain
director
and
officer
liability
insurance.
We
cannot
predict
or
estimate
the
amount
or
timing
of
additional
costs
we
may
incur
to
comply
with
these
requirements.

If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our reported
financial information and the market price of our common stock may be negatively affected.

We
are
required
to
maintain
internal
control
over
financial
reporting
and
to
report
any
material
weaknesses
in
such
internal
controls.
Section
404
of
the
Sarbanes-Oxley
Act
requires
that
we
evaluate
and
determine
the
effectiveness
of
our
internal
control
over
financial
reporting
and,
beginning
with
our
annual
report
for
the
year
ended
December
31,
2015,
provide
a
management
report
on
our
internal
control
over
financial
reporting.
If
we
have
a
material
weakness
in
our
internal
control
over
financial
reporting,
we
may
not
detect
errors
on
a
timely
basis
and
our
financial
statements
may
be
materially
misstated.
We
have
only
recently
compiled
the
system
and
process
documentation
necessary
to
perform
the
evaluation
needed
to
comply
with
Section
404
of
the
Sarbanes-Oxley
Act.
We
will
need
to
maintain
and
enhance
these
processes
and
controls
as
we
grow
and
we
may
require
additional
personnel
and
resources
to
do
so.

During
the
evaluation
and
testing
process,
if
we
identify
one
or
more
material
weaknesses
in
our
internal
controls,
our
management
will
be
unable
to
conclude
that
our
internal
control
over
financial
reporting
is
effective.
Moreover,
when
we
are
no
longer
an
emerging
growth
company,
our
independent
registered
public
accounting
firm
will
be
required
to
issue
an
attestation
report
on
the
effectiveness
of
our
internal
control
over
financial
reporting.
Even
if
our
management
concludes
that
our
internal
control
over
financial
reporting
is
effective,
our
independent
registered
public
accounting
firm
may
conclude
that
there
are
material
weaknesses
with
respect
to
our
internal
controls
or
the
level
at
which
our
internal
controls
are
documented,
designed,
implemented
or
reviewed.

If
we
are
unable
to
conclude
that
our
internal
control
over
financial
reporting
is
effective,
or
when
we
are
no
longer
an
emerging
growth
company,
if
our
auditors
were
to
express
an
adverse
opinion
on
the
effectiveness
of
our
internal
control
over
financial
reporting
because
we
had
one
or
more
material
weaknesses,
investors
could
lose
confidence
in
the
accuracy
and
completeness
of
our
financial
disclosures,
which
could
cause
the
price
of
our
common
stock
to
decline.
Internal
control
deficiencies
could
also
result
in
the
restatement
of
our
financial
results
in
the
future.

We are an emerging growth company and may elect to comply with reduced public company reporting requirements applicable to emerging growth companies,
which could make our common stock less attractive to investors.

We
are
an
emerging
growth
company,
as
defined
under
the
Securities
Act
of
1933,
or
the
Securities
Act.
We
will
remain
an
emerging
growth
company
until
December
31,
2020,
although
if
our
revenue
exceeds
$1
billion
in
any
fiscal
year
before
that
time,
we
would
cease
to
be
an
emerging
growth
company
as
of
the
end
of
that
fiscal
year.
In
addition,
if
the
market
value
of
our
common
stock
that
is
held
by
non-affiliates
exceeds
$700
million
as
of
the
last
business
day
of
our
second
fiscal
quarter
of
any
fiscal
year
before
the
end
of
that
five-year
period,
we
would
cease
to
be
an
emerging
growth
company
as
of
December
31
of
that
year.
As
an
emerging
growth
company,
we
may
choose
to
take
advantage
of
exemptions
from
various
reporting
requirements
applicable
to
certain
other
public
companies,
including
not
being
required
to
comply
with
the
auditor
attestation
requirements
of
Section
404
of
the
Sarbanes-Oxley
Act,
reduced
financial
statement
and
financial-related
disclosures,

Table
of
Contents

reduced
disclosure
obligations
regarding
executive
compensation
in
our
periodic
reports
and
proxy
statements,
and
exemptions
from
the
requirement
of
holding
a
nonbinding
advisory
vote
on
executive
compensation
and
obtaining
stockholder
approval
of
any
golden
parachute
payments
not
previously
approved
by
our
stockholders.
We
cannot
predict
whether
investors
will
find
our
common
stock
less
attractive
if
we
choose
to
rely
on
any
of
these
exemptions.
If
investors
find
our
common
stock
less
attractive
as
a
result
of
any
choices
to
reduce
future
disclosure
we
may
make,
there
may
be
a
less
active
trading
market
for
our
common
stock
and
our
stock
price
may
be
more
volatile.

Risks
related
to
our
common
stock

Our stock price may be volatile, and you may not be able to sell shares of our common stock at or above the price you paid.

Prior
to
our
initial
public
offering
in
February
2015,
there
was
no
public
market
for
our
common
stock,
and
an
active
and
liquid
public
market
for
our
stock
may
not
develop
or
be
sustained.
In
addition,
the
trading
price
of
our
common
stock
is
likely
to
be
highly
volatile
and
could
be
subject
to
wide
fluctuations
in
response
to
various
factors,
some
of
which
are
beyond
our
control.
These
factors
include:

•

actual
or
anticipated
fluctuations
in
our
operating
results;

competition
from
existing
tests
or
new
tests
that
may
emerge;

announcements
by
us
or
our
competitors
of
significant
acquisitions,
strategic
partnerships,
joint
ventures,
collaborations,
or
capital
commitments;

failure
to
meet
or
exceed
financial
estimates
and
projections
of
the
investment
community
or
that
we
provide
to
the
public;

issuance
of
new
or
updated
research
or
reports
by
securities
analysts
or
changed
recommendations
for
our
stock;

our
focus
on
long
term
goals
over
short
term
results;

the
timing
of
our
investments
in
the
growth
of
our
business;

actual
or
anticipated
changes
in
regulatory
oversight
of
our
business;

additions
or
departures
of
key
management
or
other
personnel;

disputes
or
other
developments
related
to
our
intellectual
property
or
other
proprietary
rights,
including
litigation;

changes
in
reimbursement
by
current
or
potential
payers;
and

general
economic
and
market
conditions.

In
addition,
the
stock
market
in
general,
and
the
market
for
stock
of
life
sciences
companies
in
particular,
has
experienced
extreme
price
and
volume
fluctuations
that
have
often
been
unrelated
or
disproportionate
to
the
operating
performance
of
those
companies.
Broad
market
and
industry
factors
may
seriously
affect
the
market
price
of
our
common
stock,
regardless
of
our
actual
operating
performance.
In
addition,
in
the
past,
following
periods
of
volatility
in
the
overall
market
and
the
market
price
of
a
particular
company's
securities,
securities
class
action
litigation
has
often
been
instituted
against
these
companies.
This
litigation,
if
instituted
against
us,
could
result
in
substantial
costs
and
a
diversion
of
our
management's
attention
and
resources.

Table
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Contents

If securities or industry analysts issue an adverse opinion regarding our stock or do not publish research or reports about our company, our stock price and
trading volume could decline.

The
trading
market
for
our
common
stock
will
depend
in
part
on
the
research
and
reports
that
equity
research
analysts
publish
about
us
and
our
business.
We
do
not
control
these
analysts
or
the
content
and
opinions
included
in
their
reports.
Securities
analysts
may
elect
not
to
provide
research
coverage
of
our
company
and
such
lack
of
research
coverage
may
adversely
affect
the
market
price
of
our
common
stock.
The
price
of
our
common
stock
could
also
decline
if
one
or
more
equity
research
analysts
downgrade
our
common
stock
or
issue
other
unfavorable
commentary
or
cease
publishing
reports
about
us
or
our
business.
If
one
or
more
equity
research
analysts
cease
coverage
of
our
company,
we
could
lose
visibility
in
the
market,
which
in
turn
could
cause
our
stock
price
to
decline.

Insiders will exercise significant control over our company and will be able to influence corporate matters.

As
of
December
31,
2015,
directors,
executive
officers,
5%
or
greater
stockholders
and
their
affiliates
beneficially
owned,
in
the
aggregate,
81%
of
our
outstanding
capital
stock.
As
a
result,
these
stockholders
will
be
able
to
exercise
significant
influence
over
all
matters
submitted
to
our
stockholders
for
approval,
including
the
election
of
directors
and
approval
of
significant
corporate
transactions,
such
as
a
merger
or
sale
of
our
company
or
its
assets.
This
concentration
of
ownership
may
have
the
effect
of
delaying
or
preventing
a
third
party
from
acquiring
control
of
our
company
and
could
adversely
affect
the
market
price
of
our
common
stock.

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

As
of
December
31,
2015,
our
total
gross
deferred
tax
assets
were
$60.7
million.
Due
to
our
lack
of
earnings
history
and
uncertainties
surrounding
our
ability
to
generate
future
taxable
income,
the
net
deferred
tax
assets
have
been
fully
offset
by
a
valuation
allowance.
The
deferred
tax
assets
were
primarily
comprised
of
federal
and
state
tax
net
operating
losses
and
tax
credit
carryforwards.
Furthermore,
under
Section
382
of
the
Internal
Revenue
Code
of
1986,
as
amended,
or
the
Internal
Revenue
Code,
if
a
corporation
undergoes
an
"ownership
change,"
the
corporation's
ability
to
use
its
pre-
change
net
operating
loss
carryforwards,
or
NOLs,
and
other
pre-change
tax
attributes
(such
as
research
tax
credits)
to
offset
its
future
taxable
income
may
be
limited.
In
general,
an
"ownership
change"
occurs
if
there
is
a
cumulative
change
in
our
ownership
by
"5%
shareholders"
that
exceeds
50
percentage
points
over
a
rolling
three-year
period.
Our
existing
NOLs
and
tax
credit
carryovers
may
be
subject
to
limitations
arising
from
previous
ownership
changes,
and
if
we
undergo
one
or
more
ownership
changes
in
connection
with
future
transactions
in
our
stock,
our
ability
to
utilize
NOLs
and
tax
credit
carryovers
could
be
further
limited
by
Section
382
of
the
Internal
Revenue
Code.
As
a
result,
if
we
earn
net
taxable
income,
our
ability
to
use
our
pre-change
net
operating
loss
and
tax
credit
carryforwards
to
offset
U.S.
federal
taxable
income
may
be
subject
to
limitations,
which
could
potentially
result
in
increased
future
tax
liability
to
us.
The
annual
limitation
may
result
in
the
expiration
of
certain
net
operating
loss
and
tax
credit
carryforwards
before
their
utilization.
In
addition,
at
the
state
level,
there
may
be
periods
during
which
the
use
of
NOLs
is
suspended
or
otherwise
limited,
which
could
accelerate
or
permanently
increase
state
taxes
owed.

We have never paid dividends on our capital stock and we do not anticipate paying dividends in the foreseeable future.

We
have
never
paid
dividends
on
any
of
our
capital
stock
and
currently
intend
to
retain
any
future
earnings
to
fund
the
growth
of
our
business.
In
addition,
we
may
enter
into
credit
agreements
or
other
borrowing
arrangements
in
the
future
that
will
restrict
our
ability
to
declare
or
pay
cash
dividends
on
our
common
stock.
Any
determination
to
pay
dividends
in
the
future
will
be
at
the
discretion
of
our
board
of
directors
and
will
depend
on
our
financial
condition,
operating
results,
capital
requirements,
general
business
conditions
and
other
factors
that
our
board
of
directors
may
deem
relevant.
As
a

Table
of
Contents

result,
capital
appreciation,
if
any,
of
our
common
stock
will
be
the
sole
source
of
gain
for
the
foreseeable
future.

Anti-takeover provisions in our charter documents and under Delaware law could discourage, delay or prevent a change in control and may affect the trading
price of our common stock.

Provisions
in
our
restated
certificate
of
incorporation
and
our
amended
and
restated
bylaws
may
have
the
effect
of
delaying
or
preventing
a
change
of
control
or
changes
in
our
management.
Our
restated
certificate
of
incorporation
and
amended
and
restated
bylaws
include
provisions
that:

•

authorize
our
board
of
directors
to
issue,
without
further
action
by
the
stockholders,
up
to
20,000,000
shares
of
undesignated
preferred
stock;

require
that
any
action
to
be
taken
by
our
stockholders
be
effected
at
a
duly
called
annual
or
special
meeting
and
not
by
written
consent;

specify
that
special
meetings
of
our
stockholders
can
be
called
only
by
our
board
of
directors,
our
chairman
of
the
board,
or
our
chief
executive
officer;

establish
an
advance
notice
procedure
for
stockholder
approvals
to
be
brought
before
an
annual
meeting
of
our
stockholders,
including
proposed
nominations
of
persons
for
election
to
our
board
of
directors;

establish
that
our
board
of
directors
is
divided
into
three
classes,
Class
I,
Class
II
and
Class
III,
with
each
class
serving
staggered
terms;

provide
that
our
directors
may
be
removed
only
for
cause;

provide
that
vacancies
on
our
board
of
directors
may,
except
as
otherwise
required
by
law,
be
filled
only
by
a
majority
of
directors
then
in
office,
even
if
less
than
a
quorum;
and

require
a
super-majority
of
votes
to
amend
certain
of
the
above-
mentioned
provisions
as
well
as
to
amend
our
bylaws
generally.

In
addition,
we
are
subject
to
the
provisions
of
Section
203
of
the
Delaware
General
Corporation
Law
regulating
corporate
takeovers.
Section
203
generally
prohibits
us
from
engaging
in
a
business
combination
with
an
interested
stockholder
subject
to
certain
exceptions.

Our certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and
proceedings that may be initiated by our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or
our directors, officers or other employees.

Our
certificate
of
incorporation
provides
that,
unless
we
consent
in
writing
to
the
selection
of
an
alternative
forum,
the
Court
of
Chancery
of
the
State
of
Delaware
shall
be
the
sole
and
exclusive
forum
for:

•

any
derivative
action
or
proceeding
brought
on
our
behalf;

any
action
asserting
a
claim
of
breach
of
a
fiduciary
duty
owed
by
any
of
our
directors,
officers,
or
other
employees
to
us
or
our
stockholders;

any
action
asserting
a
claim
arising
pursuant
to
any
provision
of
the
Delaware
General
Corporation
Law;
or

any
action
asserting
a
claim
against
us
governed
by
the
internal
affairs
doctrine.

Any
person
or
entity
purchasing
or
otherwise
acquiring
any
interest
in
shares
of
our
capital
stock
shall
be
deemed
to
have
notice
of
and
consented
to
the
provisions
of
our
certificate
of
incorporation

Table
of
Contents

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
our
directors,
officers
or
other
employees,
which
may
discourage
such
lawsuits
against
us
and
our
directors,
officers,
and
other
employees.
Alternatively,
if
a
court
were
to
find
these
provisions
of
our
certificate
of
incorporation
inapplicable
to,
or
unenforceable
in
respect
of,
one
or
more
of
the
specified
types
of
actions
or
proceedings,
we
may
incur
additional
costs
associated
with
resolving
such
matters
in
other
jurisdictions,
which
could
adversely
affect
our
business,
financial
condition
or
results
of
operations.

ITEM
1B.

Unresolved
Staff
Comments.

None.

ITEM
2.

Properties.

Our
corporate
headquarters
and
laboratory
operations
are
located
in
San
Francisco,
California,
where
we
currently
lease
and
occupy
7,795
square
feet
of
laboratory
and
office
space.
The
lease
for
our
headquarters
expires
in
August
2017,
with
a
five-year
extension
at
our
option.
Additionally,
in
a
nearby
building
in
San
Francisco,
we
sublease
8,852
square
feet
of
laboratory
and
office
space
under
an
agreement
that
expires
in
February
2017
and
24,536
square
feet
of
office
space
under
an
agreement
that
expires
in
April
2017.
We
also
lease
8,348
square
feet
of
office
space
in
Palo
Alto,
California
pursuant
to
an
agreement
that
expires
in
March
2020
and
we
lease
additional
facilities
in
Oakland,
California,
Cambridge
Massachusetts
and
Santiago,
Chile.

In
September
2015,
we
entered
into
a
lease
agreement
for
a
new
laboratory
and
headquarters
of
103,213
square
feet
in
San
Francisco,
California.
This
lease
expires
in
July
2026
and
we
may
renew
the
lease
for
an
additional
ten
years.
The
lease
term
will
commence
when
we
take
occupancy
of
the
facility,
which
is
expected
to
occur
in
the
third
quarter
of
2016.
We
plan
to
sub-lease
our
existing
San
Francisco
laboratory
and
office
facilities
once
we
take
occupancy
of
our
new
headquarters
facility.

We
believe
that
our
facilities
are
adequate
for
our
current
needs
and
that
additional
space
will
be
available
on
commercially
reasonable
terms
if
required.

ITEM
3.

Legal
Proceedings.

On
September
16,
2015,
GeneDx,
Inc.
and
Bio-Reference
Laboratories,
Inc.
filed
an
action
against
us
in
the
U.S.
District
Court
for
the
District
of
New
Jersey.
The
Complaint
alleges
that
we
wrongfully
solicited
and
hired
employees
away
from
the
plaintiffs
in
order
to
acquire
access
to
trade
secrets
and
other
confidential
business
information
belonging
to
the
plaintiffs.
The
Complaint
alleges
claims
for
relief
based
on
legal
theories
of
unfair
competition,
tortious
interference
with
prospective
economic
advantage,
tortious
interference
with
contract,
and
trade
secret
misappropriation,
and
seeks
injunctive
relief;
damages,
including
punitive
damages;
and
attorneys'
fees
and
costs.
On
October
22,
2015,
we
filed
a
motion
to
dismiss
the
action
for
lack
of
personal
jurisdiction
and,
in
the
alternative,
to
transfer
the
action
to
the
U.S.
District
Court
for
the
Northern
District
of
California.
On
November
13,
2015,
the
plaintiffs
filed
their
First
Amended
Complaint.
On
December
14,
2015,
we
responded
by
again
filing
a
motion
to
dismiss
the
action
for
lack
of
personal
jurisdiction
and,
in
the
alternative,
to
transfer
the
action
to
the
U.S.
District
Court
for
the
Northern
District
of
California.
The
parties
are
negotiating
the
exchange
of
information
regarding
the
issue
of
personal
jurisdiction,
and
have
extended
the
plaintiffs'
deadline
to
respond
to
the
motion
pending
the
outcome
of
that
negotiation.
The
current
due
date
for
the
plaintiffs'
response
is
March
21,
2016.
We
believe
the
action
is
without
merit
and
intend
to
defend
ourselves
vigorously.

We
are
not
a
party
to
any
other
material
legal
proceedings
on
the
date
of
this
report.
We
may
from
time
to
time
become
involved
in
legal
proceedings
arising
in
the
ordinary
course
of
business,
and
the
resolution
of
any
such
claims
could
be
material.

ITEM
4.

Mine
Safety
Disclosure.

Not
applicable.

Table
of
Contents

ITEM
5.

Market
For
Registrant's
Common
Equity,
Related
Stockholder
Matters
And
Issuer
Purchases
Of
Equity
Securities.

Our
common
stock
has
been
publicly
traded
on
the
New
York
Stock
Exchange
under
the
symbol
"NVTA"
since
February
12,
2015.
Prior
to
that
time,
there
was
no
public
market
for
our
common
stock.
The
following
table
sets
forth
for
the
periods
indicated
the
high
and
low
sales
prices
per
share
of
our
common
stock
on
the
New
York
Stock
Exchange:

PART
II

Fiscal
year
ending
December
31,
2015

First
quarter
(beginning
February
12,
2015)
Second
quarter
Third
quarter
Fourth
quarter

Low

High

$ 16.30
$ 22.35

17.43

15.48

10.10

10.50

6.58

6.46

On
February
29,
2016,
the
closing
price
of
our
common
stock
as
reported
on
the
New
York
Stock
Exchange
was
$8.63
per
share.

As
of
February
29,
2016,
there
were
35
stockholders
of
record
of
our
common
stock.
The
actual
number
of
stockholders
is
greater
than
this
number
of
record
holders
and
includes
stockholders
who
are
beneficial
owners
but
whose
shares
are
held
in
street
name
by
brokers
and
other
nominees.

Dividend
policy

We
have
never
declared
or
paid
any
cash
dividends
on
our
capital
stock.
We
currently
intend
to
retain
any
future
earnings
and
do
not
expect
to
pay
any
dividends
in
the
foreseeable
future.
Any
determination
to
pay
dividends
in
the
future
will
be
at
the
discretion
of
our
board
of
directors
and
will
depend
on
our
financial
condition,
operating
results,
capital
requirements,
general
business
conditions
and
other
factors
that
our
board
of
directors
may
deem
relevant.
In
addition,
the
terms
of
our
Loan
Agreement
prohibit
the
payment
of
dividends.

Table
of
Contents

Stock
performance
graph

The
following
information
shall
not
be
deemed
to
be
soliciting
material
or
to
be
filed
with
the
SEC,
or
subject
to
Regulations
14A
or
14C
under
the
Securities
Exchange
Act
of
1934
("Exchange
Act")
or
to
the
liabilities
of
Section
18
of
the
Exchange
Act
nor
shall
such
information
be
incorporated
by
reference
into
any
future
filing
under
the
Securities
Act
or
the
Exchange
Act,
except
to
the
extent
that
we
specifically
incorporate
it
by
reference
into
such
filing.

Comparison
of
Historical
Cumulative
Total
Return
Among
Invitae
Corporation,
the
S&P
500
Index
and
the
S&P
500
Healthcare
Index(*).

(*)

The
above
graph
shows
the
cumulative
total
stockholder
return
of
an
investment
of
$100
in
cash
from
February
12,
2015
(the
date
our
common
stock
commenced
trading
on
the
New
York
Stock
Exchange)
through
December
31,
2015
for:
(i)
our
common
stock;
(ii)
the
S&P
500
Index;
and
(iii)
the
S&P
500
Healthcare
Index.
All
values
assume
reinvestment
of
the
full
amount
of
all
dividends.
The
comparisons
in
the
table
are
required
by
the
SEC
and
are
not
intended
to
be
forecasts
or
indicative
of
future
stockholder
returns.

Invitae
Corporation
S&P
500
S&P
500
Healthcare
Index

Use
of
proceeds

3/31/15

2/12/15
48.15

$ 100.00
$
97.87

$ 100.00
$

$ 100.00
$ 103.33
$ 105.84
$ 94.15
$ 102.41

87.27
$ 42.35
$
98.79
$ 91.93
$

98.30
$
99.01
$

12/31/15

6/30/15

9/30/15

On
February
18,
2015,
we
completed
an
initial
public
offering,
or
IPO,
of
our
common
stock.
In
connection
with
the
IPO,
we
issued
and
sold
7,302,500
shares
of
common
stock
at
a
price
to
the
public
of
$16.00
per
share.
As
a
result
of
the
IPO,
we
received
approximately
$116.8
million
in
gross
proceeds,
and
$105.7
million
in
net
proceeds
after
deducting
underwriting
discounts
and
commissions
of
$8.2
million
and
offering
expenses
of
approximately
$2.9
million
payable
by
us.
We
registered
the
shares
under
the
Securities
Act
of
1933
on
a
Registration
Statement
on
Form
S-1
(Registration
No.
333-201433),
which
was
declared
effective
on
February
11,
2015,
and
on
a
Registration
Statement
on
Form
S-1
(Registration
No.
333-202040),
which
was
declared
effective
on
February
11,
2015.
The
net
proceeds
from
the
offering
described
above
have
been
used
and
will
be
used
to
support
our
operations
including
funding
research
and
development,
selling
and
marketing
activities,
capital
expenditures
and
corporate
and
administrative
expenses.
There
has
been
no
material
change
in
the
planned
use
of
proceeds
from
our
IPO
as
described
in
our
final
prospectus
filed
with
the
SEC
on
February
12,
2015
pursuant
to
Rule
424(b).

Table
of
Contents

ITEM
6.

Selected
Financial
Data.

The
information
set
forth
below
should
be
read
together
with
"Item
7.
Management's
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations"
and
our
financial
statements
and
related
notes
included
elsewhere
in
this
report.
The
selected
consolidated
balance
sheet
data
at
December
31,
2015
and
2014
and
the
selected
consolidated
statements
of
operations
data
for
each
of
the
years
ended
December
31,
2015,
2014,
and
2013
have
been
derived
from
our
audited
consolidated
financial
statements
that
are
included
elsewhere
in
this
report.
The
selected
consolidated
balance
sheet
data
at
December
31,
2013
and
2012
and
the
selected
consolidated
statement
of
operations
data
for
the
year
ended
December
31,
2012
have
been
derived
from
our
audited
consolidated
financial
statements
not
included
in
this
report.
Historical
results
are
not
necessarily
indicative
of
results
to
be
expected
in
any
future
period.

Consolidated
Statements
of
Operations
Data:
Revenue
Costs
and
operating
expenses:

Cost
of
revenue(1)
Research
and
development(1)
Selling
and
marketing(1)
General
and
administrative(1)

Total
costs
and
operating
expenses(1)
Loss
from
operations
Other
income
(expense),
net
Interest
expense
Net
loss
Net
loss
attributable
to
common
stockholders(2)
Net
loss
per
share
attributable
to
common
stockholders,
basic
and

diluted(2)

2015

Year
Ended
December
31,
2013

2014

(In
thousands
except
share
and
per
share
data)

2012

8,378
$

1,604
$

148
$

—

5,624

22,063

8,669

12,600

48,956

(47,352)

(79)

(61)

16,523

42,806

22,479

16,047

97,855

(89,477)

(94)

(211)

667

16,039

2,431

5,764

24,901

(24,753)

(26)

(59)

(89,782) $ (47,492) $ (24,838) $
(89,782) $ (47,492) $ (24,989) $

—

5,557

—

3,004

(8,561)
(8,561)
2

(43)
(8,602)
(9,014)

(3.18) $

(56.14) $

(36.13) $

(14.18)

635,705

Shares
used
in
computing
net
loss
per
common
share,
basic
and
diluted

28,213,324

846,027

691,731

(1)

Includes
employee
stock-based
compensation
as
follows:

Year
Ended
December
31,

Cost
of
revenue
Research
and
development
Selling
and
marketing
General
and
administrative
Total
stock-based
compensation

2013

2012

2015

2014
(In
thousands)

368
$ 102
$

11
$ —

382

—

216

271

$ 3,477
$ 971
$ 260
$ 65

1,545

688

876

165

Table
of
Contents

(2)

See
Notes
2
and
10
to
our
audited
consolidated
financial
statement
included
elsewhere
in
this
report
for
an
explanation
of
the
calculations
of
our
basic
and
diluted
net
loss
per
share
attributable
to
common
stockholders.

Consolidated
Balance
Sheets
Data:
Cash
and
cash
equivalents
Working
capital
Total
assets
Capital
lease
obligations
Debt
Convertible
preferred
stock
Accumulated
deficit
Total
stockholders'
equity
(deficit)

2015

As
of
December
31,
2014

2013

(In
thousands)

2012

73,238
$ 107,027
$
120,433

156,676

3,164

7,040

—

102,020

128,778

3,535

—

202,305

(174,962)

138,376

(85,180)

(83,576)

43,070
$
41,577

53,103

2,001

—

86,574

(37,688)

(37,280)

21,801

21,043

25,973

1,215

—

36,755

(12,850)
(12,759)

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 our financial statements and the related
notes included in Item 8 of this report. Historic results are not necessarily indicative of future results.

Business
overview

Our
mission
is
to
bring
comprehensive
genetic
information
into
mainstream
medical
practice
to
improve
the
quality
of
healthcare
for
billions
of
people.
Our
goal
is
to
aggregate
most
of
the
world's
genetic
tests
into
a
single
service
with
higher
quality,
faster
turnaround
time
and
lower
pricing
than
many
single
gene
tests
today.
By
aggregating
large
numbers
of
currently
available
genetic
tests
into
a
single
service,
we
can
achieve
great
economies
of
scale
that
allow
us
to
not
only
provide
primary
single
gene
or
multi-gene
tests
but
also
to
generate
and
store
additional
genetic
information
on
behalf
of
the
patient
for
future
use.
We
refer
to
the
service
of
managing
genetic
information
over
the
course
of
disease
or
the
lifetime
of
a
patient
as
"genome
management."
In
addition,
as
more
individuals
gain
access
to
their
genetic
information,
we
believe
that
sharing
genetic
information
will
provide
an
economic
opportunity
for
patients
and
us
to
participate
in
advancing
the
understanding
and
treatment
of
disease.

We
launched
our
first
commercial
offering
in
November
2013
with
an
offering
of
more
than
200
genes.
In
October
2015,
we
expanded
our
test
menu
with
more
than
600
genes
in
production,
offering
tests
for
more
than
120
disorders
in
cardiovascular,
hereditary
cancer,
neurology,
pediatrics
and
other
rare
diseases.
These
important
additions
to
our
test
menu
were
the
result
of
a
series
of
process
improvements
that
enabled
us
to
further
expand
our
test
menu
throughout
the
course
of
2015
while
maintaining
our
strategy
of
lowering
the
cost
of
genetic
testing.

We
have
experienced
rapid
growth
in
recent
periods.
For
the
years
ended
December
31,
2015,
2014,
and
2013
our
revenue
was
$8.4
million,
$1.6
million
and
$0.1
million,
respectively.
For
the
years
ended
December
31,
2015,
2014
and
2013
we
incurred
net
losses
of
$89.8
million,
$47.5
million
and
$24.8
million,
respectively.
As
of
December
31,
2015,
we
had
an
accumulated
deficit
of
$175.0
million.
We
also
increased
our
number
of
employees
to
280
at
December
31,
2015
from
162
on
December
31,
2014.
Our
sales
force
grew
to
26
at
December
31,
2015
from
12
at
December
31,
2014.

Since
our
commercial
launch,
we
have
delivered
approximately
22,800
billable
tests
as
of
December
31,
2015.
Sales
of
our
tests
have
grown
significantly
from
approximately
3,600
billable
tests
in
the
year
ended
December
31,
2014
to
approximately
19,000
billable
tests
in
the
year
ended

Table
of
Contents

December
31,
2015,
which
we
believe
is
evidence
that
our
value
proposition
is
attractive
to
our
clients.
We
estimate
that
the
U.S.
market
for
hereditary
cancer
tests
is
greater
than
$650.0
million
per
year
and
thus
represents
a
key
growth
opportunity
for
us.
On
a
historical
basis
through
December
31,
2015,
approximately
30%
of
the
billable
tests
we
performed
have
been
billable
to
institutions
and
patients,
and
the
remainder
have
been
billable
to
third-party
payers.
Many
of
the
gene
tests
on
our
assay
are
tests
for
which
private
insurers
reimburse.
However,
because
we
do
not
have
reimbursement
policies
or
contracts
with
very
many
private
insurers,
our
claims
for
reimbursement
from
them
may
be
denied
upon
submission,
and
we
must
appeal
the
claims.
The
appeals
process
is
time
consuming
and
expensive,
and
may
not
result
in
payment.
Even
if
we
are
successful
in
achieving
reimbursement,
we
may
be
paid
at
lower
rates
than
if
we
were
under
contract
with
the
third-
party
payer.
When
there
is
not
a
contracted
rate
for
reimbursement,
there
is
typically
a
greater
co-insurance
or
co-payment
requirement
from
the
patient
which
may
result
in
further
delay
or
decreased
likelihood
of
collection.

We
intend
to
continue
to
invest
aggressively
in
our
business
and
to
incur
additional
expenditures
as
a
public
company.
In
2015
we
entered
into
a
lease
agreement
for
a
laboratory
and
headquarters
in
San
Francisco,
California.
This
lease
expires
in
July
2026
and
aggregate
future
minimum
lease
payments
for
the
new
facility
are
approximately
$72.0
million.
We
will
receive
a
$5.2
million
lease
incentive
in
the
form
of
reimbursement
of
payments
from
the
landlord
for
a
portion
of
the
costs
of
leasehold
improvements
we
make
to
the
laboratory
and
headquarters
facility.
We
expect
to
incur
capital
expenditures
for
the
laboratory
and
headquarters
facility
of
at
least
$5.2
million.

As
a
result
of
these
and
other
factors,
we
expect
to
incur
operating
losses
for
the
foreseeable
future
and
may
need
to
raise
additional
capital
in
order
to
fund
our
operations.
If
we
are
unable
to
achieve
our
revenue
growth
objectives
and
successfully
manage
our
costs,
we
may
not
be
able
to
achieve
profitability.

We
believe
that
the
keys
to
our
future
growth
will
be
to
steadily
increase
the
amount
of
genetic
content
we
offer,
consistently
improve
the
client
experience,
drive
physician
and
patient
utilization
of
our
website
for
ordering
and
delivery
of
results,
increase
the
number
of
partners
working
with
us
to
add
value
for
our
clients
and
consistently
drive
down
the
price
per
gene
for
genetic
analysis
and
interpretation.

Factors
affecting
our
performance

Ability to lower the costs associated with performing our tests

Reducing
the
costs
associated
with
performing
our
genetic
tests
is
both
a
near-term
focus
and
a
strategic
objective
of
ours.
Over
the
long
term
we
will
need
to
reduce
the
cost
of
raw
materials
by
improving
the
output
efficiency
of
our
assay
and
laboratory
processes,
modifying
our
platform-agnostic
assay
and
laboratory
processes
to
use
materials
and
technologies
that
provide
equal
or
greater
quality
at
lower
cost,
improving
how
we
manage
our
materials
and
negotiating
favorable
terms
for
our
materials
purchases.
We
also
intend
to
design
and
implement
hardware
and
software
tools
that
will
reduce
personnel
cost
for
both
laboratory
and
clinical
operations
by
increasing
personnel
efficiency
and
thus
lowering
labor
costs
per
test.

Ability to expand our genetic content

As
we
reduce
our
costs,
we
intend
to
continue
to
expand
our
test
menus
by
steadily
releasing
additional
genetic
content
for
the
same
or
lower
prices
per
test,
ultimately
leading
to
affordable
whole
genome
services.
The
breadth
and
flexibility
of
our
offering
will
be
a
critical
factor
in
our
ability
to
address
new
markets
for
genetic
testing
services.
Both
of
these
will
be
critical
to
our
ability
to
continue
to
grow
the
volume
of
billable
tests
we
deliver.

Table
of
Contents

Number of billable tests

The
growth
in
our
genetic
testing
business
is
tied
to
the
number
of
tests
for
which
we
bill
third-party
payers,
institutions
or
patients,
which
we
refer
to
as
billable
tests.
We
bill
for
our
services
following
delivery
of
the
billable
test
report
derived
from
testing
samples
and
interpreting
the
results.
We
incur
the
expenses
associated
with
a
test
in
the
period
in
which
the
test
is
processed
regardless
of
when
payment
is
received
with
respect
to
that
test.
We
believe
the
number
of
billable
tests
in
any
period
is
an
important
indicator
of
the
growth
in
our
business.

Success obtaining reimbursement

Our
ability
to
increase
the
number
of
billable
tests
and
our
revenue
will
depend
in
part
on
our
success
achieving
broad
reimbursement
coverage
for
our
tests
from
third-party
payers.
Reimbursement
may
depend
on
a
number
of
factors,
including
a
payer's
determination
that
a
test
is
appropriate,
medically
necessary
and
cost-effective.
Because
each
payer
makes
its
own
decision
as
to
whether
to
establish
a
policy
or
enter
into
a
contract
to
reimburse
for
our
testing
services,
seeking
these
approvals
is
a
time-consuming
and
costly
process.
In
addition,
clinicians
may
decide
not
to
order
our
tests
if
the
cost
of
the
test
is
not
covered
by
insurance.
Because
we
require
an
ordering
physician
to
requisition
a
test,
our
revenue
growth
also
depends
on
our
ability
to
successfully
promote
the
adoption
of
our
testing
services
and
expand
our
base
of
ordering
clinicians.
We
believe
that
establishing
coverage
from
third-party
payers,
including
the
Center
for
Medicare
and
Medicaid
Services,
or
CMS,
is
an
important
factor
in
gaining
adoption
by
ordering
clinicians.
We
have
received
approval
as
a
Medicare
provider,
which
allows
us
to
bill
for
our
services
to
Medicare
patients.
Further
we
have
entered
into
reimbursement
contracts
with
Blue
Shield
of
California,
SelectHealth,
Capital
Health
Plan
of
Florida
and
Ohio
State
Health
Plan.
In
October,
2015,
we
entered
into
a
National
Master
Business
Agreement
(the
"Agreement")
with
Blue
Cross
and
Blue
Shield
Association
("BCBSA").
The
Agreement
facilitates
our
ability
to
enter
into
supply
agreements
for
our
products
and
services
with
BCBSA
affiliates,
licensees
and
certain
other
entities.
The
Agreement
does
not
provide
for
the
sale
of
our
products
or
services
directly,
nor
is
there
any
commitment
by
BCBSA
to
purchase
products
or
services
from
us.
If
we
are
not
able
to
obtain
and
maintain
adequate
reimbursement
from
third-party
payers
for
our
testing
services
and
expand
the
base
of
clinicians
ordering
our
tests,
we
may
not
be
able
to
effectively
increase
the
number
of
billable
tests
or
our
revenue.

Investment in our business and timing of expenses

We
plan
to
continue
to
invest
significantly
in
our
genetic
testing,
genome
management
and
genome
network
business.
We
deploy
state-of-the-art
and
costly
technologies
in
our
genetic
testing
services,
and
we
intend
to
significantly
scale
our
infrastructure,
including
our
testing
capacity
and
information
systems.
We
also
expect
to
incur
software
development
costs
as
we
seek
to
further
automate
our
laboratory
processes
and
our
genetic
interpretation
and
report
sign-out
procedures,
to
scale
our
customer
service
capabilities
and
to
expand
the
functionality
of
our
website.
As
part
of
our
growth,
we
also
plan
to
hire
additional
personnel,
including
software
engineers,
sales
and
marketing
personnel,
research
and
development
personnel,
medical
specialists,
biostatisticians
and
geneticists.
We
will
also
incur
costs
to
build
out
our
new
laboratory.
In
addition,
we
expect
to
incur
additional
expenses
as
a
result
of
operating
as
a
public
company.
The
expenses
we
incur
may
vary
significantly
by
quarter,
as
we
focus
on
building
out
different
aspects
of
our
business.

How we recognize revenue

Our
historical
revenue
has
been
recognized
when
cash
is
received.
While
we
recognized
$0.4
million
of
revenue
on
an
accrual
basis
in
2015,
we
do
not
expect
to
recognize
significant
amounts
of
revenue
on
an
accrual
basis
for
some
period
of
time.
Until
we
achieve
and
maintain
a
predictable
pattern
of
collection
at
a
consistent
payment
amount
from
a
large
number
of
payers,
we
will
continue

Table
of
Contents

to
recognize
the
substantial
majority
of
our
revenue
when
cash
is
received.
Additionally,
as
we
commercialize
new
test
offerings,
we
will
need
to
achieve
a
predictable
pattern
of
collection
at
a
consistent
payment
amount
for
each
payer
for
each
new
product
offering
prior
to
being
able
to
recognize
the
related
test
revenue
on
an
accrual
basis.
Because
the
timing
and
amount
of
cash
payments
received
from
payers
is
difficult
to
predict,
we
expect
that
our
revenue
will
fluctuate
significantly
in
any
given
quarter.
We
anticipate
that
the
number
of
payers
for
whom
we
recognize
revenue
upon
delivery
of
test
results
will
increase
in
the
future.

For
the
years
ended
December
31,
2015,
2014
and
2013,
amounts
billed
for
tests
delivered
totaled
$24.3
million,
$6.6
million
and
$0.3
million,
respectively.
In
2015,
we
recognized
revenue,
when
cash
was
received,
of
$6.6
million
related
to
amounts
billed
for
tests
delivered
during
2015
and
$1.4
million
related
to
amounts
billed
for
tests
delivered
during
2014.
It
is
difficult
to
predict
future
revenue
from
previously
delivered
but
unpaid
tests.
Accordingly,
we
cannot
provide
any
assurance
as
to
when,
if
ever,
or
to
what
extent
any
of
these
amounts
will
be
collected.
Because
we
are
in
the
early
stages
of
commercializing
our
tests,
we
have
had
limited
payment
and
collection
history.
Notwithstanding
our
efforts
to
obtain
payment
for
these
tests,
payers
may
deny
our
claims,
in
whole
or
in
part,
and
we
may
never
receive
revenue
from
any
previously
delivered
but
unpaid
tests.
Revenue
from
these
tests,
if
any,
may
not
be
equal
to
the
billed
amount
due
to
a
number
of
factors,
including
differences
in
reimbursement
rates,
the
amounts
of
patient
co-payments,
the
existence
of
secondary
payers
and
claims
denials.

We
incur
and
recognize
expenses
for
tests
in
the
period
in
which
the
test
is
conducted
and
recognize
revenue
for
tests
in
the
period
in
which
our
revenue
recognition
criteria
are
met.
Accordingly,
any
revenue
that
we
receive
in
respect
of
previously
delivered
but
unpaid
tests
will
favorably
impact
our
results
of
operations
in
future
periods.

Financial
overview

Revenue

We
generate
revenue
from
the
sale
of
our
tests
which
provide
the
analysis
and
associated
interpretation
of
the
sequencing
of
parts
of
the
genome.
Clients
are
billed
upon
delivery
of
test
results
to
the
physician.
For
most
of
our
customers,
we
do
not
have
sufficient
history
of
collection
and
are
not
yet
able
to
determine
a
predictable
pattern
of
collection,
and
therefore
we
currently
recognize
revenue
when
cash
is
received.
Our
ability
to
increase
our
revenue
will
depend
on
our
ability
to
increase
our
market
penetration,
obtain
contracted
reimbursement
coverage
from
third-party
payers
and
increase
the
rate
at
which
we
are
paid
for
tests
performed.

Cost of revenue

Cost
of
revenue
reflects
the
aggregate
costs
incurred
in
delivering
test
results
to
clinicians
and
includes
expenses
for
materials
and
supplies,
personnel
costs,
equipment
and
infrastructure
expenses
associated
with
testing
and
allocated
overhead
including
rent,
equipment
depreciation
and
utilities.
Costs
associated
with
performing
our
test
are
recorded
as
the
patient's
sample
is
processed
regardless
of
whether
and
when
revenue
is
recognized
with
respect
to
that
test.
As
a
result,
our
cost
of
revenue
as
a
percentage
of
revenue
may
vary
significantly
from
period
to
period
because
we
generally
do
not
recognize
revenue
in
the
period
in
which
costs
are
incurred.
We
expect
cost
of
revenue
to
generally
increase
in
line
with
the
increase
in
the
number
of
tests
we
perform.
However,
we
expect
that
the
cost
per
test
will
decrease
over
time
due
to
the
efficiencies
we
may
gain
as
test
volume
increases
and
from
automation
and
other
cost
reductions.

Operating expenses

Our
operating
expenses
are
classified
into
three
categories:
research
and
development,
selling
and
marketing,
and
general
and
administrative.
For
each
category,
the
largest
component
is
personnel
costs,

Table
of
Contents

which
include
salaries,
employee
benefit
costs,
bonuses,
commissions,
as
applicable,
and
stock-based
compensation
expense.

Research and development

Research
and
development
expenses
represent
costs
incurred
to
develop
our
technology
and
future
tests.
These
costs
are
principally
for
process
development
associated
with
our
efforts
to
expand
the
number
of
genes
we
can
evaluate
in
our
tests,
with
our
efforts
to
lower
the
cost
of
performing
our
test.
In
addition,
we
incur
process
development
costs
to
further
develop
the
software
we
use
to
operate
our
laboratory,
analyze
the
data
it
generates,
process
customer
orders,
deliver
reports
and
automate
our
business
processes.
These
costs
consist
of
personnel
costs,
laboratory
supplies
and
equipment
expenses,
consulting
costs
and
allocated
overhead
including
rent,
information
technology,
equipment
depreciation
and
utilities.

We
expense
all
research
and
development
costs
in
the
periods
in
which
they
are
incurred.
We
expect
our
research
and
development
expenses
will
increase
slightly
over
the
next
12
months
as
we
continue
to
invest
in
research
and
development
activities
related
to
developing
additional
tests
and
reducing
testing
costs.

Selling and marketing

Selling
and
marketing
expenses
consist
of
personnel
costs,
client
service
expenses,
direct
marketing
expenses,
educational
and
promotional
expenses,
market
research
and
analysis,
and
allocated
overhead
including
rent,
information
technology,
equipment
depreciation
and
utilities.
We
expect
our
selling
expenses
will
increase
over
the
next
12
months,
primarily
driven
by
the
cost
of
hiring
additional
sales
account
executives
associated
with
efforts
to
further
penetrate
the
domestic
market.

General and administrative

General
and
administrative
expenses
include
executive,
finance
and
accounting,
legal
and
human
resources
functions.
These
expenses
include
personnel-
related
costs,
audit
and
legal
expenses,
consulting
costs,
and
allocated
overhead
including
rent,
information
technology,
equipment
depreciation
and
utilities.
We
expect
our
general
and
administrative
expenses
will
increase
over
the
next
12
months
as
we
scale
our
operations
and
as
we
continue
to
incur
expenses
related
to
operating
as
a
public
company,
including
expenses
related
to
compliance
with
the
rules
and
regulations
of
the
SEC
and
the
New
York
Stock
Exchange,
additional
insurance
expenses,
investor
relations
activities
and
other
administration
and
professional
services.

Other income (expense), net

Other
income
(expense),
net,
primarily
consists
of
interest
income
and
the
net
exchange
gain/loss
on
foreign
currency
transactions
related
to
the
operations
of
our
subsidiary
in
Chile.

Interest expense

Interest
expense
is
attributable
to
our
financing
obligations
under
capital
lease
agreements
and
our
Loan
and
Security
Agreement,
all
executed
in
connection
with
the
purchase
of
laboratory
equipment.

Critical
accounting
policies
and
estimates

Management's
discussion
and
analysis
of
our
financial
condition
and
results
of
operations
is
based
on
our
consolidated
financial
statements,
which
have
been
prepared
in
accordance
with
U.S.
generally
accepted
accounting
principles,
or
U.S.
GAAP.
The
preparation
of
these
financial
statements
requires
us
to
make
estimates
and
assumptions
that
affect
the
reported
amounts
of
assets
and
liabilities
and
the
disclosure
of
contingent
assets
and
liabilities
at
the
date
of
the
financial
statements,
as
well
as
the

Table
of
Contents

reported
revenue
generated
and
expenses
incurred
during
the
reporting
periods.
Our
estimates
are
based
on
our
historical
experience
and
on
various
other
factors
that
we
believe
are
reasonable
under
the
circumstances,
the
results
of
which
form
the
basis
for
making
judgments
about
the
carrying
value
of
assets
and
liabilities
that
are
not
readily
apparent
from
other
sources.
Actual
results
may
differ
from
these
estimates
under
different
assumptions
or
conditions
and
any
such
differences
may
be
material.
We
believe
that
the
accounting
policies
discussed
below
are
critical
to
understanding
our
historical
and
future
performance,
as
these
policies
relate
to
the
more
significant
areas
involving
management's
judgments
and
estimates.

Revenue recognition

We
generate
revenue
from
delivery
of
test
reports
generated
from
our
assay
of
over
600
genes.
Revenue
is
recognized
when
persuasive
evidence
of
an
arrangement
exists;
delivery
has
occurred
or
services
have
been
rendered;
the
fee
is
fixed
or
determinable;
and
collectability
is
reasonably
assured.
The
assessment
of
the
fixed
or
determinable
nature
of
the
fees
charged
for
testing
performed
and
the
collectability
of
those
fees
require
significant
judgment
by
management.
When
evaluating
these
criteria,
we
consider
whether
we
have
sufficient
history
to
reliably
estimate
a
payer's
payment
pattern.
We
review
the
number
of
tests
paid
against
the
number
of
tests
billed
over
a
period
of
at
least
several
months
and
the
payer's
outstanding
balance
for
unpaid
tests
to
determine
whether
payments
are
being
made
at
a
consistently
high
percentage
of
tests
billed
and
at
appropriate
amounts
given
the
amount
billed.
For
most
payers,
we
have
not
been
able
to
demonstrate
a
predictable
pattern
of
collectability,
and
therefore
recognize
revenue
when
payment
is
received.
For
payers
who
have
demonstrated
a
consistent
pattern
of
payment
of
tests
billed
at
appropriate
amounts,
we
recognize
revenue
upon
delivery
of
test
results.

Deferred tax assets

We
use
the
liability
method
of
accounting
for
income
taxes.
Under
this
method,
deferred
tax
assets
and
liabilities
are
determined
based
on
the
differences
between
the
financial
reporting
and
the
tax
bases
of
assets
and
liabilities
and
are
measured
using
the
enacted
tax
rates
and
laws
that
will
be
in
effect
when
the
differences
are
expected
to
reverse.
We
assess
the
likelihood
that
the
resulting
deferred
tax
assets
will
be
realized.
A
valuation
allowance
is
provided
when
it
is
more
likely
than
not
that
some
portion
or
all
of
a
deferred
tax
asset
will
not
be
realized.

Stock-based compensation

Stock-based
compensation
expense
is
measured
at
the
date
of
grant,
based
on
the
estimated
fair
value
of
the
award
and
recognized
as
an
expense
over
the
employee's
requisite
service
period
on
a
straight-line
basis.
We
estimate
the
grant
date
fair
value,
and
the
resulting
stock-based
compensation
expense,
using
the
Black-Scholes
option-pricing
model.

We
account
for
stock-based
compensation
arrangements
with
non-employees
using
a
fair
value
approach.
The
fair
value
of
these
options
is
measured
using
the
Black-Scholes
option-pricing
model
reflecting
the
same
assumptions
as
applied
to
employee
options
in
each
of
the
reported
periods,
other
than
the
expected
life,
which
is
assumed
to
be
the
remaining
contractual
life
of
the
option.
The

Table
of
Contents

compensation
expenses
of
these
arrangements
are
subject
to
remeasurement
over
the
vesting
terms
as
earned.

We
recorded
stock-based
compensation
expense
of
$3.5
million,
$1.0
million
and
$0.3
million
for
the
years
ended
December
31,
2015,
2014
and
2013.
As
of
December
31,
2015,
we
had
$14.6
million
of
unrecognized
stock-based
compensation
expense,
net
of
estimated
forfeitures,
which
we
expect
to
recognize
over
a
weighted-average
period
of
3.3
years.

The
Black-Scholes
option-pricing
model
requires
the
use
of
highly
subjective
assumptions
which
determine
the
fair
value
of
stock-based
awards.
These
assumptions
include:

Expected term —The
expected
term
represents
the
period
that
stock-based
awards
are
expected
to
be
outstanding.
We
used
the
simplified
method
to
determine
the
expected
term,
which
is
based
on
the
mid-point
between
the
vesting
date
and
the
end
of
the
contractual
term.

Expected volatility —Since
we
were
privately
held
up
to
our
initial
public
offering
in
February
2015
and
did
not
have
any
trading
history
for
our
common
stock,
the
expected
volatility
was
estimated
based
on
the
average
volatility
for
comparable
publicly
traded
life
sciences,
including
molecular
diagnostics,
companies
over
a
period
equal
to
the
expected
term
of
the
stock
option
grants.
When
selecting
comparable
publicly
traded
life
sciences,
including
molecular
diagnostics,
companies
on
which
we
based
our
expected
stock
price
volatility,
we
selected
companies
with
comparable
characteristics
to
us,
including
enterprise
value,
risk
profiles,
position
within
the
industry,
and
with
historical
share
price
information
sufficient
to
meet
the
expected
life
of
the
stock-based
awards.
The
historical
volatility
data
was
computed
using
the
daily
closing
prices
for
the
selected
companies'
shares
during
the
equivalent
period
of
the
calculated
expected
term
of
the
stock-based
awards.
We
will
continue
to
apply
this
process
until
a
sufficient
amount
of
historical
information
regarding
the
volatility
of
our
own
stock
price
becomes
available.

Risk-free interest rate —The
risk-free
interest
rate
is
based
on
the
U.S.
Treasury
zero
coupon
issues
in
effect
at
the
time
of
grant
for
periods
corresponding
with
the
expected
term
of
an
option.

Dividend yield —We
have
never
paid
dividends
on
our
common
stock
and
have
no
plans
to
pay
dividends
on
our
common
stock.
Therefore,
we
used
an
expected
dividend
yield
of
zero.

In
addition
to
the
Black-Scholes
assumptions,
we
estimate
our
forfeiture
rate
based
on
an
analysis
of
our
actual
forfeitures
and
will
continue
to
evaluate
the
adequacy
of
the
forfeiture
rate
based
on
actual
forfeiture
experience,
analysis
of
employee
turnover
behavior,
and
other
factors.
The
impact
from
any
forfeiture
rate
adjustment
would
be
recognized
in
full
in
the
period
of
adjustment
and
if
the
actual
number
of
future
forfeitures
differs
from
our
estimates,
we
might
be
required
to
record
adjustments
to
stock-based
compensation
in
future
periods.

Historically,
for
all
periods
prior
to
our
initial
public
offering,
the
fair
values
of
the
shares
of
common
stock
underlying
our
share-based
awards
were
estimated
on
each
grant
date
by
our
board
of
directors.
In
order
to
determine
the
fair
value
of
our
common
stock
underlying
option
grants,
our
board
of
directors
considered,
among
other
things,
contemporaneous
valuations
of
our
common
stock
prepared
by
an
independent
third-party
valuation
firm
in
accordance
with
the
guidance
provided
by
the
American
Institute
of
Certified
Public
Accountants
Practice
Guide,
Valuation of Privately-Held-Company Equity Securities Issued as
Compensation .
Given
the
absence
of
a
public
trading
market
for
our
common
stock,
our
board
of
directors
exercised
reasonable
judgment
and
considered
a
number
of
objective
and
subjective
factors
to
determine
the
best
estimate
of
the
fair
value
of
our
common
stock,
including
our
stage
of
development;
progress
of
our
research
and
development
efforts;
our
operating
and
financial
performance,
including
our
levels
of
available
capital
resources;
the
rights,
preferences
and
privileges
of
our
convertible
preferred
stock
relative
to
those
of
our
common
stock;
sales
of
our
convertible
preferred
stock
in
arms'-length
transactions;
the
valuation
of
publicly
traded
companies
in
our
industry,
as
well
as
recently
completed
mergers
and
acquisitions
of
peer
companies;
equity
market
conditions
affecting
comparable
public
companies;
and
the
lack
of
marketability
of
our
common
stock.

Table
of
Contents

In
determining
a
fair
value
for
our
common
stock,
we
estimated
the
enterprise
value
of
our
business
using
the
market
approach
or
option
pricing
back-solve
method.
The
estimated
enterprise
value
is
then
allocated
to
the
common
stock
using
the
Option
Pricing
Method,
or
OPM,
and
the
Probability
Weighted
Expected
Return
Method,
or
PWERM,
or
the
hybrid
method.
The
hybrid
method
applied
the
PWERM
utilizing
the
probability
of
two
public
offering
exit
scenarios
with
a
low
and
high
value,
and
the
OPM
was
utilized
in
the
remaining
private
scenario.

For
valuations
after
the
completion
of
our
initial
public
offering,
our
board
of
directors
determines
the
fair
value
of
each
share
of
underlying
common
stock
based
on
the
closing
price
of
our
common
stock
as
reported
on
the
date
of
grant.

Results
of
Operations

Comparison of the Years Ended December 31, 2015 and 2014

Revenue
Operating
expenses:
Cost
of
revenue
Research
and
development
Selling
and
marketing
General
and
administrative
Total
operating
expenses

Loss
from
operations
Other
income
(expense),
net
Interest
expense
Net
loss

Year
Ended

December
31,

2015

2014
(In
thousands)

Dollar

Change

8,378
$

1,604
$

6,774

422%

16,523

42,806

22,479

16,047

97,855

(89,477)

(94)

(211)

10,899

20,743

13,810

3,447

48,899

(42,125)

(15)

(150)

$ (89,782) $ (47,492) $ (42,290)

5,624

22,063

8,669

12,600

48,956

(47,352)

(79)

(61)

194%
94%
159%
27%
100%
89%
19%
246%
89%

Revenue

The
increase
in
revenue
of
$6.8
million
for
the
year
ended
December
31,
2015
compared
to
the
same
period
in
2014
was
due
to
increased
test
volume,
which
resulted
in
increased
cash
collections.
Approximately
$7.0
million
of
revenue
in
the
year
ended
December
31,
2015
was
from
cash
collections
for
tests
delivered
in
2015.
In
addition,
we
recorded
$0.4
million
of
revenue
in
2015
on
an
accrual
basis.

Cost of revenue

Cost
of
revenue
increased
principally
as
a
result
of
increased
test
volume.
For
the
year
ended
December
31,
2015,
the
number
of
billed
test
results
delivered
increased
to
approximately
19,000
from
approximately
3,600
for
the
same
period
in
2014.

The
increase
in
the
cost
of
revenue
of
$10.9
million
for
the
year
ended
December
31,
2015
compared
to
the
same
period
in
2014
was
primarily
due
to
costs
associated
with
increased
testing
activities.
Reagent
and
laboratory
materials
costs
increased
by
$4.2
million
and
personnel
costs
increased
by
$4.1
million
due
to
the
increase
in
headcount
and
increased
time
spent
processing
revenue-generating
tests.
In
addition,
costs
associated
with
the
use
of
equipment
increased
by
$1.6
million
and
allocated
technology
and
facilities-related
expenses
increased
by
$0.5
million.

Table
of
Contents

Research and development

The
increase
in
research
and
development
expenses
of
$20.7
million
for
the
year
ended
December
31,
2015
compared
to
the
same
period
in
2014
was
primarily
driven
by
costs
related
to
the
continued
development
of
our
assay
platform.
Personnel
costs
increased
by
$9.3
million
reflecting
additional
headcount,
and
allocated
technology
and
facilities-related
expenses
increased
by
$5.5
million
due
to
the
expansion
of
our
operations.
In
addition,
outside
consultant
costs
increased
by
$2.8
million,
principally
for
alternative
research
and
development
projects,
costs
of
reagents
and
laboratory
materials
increased
by
$1.7
million
and
costs
associated
with
the
use
of
testing
and
other
equipment
increased
by
$1.0
million.

Selling and marketing

The
increase
in
selling
and
marketing
expenses
of
$13.8
million
for
the
year
ended
December
31,
2015
compared
to
the
same
period
in
2014
was
due
primarily
to
increased
personnel
costs
of
$6.5
million,
reflecting
additional
headcount,
an
increase
of
$2.9
million
as
the
result
of
our
expansion
and
an
increase
in
marketing
collaborations
costs
of
$1.3
million.
Outside
consultant
costs
increased
by
$0.7
million,
and
costs
associated
with
trade
show-related
expenses
increased
by
$0.6
million.
Other
costs,
including
focus
groups
and
online
advertising,
increased
by
$0.9
million
and
costs
associated
with
software
and
software
licenses
increased
by
$0.7
million.

General and administrative

The
increase
in
general
and
administrative
expenses
of
$3.4
million
for
the
year
ended
December
31,
2015
compared
to
the
same
period
in
2014
was
primarily
due
to
an
increase
in
personnel
costs
of
$4.2
million
and
an
increase
in
travel
costs
of
$0.4
million,
both
reflecting
increased
headcount.
Professional
services
costs
increased
by
$1.4
million,
principally
for
recruitment
and
public
relations
services,
and
billings
and
collection
costs
increased
by
$0.8
million
reflecting
increased
revenue
activities.
Costs
associated
with
operating
as
a
public
company
increased
by
$0.6
million.
In
addition,
external
accounting
and
audit
fees
increased
by
$0.4
million
due
principally
to
costs
incurred
in
the
first
quarter
related
to
the
2014
annual
audit.
The
effect
of
these
cost
increases
was
partially
offset
by
a
$2.9
million
decrease
in
allocated
technology
and
facilities-related
expenses
reflecting
increased
allocations
of
costs
to
research
and
development
and
sales
and
marketing
in
2015
due
to
increased
headcount
and
activities
in
those
departments.
In
addition,
legal
costs
decreased
by
$2.0
million
primarily
due
to
the
dismissal
of
the
Myriad
litigation
in
the
first
quarter
of
2015.

Table
of
Contents

Comparison of the Years Ended December 31, 2014 and 2013

Revenue
Operating
expenses:
Cost
of
revenue
Research
and
development
Selling
and
marketing
General
and
administrative
Total
operating
expenses

Loss
from
operations
Other
income
(expense),
net
Interest
expense
Net
loss

Year
Ended

December
31,

2014

2013
(In
thousands)

Dollar

Change

1,604
$

148
$

1,456

984%

5,624

22,063

8,669

12,600

48,956

(47,352)

(79)

(61)

4,957

6,024

6,238

6,836

24,055

(22,559)

(53)

(2)

$ (47,492) $ (24,838) $ (22,654)

667

16,039

2,431

5,764

24,901

(24,753)

(26)

(59)

743%
38%
257%
119%
97%
91%
204%
3%
91%

Revenue

Revenue
increased
$1.5
million,
or
984%,
in
the
year
ended
December
31,
2014
compared
to
the
same
period
in
2013.
The
increase
is
due
to
an
increase
in
the
adoption
of
our
test,
which
resulted
in
an
increase
in
cash
collections
during
2014.
Revenue
for
the
year
ended
December
31,
2013
resulted
from
an
early
access
program
we
offered
beginning
in
the
first
quarter
of
2013.

Cost of revenue

Cost
of
revenue
increased
$5.0
million,
or
743%,
in
the
year
ended
December
31,
2014
compared
to
the
same
period
in
2013.
This
increase
was
primarily
due
to
a
$3.2
million
increase
in
costs
of
reagents,
laboratory
materials
and
test
validation
costs
and
a
$1.5
million
increase
in
personnel
costs
related
to
the
increase
in
headcount.
The
number
of
billed
test
results
delivered
increased
to
approximately
3,600
for
the
year
ended
December
31,
2014
from
over
200
for
the
same
period
in
2013.

Research and development

Research
and
development
expenses
increased
$6.0
million,
or
38%,
for
the
year
ended
December
31,
2014
compared
to
the
same
period
in
2013.
The
increase
was
primarily
driven
by
a
$4.1
million
increase
in
personnel
costs
related
to
the
increase
in
headcount,
a
$1.4
million
increase
in
allocated
facilities-
related
expenses
due
to
the
expansion
of
our
operations
into
two
additional
locations
and
a
$0.5
million
increase
in
costs
of
laboratory
materials
and
laboratory
equipment
maintenance.

Selling and marketing

Selling
and
marketing
expenses
increased
$6.2
million,
or
257%,
for
the
year
ended
December
31,
2014
compared
to
the
same
period
in
2013.
The
increase
was
due
to
a
$3.7
million
increase
in
personnel
costs
and
travel
related
expenses
due
to
the
increase
in
headcount,
a
$1.0
million
increase
in
conferences,
marketing
activities
and
trade
show-related
expenses,
a
$0.8
million
increase
in
consulting
fees
incurred
in
connection
with
various
marketing
and
branding
activities,
and
a
$0.6
million
increase
related
to
an
increase
in
allocated
technology
and
facilities
related
expenses
as
the
result
of
our
office
expansion.

Table
of
Contents

General and administrative

General
and
administrative
expenses
increased
$6.8
million,
or
119%,
for
the
year
ended
December
31,
2014
compared
to
the
same
period
in
2013.
The
increase
was
due
to
a
$2.5
million
increase
in
legal
costs
incurred
primarily
related
to
the
Myriad
litigation
matter,
a
$2.1
million
increase
in
personnel
costs
resulting
from
an
increase
in
headcount,
a
$1.0
million
increase
in
professional
services
to
support
our
increasing
infrastructure
as
we
expanded
our
operations
and
prepared
to
become
a
public
company
and
a
$1.0
million
increase
related
to
an
increase
in
allocated
technology
and
facilities
related
expenses
as
the
result
of
our
office
expansion.

Liquidity
and
capital
resources

Liquidity and capital expenditures

We
have
incurred
net
losses
since
our
inception.
For
the
years
ended
December
31,
2015,
2014
and
2013,
we
had
net
losses
of
$89.8
million,
$47.5
million
and
$24.8
million,
respectively,
and
we
expect
to
incur
additional
losses
in
the
foreseeable
future.
As
of
December
31,
2015,
we
had
an
accumulated
deficit
of
$175.0
million.
To
date,
we
have
generated
only
limited
revenue,
and
we
may
never
achieve
revenue
sufficient
to
offset
our
expenses.

Since
inception,
our
operations
have
been
financed
primarily
by
net
proceeds
of
$202.3
million
from
sales
of
our
convertible
preferred
stock
and
net
proceeds
of
approximately
$105.7
million
from
our
initial
public
offering.
In
addition,
we
have
entered
into
various
capital
lease
agreements
for
an
aggregate
financing
amount
of
$8.2
million
from
inception
through
December
31,
2015
to
obtain
laboratory
equipment.
The
terms
of
the
capital
leases
are
typically
three
years.
Interest
rates
for
currently
outstanding
capital
leases
range
from
3.8%
to
4.3%
and
the
leases
are
secured
by
the
underlying
equipment.

In
July
2015,
we
entered
into
a
Loan
and
Security
Agreement,
or
Loan
Agreement
with
a
bank
under
which
term
loans
for
purchases
of
equipment
up
to
an
aggregate
of
$15.0
million
are
available
in
tranches
not
to
exceed
$2.0
million,
other
than
the
initial
$2.5
million
tranche
on
the
date
of
the
Loan
Agreement.
We
may
request
additional
tranches
to
finance
the
purchase
of
equipment
through
December
31,
2016,
subject
to
certain
restrictions.
The
term
loans
under
the
Loan
Agreement
bear
interest
at
a
floating
rate
equal
to
0.25%
below
the
prime
rate
as
published
in
the
Wall
Street
Journal
effective
on
the
date
the
change
in
the
prime
rate
becomes
effective.
We
are
required
to
repay
the
outstanding
principal
and
accrued
but
unpaid
interest
on
each
tranche
in
equal
monthly
installments
beginning
one
month
after
each
advance
and
ending
on
July
17,
2020,
or
the
Term
Date.
Any
then-unpaid
principal
and
interest
on
advances
under
the
Loan
Agreement
are
payable
on
the
Term
Date.
We
may,
at
our
option,
prepay
the
borrowings
by
paying
the
Bank
a
prepayment
premium.
At
December
31,
2015,
we
had
borrowed
a
total
of
$7.5
million
under
the
loan
agreement
and
our
outstanding
balance
payable
to
the
lender
at
December
31,
2015
was
$7.0
million.
Our
obligations
under
the
Loan
Agreement
are
subject
to
covenants,
including
covenants
to
maintain
a
minimum
liquidity
level
with
the
bank,
and
additional
covenants
limiting
our
ability
to
dispose
of
assets,
undergo
a
change
in
control,
merge
with
or
acquire
other
entities,
incur
debt,
incur
liens,
pay
dividends
or
other
distributions
to
holders
of
our
capital
stock,
repurchase
stock
and
make
investments,
in
each
case
subject
to
certain
exceptions.
As
of
December
31,
2015,
we
were
in
compliance
with
all
covenants
under
the
Loan
Agreement.
Our
obligations
under
the
Loan
Agreement
are
secured
by
a
security
interest
on
substantially
all
of
our
assets,
excluding
our
intellectual
property
and
certain
other
assets.

We
anticipate
our
capital
expenditures
in
2016
will
be
approximately
$5.6
million
and
will
be
funded
principally
by
advances
under
the
Loan
Agreement
and
reimbursement
for
a
portion
of
the
costs
of
leasehold
improvements
we
plan
to
make
to
our
new
laboratory
and
headquarters
facility.
See
Note
5,
"Commitments
and
contingencies"
in
the
Notes
to
Consolidated
Financial
Statements.

Table
of
Contents

As
of
December
31,
2015
and
2014,
we
had
$127.0
million
and
$107.0
million,
respectively,
of
cash,
cash
equivalents,
and
marketable
securities.

Our
primary
uses
of
cash
are
to
fund
our
operations
as
we
continue
to
grow
our
business.
Cash
used
to
fund
operating
expenses
is
affected
by
the
timing
of
when
we
pay
expenses,
as
reflected
in
the
change
in
our
outstanding
accounts
payable
and
accrued
expenses.

We
believe
that
our
existing
cash
and
cash
equivalents
as
of
December
31,
2015
will
be
sufficient
to
meet
our
anticipated
cash
requirements
for
at
least
the
next
12
months.
However,
we
may
in
the
future
elect
to
finance
operations
by
selling
equity
or
debt
securities.
If
we
raise
funds
by
issuing
equity
securities,
dilution
to
stockholders
may
result.
Any
equity
securities
issued
may
also
provide
for
rights,
preferences
or
privileges
senior
to
those
of
holders
of
our
common
stock.
If
we
raise
funds
by
issuing
debt
securities,
these
debt
securities
would
have
rights,
preferences
and
privileges
senior
to
those
of
holders
of
our
common
stock.
The
terms
of
debt
securities
or
borrowings
could
impose
significant
restrictions
on
our
operations.
If
additional
funding
is
required,
there
can
be
no
assurance
that
additional
funds
will
be
available
to
us
on
acceptable
terms
on
a
timely
basis,
if
at
all,
or
that
we
will
generate
sufficient
cash
from
operations
to
adequately
fund
our
operating
needs
or
sustain
profitability.
If
we
are
unable
to
raise
additional
capital
or
generate
sufficient
cash
from
operations
to
adequately
fund
our
operations,
we
will
need
to
curtail
planned
activities
to
reduce
costs.
Doing
so
will
likely
have
an
unfavorable
effect
on
our
ability
to
execute
on
our
business
plan.

The
following
table
summarizes
our
cash
flows
for
the
years
ended
December
31,
2015,
2014
and
2013:

Cash
used
in
operating
activities
Cash
used
in
investing
activities
Cash
provided
by
financing
activities

Cash flows from operating activities

2015

Years
Ended
December
31,
2014
(in
thousands)

$ (80,655) $ (42,440) $ (23,030)
(4,580)
48,879

112,438

113,113

(65,572)

(6,716)

2013

For
the
year
ended
December
31,
2015,
cash
used
in
operating
activities
of
$80.7
million
principally
resulted
from
our
net
loss
of
$89.8
million
offset
by
non-
cash
charges
of
$5.3
million
for
depreciation
and
amortization,
$3.5
million
for
stock-based
compensation
and
$0.6
million
for
amortization
of
premiums
on
marketable
securities.
The
net
effect
on
cash
of
changes
in
net
operating
assets
was
$0.3
million.

For
the
year
ended
December
31,
2014,
cash
used
in
operating
activities
was
$42.4
million.
The
net
cash
outflow
from
operations
primarily
resulted
from
our
net
loss
of
$47.5
million
offset
by
non-cash
charges
of
$2.3
million
for
depreciation
and
amortization,
and
$1.0
million
for
stock-based
compensation.
The
change
in
net
operating
assets
of
$1.7
million
was
primarily
due
to
an
increase
in
accounts
payable
and
accrued
liabilities
of
$4.5
million
due
to
the
growth
in
our
business,
partially
offset
by
an
increase
in
prepaid
expenses
of
$1.9
million
related
to
an
increase
in
prepaid
equipment
maintenance
fees
and
software
license
fees
of
$0.5
million
and
an
increase
in
laboratory
materials
of
$1.4
million,
and
an
increase
in
other
assets
of
$0.4
million
primarily
related
to
security
deposits
on
our
new
office
leases.

For
the
year
ended
December
31,
2013,
cash
used
in
operating
activities
of
$23.0
million
primarily
resulted
from
our
net
loss
of
$24.8
million
offset
by
$0.9
million
for
depreciation
and
amortization
and
non-cash
charges
of
$0.3
million
for
stock-based
compensation.
The
increase
in
net
operating
assets
of
$0.6
million
was
primarily
due
to
the
$1.0
million
increase
in
payables
to
suppliers
and
partially
offset

Table
of
Contents

by
the
increase
in
prepaid
expenses
of
$0.4
million
mainly
related
to
the
increase
in
tenant
incentive
receivables
due
from
the
landlord
of
our
new
office.

Cash flows from investing activities

For
the
year
ended
December
31,
2015,
cash
used
in
investing
activities
of
$65.6
million
was
primarily
due
to
purchases
of
marketable
securities
exceeding
proceeds
from
sales
and
maturities
of
marketable
securities
by
$54.4
million
and
purchases
of
property
and
equipment
of
$6.5
million.
In
addition,
restricted
cash
increased
by
$4.7
million
due
to
deposits
for
our
new
facility
lease
executed
in
September
2015
and
compensating
balances
for
our
Loan
Agreement
executed
in
July
2015.

For
the
years
ended
December
31,
2014
and
2013,
cash
used
in
investing
activities
of
$6.7
million
and
$4.6
million,
respectively,
was
primarily
due
to
purchases
of
property
and
equipment.

Cash flows from financing activities

Cash
provided
by
financing
activities
for
the
year
ended
December
31,
2015
of
$112.4
million
consisted
primarily
of
$107.1
million
of
net
proceeds
from
our
initial
public
offering
completed
in
February
2015
and
borrowings
of
$7.5
million
under
the
Loan
Agreement
executed
in
July
2015,
partially
offset
by
payments
of
$2.0
million
on
our
capital
lease
obligations
and
loan
payments
of
$0.4
million.

Cash
provided
by
financing
activities
for
the
year
ended
December
31,
2014
of
$113.1
million
was
primarily
from
$115.7
million
in
net
proceeds
from
the
issuance
of
convertible
preferred
stock,
partially
offset
by
payments
of
$1.5
million
related
to
our
initial
public
offering
and
payments
of
$1.4
million
on
our
capital
lease
obligations.

In
2013,
we
generated
$48.9
million
from
financing
activities
primarily
resulting
from
$49.8
million
in
net
proceeds
from
issuance
of
convertible
preferred
stock.
These
cash
inflows
were
partially
offset
by
payments
of
$1.0
million
on
our
capital
lease
obligations.

Contractual
obligations

The
following
table
summarizes
our
contractual
obligations,
including
interest,
as
of
December
31,
2015
(in
thousands):

Contractual
obligations:
Operating
leases
Capital
leases
Capital
expenditure
financing

Total

Less
than

1
year

6,224
$
1,692

1,741

9,657
$

1
to
3
years

3
to
5
years

More
than

5
years

Total

14,635
$
1,619

3,346

19,600
$

14,531
$
—

2,511

17,042
$

44,374
$ 79,764

3,311

7,598

44,374
$ 90,673

—

In
September
2015,
we
entered
into
a
lease
agreement
for
a
laboratory
and
headquarters
in
San
Francisco,
California.
This
lease
expires
in
July
2026.
In
March
2015,
we
leased
additional
space
in
San
Francisco
and
Oakland,
California.
The
leases
expire
in
April
and
June
2017,
respectively.
In
April
2015,
we
leased
additional
space
in
Cambridge,
Massachusetts;
this
lease
expires
in
January
2018.
See
Note
5,
"Commitments
and
contingencies"
in
the
Notes
to
Consolidated
Financial
Statements.

In
July
2015
we
entered
into
the
Loan
Agreement
to
provide
financing
for
future
capital
expenditures
up
to
$15.0
million
through
December
2016.
See
Note
5,
"Commitments
and
contingencies"
in
the
Notes
to
Consolidated
Financial
Statements.

Table
of
Contents

Off-balance
sheet
arrangements

We
have
not
entered
into
any
off-balance
sheet
arrangements
and
do
not
have
any
holdings
in
variable
interest
entities.

Recent
accounting
pronouncements

See
"Recent
accounting
pronouncements"
in
Note
1,
"Organization
and
description
of
business"
in
the
Notes
to
Consolidated
Financial
Statements
for
a
discussion
of
recently
adopted
accounting
pronouncements
and
accounting
pronouncements
not
yet
adopted,
and
their
expected
effect
on
our
financial
position
and
results
of
operations.

ITEM
7A.

Quantitative
And
Qualitative
Disclosures
About
Market
Risk.

We
are
exposed
to
market
risks
in
the
ordinary
course
of
our
business.
These
risks
primarily
relate
to
interest
rates.
We
had
equipment
financing
loan
obligations
of
$7.0
million
as
of
December
31,
2015,
which
result
from
loans
for
purchases
of
laboratory
equipment
pursuant
to
the
Loan
Agreement.
These
loans
carry
variable
rates
of
interest.
We
had
capital
lease
obligations
of
$3.2
million
as
of
December
31,
2015,
which
result
from
various
capital
lease
agreements
to
obtain
laboratory
equipment.
Our
capital
lease
obligations
carry
fixed
rates
of
interest.
We
had
cash,
cash
equivalents,
and
marketable
securities
of
$127.0
million
as
of
December
31,
2015,
which
consisted
of
bank
deposits,
money
market
funds,
U.S
treasury
notes,
and
U.S.
government
agency
securities.
Such
interest-bearing
instruments
carry
a
degree
of
risk;
however
because
our
investments
are
primarily
short-term
in
duration,
we
have
not
been
exposed
to,
nor
do
we
anticipate
being
exposed
to,
material
risks
due
to
changes
in
interest
rates.
A
hypothetical
10%
change
in
interest
rates
during
any
of
the
periods
presented
would
not
have
had
a
material
impact
on
our
financial
statements.

We
face
foreign
exchange
risk
as
a
result
of
entering
into
transactions
denominated
in
currencies
other
than
U.S.
dollars
(Chilean
peso).
Due
to
the
uncertain
timing
of
expected
payments
in
foreign
currencies,
we
do
not
utilize
any
forward
exchange
contracts.
All
foreign
transactions
settle
on
the
applicable
spot
exchange
basis
at
the
time
such
payments
are
made.
An
adverse
movement
in
foreign
exchange
rates
could
have
a
material
effect
on
payments
made
to
foreign
suppliers
and
for
license
agreements.
A
hypothetical
10%
change
in
foreign
exchange
rates
during
any
of
the
periods
presented
would
not
have
had
a
material
impact
on
our
financial
statements.

Table
of
Contents

ITEM
8.

Financial
Statements
And
Supplementary
Data.

Invitae
Corporation

Index
to
Audited
Consolidated
Financial
Statements

Report
of
independent
registered
public
accounting
firm
Consolidated
balance
sheets
Consolidated
statements
of
operations
Consolidated
statements
of
comprehensive
loss
Consolidated
statements
of
convertible
preferred
stock
and
stockholders'
equity
(deficit)
Consolidated
statements
of
cash
flows
Notes
to
consolidated
financial
statements

Page

Table
of
Contents

The
Board
of
Directors
and
Stockholders

Invitae
Corporation

Report
of
Independent
Registered
Public
Accounting
Firm

We
have
audited
the
accompanying
consolidated
balance
sheets
of
Invitae
Corporation
(the
Company)
as
of
December
31,
2015
and
2014,
and
the
related
consolidated
statements
of
operations,
comprehensive
loss,
convertible
preferred
stock
and
stockholders'
equity
(deficit),
and
cash
flows
for
each
of
the
three
years
in
the
period
ended
December
31,
2015.
These
financial
statements
are
the
responsibility
of
the
Company's
management.
Our
responsibility
is
to
express
an
opinion
on
these
financial
statements
based
on
our
audits.

We
conducted
our
audits
in
accordance
with
the
standards
of
the
Public
Company
Accounting
Oversight
Board
(United
States).
Those
standards
require
that
we
plan
and
perform
the
audit
to
obtain
reasonable
assurance
about
whether
the
financial
statements
are
free
of
material
misstatement.
We
were
not
engaged
to
perform
an
audit
of
the
Company's
internal
control
over
financial
reporting.
Our
audits
included
consideration
of
internal
control
over
financial
reporting
as
a
basis
for
designing
audit
procedures
that
are
appropriate
in
the
circumstances,
but
not
for
the
purpose
of
expressing
an
opinion
on
the
effectiveness
of
the
Company's
internal
control
over
financial
reporting.
Accordingly,
we
express
no
such
opinion.
An
audit
also
includes
examining,
on
a
test
basis,
evidence
supporting
the
amounts
and
disclosures
in
the
financial
statements,
assessing
the
accounting
principles
used
and
significant
estimates
made
by
management,
and
evaluating
the
overall
financial
statement
presentation.
We
believe
that
our
audits
provide
a
reasonable
basis
for
our
opinion.

In
our
opinion,
the
financial
statements
referred
to
above
present
fairly,
in
all
material
respects,
the
consolidated
financial
position
of
Invitae
Corporation
at
December
31,
2015
and
2014,
and
the
consolidated
results
of
its
operations
and
its
cash
flows
for
each
of
the
three
years
in
the
period
ended
December
31,
2015,
in
conformity
with
U.S.
generally
accepted
accounting
principles.

/s/
Ernst
&
Young
LLP

Redwood
City,
California

March
10,
2016

Table
of
Contents

INVITAE
CORPORATION

Consolidated
Balance
Sheets

Assets
Current
assets:

Cash
and
cash
equivalents
Marketable
securities
Prepaid
expenses
and
other
current
assets

Total
current
assets
Property
and
equipment,
net
Restricted
cash
Other
assets

Total
assets

Liabilities,
convertible
preferred
stock,
and
stockholders'
equity
(deficit)
Current
liabilities:

Accounts
payable
Accrued
liabilities
Capital
lease
obligation,
current
portion
Debt,
current
portion

Total
current
liabilities

Capital
lease
obligation,
net
of
current
portion
Debt,
net
of
current
portion
Other
long-term
liabilities
Total
liabilities

Commitments
and
contingencies
(Note
5)
Convertible
preferred
stock,
$0.0001
par
value;
0
and
141,131,524
shares
authorized,
0
and

141,131,524
shares
issued
and
outstanding
as
of
December
31,
2015
and
December
31,
2014,
respectively

Stockholders'
equity
(deficit):

December
31,

2015

2014

(In
thousands,
except
share
and
per
share
amounts)

73,238
$ 107,027

—

53,780

4,292

2,616

109,643

131,310

15,672

18,709

150

4,831

3,313

1,826

156,676
$ 128,778

3,500
$
4,253

1,588

1,536

10,877

1,576

5,504

343

18,300

2,862

3,237

1,524

—

7,623

2,011

—

415

10,049

—

202,305

Preferred
stock,
$0.0001
par
value;
20,000,000
and
0
shares
authorized,
no
shares
issued
and

outstanding
as
of
December
31,
2015
and
December
31,
2014

—

Common
stock,
$0.0001
par
value;
400,000,000
and
160,131,524
shares
authorized,
31,935,121
and
944,581
shares
issued
and
outstanding
as
of
December
31,
2015
and
December
31,
2014,
respectively

Accumulated
other
comprehensive
gain
(loss)
Additional
paid-in
capital
Accumulated
deficit

Total
stockholders'
equity
(deficit)
Total
liabilities,
convertible
preferred
stock,
and
stockholders'
equity
(deficit)

(15)

—

1,604

313,349

(85,180)
(174,962)

138,376

(83,576)
156,676
$ 128,778

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

Table
of
Contents

Revenue
Costs
and
operating
expenses:

Cost
of
revenue
Research
and
development
Selling
and
marketing
General
and
administrative

INVITAE
CORPORATION

Consolidated
Statements
of
Operations

Year
ended
December
31,

2015

2013
(In
thousands,
except
share
and
per
share
amounts)

2014

8,378
$

1,604
$

148

16,523

42,806

22,479

16,047

97,855

(89,477)

(94)

(211)

5,624

22,063

8,669

12,600

48,956

(47,352)

(79)

(61)

667

16,039

2,431

5,764

24,901

(24,753)
(26)
(59)
(89,782) $ (47,492) $ (24,838)
(89,782) $ (47,492) $ (24,989)
(36.13)

(56.14) $

(3.18) $

Total
costs
and
operating
expenses

Loss
from
operations
Other
income
(expense),
net
Interest
expense
Net
loss
Net
loss
attributable
to
common
stockholders
Net
loss
per
share
attributable
to
common
stockholders,
basic
and
diluted
Shares
used
in
computing
net
loss
per
share
attributable
to
common
stockholders,

basic
and
diluted

28,213,324

846,027

691,731

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

Table
of
Contents

INVITAE
CORPORATION

Consolidated
Statements
of
Comprehensive
Loss

Net
loss
Other
comprehensive
loss:

Unrealized
loss
on
available-for-sale
marketable
securities,
net
of
tax

Comprehensive
loss

2015

Year
ended
December
31,
2014
(In
thousands)

$ (89,782) $ (47,492) $ (24,838)

2013

—

$ (89,797) $ (47,492) $ (24,838)

(15)

—

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

Table
of
Contents

INVITAE
CORPORATION

Consolidated
Statements
of
Convertible
Preferred
Stock
and
Stockholders'
Equity
(Deficit)

Convertible

preferred
stock

Common
stock

Amount

Additional

paid-in

capital

Accumulated

other

Comprehensive
Income
(Loss)

Accumulated
deficit

Total

stockholders'
equity

(deficit)

Amount
(In
thousands,
except
share
and
per
share
amounts)

91
$

—
$

—

46,987,747
$

36,755

661,118
$

(12,850)

(12,759)

8,000,000

9,933

—

26,143,777

39,886

—

31,666

—

81,131,524

—

86,574

39,886

—

732,670

60,000,000

115,731

—

168,867

—

260

—

408

—

209

—

(24,838)
(37,688)

—

141,131,524

—

202,305

43,044

—

944,581
$

—

—
$

971

—

1,604
$

—

—
$

—

(47,492)
(85,180) $

(141,131,524)

(202,305)

23,521,889

—

—
$

—

7,302,500

—

148,870

17,281

—

31,935,121
$

—

202,302

105,667

288

—

4
$

3,477

—

313,349
$

—

(15)
—

(15) $

—

(89,782)
(174,962) $

—

260

(24,838)
(37,280)

—

209

971

(47,492)
(83,576)

202,305

105,668

288

3,477

(15)
(89,782)
138,376

Balance
as
of
January
1,
2013

Issuance
of
Series
D
convertible

preferred
stock
for
cash
at
$1.25
per
share,
net
of
issuance
costs
of
$67

Issuance
of
Series
E
convertible

preferred
stock
for
cash
at
$1.53
per
share,
net
of
issuance
costs
of
$114

Common
stock
issued
on
exercise

of
stock
options

Vesting
of
common
stock
related
to

early
exercise
of
options

Stock-based
compensation
expense

Net
loss

Balance
as
of
December
31,
2013
Issuance
of
Series
F
convertible

preferred
stock
for
cash
at
$2.00
per
share,
net
of
issuance
costs
of
$4,268

Common
stock
issued
on
exercise

of
stock
options

Vesting
of
common
stock
related
to

early
exercise
of
options

Stock-based
compensation
expense

Net
loss

Balance
as
of
December
31,
2014
Conversion
of
preferred
stock
into

common
stock
upon
initial
public
offering

Issuance
of
common
stock
in

connection
with
initial
public
offering,
net
of
offering
costs

Common
stock
issued
on
exercise
of

stock
options

Vesting
of
common
stock
related
to

early
exercise
of
options

Stock-based
compensation
expense
Unrealized
loss
on
investments
Net
loss
Balance
as
of
December
31,
2015

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

Table
of
Contents

INVITAE
CORPORATION

Consolidated
Statements
of
Cash
Flows

Cash
flows
from
operating
activities
Net
loss
Adjustments
to
reconcile
net
loss
to
net
cash
used
in
operating
activities:

Depreciation
and
amortization
Stock-based
compensation
Amortization
of
premium
on
marketable
securities
Loss
on
disposal
of
assets

Changes
in
operating
assets
and
liabilities:
Prepaid
expenses
and
other
current
assets
Other
assets
Accounts
payable
Accrued
expenses
and
other
liabilities
Net
cash
used
in
operating
activities

Cash
flows
from
investing
activities
Purchases
of
marketable
securities
Proceeds
from
sales
and
maturities
of
marketable
securities
Purchases
of
property
and
equipment
Change
in
restricted
cash

Net
cash
used
in
investing
activities

Cash
flows
from
financing
activities
Proceeds
from
issuance
of
convertible
preferred
stock,
net
of
issuance
costs
Proceeds
from
issuance
of
common
stock
upon
initial
public
offering,
net
of
issuance

costs

Proceeds
from
exercise
of
stock
options
Proceeds
from
loan
agreement,
net
of
financing
costs
Loan
payments
Capital
lease
principal
payments
Payments
for
deferred
offering
costs

Net
cash
provided
by
financing
activities

2015

Year
ended
December
31,
2014
(In
thousands)

2013

(89,782) $ (47,492) $ (24,838)

5,321

3,477

632

2,315

971

—

928

260

—

(1,676)

508

806

(80,655)

(1,880)

(849)

2,072

2,386

(42,440)

(363)
(4)
220

767

(23,030)

(216,994)

162,567

(6,464)

(4,681)

(65,572)

—

(6,686)

(30)

(6,716)

—

(4,520)
(60)
(4,580)

—

115,731

49,819

—

209

—

(1,376)

(1,451)

107,120

288

7,453

(413)

(2,010)

—

112,438

(33,789)

107,027

—

(1,007)
—

48,879

113,113

21,269

63,957

21,801

43,070

73,238
$ 107,027
$ 43,070

211
$

61
$

1,639
$

$ 202,305

2,850
$
—

1,793

—

Net
increase(decrease)
in
cash
and
cash
equivalents
Cash
and
cash
equivalents
at
beginning
of
period
Cash
and
cash
equivalents
at
end
of
period
Supplemental
cash
flow
information:
Interest
paid
Supplemental
cash
flow
information
of
non-cash
investing
and
financing
activities:

Equipment
acquired
through
capital
leases
Conversion
of
convertible
preferred
stock
to
common
stock
Change
in
purchases
of
property
and
equipment
in
accounts
payable
and
accrued

liabilities.

Deferred
offering
costs
included
in
accounts
payable
and
accrued
liabilities

603
$
—
$

325
$
450
$

—

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

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements

December
31,
2015

1.
Organization
and
description
of
business

Invitae
Corporation
(the
"Company")
was
incorporated
in
the
state
of
Delaware
on
January
13,
2010,
as
Locus
Development,
Inc.
and
changed
its
name
to
Invitae
Corporation
in
2012.
The
Company
utilizes
an
integrated
portfolio
of
laboratory
processes,
software
tools
and
informatics
capabilities
to
process
DNA-
containing
samples,
analyze
information
about
patient-specific
genetic
variation
and
generate
test
reports
for
clinicians
and
their
patients.
The
Company's
laboratory
is
located
in
San
Francisco,
California.
The
Company's
current
product
is
an
assay
of
over
600
genes
that
can
be
used
for
multiple
indications.
The
test
includes
multiple
genes
associated
with
hereditary
cancer,
neurological
disorders,
cardiovascular
disorders
and
other
hereditary
conditions.
The
Company
operates
in
one
segment.

Initial Public Offering

In
February
2015,
the
Company
completed
an
initial
public
offering
("IPO")
of
its
common
stock.
In
connection
with
its
IPO,
the
Company
sold
7,302,500
shares
of
common
stock
at
$16.00
per
share
for
aggregate
net
proceeds
of
$105.7
million
after
underwriting
discounts
and
commissions
and
offering
expenses
payable
by
the
Company.
This
includes
the
exercise
in
full
by
the
underwriters
of
their
option
to
purchase
up
to
952,500
additional
shares
of
common
stock
at
the
same
price
to
cover
over-allotments.
Upon
the
closing
of
the
IPO,
all
shares
of
convertible
preferred
stock
then
outstanding
converted
into
23,521,889
shares
of
common
stock.

Upon
the
effectiveness
of
the
Amended
and
Restated
Certificate
of
Incorporation
of
the
Company
on
February
12,
2015,
the
number
of
shares
of
capital
stock
the
Company
is
authorized
to
issue
was
increased
to
420,000,000
shares,
of
which
400,000,000
shares
are
common
stock
and
20,000,000
shares
are
preferred
stock.
Both
the
common
stock
and
preferred
stock
have
a
par
value
of
$0.0001
per
share.
There
are
no
shares
of
preferred
stock
outstanding
at
December
31,
2015.

2.
Summary
of
significant
accounting
policies

Principles of consolidation

The
Company's
consolidated
financial
statements
have
been
prepared
in
conformity
with
accounting
principles
generally
accepted
in
the
United
States
of
America
("U.S.
GAAP").
The
consolidated
financial
statements
include
the
accounts
of
the
Company
and
its
wholly
owned
subsidiaries.
All
intercompany
balances
and
transactions
have
been
eliminated
in
consolidation.

Use of estimates

The
preparation
of
financial
statements
in
conformity
with
U.S.
GAAP
requires
management
to
make
estimates
and
assumptions
that
affect
the
reported
amounts
of
assets
and
liabilities
and
disclosure
of
contingent
liabilities
as
of
the
date
of
the
financial
statements
and
the
reported
amounts
of
revenue
and
expenses
during
the
reporting
period.
The
Company
believes
judgment
is
involved
in
determining
revenue
recognition;
the
recoverability
of
long-lived
assets;
the
fair
value
of
the
Company's
common
stock
prior
to
the
IPO;
stock-based
compensation
expense;
and
income
tax
uncertainties.
The
Company
bases
these
estimates
on
historical
and
anticipated
results,
trends,
and
various
other
assumptions
that
the
Company
believes
are
reasonable
under
the
circumstances,
including
assumptions
as
to
future
events.
Actual
results
could
differ
materially
from
those
estimates
and
assumptions.

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

2.
Summary
of
significant
accounting
policies
(Continued)

Concentrations of credit risk and other risks and uncertainties

Financial
instruments
that
potentially
subject
the
Company
to
a
concentration
of
credit
risk
consist
of
cash
and
cash
equivalents.
The
Company's
cash
and
cash
equivalents
are
held
by
financial
institutions
in
the
United
States
and
Chile.
Such
deposits
may
exceed
federally
insured
limits.

As
of
December
31,
2015,
substantially
all
of
the
Company's
revenue
has
been
derived
from
sales
of
its
assays.
Significant
customers
are
those
which
represent
10%
or
more
of
the
Company's
total
revenue
for
each
year
presented
on
the
statements
of
operations
and
comprehensive
loss.
For
each
significant
customer,
revenue
as
a
percentage
of
total
revenue
are
as
follows:

Customers
Customer
A
Customer
B
Customer
C

Less
than
10%
of
total
revenue

Cash equivalents

December
31,
2014

2015

2013

13%

44%

15%
—

The
Company
considers
all
highly
liquid
investments
with
original
maturities
of
three
months
or
less
from
the
date
of
purchase
to
be
cash
equivalents.
Cash
equivalents
consist
primarily
of
amounts
invested
in
money
market
funds
and
U.S
government
agency
securities.

Marketable securities

All
marketable
securities
have
been
classified
as
"available-for-sale"
and
are
carried
at
estimated
fair
value
as
determined
based
upon
quoted
market
prices
or
pricing
models
for
similar
securities.
Management
determines
the
appropriate
classification
of
its
marketable
securities
in
debt
securities
at
the
time
of
purchase
and
reevaluates
such
designation
as
of
each
balance
sheet
date.
Short-term
marketable
securities
have
maturities
less
than
365
days
as
of
the
balance
sheet
date.
Unrealized
gains
and
losses
are
excluded
from
earnings
and
are
reported
as
a
component
of
other
comprehensive
income
(loss).
Realized
gains
and
losses
and
declines
in
fair
value
judged
to
be
other
than
temporary,
if
any,
on
available-for-sale
securities
are
included
in
interest
and
other
income
(expense),
net.
The
cost
of
securities
sold
is
based
on
the
specific-identification
method.
Interest
on
marketable
securities
is
included
in
interest
and
other
income
(expense),
net.

Restricted cash

Restricted
cash
consists
of
money
market
funds
that
serve
as:
collateral
for
a
security
deposit
for
the
Company's
lease
agreement
for
a
laboratory
and
headquarters
entered
into
in
September
2015;
collateral
for
a
credit
card
agreement
at
one
of
the
Company's
financial
institutions;
and
for
securing
a
letter
of
credit
as
collateral
for
the
Company's
Cambridge
Massachusetts
facility
sublease
agreement.

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

2.
Summary
of
significant
accounting
policies
(Continued)

Internal-use software

The
Company
capitalizes
third-party
costs
incurred
in
the
application
development
stage
to
design
and
implement
internal-use
software.
Maintenance
and
training
costs
relating
to
internal-use
software
are
expensed
as
incurred.
Capitalized
internal-use
software
costs
are
recorded
as
property
and
equipment
and
are
amortized
over
estimated
useful
lives
of
up
to
three
years
on
a
straight
line
basis.
Amortization
of
capitalized
internal-use
software
costs
is
recorded
as
sales
and
marketing
expense.

During
the
years
ended
December
31,
2015,
2014
and
2013,
the
Company
capitalized
$1.5
million,
$550,000
and
$250,000,
respectively,
of
internal-use
software
development
costs.
Internal-use
software
amortization
was
$718,000,
$152,000,
and
zero,
in
2015,
2014
and
2013,
respectively.
The
carrying
value
of
capitalized
internal-use
software
at
December
31,
2015
and
2014
was
$1.4
million
and
$648,000,
respectively.
The
weighted
average
useful
life
of
capitalized
internal-use
software
at
December
31,
2015
was
13
months.

Deferred offering costs

Deferred
offering
costs,
which
primarily
consist
of
direct
incremental
legal,
accounting
and
other
fees
relating
to
the
IPO,
were
initially
capitalized.
As
of
December
31,
2014,
the
Company
capitalized
$1.9
million
of
deferred
offering
costs
in
other
assets
on
the
consolidated
balance
sheets.
The
deferred
offering
costs
were
subsequently
offset
against
IPO
proceeds
upon
the
closing
of
the
IPO
in
February
2015.

Leases

The
Company
rents
its
facilities
under
operating
lease
agreements
and
recognizes
related
rent
expense
on
a
straight-line
basis
over
the
term
of
the
lease.
Some
of
the
lease
agreements
contain
rent
holidays,
scheduled
rent
increases,
lease
incentives,
and
renewal
options.
Rent
holidays
and
scheduled
rent
increases
are
included
in
the
determination
of
rent
expense
to
be
recorded
over
the
lease
term.
Lease
incentives
are
recognized
as
a
reduction
of
rent
expense
on
a
straight-line
basis
over
the
term
of
the
lease.
Renewals
are
not
assumed
in
the
determination
of
the
lease
term
unless
they
are
deemed
to
be
reasonably
assured
at
the
inception
of
the
lease.
The
Company
recognizes
rent
expense
beginning
on
the
date
it
obtains
the
legal
right
to
use
and
control
the
leased
space.

Property and equipment

Property
and
equipment
are
stated
at
cost
less
accumulated
depreciation
and
amortization.
Depreciation
is
computed
using
the
straight-line
method
over
the
estimated
useful
lives
of
the
assets,
generally
between
three
and
seven
years.
Leasehold
improvements
are
amortized
using
the
straight-line
method
over
the
shorter
of
the
estimated
useful
life
of
the
asset
or
the
term
of
the
lease.
Amortization
expense
of
assets
acquired
through
capital
leases
is
included
in
depreciation
and
amortization
expense
in
the
consolidated
statements
of
operations
and
comprehensive
loss.
Maintenance
and
repairs
are
charged
to
expense
as
incurred,
and
improvements
and
betterments
are
capitalized.
When
assets
are
retired
or
otherwise
disposed
of,
the
cost
and
accumulated
depreciation
are
removed
from
the
balance
sheet
and
any
resulting
gain
or
loss
is
reflected
in
the
statements
of
operations
and
comprehensive
loss
in
the
period
realized.

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

2.
Summary
of
significant
accounting
policies
(Continued)

The
useful
lives
of
the
property
and
equipment
are
as
follows:

Furniture
and
fixtures
Automobiles
Laboratory
equipment
Computer
equipment
Software
Leasehold
improvements

Long-lived assets

7
years
7
years
5
years
3
years
3
years
Shorter
of
lease
term
or
estimated
useful
life

The
Company
reviews
long-lived
assets
for
impairment
whenever
events
or
changes
in
circumstances
indicate
that
the
carrying
amount
of
the
assets
may
not
be
recoverable.
An
impairment
loss
is
recognized
when
the
total
estimated
future
undiscounted
cash
flows
expected
to
result
from
the
use
of
the
asset
and
its
eventual
disposition
are
less
than
its
carrying
amount.
Impairment,
if
any,
would
be
assessed
using
discounted
cash
flows
or
other
appropriate
measures
of
fair
value.
The
Company
has
not
recorded
an
impairment
of
any
long-lived
assets
during
any
of
the
periods
presented.

Fair value of financial instruments

The
Company's
financial
instruments
consist
principally
of
cash
and
cash
equivalents,
marketable
securities,
accounts
payable,
capital
leases
and
debt
relating
to
equipment
financing.
The
carrying
amounts
of
certain
of
these
financial
instruments,
including
cash
and
cash
equivalents,
and
accounts
payable,
approximate
fair
value
due
to
their
short
maturities.
Based
on
borrowing
rates
available
to
us,
the
carrying
value
of
capital
leases
approximates
fair
value.

See
Note
4,
"Fair
value
measurements"
for
further
information
on
the
fair
value
of
the
Company's
financial
instruments.

Revenue recognition

Revenue
is
generated
from
the
sale
of
tests
that
provide
analysis
and
associated
interpretation
of
the
sequencing
of
parts
of
the
genome.
Revenue
associated
with
subsequent
re-requisition
services
was
de
minimis
for
all
periods
presented.

Revenue
is
recognized
when
persuasive
evidence
of
an
arrangement
exists;
delivery
has
occurred
or
services
have
been
rendered;
the
fee
is
fixed
or
determinable;
and
collectability
is
reasonably
assured.
The
criterion
for
whether
the
fee
is
fixed
or
determinable
and
whether
collectability
is
reasonably
assured
are
based
on
management's
judgments.
When
evaluating
collectability,
in
situations
where
contracted
reimbursement
coverage
does
not
exist,
the
Company
considers
whether
the
Company
has
sufficient
history
to
reliably
estimate
a
payer's
individual
payment
patterns.
The
Company
reviews
the
number
of
tests
paid
against
the
number
of
tests
billed
over
at
least
several
months
of
payment
history
and
the
payer's
outstanding
balance
for
unpaid
tests
to
determine
whether
payments
are
being
made
at
a
consistently
high
percentage
of
tests
billed
and
at
appropriate
amounts
given
the
amount
billed.
For
most
payers,
the
Company
has
not
been
able
to
demonstrate
a
predictable
pattern
of
collectability,
and

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

2.
Summary
of
significant
accounting
policies
(Continued)

therefore
recognizes
revenue
when
payment
is
received.
For
payers
who
have
demonstrated
a
consistent
pattern
of
payment
of
tests
billed
at
appropriate
amounts,
the
Company
recognizes
revenue,
at
estimated
realizable
amounts,
upon
delivery
of
test
results.

Cost of revenue

Cost
of
revenue
reflects
the
aggregate
costs
incurred
in
delivering
the
genetic
testing
results
to
clinicians
and
includes
expenses
for
personnel
costs
including
stock-based
compensation,
materials
and
supplies,
equipment
and
infrastructure
expenses
associated
with
testing
and
allocated
overhead
including
rent,
equipment
depreciation
and
utilities.
Costs
associated
with
performing
the
Company's
test
are
recorded
as
the
test
is
processed
regardless
of
whether
and
when
revenue
is
recognized
with
respect
to
that
test.

Research and development

Research
and
development
costs
are
charged
to
operations
as
incurred.
Research
and
development
costs
include,
but
are
not
limited
to,
payroll
and
personnel-
related
expenses,
stock-based
compensation
expense,
reagents
and
laboratory
supplies,
consulting
costs,
and
allocated
overhead
including
rent,
information
technology,
equipment
depreciation
and
utilities.

Income taxes

The
Company
uses
the
asset
and
liability
method
of
accounting
for
income
taxes.
Under
this
method,
deferred
tax
assets
and
liabilities
are
determined
based
on
the
differences
between
the
financial
reporting
and
the
tax
bases
of
assets
and
liabilities
and
are
measured
using
the
enacted
tax
rates
and
laws
that
will
be
in
effect
when
the
differences
are
expected
to
reverse.
A
valuation
allowance
is
provided
when
it
is
more
likely
than
not
that
some
portion
or
all
of
a
deferred
tax
asset
will
not
be
realized.

Stock-based compensation

The
Company
measures
its
stock-based
payment
awards
made
to
employees
and
directors
based
on
the
estimated
fair
values
of
the
awards
and
recognizes
the
compensation
expense
over
the
requisite
service
period.
The
Company
uses
the
Black-Scholes
option-pricing
model
to
estimate
the
fair
value
of
its
stock-based
awards.
Stock-based
compensation
expense
is
recognized
using
the
straight-line
method.
Stock-based
compensation
expense
is
based
on
the
value
of
the
portion
of
stock-based
payment
awards
that
is
ultimately
expected
to
vest.
As
such,
the
Company's
stock-based
compensation
is
reduced
for
the
estimated
forfeitures
at
the
date
of
grant
and
revised,
if
necessary,
in
subsequent
periods
if
actual
forfeitures
differ
from
those
estimates.

The
Company
accounts
for
compensation
expense
related
to
stock
options
granted
to
non-employees
based
on
the
fair
values
estimated
using
the
Black-
Scholes
model.
Stock
options
granted
to
non-employees
are
remeasured
at
each
reporting
date
until
the
award
is
vested.

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

2.
Summary
of
significant
accounting
policies
(Continued)

Foreign currency transactions

The
Company
uses
the
U.S.
dollar
as
its
functional
currency
for
its
subsidiary
in
Chile.
Foreign
currency
assets
and
liabilities
are
remeasured
into
U.S.
dollars
using
the
end
of
period
exchange
rates
except
for
nonmonetary
assets
and
liabilities,
which
are
remeasured
using
historical
exchange
rates.
Expenses
are
remeasured
using
an
average
exchange
rate
for
the
respective
period.
Gains
or
losses
from
foreign
currency
transactions
are
included
in
other
income
(expense),
net,
on
the
consolidated
statements
of
operations.
Foreign
currency
transaction
gains
and
losses
have
not
been
significant
to
the
consolidated
financial
statements
for
all
periods
presented.

Comprehensive loss

Comprehensive
loss
is
composed
of
two
components:
net
loss
and
other
comprehensive
loss.
Other
comprehensive
loss
refers
to
gains
and
losses
that
under
U.S.
GAAP
are
recorded
as
an
element
of
stockholders'
equity(deficit),
but
are
excluded
from
net
loss.
The
Company's
other
comprehensive
loss
consists
of
unrealized
gains
and
losses
on
investments
in
available-for-sale
securities.

Net loss per share attributable to common stockholders

Basic
net
loss
per
share
attributable
to
common
stockholders
is
calculated
by
dividing
net
loss
attributable
to
common
stockholders
by
the
weighted-average
number
of
common
shares
outstanding
during
the
period,
without
consideration
of
common
stock
equivalents.
Diluted
net
loss
per
share
attributable
to
common
stockholders
is
computed
by
dividing
net
loss
attributable
to
common
stockholders
by
the
weighted-average
number
of
common
share
equivalents
outstanding
for
the
period
determined
using
the
treasury
stock
method.
Potentially
dilutive
securities
consisting
of
convertible
preferred
stock,
options
to
purchase
common
stock
and
restricted
stock
units
are
considered
to
be
common
stock
equivalents
and
were
excluded
from
the
calculation
of
diluted
net
loss
per
share
attributable
to
common
stockholders
because
their
effect
would
be
antidilutive
for
all
periods
presented.
Common
shares
subject
to
repurchase
are
excluded
from
weighted-
average
shares.
For
the
years
ended
December
31,
2015,
2014
and
2013;
4,659,
23,903
and
54,407
shares
subject
to
repurchase,
respectively,
are
excluded
from
the
basic
loss
per
share
calculation.

Recent accounting pronouncements

In
February
2016,
the
Financial
Accounting
Standards
Board
("FASB")
issued
Accounting
Standards
Update
("ASU")
2016-02,
Leases (Topic 842). Under
the
new
guidance,
lessees
will
be
required
to
recognize
a
lease
liability
and
a
right-of-use
asset
for
all
leases
(with
the
exception
of
short-term
leases)
at
the
commencement
date.
Lessor
accounting
under
ASU
2016-02
is
largely
unchanged.
ASU
2016-02
is
effective
for
annual
and
interim
periods
beginning
on
or
after
December
15,
2018
and
early
adoption
is
permitted.
Under
ASU
2016-02,
lessees
(for
capital
and
operating
leases)
and
lessors
(for
sales-type,
direct
financing,
and
operating
leases)
must
apply
a
modified
retrospective
transition
approach
for
leases
existing
at,
or
entered
into
after,
the
beginning
of
the
earliest
comparative
period
presented
in
the
financial
statements.
Lessees
and
lessors
may
not
apply
a
full
retrospective
transition
approach.
The
Company
is
evaluating
the
effect
that
ASU
2014-09
will
have
on
its
consolidated
financial
statements
and
related
disclosures.
The
Company
has
not
yet
selected

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

2.
Summary
of
significant
accounting
policies
(Continued)

an
implementation
date
nor
has
it
determined
the
effect
of
the
standard
on
its
ongoing
financial
reporting.

In
November
2015,
the
FASB
issued
ASU
2015-17,
Balance Sheet Classification of Deferred Taxes to
simplify
the
presentation
of
deferred
income
taxes.
The
amendments
in
this
update
require
that
deferred
tax
liabilities
and
assets
be
classified
as
noncurrent
in
a
classified
statement
of
financial
position.
The
Company
has
elected
to
early
adopt
ASU
2015-17
as
of
December
31,
2015.
Because
the
net
deferred
tax
assets
have
been
offset
by
a
valuation
allowance
and
the
deferred
tax
liabilities
were
not
material
no
deferred
tax
assets
or
liabilities
were
disclosed
in
prior
years
in
the
classified
balance
sheet
and
therefore
this
early
adoption
has
no
impact
on
the
Company's
consolidated
financial
statements
for
the
periods
presented.

In
April,
2015,
the
FASB
issued
ASU
2015-03,
Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU
2015-03
simplifies
the
presentation
of
debt
issuance
costs
and
requires
debt
issuance
costs
related
to
a
recognized
debt
liability
to
be
presented
in
the
balance
sheet
as
a
direct
deduction
from
the
debt
liability
instead
of
as
an
asset.
ASU
2015-03
is
effective
for
annual
and
interim
periods
beginning
on
or
after
December
15,
2015
and
early
adoption
is
permitted.
The
Company
early
adopted
ASU
2015-03
in
the
second
quarter
of
2015
and
the
adoption
of
this
standard
did
not
have
an
impact
on
the
Company's
consolidated
financial
statements.

In
May,
2014,
the
FASB
issued
ASU
2014-09,
Revenue from Contracts with Customers ("ASU
2014-09"),
which
requires
an
entity
to
recognize
the
amount
of
revenue
to
which
it
expects
to
be
entitled
for
the
transfer
of
promised
goods
or
services
to
customers.
ASU
2014-09
will
replace
most
existing
revenue
recognition
guidance
in
U.S.
GAAP
when
it
becomes
effective.
In
August,
2015,
the
FASB
issued
ASU
2015-14,
Revenue from Contracts with Customers (Topic
606). ASU
2015-14
defers
the
effective
date
of
ASU
2014-09
for
public
business
entities
by
one
year
to
annual
reporting
periods
beginning
after
December
15,
2017.
Therefore,
the
new
standard
will
become
effective
for
the
Company
on
January
1,
2018
and
early
application
is
permitted
for
periods
beginning
on
or
after
January
1,
2017.
The
standard
permits
the
use
of
either
the
retrospective
or
cumulative
effect
transition
method.
The
Company
is
evaluating
the
effect
that
ASU
2014-09
will
have
on
its
consolidated
financial
statements
and
related
disclosures.
The
Company
has
not
yet
selected
an
implementation
date
or
a
transition
method
nor
has
it
determined
the
effect
of
the
standard
on
its
ongoing
financial
reporting.

In
August
2014,
the
FASB
issued
ASU
No.
2014-15
(Subtopic
205-
40),
Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties
about an Entity's Ability to Continue as a Going Concern ("ASU
2014-15"),
which
provides
guidance
about
management's
responsibility
to
evaluate
whether
there
is
substantial
doubt
about
the
Company's
ability
to
continue
as
a
going
concern
and
to
provide
related
footnote
disclosure.
ASU
2014-15
will
be
effective
in
the
fourth
quarter
of
2016.
Early
application
is
permitted.
The
adoption
of
this
standard
is
not
expected
to
have
an
effect
on
the
Company's
consolidated
financial
statements.

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

3.
Balance
sheet
components

Cash equivalents and marketable securities

The
following
is
a
summary
of
cash
equivalents
and
marketable
securities
(in
thousands).

December
31,
2015

Money
market
funds
U.S.
treasury
notes
U.S.
government
agency
securities

Reported
as:

Cash
equivalents
Restricted
cash
Marketable
securities

Total
cash
equivalents,
restricted
cash
and
marketable
securities

Money
market
funds

Reported
as:

Cash
equivalents
Restricted
cash

Total
cash
equivalents,
and
restricted
cash

Amortized

Cost
39,998
$
4,006

65,586

$ 109,590
$

Amortized

Cost
15,167
$
15,167
$

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Estimated

Fair
Value

—
$
—

1
$

39,998

—
$
4,006

—

65,571

(16)

(16) $ 109,575

50,964

4,831

53,780

$ 109,575

December
31,
2014

Gross

Unrealized

Gains

Gross

Unrealized

Losses

Estimated

Fair
Value

—
$
—
$

15,167

15,017

150

15,167

The
following
table
summarizes
the
available-for-sale
securities
that
were
in
an
unrealized
loss
position
as
of
December
31,
2015,
having
been
in
such
a
position
for
less
than
12
months,
and
none
having
been
deemed
to
be
other-than-temporarily
impaired
(in
thousands):

U.S.
government
agency
securities

Gross

Unrealized

Losses

Estimated

Fair
Value

16
$

42,034

None
of
the
available-for-sale
securities
held
as
of
December
31,
2015
has
been
in
a
continuous
unrealized
loss
position
for
more
than
one
year.
As
of
December
31,
2015,
unrealized
losses
on
available-for-sale
investments
are
not
attributed
to
credit
risk
and
are
considered
to
be
temporary.
The
Company
believes
that
it
is
more-likely-than-not
that
investments
in
an
unrealized
loss
position
will
be
held
until
maturity
or
the
recovery
of
the
cost
basis
of
the
investment.
To
date,
the
Company
has
not

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

3.
Balance
sheet
components
(Continued)

recorded
any
impairment
charges
on
marketable
securities
related
to
other-than-temporary
declines
in
market
value.

At
December
31,
2015,
the
remaining
contractual
maturities
of
available-for-sale
securities
were
less
than
one
year.
For
the
year
ended
December
31,
2015,
realized
gains
or
losses
on
available-for-sale
securities
were
de
minimis.
There
were
no
available-for-sale
marketable
securities
held
by
the
Company
at
December
31,
2014.

Property and equipment, net

Property
and
equipment
consisted
of
the
following
(in
thousands):

December
31,

2015

2014

Leasehold
improvements
Laboratory
equipment
Equipment
under
capital
lease
Computer
equipment
Software
Furniture
and
fixtures
Automobiles
Construction-in-progress

Total
property
and
equipment,
gross
Accumulated
depreciation
and
amortization

Total
property
and
equipment,
net

2,548
$
10,461

8,224

2,397

2,368

210

1,202

27,430

(8,721)

1,914

6,528

3,735

1,156

831

158

—

4,853

19,175

(3,503)

$ 18,709
$ 15,672

Included
in
the
construction-in-progress
balance
as
of
December
31,
2014
was
$2.9
million
of
capital
lease
equipment
that
had
not
been
placed
in
service.
Depreciation
and
amortization
expense
was
$5.3
million,
$2.3
million
and
$0.9
million
for
the
years
ended
December
31,
2015,
2014
and
2013,
respectively.

Accrued liabilities

Accrued
liabilities
consisted
of
the
following
(in
thousands):

Accrued
compensation
and
related
expenses
Accrued
laboratory
materials
purchases
Accrued
professional
services
Accrued
costs
for
construction-in-progress
Other

Total
accrued
liabilities

Year
ended

December
31,

2015

2014

$ 2,307
$ 1,439

—

1,030

736

$ 4,253
$ 3,237

426

272

—

1,248

Table
of
Contents

4.
Fair
value
measurements

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

Financial
assets
and
liabilities
are
recorded
at
fair
value.
The
carrying
amounts
of
certain
of
the
Company's
financial
instruments,
including
cash
equivalents,
and
accounts
payable,
are
valued
at
cost,
which
approximates
fair
value
due
to
their
short
maturities.
Fair
value
is
defined
as
the
price
that
would
be
received
to
sell
an
asset
or
paid
to
transfer
a
liability
(an
exit
price)
in
an
orderly
transaction
between
market
participants
at
the
reporting
date.
The
authoritative
guidance
establishes
a
three-level
valuation
hierarchy
that
prioritizes
the
inputs
to
valuation
techniques
used
to
measure
fair
value
based
upon
whether
such
inputs
are
observable
or
unobservable.
Observable
inputs
reflect
market
data
obtained
from
independent
sources,
while
unobservable
inputs
reflect
market
assumptions
made
by
the
reporting
entity.

The
three-level
hierarchy
for
the
inputs
to
valuation
techniques
is
briefly
summarized
as
follows:

Level
1—Observable
inputs
such
as
quoted
prices
(unadjusted)
for
identical
instruments
in
active
markets.

Level
2—Observable
inputs
such
as
quoted
prices
for
similar
instruments
in
active
markets,
quoted
prices
for
identical
or
similar
instruments
in
markets
that
are
not
active,
or
model-derived
valuations
whose
significant
inputs
are
observable.

Level
3—Unobservable
inputs
that
reflect
the
reporting
entity's
own
assumptions.

The
following
tables
set
forth
the
fair
value
of
the
Company's
consolidated
financial
instruments
that
were
measured
at
fair
value
on
a
recurring
basis
as
of
December
31,
2015
and
2014
(in
thousands):

Level
1

December
31,
2015

Level
3

Level
2

Total

Financial
assets:

Money
market
funds
U.S.
treasury
notes
U.S.
government
agency
securities

Total
financial
assets

$ 39,998
$

39,998

4,006

65,571

$ 44,004
$ 65,571
$ —
$ 109,575

—
$ —
$
—

65,571

4,006

—

Financial
assets:

Money
market
funds

Total
financial
assets

Level
1

December
31,
2014

Level
3

Level
2

Total

$ 15,167
$

—
$ —
$
—
$ —
$

15,167

The
Company's
debt
securities
of
U.S.
government
agency
entities
are
classified
as
Level
2
as
they
are
valued
based
upon
quoted
market
prices
for
similar
instruments
in
active
markets,
quoted
prices
for
identical
or
similar
instruments
in
markets
that
are
not
active
and
model-based
valuation
techniques
for
which
all
significant
inputs
are
observable
in
the
market
or
can
be
corroborated
by
observable
market
data
for
substantially
the
full
term
of
the
assets.
Where
applicable
these
models
project
future
cash
flows
and
discount
the
future
amounts
to
a
present
value
using
market-based
observable
inputs

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

4.
Fair
value
measurements
(Continued)

obtained
from
various
third
party
data
providers,
including
but
not
limited
to,
benchmark
yields,
interest
rate
curves,
reported
trades,
broker/dealer
quotes
and
reference
data.

There
were
no
transfers
between
Level
1
and
Level
2
during
the
periods
presented.

The
fair
value
of
the
Company's
outstanding
debt
is
estimated
using
the
net
present
value
of
the
payments,
discounted
at
an
interest
rate
that
is
consistent
with
market
interest
rates,
which
is
a
Level
2
input.
The
carrying
amount
and
the
estimated
fair
value
of
the
Company's
outstanding
debt
at
December
31,
2015,
and
2014,
are
as
follows
(in
thousands):

Debt

7,040
$ 6,952
$

5.
Commitments
and
contingencies

Operating Leases

December
31,
2015
Fair

Value

Carrying

Amount

Carrying

Amount

December
31,
2014
Fair

Value
$ —

—

Through
December
31,
2014,the
Company
had
entered
into
various
non-cancelable
operating
lease
agreements
for
office
and
laboratory
facilities
located
in
California
with
lease
periods
expiring
between
2016
and
2020
and
for
laboratory
space
in
Santiago,
Chile
with
a
lease
term
expiring
in
2017.
In
March
2015,
the
Company
leased
additional
space
in
San
Francisco
and
Oakland,
California.
The
leases
expire
in
April
and
June
2017,
respectively.
In
April
2015
the
Company
leased
additional
space
in
Cambridge,
Massachusetts;
this
lease
expires
in
January
2018.
Some
of
the
lease
agreements
include
scheduled
rent
increases
over
the
terms
of
the
leases.
Rent
increases,
including
the
impact
of
rent
holidays
and
leasehold
improvement
allowances
from
landlords,
are
recognized
as
deferred
rent
and
are
amortized
on
a
straight-line
basis
over
the
term
of
the
original
lease.

In
September
2015,
the
Company
entered
into
a
lease
agreement
for
a
laboratory
and
headquarters
in
San
Francisco,
California.
This
lease
expires
in
July
2026
and
the
Company
may
renew
the
lease
for
an
additional
ten
years.
The
Company
has
determined
the
lease
term
to
be
a
ten-year
period
expiring
in
2026.
The
lease
term
commenced
when
the
Company
took
occupancy
of
the
facility
in
the
first
quarter
of
2016.
In
connection
with
the
execution
of
the
lease,
the
Company
provided
a
security
deposit
of
approximately
$4.6
million
which
is
included
in
restricted
cash
in
the
Company's
consolidated
balance
sheets.
Minimum
annual
rent
under
the
lease
is
subject
to
increases
based
on
stated
rental
adjustment
terms.
In
addition,
per
the
terms
of
the
lease,
the
Company
will
receive
a
$5.2
million
lease
incentive
in
the
form
of
reimbursement
from
the
landlord
for
a
portion
of
the
costs
of
leasehold
improvements
the
Company
makes
to
the
facility.
The
assets
purchased
with
the
lease
incentive
will
be
included
in
property
and
equipment,
net
in
the
Company's
consolidated
balance
sheets
and
the
lease
incentive
will
be
recognized
as
a
reduction
of
rental
expense
on
a
straight-line
basis
over
the
term
of
the
lease.
At
December
31,
2015,
none
of
the
incentive
had
been
utilized
by
the
Company.
At
December
31,
2015,
aggregate
future
minimum
lease
payments
for
the
new
facility
are
approximately
$72.0
million.

In
addition
to
the
security
deposit
of
approximately
$4.6
million
for
the
new
laboratory
and
headquarters
facility,
the
Company
has
provided
security
deposits
of
$1.5
million
and
$1.4
million
as
of

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

5.
Commitments
and
contingencies
(Continued)

December
31,
2015
and
2014,
respectively,
as
collateral
for
other
leases,
which
are
included
in
other
assets
in
the
Company's
balance
sheets.

Future
minimum
payments
under
non-cancelable
operating
leases
as
of
December
31,
2015
are
as
follows
(in
thousands):

Year
ending
December
31,
2016
2017
2018
2019
2020
Thereafter

Total
minimum
lease
payments

Amounts

6,224

7,366

7,269

7,463

7,068

44,374

$ 79,764

Rent
expense
was
$3.7
million,
$1.4
million
and
$0.8
million
for
the
years
ended
December
31,
2015,
2014
and
2013,
respectively.

Equipment Financing

In
July
2015,
the
Company
entered
into
a
Loan
and
Security
Agreement
(the
"Loan
Agreement")
with
a
bank
under
which
term
loans
for
purchases
of
equipment
up
to
an
aggregate
of
$15.0
million
are
available
in
tranches
not
to
exceed
$2.0
million,
other
than
the
initial
$2.5
million
tranche
on
the
date
of
the
Loan
Agreement.
The
Company
may
request
additional
tranches
to
finance
the
purchase
of
equipment
through
December
31,
2016,
subject
to
certain
restrictions.
The
term
loans
under
the
Loan
Agreement
bear
interest
at
a
floating
rate
equal
to
0.25%
below
the
prime
rate
as
published
in
the
Wall
Street
Journal
effective
on
the
date
the
change
in
the
prime
rate
becomes
effective.
The
Company
is
required
to
repay
the
outstanding
principal
and
accrued
but
unpaid
interest
on
each
tranche
in
equal
monthly
installments
beginning
one
month
after
each
advance
and
ending
on
July
17,
2020
(the
"Term
Date").
Any
then-unpaid
principal
and
interest
on
advances
under
the
Loan
Agreement
are
payable
on
the
Term
Date.
The
Company
may,
at
its
option,
prepay
the
borrowings
by
paying
the
lender
a
prepayment
premium.

The
Company's
obligations
under
the
Loan
Agreement
are
subject
to
covenants,
including
covenants
to
maintain
a
minimum
liquidity
level
with
the
bank,
and
additional
covenants
limiting
the
Company's
ability
to
dispose
of
assets,
undergo
a
change
in
control,
merge
with
or
acquire
other
entities,
incur
debt,
incur
liens,
pay
dividends
or
other
distributions
to
holders
of
its
capital
stock,
repurchase
stock
and
make
investments,
in
each
case
subject
to
certain
exceptions.
As
of
December
31,
2015,
the
Company
was
in
compliance
with
all
covenants
under
the
Loan
Agreement.
The
Company's
obligations
under
the
Loan
Agreement
are
secured
by
a
security
interest
on
substantially
all
of
its
assets,
excluding
its
intellectual
property
and
certain
other
assets.

At
December
31,
2015,
obligations
under
the
Loan
Agreement
were
$7.0
million.
Debt
issuance
costs
related
to
the
Loan
Agreement
of
$47,000
were
recorded
as
a
direct
deduction
from
the
debt
liability
and
are
amortized
to
interest
expense
over
the
term
of
the
Loan
Agreement
in
accordance
with

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

5.
Commitments
and
contingencies
(Continued)

ASU
2015-03.
Future
payments
under
the
Loan
Agreement
as
of
December
31,
2015
are
as
follows
(in
thousands):

Year
ending
December
31,
2016
2017
2018
2019
2020
Thereafter

Total
remaining
debt
payments

Less:
amount
representing
debt
discount
Less:
amount
representing
interest

Present
value
of
remaining
debt
payments

Less:
current
portion
Total
noncurrent
debt
obligation

Amounts

1,741

1,697

1,649

1,600

911

—

7,598

(44)
(514)
7,040

(1,536)
5,504

Capital leases

The
Company
has
entered
into
various
capital
lease
agreements
to
obtain
lab
equipment.
The
terms
of
the
capital
leases
is
typically
three
years
with
interest
rates
ranging
from
3.8%
to
4.3%.
The
leases
are
secured
by
the
underlying
equipment.
The
portion
of
the
future
payments
designated
as
principal
repayment
was
classified
as
a
capital
lease
obligation
on
the
consolidated
balance
sheets.
Future
payments
under
the
capital
lease
as
of
December
31,
2015
are
as
follows
(in
thousands):

Year
ending
December
31,
2016
2017
2018

Total
capital
lease
obligations
Less:
amount
representing
interest

Present
value
of
net
minimum
capital
lease
payments

Less:
current
portion
Total
noncurrent
capital
lease
obligations

Amounts

1,692

1,350

269

3,311

(147)
3,164

(1,588)
1,576

Interest
expense
related
to
capital
leases
was
$141,000,
$61,000
and
$59,000
for
the
years
ended
December
31,
2015,
2014
and
2013,
respectively.

Property
and
equipment
under
capital
leases
was
$8.2
million
and
$6.6
million
as
of
December
31,
2015
and
2014,
respectively,
including
$2.9
million
of
capital
lease
equipment
that
had
not
been
placed
in
service
as
of
December
31,
2014.
Accumulated
depreciation
and
amortization,
collectively,
on
these
assets
was
$2.8
million
and
$1.4
million
as
of
December
31,
2015
and
2014,
respectively.

Table
of
Contents

5.
Commitments
and
contingencies
(Continued)

Guarantees and indemnifications

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

As
permitted
under
Delaware
law
and
in
accordance
with
the
Company's
bylaws,
the
Company
indemnifies
its
officers
and
directors
for
certain
events
or
occurrences
while
the
officer
or
director
is
or
was
serving
in
such
capacity.
The
maximum
amount
of
potential
future
indemnification
is
unlimited;
however,
the
Company
currently
holds
director
and
officer
liability
insurance.
This
insurance
allows
the
transfer
of
the
risk
associated
with
the
Company's
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
associated
with
these
indemnification
agreements
as
of
December
31,
2015
or
2014.

Contingencies

On
September
16,
2015,
GeneDx,
Inc.
and
Bio-Reference
Laboratories,
Inc.
filed
an
action
against
the
Company
in
the
U.S.
District
Court
for
the
District
of
New
Jersey.
The
Complaint
alleges
that
the
Company
wrongfully
solicited
and
hired
employees
away
from
the
plaintiffs
in
order
to
acquire
access
to
trade
secrets
and
other
confidential
business
information
belonging
to
the
plaintiffs.
The
Complaint
alleges
claims
for
relief
based
on
legal
theories
of
unfair
competition,
tortious
interference
with
prospective
economic
advantage,
tortious
interference
with
contract,
and
trade
secret
misappropriation,
and
seeks
injunctive
relief;
damages,
including
punitive
damages;
and
attorneys'
fees
and
costs.
On
October
22,
2015,
the
Company
filed
a
motion
to
dismiss
the
action
for
lack
of
personal
jurisdiction
and,
in
the
alternative,
to
transfer
the
action
to
the
U.S.
District
Court
for
the
Northern
District
of
California.
On
November
13,
2015,
the
plaintiffs
filed
their
First
Amended
Complaint.
On
December
14,
2015,
the
Company
responded
by
again
filing
a
motion
to
dismiss
the
action
for
lack
of
personal
jurisdiction
and,
in
the
alternative,
to
transfer
the
action
to
the
U.S.
District
Court
for
the
Northern
District
of
California.
The
parties
are
negotiating
the
exchange
of
information
regarding
the
issue
of
personal
jurisdiction,
and
have
extended
the
plaintiffs'
deadline
to
respond
to
the
motion
pending
the
outcome
of
that
negotiation.
The
current
due
date
for
the
plaintiffs'
response
is
March
21,
2016.
The
Company
believes
the
action
is
without
merit
and
intends
to
defend
itself
vigorously.

The
Company
was
not
a
party
to
any
other
material
legal
proceedings
at
December
31,
2015,
or
at
the
date
of
this
report.
The
Company
may
from
time
to
time
become
involved
in
various
legal
proceedings
arising
in
the
ordinary
course
of
business,
and
the
resolution
of
any
such
claims
could
be
material.

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

6.
Convertible
preferred
stock

Convertible
preferred
stock
as
of
December
31,
2014
consisted
of
the
following
(in
thousands,
except
share
and
per
share
data):

Series
A
Series
B
Series
C
Series
D
Series
E
Series
F
Balance
at
December
31,
2014

authorized
11,693,179
$
4,181,818

31,112,750

8,000,000

26,143,777

60,000,000

141,131,524

Original

issue
price

0.44

0.55

0.95

1.25

1.53

2.00

Proceeds,

net
of

issuance

costs

Aggregate

liquidation

amount

issued
and

outstanding
11,693,179
$
4,181,818

31,112,750

8,000,000

26,143,777

60,000,000

5,109

2,253

29,393

9,933

39,886

115,731

141,131,524
$ 207,002
$ 202,305

5,145
$
2,300

29,557

10,000

40,000

120,000

Upon
the
closing
of
the
IPO
in
February
2015,
the
141,131,524
shares
of
convertible
preferred
stock
then
outstanding
converted
into
23,521,889
shares
of
common
stock.

7.
Stockholders'
equity
(deficit)

Common stock

The
holders
of
each
share
of
common
stock
have
one
vote
for
each
share
of
stock.
The
common
stockholders
are
also
entitled
to
receive
dividends
whenever
funds
and
assets
are
legally
available
and
when
declared
by
the
Board
of
Directors,
subject
to
the
prior
rights
of
holders
of
all
series
of
convertible
preferred
stock
outstanding.

As
of
December
31,
2015
and
2014,
the
Company
had
reserved
shares
of
common
stock,
on
an
as-if
converted
basis,
for
issuance
as
follows:

Conversion
of
convertible
preferred
stock
Options
issued
and
outstanding
Options
available
for
grant
under
stock
option
plan
Shares
reserved
for
issuance
under
the
2015
Employee
Stock
Purchase
Plan

Total

As
of
December
31,

2015

—

3,659,713

2,268,938

325,000

6,253,651

2014

23,521,889

1,923,332

276,805

—

25,722,026

8.
Stock
plans

Stock incentive plans

In
2010,
the
Company
adopted
the
2010
Incentive
Plan
(the
"2010
Plan").
The
2010
Plan
provides
for
the
granting
of
stock-based
awards
to
employees,
directors,
and
consultants
under
terms
and
provisions
established
by
the
Board
of
Directors.
Under
the
terms
of
the
2010
Plan,
options
may
be

Table
of
Contents

8.
Stock
plans
(Continued)

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

granted
at
an
exercise
price
not
less
than
fair
market
value.
For
employees
holding
more
than
10%
of
the
voting
rights
of
all
classes
of
stock,
the
exercise
prices
for
incentive
and
nonstatutory
stock
options
must
be
at
least
110%
of
fair
market
of
the
common
stock
on
the
grant
date,
as
determined
by
the
Board
of
Directors.
The
terms
of
options
granted
under
the
2010
Plan
may
not
exceed
ten
years.

In
January
2015,
the
Company
adopted
the
2015
Stock
Incentive
Plan,
(the
"2015
Plan"),
which
became
effective
upon
the
closing
of
the
IPO.
The
2015
Plan
had
4,370,452
shares
of
common
stock
reserved
for
future
issuance
at
the
time
of
its
effectiveness,
which
included
120,452
shares
under
the
2010
Plan
which
were
transferred
to
the
2015
Plan
upon
effectiveness
of
the
2015
Plan.
The
2015
Plan
provides
for
automatic
annual
increases
in
shares
available
for
grant,
beginning
on
January
1,
2016
through
January
1,
2025.
In
addition,
shares
subject
to
awards
under
the
2010
Plan
that
are
forfeited
or
terminated
will
be
added
to
the
2015
Plan.
The
2015
Plan
provides
for
the
grant
of
incentive
stock
options,
nonstatutory
stock
options,
restricted
stock
awards,
stock
units,
stock
appreciation
rights
and
other
forms
of
equity
compensation,
all
of
which
may
be
granted
to
employees,
including
officers,
non-employee
directors
and
consultants.
Additionally,
the
2015
Plan
provides
for
the
grant
of
cash-based
awards.

Options
granted
generally
vest
over
a
period
of
four
years.
Typically,
the
vesting
schedule
for
options
granted
to
newly
hired
employees
provides
that
1
/
4
of
the
grant
vests
upon
the
first
anniversary
of
the
employee's
date
of
hire,
with
the
remainder
of
the
shares
vesting
monthly
thereafter
at
a
rate
of
1
/
48
of
the
total
shares
subject
to
the
option.
All
other
options
typically
vest
in
equal
monthly
installments
over
the
four-year
vesting
schedule.

Restricted
stock
units
generally
vest
over
a
period
of
three
years.
Typically,
the
vesting
schedule
for
restricted
stock
units
provides
that
one
third
of
the
grant
vests
upon
each
anniversary
of
the
grant
date.

2015 employee stock purchase plan

In
January
2015,
the
Company
adopted
the
2015
Employee
Stock
Purchase
Plan
(the
"ESPP"),
which
became
effective
upon
the
closing
of
the
IPO.
A
total
of
325,000
shares
of
common
stock
are
reserved
for
issuance
under
the
ESPP.
Eligible
employees
may
purchase
common
stock
at
85%
of
the
lesser
of
the
fair
market
value
of
common
stock
on
the
purchase
date
or
last
trading
day
preceding
the
offering
date.
The
ESPP
provides
for
automatic
annual
increases
in
shares
available
for
grant,
beginning
on
January
1,
2016
through
January
1,
2025.
The
initial
ESPP
purchase
period
commenced
in
the
fourth
quarter
of
2015.

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

8.
Stock
plans
(Continued)

Activity
under
the
2010
Plan
and
the
2015
Plan
is
set
forth
below
(in
thousands,
except
share
and
per
share
amounts
and
years):

available

for
grant

Weighted-

average

exercise

price

Stock

options

outstanding

1,173,019
$

Balances
at
December
31,
2013
Additional
shares
reserved
Repurchase
of
unvested
early
exercise
shares
Options
granted
Options
cancelled
Options
exercised

Balances
at
December
31,
2014
Additional
shares
reserved
Options
granted
Options
cancelled
Options
exercised
Restricted
stock
units
granted
Balances
at
December
31,
2015
Options
exercisable
at
December
31,
2015
Options
vested
and
expected
to
vest
at
December
31,
2015

873,233

333,333

1,959

—

(1,164,990)
1,164,990

(233,270)

(181,407)

1,923,332
$

233,270

—

276,805

4,370,452

—

(2,103,304)
2,103,304

218,053

—

(218,053)

(148,870)

(493,068)

—

2,268,938

3,659,713
$
833,787
$

3,553,680
$

Weighted-

average

remaining

contractual

life
(years)

Aggregate

intrinsic

value

9.00
$

2,155

8.90
$ 15,946

8.89
$
7.57
$
8.87
$

7,099

4,054

7,017

1.40

—

6.21

2.07

1.15

4.37

9.78

7.73

1.98

7.38

3.54

7.33

The
aggregate
intrinsic
value
is
calculated
as
the
difference
between
the
exercise
price
of
the
underlying
stock
options
and
the
fair
value
of
the
Company's
common
stock
for
stock
options
that
were
in-the-money.

The
weighted-average
fair
value
of
options
to
purchase
common
stock
granted
was
$6.26,
$4.68
and
$1.83
per
share
in
the
years
ended
December
31,
2015,
2014
and
2013,
respectively.
The
weighted-average
fair
value
of
restricted
stock
units
granted
was
$10.72
,
$0.00,
and
$0.00
in
the
years
ended
December
31,
2015,
2014
and
2013,
respectively.

The
fair
value
of
options
to
purchase
common
stock
vested
was
$2,128,000,
$494,000
and
$204,000
in
the
years
ended
December
31,
2015,
2014
and
2013,
respectively.

The
intrinsic
value
of
options
to
purchase
common
stock
exercised
was
$1,285,000,
$644,000
and
$60,000
in
the
years
ended
December
31,
2015,
2014
and
2013,
respectively.

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

8.
Stock
plans
(Continued)

The
following
table
summarizes
RSU
activity
for
the
year
ended
December
31,
2015:

Balance
at
December
31,
2014

RSUs
granted
RSUs
vested
RSUs
cancelled

Balance
at
December
31,
2015

Stock-based compensation

Number
of

Weighted-

Average

Grant
Date

Fair
Value

—
$

493,068

—

(10,250)

482,818
$

—

10.72

—

10.94

10.71

The
Company
uses
the
grant
date
fair
value
of
its
common
stock
to
value
both
employee
and
non-employee
options
when
granted.
The
Company
revalues
non-employee
options
each
reporting
period
using
the
fair
market
value
of
the
Company's
common
stock
as
of
the
last
day
of
each
reporting
period.

In
determining
the
fair
value
of
the
stock-based
awards,
the
Company
uses
the
Black-Scholes
option-pricing
model
and
assumptions
discussed
below.
Each
of
these
inputs
is
subjective
and
its
determination
generally
requires
significant
judgment.

Expected term —The
expected
term
represents
the
period
that
the
Company's
stock-based
awards
are
expected
to
be
outstanding
and
is
determined
using
the
simplified
method
(based
on
the
midpoint
between
the
vesting
date
and
the
end
of
the
contractual
term).

Expected volatility —Because
the
Company
was
privately
held
and
did
not
have
any
trading
history
for
its
common
stock,
the
expected
volatility
was
estimated
based
on
the
average
volatility
for
comparable
publicly
traded
biopharmaceutical
companies
over
a
period
equal
to
the
expected
term
of
the
stock
option
grants.
When
selecting
comparable
publicly
traded
companies
in
a
similar
industry
on
which
it
has
based
its
expected
stock
price
volatility,
the
Company
selected
companies
with
comparable
characteristics
to
it,
including
enterprise
value,
risk
profiles,
position
within
the
industry,
and
with
historical
share
price
information
sufficient
to
meet
the
expected
life
of
the
stock-based
awards.
The
historical
volatility
data
was
computed
using
the
daily
closing
prices
for
the
selected
companies'
common
stock
during
the
equivalent
period
of
the
calculated
expected
term
of
the
stock-based
awards.
The
Company
will
continue
to
apply
this
process
until
a
sufficient
amount
of
historical
information
regarding
the
volatility
of
its
own
stock
price
becomes
available.

Risk-free interest rate —The
risk-free
interest
rate
is
based
on
the
U.S.
Treasury
zero
coupon
issues
in
effect
at
the
time
of
grant
for
periods
corresponding
with
the
expected
term
of
the
option.

Dividend yield —The
Company
has
never
paid
dividends
on
its
common
stock
and
has
no
plans
to
pay
dividends
on
its
common
stock.
Therefore,
the
Company
used
an
expected
dividend
yield
of
zero.

Table
of
Contents

8.
Stock
plans
(Continued)

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

The
fair
value
of
share-based
payments
for
option
granted
to
employees
and
directors
was
estimated
on
the
date
of
grant
using
the
Black-Scholes
option-
pricing
valuation
model
based
on
the
following
assumptions:

Expected
term
(in
years)
Expected
volatility
Risk-free
interest
rate
Dividend
yield

2015
6.03

Year
ended
December
31,
2014
6.03

2013
6.03

68.2
-
79.7%
83.8
-
86.6%
88.5
-
94.5%

1.28
-
1.86%
1.53
-
1.91%
0.99
-
1.97%

—

The
fair
value
of
the
ESPP
is
estimated
using
the
Black-Scholes
option
pricing
model.
For
the
year
ended
December
31,
2015,
the
weighted
average
grant
date
fair
value
per
share
for
the
ESPP
was
$2.17.
Stock-based
compensation
expense
for
the
ESPP
was
$102,000
for
the
year
ended
December
31,
2015.

For
the
year
ended
December
31,
2015,
the
fair
value
of
ESPP
was
estimated
using
the
following
assumptions:

Expected
term
(in
years)
Expected
volatility
Risk-free
interest
rate
Dividend
yield

Year
ended

December
31,

2015

0.50

74.13%
0.33%
—

The
ESPP
commenced
in
November
2015.
No
shares
of
common
stock
were
purchased
pursuant
to
the
ESPP
in
2015.
Cash
received
from
payroll
deductions
pursuant
to
the
ESPP
in
2015
was
$259,000.

Stock-based
compensation
related
to
stock
options
granted
to
non-employees
is
recognized
as
the
stock
options
are
earned.
The
fair
value
of
the
stock
options
granted
is
calculated
at
each
reporting
date
using
the
Black-Scholes
option
pricing
model
based
on
the
following
assumptions:

Expected
term
(in
years)
Expected
volatility
Risk-free
interest
rate
Dividend
yield

Year
ended
December
31,
2014
9.37
-
9.40

83.8%

2015
7.25
-
9.82

69.9
-
78.7%

1.86
-
2.25%
1.99
-
2.41%
2.85
-
2.94%

2013
9.25
-
9.60
88.5%

—

Table
of
Contents

8.
Stock
plans
(Continued)

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

The
following
table
summarizes
stock-based
compensation
expense
for
the
years
ended
December
31,
2015,
2014
and
2013
included
in
the
statements
of
operations
and
comprehensive
loss
as
follows
(in
thousands):

Cost
of
revenue
Research
and
development
Selling
and
marketing
General
and
administrative
Total
stock-based
compensation
expense

2013

Year
ended
December
31,
2014
2015
368
$ 102
$

165

$ 3,477
$ 971
$ 260

1,545

688

876

382

216

271

As
of
December
31,
2015,
unrecognized
compensation
expense
related
to
unvested
options,
net
of
estimated
forfeitures,
was
$14.6
million,
which
the
Company
expects
to
recognize
on
a
straight-line
basis
over
a
weighted-
average
period
of
3.3
years.
Unrecognized
compensation
expense
related
to
restricted
stock
units
at
December
31,
2015
was
$4.6
million
which
the
Company
expects
to
recognize
on
a
straight-line
basis
over
a
weighted-
average
period
of
2.7
years.
There
was
no
capitalized
stock-based
employee
compensation
as
of
December
31,
2015.

9.
Income
taxes

The
Company
did
not
record
a
provision
or
benefit
for
income
taxes
during
the
years
ended
December
31,
2015,
2014
and
2013.
The
components
of
loss
before
income
taxes
by
U.S.
and
foreign
jurisdictions
are
as
follows
(in
thousands):

United
States
Foreign
Total

2015

Year
ended
December
31,
2014

$ 88,112
$ 46,328
$ 23,522

1,316

$ 89,782
$ 47,492
$ 24,838

1,164

1,670

2013

The
following
table
presents
a
reconciliation
of
the
tax
expense
computed
at
the
statutory
federal
rate
and
the
Company's
tax
expense
for
the
periods
presented:

U.S.
federal
taxes
at
statutory
rate
State
taxes
(net
of
federal
benefit)
Non-deductible
expenses
Foreign
tax
differential
Change
in
valuation
allowance

Total

Year
ended

December
31,
2014

34.0%
34.0%
34.0%

2013

2015

0.7

(0.7)

(0.8)

0.8

(0.8)

(0.2)

0.9

(0.4)
(1.8)

(33.8)
(33.2)
(32.7)
0.0%

0.0%

Table
of
Contents

9.
Income
taxes
(Continued)

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

The
tax
effects
of
temporary
differences
and
carryforwards
that
give
rise
to
significant
portions
of
the
deferred
tax
assets
are
as
follows
(in
thousands):

Deferred
tax
assets:

Net
operating
loss
carryforwards
Tax
credits
Accruals
and
other

Gross
deferred
tax
assets

Valuation
allowance

Net
deferred
tax
assets

Deferred
tax
liabilities:

Property
and
equipment
Total
deferred
tax
liabilities
Net
deferred
tax
assets

As
of
December
31,
2014
2015

53,123
$
13

7,612

60,748

(60,304)

444

28,022

1,914

29,949

(29,498)
451

(444) $
(444)

—
$

(451)
(451)
—

The
Company
has
established
a
full
valuation
allowance
against
its
deferred
tax
assets
due
to
the
uncertainty
surrounding
realization
of
such
assets.
The
valuation
allowance
increased
by
$30.8
million
and
$16.1
million
during
the
years
ended
December
31,
2015
and
2014,
respectively.

As
of
December
31,
2015,
the
Company
had
net
operating
loss
carryforwards
of
approximately
$147.0
million
and
$96.0
million
available
to
reduce
future
taxable
income,
if
any,
for
Federal
and
California
state
income
tax
purposes,
respectively.
The
Company
tracks
a
portion
of
its
deferred
tax
assets
attributable
to
stock
option
benefits
in
a
separate
memo
account.
Therefore
these
amounts
are
not
included
in
the
Company's
gross
or
net
deferred
tax
assets.
The
benefit
of
these
stock
options
will
not
be
recorded
in
equity
unless
it
reduces
taxes
payable.
As
of
December
31,
2015,
the
portion
of
the
Federal
and
state
net
operating
loss
related
to
stock
option
benefits
is
approximately
$500,000.
The
U.S.
Federal
and
California
state
net
operating
loss
carryforwards
will
begin
to
expire
in
2030.

As
of
December
31,
2015,
the
Company
had
net
operating
loss
carryforwards
for
foreign
income
tax
purposes
of
$4.0
million
which
have
no
expiration
date.

As
of
December
31,
2015,
the
Company
had
research
and
development
credit
carryforwards
of
approximately
$3.7
million
and
$3.3
million
available
to
reduce
its
future
tax
liability,
if
any,
for
Federal
and
California
state
income
tax
purposes,
respectively.
The
Federal
credit
carryforwards
begin
to
expire
in
2030.
California
credit
carryforwards
have
no
expiration
date.
As
of
December
31,
2015,
the
Company
has
other
tax
credits
of
$18,000
that
have
no
expiration
period
for
the
majority
of
the
credits.

Utilization
of
the
net
operating
loss
carryforwards
and
credits
may
be
subject
to
an
annual
limitation
due
to
the
ownership
change
limitations
provided
by
the
Internal
Revenue
Code
of
1986
and
similar
state
provisions.
The
annual
limitation
may
result
in
the
expiration
of
net
operating
losses
and
credits
before
utilization.
No
Section
382
study
has
been
completed
as
of
December
31,
2015.

Table
of
Contents

9.
Income
taxes
(Continued)

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

As
of
December
31,
2015,
the
Company
had
unrecognized
tax
benefits
of
$11.4
million,
none
of
which
would
currently
affect
the
Company's
effective
tax
rate
if
recognized
due
to
the
Company's
deferred
tax
assets
being
fully
offset
by
a
valuation
allowance.
The
Company
has
not
accrued
interest
and
penalties
related
to
the
unrecognized
tax
benefits
reflected
in
the
financial
statements
for
the
years
ended
December
31,
2015,
2014
and
2013.
Unrecognized
tax
benefits
are
not
expected
to
change
in
the
next
12
months.

A
reconciliation
of
the
beginning
and
ending
amount
of
unrecognized
tax
benefits
is
as
follows
(in
thousands):

Year
ended
December
31,
2014

2015

2013

Unrecognized
tax
benefits,
beginning
of
period
Gross
increases—current
period
tax
positions
Gross
increases—prior
period
tax
positions
Unrecognized
tax
benefits,
end
of
period

5,661
$ 2,100
$
2,993

2,775

618

1,482

—

$ 11,429
$ 5,661
$ 2,100

1,874

1,687

The
Company's
policy
is
to
include
penalties
and
interest
expense
related
to
income
taxes
as
a
component
of
tax
expense.
There
was
no
interest
expense
or
penalties
related
to
unrecognized
tax
benefits
recorded
through
December
31,
2015.

The
Company's
major
tax
jurisdictions
are
the
United
States
and
California.
All
of
the
Company's
tax
years
will
remain
open
for
examination
by
the
Federal
and
state
tax
authorities
for
three
and
four
years,
respectively,
from
the
date
of
utilization
of
the
net
operating
loss
or
research
and
development
credit.
The
Company
does
not
have
any
tax
audits
pending.

10.
Net
loss
per
share
attributable
to
common
stockholders

The
following
table
presents
the
calculation
of
basic
and
diluted
net
loss
per
share
attributable
to
common
stockholders
for
the
years
ended
December
31,
2015,
2014
and
2013
(in
thousands,
except
share
and
per
share
amounts):

Year
ended
December
31,

2015

2014

2013

Net
loss

Less:
dividends
on
convertible
preferred
stock

Net
loss
attributable
to
common
stockholders
Shares
used
in
computing
net
loss
per
share
attributable
to
common

(89,782) $ (47,492) $ (24,838)
(151)
(89,782) $ (47,492) $ (24,989)

—

stockholders,
basic
and
diluted

28,213,324

846,027

691,731

Net
loss
per
share
attributable
to
common
stockholders,
basic
and

diluted

(3.18) $

(56.14) $

(36.13)

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

10.
Net
loss
per
share
attributable
to
common
stockholders
(Continued)

The
following
outstanding
shares
of
common
stock
equivalents
have
been
excluded
from
diluted
net
loss
per
share
attributable
to
common
stockholders
for
the
years
ended
December
31,
2015,
2014
and
2013
because
their
inclusion
would
be
anti-dilutive:

Shares
of
common
stock
subject
to
outstanding
options
Shares
of
common
stock
subject
to
outstanding
restricted
stock

unit
awards

Shares
of
common
stock
pursuant
to
employee
stock
purchase
plan

Shares
of
common
stock
subject
to
conversion
of
preferred
stock
Shares
of
common
stock
subject
to
unvested
early
exercise
of

2015

3,659,713

Year
ended
December
31,
2014

1,923,332

2013

1,173,019

482,818

45,963

—

23,521,889

—

13,521,900

outstanding
options
subject
to
repurchase
Total
shares
of
common
stock
equivalents

4,659

4,193,153

23,903

25,469,124

54,407

14,749,326

11.
Geographic
information

Revenue
by
country
is
determined
based
on
the
billing
address
of
the
customer.
The
following
presents
revenue
by
country
for
December
31,
2015,
2014
and
2013
(in
thousands):

December
31,
2014

2015

2013

United
States
Israel
Canada
Rest
of
world
Revenue

$ 5,432
$ 1,067
$

$ 8,378
$ 1,604
$ 148

175

2,112

659

109

310

118

Long-lived
assets
(net)
by
location
are
summarized
as
follows
(in
thousands):

United
States
Chile

Total
long-lived
assets,
net

December
31,

2015

2014

$ 17,180
$ 13,858

1,814

$ 18,709
$ 15,672

1,529

Table
of
Contents

INVITAE
CORPORATION

Notes
to
Consolidated
Financial
Statements
(Continued)

December
31,
2015

12.
Selected
Quarterly
Data
(Unaudited)

The
following
table
contains
quarterly
financial
information
for
2015
and
2014.
The
Company
believes
that
the
following
information
reflects
all
normal
recurring
adjustments
necessary
for
a
fair
statement
of
the
information
for
the
periods
presented.
The
operating
results
for
any
quarter
are
not
necessarily
indicative
of
results
for
any
future
period.

(In
thousands,
except
per
share
amounts)
Revenue
Loss
from
operations
Net
loss
Net
loss
attributable
to
common

Dec
31,

2015
3,161
$

Three
months
ended
Dec
31,

Mar
31,

2015
2014

$
118

1,229
$

$ (24,291) $ (22,456) $ (24,125) $ (18,605) $ (15,283) $ (12,534) $ (10,516) $ (9,019)

$ (24,360) $ (22,527) $ (24,258) $ (18,637) $ (15,305) $ (12,615) $ (10,539) $ (9,033)

June
30,

2015
1,801
$

Sept
30,

2015
2,187
$

June
30,

2014

Sept
30,

2014

Mar
31,

2014

875
$

310
$

301
$

stockholders

$ (24,360) $ (22,527) $ (24,258) $ (18,637) $ (15,305) $ (12,615) $ (10,539) $ (9,033)

Net
loss
per
share
attributable
to

common
stockholders,
basic
and
diluted

(0.76) $

(0.71) $

(0.76) $

(1.09) $ (16.56) $ (14.24) $ (12.81) $ (12.06)

Table
of
Contents

ITEM
9.

Changes
In
And
Disagreements
With
Accountants
On
Accounting
And
Financial
Disclosure.

Not
applicable.

ITEM
9A.

Controls
And
Procedures.

Evaluation
of
disclosure
controls
and
procedures

We
maintain
"disclosure
controls
and
procedures,"
as
such
term
is
defined
in
Rule
13a-15(e)
under
the
Securities
Exchange
Act
of
1934,
or
Exchange
Act,
that
are
designed
to
ensure
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
such
information
is
accumulated
and
communicated
to
our
management,
including
our
principal
executive
officer
and
principal
financial
officer,
as
appropriate,
to
allow
timely
decisions
regarding
required
disclosure.
In
designing
and
evaluating
our
disclosure
controls
and
procedures,
management
recognized
that
disclosure
controls
and
procedures,
no
matter
how
well
conceived
and
operated,
can
provide
only
reasonable,
not
absolute,
assurance
that
the
objectives
of
the
disclosure
controls
and
procedures
are
met.
Our
disclosure
controls
and
procedures
have
been
designed
to
meet
reasonable
assurance
standards.
Additionally,
in
designing
disclosure
controls
and
procedures,
our
management
necessarily
was
required
to
apply
its
judgment
in
evaluating
the
cost-benefit
relationship
of
possible
disclosure
controls
and
procedures.
The
design
of
any
disclosure
controls
and
procedures
also
is
based
in
part
upon
certain
assumptions
about
the
likelihood
of
future
events,
and
there
can
be
no
assurance
that
any
design
will
succeed
in
achieving
its
stated
goals
under
all
potential
future
conditions.

Based
on
their
evaluation
as
of
the
end
of
the
period
covered
by
this
Annual
Report
on
Form
10-K,
our
Chief
Executive
Officer
(our
principal
executive
officer)
and
Chief
Financial
Officer
(our
principal
financial
officer)
have
concluded
that,
as
of
such
date,
our
disclosure
controls
and
procedures
were
effective
at
the
reasonable
assurance
level.

Changes
in
internal
controls

There
was
no
change
in
our
internal
control
over
financial
reporting
(as
defined
in
Rule
13a-15(f)
under
the
Exchange
Act)
identified
in
connection
with
the
evaluation
described
in
Item
9A(a)
above
that
occurred
during
our
last
fiscal
quarter
that
has
materially
affected,
or
is
reasonably
likely
to
materially
affect,
our
internal
control
over
financial
reporting.

Management's
annual
report
on
internal
control
over
financial
reporting

Our
management
is
responsible
for
establishing
and
maintaining
internal
control
over
our
financial
reporting.
Because
of
its
inherent
limitations,
internal
control
over
financial
reporting
may
not
prevent
or
detect
misstatements.
Projections
of
any
evaluation
of
the
effectiveness
of
internal
control
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
policies
or
procedures
may
deteriorate.
Our
management,
with
the
participation
of
our
Chief
Executive
Officer
and
Chief
Financial
Officer,
assessed
the
effectiveness
of
our
internal
control
over
financial
reporting
as
of
December
31,
2015.
In
making
this
assessment,
our
management
used
the
criteria
set
forth
by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission,
or
COSO,
in
Internal
Control—Integrated
Framework
(2013
Framework).
Based
on
the
assessment
using
those
criteria,
our
management
concluded
that,
as
of
December
31,
2015,
our
internal
control
over
financial
reporting
was
effective.

Table
of
Contents

ITEM
9B.

Other
Information.

Ms.
Alderson,
our
former
Chief
Strategy
Officer,
resigned
as
of
the
close
of
business
on
March
1,
2016,
as
was
previously
reported
in
a
Current
Report
on
Form
8-K
filed
on
February
11,
2016.
In
connection
with
this
termination
of
employment,
we
entered
into
a
Separation
and
Release
of
Claims
Agreement
dated
March
8,
2016,
or
the
Separation
Agreement,
with
Ms.
Alderson.
Pursuant
to
the
Separation
Agreement,
Ms.
Alderson
is
entitled
to
a
cash
payment
equal
to
12
weeks
of
base
salary
(less
tax
withholdings),
10
months
of
accelerated
vesting
of
all
unvested,
outstanding
equity
incentive
awards
(comprised
of
options
to
purchase
our
common
stock)
and
an
extension
of
the
exercisability
of
all
vested,
outstanding
options
(after
taking
into
effect
the
foregoing
vesting
acceleration)
through
December
31,
2017.
The
Separation
Agreement
also
provides,
among
other
things,
for
the
termination
of
all
bonus
arrangements
with
Ms.
Alderson
and
a
general
release
of
claims
against
our
company
and
our
affiliates
from
Ms.
Alderson.
The
foregoing
description
of
the
Separation
Agreement
is
subject
to,
and
qualified
in
its
entirety
by
reference
to,
the
full
text
of
the
Separation
Agreement,
which
we
intend
to
file
with
the
Quarterly
Report
on
Form
10-Q
for
the
quarter
ended
March
31,
2016.

Table
of
Contents

ITEM
10.

Directors,
Executive
Officers
and
Corporate
Governance.

Executive
officers
and
directors

PART
III

The
following
table
sets
forth,
as
of
March
2,
2016,
certain
information
regarding
our
executive
officers
and
directors:

Name
Randal
W.
Scott,
Ph.D.

Sean
E.
George,
Ph.D.

Lee
Bendekgey
Robert
L.
Nussbaum,
M.D.

Eric
Aguiar,
M.D.(1)(2)(3)
Geoffrey
S.
Crouse(1)(2)(3)
Christine
M.
Gorjanc(2)

Age

Position

58
Chairman,
Chief
Executive
Officer
and
Director
42
President,
Chief
Operating
Officer,
Director
and
Co-

Founder

58
Chief
Financial
Officer,
General
Counsel
and
Secretary
66
Chief
Medical
Officer
54
Director
45
Director
58
Director

(1)

(2)

(3)

Executive officers

Member
of
our
Compensation
Committee

Member
of
our
Audit
Committee

Member
of
our
Nominating
and
Corporate
Governance
Committee

Randal W. Scott, Ph.D. has
served
as
our
Chairman
and
Chief
Executive
Officer
since
August
2012
and
as
a
director
since
2010.
From
2000
through
August
2012,
Dr.
Scott
held
a
number
of
positions
at
Genomic
Health,
Inc.,
a
publicly
held
genomic
information
company
which
he
co-founded
in
2000,
most
recently
serving
as
the
Chief
Executive
Officer
of
a
wholly-owned
subsidiary
of
Genomic
Health,
and
as
a
director.
Dr.
Scott
also
served
as
Executive
Chairman
of
the
Board
of
Genomic
Health
from
January
2009
until
March
2012
and
as
Chairman
of
the
Board
and
Chief
Executive
Officer
from
August
2000
until
December
2008.
Dr.
Scott
was
a
founder
of
Incyte
Corporation,
which
at
the
time
was
a
genomic
information
company,
and
served
in
various
roles
from
1991
through
2000,
including
Chairman
of
the
Board,
President
and
Chief
Scientific
Officer.
Dr.
Scott
holds
a
B.S.
in
Chemistry
from
Emporia
State
University
and
a
Ph.D.
in
Biochemistry
from
the
University
of
Kansas.
We
believe
that
Dr.
Scott
is
qualified
to
serve
on
our
board
of
directors
due
to
his
years
of
experience
in
the
life
sciences
industry
and
his
extensive
executive
leadership,management
and
board
experience
at
public
companies.

Sean E. George, Ph.D. is
one
of
our
co-founders
and
has
served
as
our
President
and
Chief
Operating
Officer
since
August
2012.
He
has
also
served
as
a
director
since
January
2010.
He
initially
served
as
our
Chief
Executive
Officer
from
January
2010
to
August
2012.
Prior
to
co-founding
Invitae,
Dr.
George
served
as
Chief
Operating
Officer
from
2007
to
November
2009
at
Navigenics,
Inc.,
a
personalized
medicine
company.
Previously,
he
served
as
Senior
Vice
President
of
Marketing
and
Senior
Vice
President,
Life
Science
Business
at
Affymetrix,
Inc.,
a
provider
of
life
science
and
molecular
diagnostic
products,
as
well
as
Vice
President,
Labeling
and
Detection
Business
at
Invitrogen
Corporation,
a
provider
of
tools
to
the
life
sciences
industry,
during
his
tenure
there
from
2002
to
2007.
Dr.
George
holds
a
B.S.
in
Microbiology
and
Molecular
Genetics
from
the
University
of
California
Los
Angeles,
an
M.S.
in
Molecular
and
Cellular
Biology
from
the
University
of
California
Santa
Barbara,
and
a
Ph.D.
in
Molecular
Genetics
from
the
University
of
California
Santa
Cruz.
We
believe
that

100

Table
of
Contents

Dr.
George
is
qualified
to
serve
on
our
board
of
directors
due
to
his
extensive
experience
in
the
life
science
industry,
his
broad
leadership
experience
with
life
science
companies
and
his
educational
background.

Lee Bendekgey has
served
as
our
Chief
Financial
Officer
and
General
Counsel
since
November
2013.
Prior
to
joining
our
company,
he
was
the
General
Counsel
of
DNAnexus,
Inc.,
a
cloud-based
genome
informatics
and
data
management
company,
from
September
2011
to
October
2013.
From
March
2009
until
September
2011,
Mr.
Bendekgey
pursued
personal
interests.
Prior
to
that,
he
was
Chief
Financial
Officer
and
General
Counsel
for
Nuvelo,
Inc.,
a
biopharmaceutical
company,
from
July
2004
to
March
2009.
Mr
Bendekgey
also
served
as
General
Counsel
and
Chief
Financial
Officer
for
Incyte
Corporation
from
1998
to
July
2004.
Mr.
Bendekgey
holds
a
B.A.
in
French
and
Political
Science
from
Kalamazoo
College
and
a
J.D.
from
Stanford
Law
School.

Robert L. Nussbaum, M.D. has
served
as
our
Chief
Medical
Officer
since
August
2015.
From
April
2006
to
August
2015,
he
was
chief
of
the
Division
of
Genomic
Medicine
at
UCSF
Health
where
he
also
held
leadership
roles
in
the
Cancer
Genetics
and
Prevention
Program
beginning
in
January
2009
and
the
Program
in
Cardiovascular
Genetics
beginning
in
July
2007.
From
April
2006
to
August
2015,
he
served
as
a
member
of
the
UCSF
Institute
for
Human
Genetics.
Prior
to
joining
UCSF
Health,
Dr.
Nussbaum
was
chief
of
the
Genetic
Disease
Research
Branch
of
the
National
Human
Genome
Research
Institute,
one
of
the
National
Institutes
of
Health,
from
1994
to
2006.
He
is
a
member
of
the
Institute
of
Medicine
and
a
fellow
at
the
American
Academy
of
Arts
and
Sciences.
Dr.
Nussbaum
is
a
board-certified
internist
and
medical
geneticist
who
holds
a
Bachelor
of
Science
in
Applied
Mathematics
from
Harvard
College
and
an
M.D.
from
Harvard
Medical
School
in
the
Harvard-MIT
joint
program
in
Health
Sciences
and
Technology.
He
completed
his
residency
in
internal
medicine
at
Barnes-
Jewish
Hospital
and
a
fellowship
in
medical
genetics
at
the
Baylor
College
of
Medicine.

Non-employee directors

Eric Aguiar, M.D. has
been
a
member
of
our
board
of
directors
since
September
2010.
Since
January
2016
he
has
been
a
partner
at
Aisling
Capital,
an
investment
firm
specializing
in
products,
technologies,
and
global
businesses
that
advance
health.
He
was
a
partner
in
the
venture
capital
firm
Thomas,
McNerney
&
Partners
from
2007
to
January
1,
2016.
Prior
to
joining
that
firm,
he
was
a
Managing
Director
of
HealthCare
Ventures,
a
healthcare
focused
venture
capital
firm,
from
2001
to
2007.
Dr.
Aguiar
was
Chief
Executive
Officer
and
a
director
of
Genovo,
Inc.,
a
biopharmaceutical
company
focused
on
gene
delivery
and
gene
regulation,
from
1998
to
2000.
Dr.
Aguiar
previously
served
as
a
director
of
Amarin
Pharmaceuticals,
a
publicly-held
biopharmaceutical
company,
as
well
as
on
the
boards
of
directors
of
numerous
private
companies
including
companies
in
the
life
sciences
industry.
He
is
a
member
of
the
Board
of
Overseers
of
the
Tufts
School
of
Medicine
and
a
member
of
the
Council
on
Foreign
Relations.
He
received
an
M.D.
with
honors
from
Harvard
Medical
School
and
a
B.A.
in
Arts
and
Sciences
from
Cornell
University.
Dr.
Aguiar
was
also
a
Luce
Fellow
and
is
a
Chartered
Financial
Analyst.
We
believe
that
Dr.
Aguiar
is
qualified
to
serve
on
our
board
of
directors
due
to
his
extensive
experience
with
in
the
life
science
field,
his
experience
on
various
boards,
and
his
management
and
financial
experience
with
life
sciences
companies.

Geoffrey S. Crouse has
served
on
our
board
of
directors
since
March
2012.
Mr.
Crouse
served
as
Chief
Executive
Officer
of
Cord
Blood
Registry
from
September
2012
to
August
2015
when
the
Company
was
sold
to
AMAG
Pharmaceuticals.
He
served
as
Executive
Vice
President
of
AMAG
until
December
2015.
Cord
Blood
Registry
stores
stem
cells
from
umbilical
blood
and
tissues.
He
previously
served
as
Chief
Operating
Officer
at
Immucor,
Inc.,
a
publicly
traded
in
vitro
diagnostics
company,
from
August
2009
to
April
2011.
From
April
2011
through
September
2012,
Mr.
Crouse
was
a
consultant.
Prior
to
Immucor,
he
served
as
Vice
President
of
the
life
sciences
business
at
Millipore
Corporation,
a
publicly
traded
provider
of
technologies,
tools
and
services
for
the
life
science
industry,
from
2006
to
2009.
Prior
to
joining
Millipore,
he
worked
at
Roche,
a
pharmaceuticals
and
diagnostics

101

Table
of
Contents

company,
where
he
held
various
roles
from
2003
to
2006.
Mr.
Crouse
holds
a
B.A.
in
English
and
Japanese
from
Boston
College
and
an
M.B.A.
and
Masters
of
Public
Health
from
the
University
of
California
Berkeley.
We
believe
that
Mr.
Crouse
is
qualified
to
serve
on
our
board
of
directors
due
to
his
extensive
experience
in
the
life
sciences
industry
and
his
management
and
financial
experience
with
life
sciences
companies.

Christine M. Gorjanc has
served
on
our
board
of
directors
since
November
2015.
She
has
served
as
the
Chief
Financial
Officer
of
Netgear,
Inc.,
a
provider
of
networking
products
and
services,
since
January
2008,
where
she
previously
served
as
Chief
Accounting
Officer
from
December
2006
to
January
2008
and
Vice
President,
Finance
from
November
2005
to
December
2006.
From
September
1996
through
November
2005,
Ms.
Gorjanc
served
as
Vice
President,
Controller,
Treasurer
and
Assistant
Secretary
for
Aspect
Communications
Corporation,
a
provider
of
workforce
and
customer
management
solutions.
From
October
1988
through
September
1996,
she
served
as
the
Manager
of
Tax
for
Tandem
Computers,
Inc.,
a
provider
of
fault-tolerant
computer
systems.
Prior
to
that,
Ms.
Gorjanc
served
in
management
positions
at
Xidex
Corporation,
a
manufacturer
of
storage
devices,
and
spent
eight
years
in
public
accounting
with
a
number
of
public
accounting
firms.
Ms.
Gorjanc
holds
a
B.A.
in
Accounting
(with
honors)
from
the
University
of
Texas
at
El
Paso
and
a
M.S.
in
Taxation
from
Golden
Gate
University.
We
believe
that
Ms.
Gorjanc
is
qualified
to
serve
on
our
board
of
directors
due
to
her
extensive
experience
in
the
technology
industry
and
her
management
and
financial
experience.

Board
composition

Our
amended
and
restated
bylaws,
provide
that
our
board
of
directors
shall
consist
of
such
number
of
directors
as
the
board
of
directors
may
from
time
to
time
determine.
Our
board
of
directors
consists
of
five
directors.
The
authorized
number
of
directors
may
be
changed
by
resolution
of
our
board
of
directors.
Vacancies
on
our
board
of
directors
can
be
filled
by
resolution
of
our
board
of
directors.
Our
board
of
directors
is
divided
into
three
classes,
each
serving
staggered,
three-year
terms:

•

Our
Class
I
directors
are
Geoffrey
S.
Crouse
and
Christine
M.
Gorjanc
and
their
terms
will
expire
at
the
next
annual
meeting
of
stockholders;

Our
Class
II
director
is
Randal
W.
Scott
and
his
term
will
expire
at
our
2018
annual
meeting
of
stockholders;
and

Our
Class
III
directors
are
Eric
Aguiar
and
Sean
E.
George
and
their
terms
will
expire
at
our
2019
annual
meeting
of
stockholders.

As
a
result,
only
one
class
of
directors
will
be
elected
at
each
annual
meeting
of
stockholders,
with
the
other
classes
continuing
for
the
remainder
of
their
respective
terms.

Code
of
business
conduct
and
ethics

We
believe
that
our
corporate
governance
initiatives
comply
with
the
Sarbanes-Oxley
Act
of
2002
and
the
rules
and
regulations
of
the
SEC
adopted
thereunder.
In
addition,
we
believe
our
corporate
governance
initiatives
comply
with
the
rules
of
the
New
York
Stock
Exchange,
or
NYSE.
Our
board
of
directors
will
continue
to
evaluate
our
corporate
governance
principles
and
policies.

Our
board
of
directors
has
adopted
a
code
of
business
conduct
and
ethics
that
applies
to
each
of
our
directors,
officers
and
employees.
The
code
addresses
various
topics,
including:

•

compliance
with
laws,
rules
and
regulations;

confidentiality;

conflicts
of
interest;

corporate
opportunities;

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Table
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•

competition
and
fair
dealing;

payments
or
gifts
from
others;

health
and
safety;

insider
trading;

protection
and
proper
use
of
company
assets;

record
keeping;
and

giving
and
accepting
gifts.

Our
board
of
directors
has
adopted
a
code
of
ethics
for
senior
financial
officers
applicable
to
our
Chief
Executive
Officer
and
Chief
Financial
Officer
as
well
as
other
key
management
employees
addressing
ethical
issues.
The
code
of
business
conduct
and
the
code
of
ethics
are
each
posted
on
our
website
www.invitae.com.
The
code
of
business
conduct
and
the
code
of
ethics
can
only
be
amended
by
the
approval
of
a
majority
of
our
board
of
directors.
Any
waiver
to
the
code
of
business
conduct
for
an
executive
officer
or
director
or
any
waiver
of
the
code
of
ethics
may
only
be
granted
by
our
board
of
directors
or
our
nominating
and
corporate
governance
committee
and
must
be
timely
disclosed
as
required
by
applicable
law.
We
have
implemented
whistleblower
procedures
that
establish
formal
protocols
for
receiving
and
handling
complaints
from
employees.
Any
concerns
regarding
accounting
or
auditing
matters
reported
under
these
procedures
will
be
communicated
promptly
to
our
audit
committee.
Stockholders
may
request
a
free
copy
of
our
code
of
business
conduct
and
code
of
ethics
by
contacting
Invitae
Corporation,
Attention:
Chief
Financial
Officer,
458
Brannan
Street,
San
Francisco,
California
94107.

To
date,
there
have
been
no
waivers
under
our
code
of
business
conduct
or
code
of
ethics.
We
intend
to
disclose
future
amendments
to
certain
provisions
of
our
code
of
business
conduct
or
code
of
ethics
or
waivers
of
such
codes
granted
to
executive
officers
and
directors
on
our
website
at
http://www.invitae.com within
four
business
days
following
the
date
of
such
amendment
or
waiver.

Director
independence

Our
board
of
directors
determined
that
Eric
Aguiar,
Geoffrey
S.
Crouse
and
Christine
M.
Gorjanc
are
"independent
directors"
as
defined
under
the
rules
of
the
NYSE.
There
are
no
family
relationships
among
any
of
our
directors
or
executive
officers.

Board
leadership
structure

Our
board
of
directors
is
currently
chaired
by
Randal
W.
Scott.
Our
board
believes
that
having
a
combined
chairman
of
the
board
and
chief
executive
officer
is
the
most
effective
leadership
structure
for
our
company
at
this
time.
Our
board
of
directors
believes
that
Dr.
Scott
is
the
director
best
situated
to
identify
strategic
opportunities
and
focus
the
activities
of
the
board
due
to
his
full-time
commitment
to
our
business
and
his
industry-specific
experience.
Our
board
of
directors
also
believes
that
the
combined
role
of
chairman
and
chief
executive
officer
promotes
effective
execution
of
strategic
imperatives
and
facilitates
information
flow
between
management
and
the
board.

Role
of
the
board
in
risk
oversight

Our
board
of
directors
is
responsible
for
overseeing
the
overall
risk
management
process
at
the
company.
The
responsibility
for
managing
risk
rests
with
executive
management
while
the
committees
of
our
board
of
directors
and
our
board
of
directors
as
a
whole
participate
in
the
oversight
process.
Our
board
of
directors'
risk
oversight
process
builds
upon
management's
risk
assessment
and
mitigation

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Table
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processes,
which
include
reviews
of
long-term
strategic
and
operational
planning,
executive
development
and
evaluation,
regulatory
and
legal
compliance,
and
financial
reporting
and
internal
controls.

Board
committees

We
have
established
an
audit
committee,
compensation
committee
and
nominating
and
corporate
governance
committee,
each
of
which
operate
under
a
charter
that
has
been
approved
by
our
board
of
directors.
Copies
of
each
charter
are
posted
on
the
corporate
governance
section
of
our
website
at
www.invitae.com.
We
believe
that
the
composition
of
these
committees
meets
the
criteria
for
independence
under,
and
the
functioning
of
these
committees
complies
with
the
applicable
requirements
of,
the
Sarbanes-Oxley
Act,
and
the
current
rules
and
regulations
of
the
SEC
and
the
NYSE.
We
intend
to
comply
with
future
requirements
as
they
become
applicable
to
us.
Each
committee
has
the
composition
and
responsibilities
described
below.

Audit committee

Dr.
Aguiar,
Mr.
Crouse
and
Ms.
Gorjanc
serve
on
our
audit
committee.
Ms.
Gorjanc
is
the
chairperson
of
this
committee.
Our
audit
committee
assists
our
board
of
directors
in
fulfilling
its
legal
and
fiduciary
obligations
in
matters
involving
our
accounting,
auditing,
financial
reporting,
internal
control
and
legal
compliance
functions,
and
is
directly
responsible
for
the
approval
of
the
services
performed
by
our
independent
registered
public
accounting
firm
and
reviewing
of
their
reports
regarding
our
accounting
practices
and
systems
of
internal
accounting
control.
Our
audit
committee
also
oversees
the
audit
efforts
of
our
independent
registered
public
accounting
firm
and
takes
actions
as
it
deems
necessary
to
satisfy
itself
that
such
firm
is
independent
of
management.
Our
audit
committee
is
also
responsible
for
monitoring
the
integrity
of
our
consolidated
financial
statements
and
our
compliance
with
legal
and
regulatory
requirements
as
they
relate
to
financial
statements
or
accounting
matters.
Our
board
of
directors
has
determined
that
each
of
Dr.
Aguiar,
Mr.
Crouse
and
Ms.
Gorjanc
is
an
audit
committee
financial
expert,
as
defined
by
the
rules
promulgated
by
the
SEC,
and
each
of
the
members
of
our
audit
committee
has
the
requisite
financial
sophistication
as
defined
under
the
applicable
rules
and
regulations
of
the
NYSE.

Compensation committee

Dr.
Aguiar
and
Mr.
Crouse
serve
on
our
compensation
committee.
Mr.
Crouse
is
the
chairperson
of
this
committee.
Our
compensation
committee
assists
our
board
of
directors
in
meeting
its
responsibilities
with
regard
to
oversight
and
determination
of
executive
compensation
and
assesses
whether
our
compensation
structure
establishes
appropriate
incentives
for
officers
and
employees.
Our
compensation
committee
reviews
and
makes
recommendations
to
our
board
of
directors
with
respect
to
our
major
compensation
plans,
policies
and
programs.
In
addition,
our
compensation
committee
reviews
and
makes
recommendations
for
approval
by
the
independent
members
of
our
board
of
directors
regarding
the
compensation
for
our
executive
officers,
establishes
and
modifies
the
terms
and
conditions
of
employment
of
our
executive
officers
and
administers
our
stock
option
plans.

Nominating and corporate governance committee

Dr.
Aguiar
and
Mr.
Crouse
serve
on
our
nominating
and
corporate
governance
committee.
Dr.
Aguiar
is
the
chairperson
of
this
committee.
Our
nominating
and
corporate
governance
committee
is
responsible
for
making
recommendations
to
our
board
of
directors
regarding
candidates
for
directorships
and
the
size
and
composition
of
the
board
of
directors.
In
addition,
our
nominating
and
corporate
governance
committee
is
responsible
for
overseeing
our
corporate
governance
guidelines,
and
reporting
and
making
recommendations
to
the
board
of
directors
concerning
corporate
governance
matters.

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Table
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Meeting
of
Non-Management
and
Independent
Directors
and
Communications
with
Directors

During
meetings
of
our
board
of
directors,
our
independent
directors
meet
in
an
executive
session
without
management
or
management
directors
present.
Our
board
of
directors
welcomes
questions
or
comments
about
our
company
and
our
operations.
If
a
stockholder
or
interested
party
wishes
to
communicate
with
our
board
of
directors,
including
our
independent
directors,
they
may
send
their
communication
in
writing
to:
Secretary,
Invitae
Corporation,
458
Brannan
Street,
San
Francisco,
California
94107.
You
must
include
your
name
and
address
in
the
written
communication
and
indicate
whether
you
are
a
stockholder.
The
Secretary
will
review
any
communication
received
from
a
stockholder
or
interested
party,
and
all
material
communications
will
be
forwarded
to
the
appropriate
director
or
directors
or
committee
of
the
board
of
directors
based
on
the
subject
matter.

Director
compensation

Employee
directors
do
not
receive
any
compensation
for
service
as
a
member
of
our
board
of
directors.
We
reimburse
our
non-employee
directors
for
their
reasonable
out-of-pocket
costs
and
travel
expenses
in
connection
with
their
attendance
at
board
and
committee
meetings.
Prior
to
October
2015,
we
did
not
have
a
standard
compensation
policy
for
our
non-employee
directors,
other
than
Mr.
Crouse,
who
was
paid
$20,000
annually
and
was
eligible
to
receive
an
annual
option
grant
to
purchase
2,500
shares
of
our
common
stock.
We
adopted
a
compensation
policy
for
our
non-employee
directors
on
November
4,
2015,
effective
as
of
October
1,
2015.

Initial Equity Grants.

Each
non-employee
director
who
joins
our
board
of
directors
after
October
1,
2015
will
receive
an
option
to
purchase
20,000
shares
of
our
common
stock,
with
one
quarter
of
the
shares
subject
to
the
option
vesting
on
the
first
anniversary
of
the
director's
appointment
or
election
to
our
board
of
directors
and
1/48th
of
the
shares
subject
to
the
option
vesting
on
a
monthly
basis
over
the
following
three
years,
subject
to
the
director's
continuous
service
as
a
member
of
our
board
of
directors.
The
exercise
price
of
these
options
will
be
the
fair
market
value
on
the
date
of
grant.
If
still
vesting,
the
options
will
accelerate
in
full
upon
a
change
in
control
of
our
company.

Annual Equity Grants.

Each
non-employee
director
with
at
least
12
months
of
continuous
service
as
of
the
date
of
each
annual
meeting
of
our
stockholders
is
entitled
to
an
annual
award
of
an
option
to
purchase
10,000
shares
of
our
common
stock.
Non-employee
directors
with
less
than
12
months
of
continuous
service
as
of
such
annual
meeting
are
also
entitled
to
such
an
option,
but
with
the
amount
of
shares
pro-rated
to
reflect
their
applicable
portion
of
a
full
year
of
service.
Since
we
are
not
currently
planning
on
holding
an
annual
meeting
of
our
stockholders
in
2016,
the
2016
annual
equity
grants
for
non-employee
directors
are
expected
to
be
awarded
in
May
2016.
On
November
4,
2015,
each
non-employee
director
who
was
serving
on
our
board
of
directors
as
of
our
initial
public
offering
in
February
2015
was
awarded
an
option
to
purchase
10,000
shares
of
our
common
stock,
with
1/12th
of
the
shares
subject
to
the
option
vesting
monthly
over
the
one-year
period
commencing
on
the
date
of
such
offering.
The
exercise
price
of
annual
equity
awards
will
be
the
fair
market
value
on
the
date
of
grant.
If
still
vesting,
the
annual
equity
awards
will
accelerate
in
full
upon
a
change
in
control
of
our
company.

Cash Compensation.

Effective
October
1,
2015,
each
non-employee
director
is
entitled
to
receive
annual
cash
compensation
for
their
service
on
our
board
of
directors,
payable
quarterly
in
arrears.
Annual
compensation
is
pro-rated
for
non-employee
directors
with
less
than
12
months
service.
Unpaid
retainers
are
payable
in
full
for
the
current
fiscal
year
in
the
event
of
a
change
in
control
of
our
company
during
that
fiscal
year.
The
annual
retainer
for
service
on
our
board
of
directors
is
$30,000.
Directors,
other
than
committee
chairs,
receive
an
annual
fee
of
$5,000
for
service
on
each
of
the
committees
of
our
board
of
directors
on
which
they
serve.
The
chairperson
of
the
Audit
Committee
receives
an
annual
fee
of
$15,000
and
the
chairpersons
of
the
Compensation
Committee
and
the
Nominating
and
Corporate
Governance
Committee
each
receive
an
annual
fee
of
$10,000.

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Table
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The
following
table
shows
certain
information
with
respect
to
the
compensation
of
our
non-employee
directors
during
the
fiscal
year
ended
December
31,
2015:

Name
Eric
Aguiar,
M.D.

Geoffrey
S.
Crouse
Christine
M.
Gorjanc

Fees
earned

or
paid

in
cash

($)
12,500(2)
32,500(3)
7,500(4)

Option

awards($)(1)

53,581(5)
53,581(5)
107,162(6)

Total($)

66,081

86,081

114,662

(1)

(2)

(3)

(4)

(5)

(6)

The
amounts
in
this
column
represent
the
aggregate
fair
value
of
the
option
awards
computed
as
of
the
grant
dates
in
accordance
with
Financial
Accounting
Standards
Board
Accounting
Standard
Codification
Topic
718,
Stock Compensation ,
or
FASB
ASC
Topic
718,
rather
than
amounts
paid
to
or
realized
by
the
individual.
See
the
notes
to
our
consolidated
financial
statements
for
a
discussion
of
assumptions
made
in
determining
the
grant
date
fair
value
and
compensation
expense
of
our
stock
options.

Dr.
Aguiar's
cash
compensation
in
2015
consisted
of
$12,500
earned
for
services
rendered
in
the
fourth
quarter
of
2015.

Mr.
Crouse's
cash
compensation
in
2015
included
$20,000
paid
for
services
rendered
in
2014
and
$12,500
earned
for
services
rendered
in
the
fourth
quarter
of
2015.

Ms.
Gorjanc
joined
the
board
of
directors
in
November
2015.
Her
cash
compensation
in
2015
consisted
of
$7,500
earned
for
services
rendered
in
the
fourth
quarter
of
2015.

On
November
4,
2015,
we
granted
to
each
of
Dr.
Aguiar
and
Mr.
Crouse
an
option
to
purchase
10,000
shares
of
our
common
stock,
vesting
in
equal
monthly
installments
over
one
year,
commencing
on
February
11,
2015,
the
date
of
our
initial
public
offering.
The
option
has
an
exercise
price
of
$8.51
per
share.

On
November
4,
2015,
we
granted
Ms.
Gorjanc
an
option
to
purchase
20,000
shares
of
our
common
stock,
with
one
quarter
of
the
shares
vesting
on
the
first
anniversary
of
the
grant
date
and
1/48th
of
the
shares
subject
to
the
option
vesting
in
equal
monthly
installments
over
the
following
three
years.
The
option
has
an
exercise
price
of
$8.51
per
share.

Director
nomination
policy

The
nominating
and
corporate
governance
committee
is
responsible
for
identifying,
evaluating,
recruiting
and
recommending
qualified
candidates
to
our
board
for
nomination
or
election.
Our
board
nominates
directors
for
election
at
each
annual
meeting
of
stockholders,
and
elects
new
directors
to
fill
vacancies
if
they
occur.

Our
board
strives
to
find
directors
who
are
experienced
and
dedicated
individuals
with
diverse
backgrounds,
perspectives
and
skills.
Our
governance
guidelines
contain
membership
criteria
that
call
for
candidates
to
be
selected
for
their
character,
judgment,
diversity
of
experience,
business
acumen
and
ability
to
act
on
behalf
of
all
stockholders.
In
addition,
we
expect
each
director
to
be
committed
to
enhancing
stockholder
value
and
to
have
sufficient
time
to
effectively
carry
out
his
or
her
duties
as
a
director.
Our
nominating
and
corporate
governance
committee
also
seeks
to
ensure
that
a
majority
of
our
directors
are
independent
under
the
NYSE
rules
and
that
one
or
more
of
our
directors
is
an
"audit
committee
financial
expert"
under
SEC
rules.

Prior
to
our
annual
meeting
of
stockholders,
our
nominating
and
corporate
governance
committee
identifies
director
nominees
first
by
evaluating
the
current
directors
whose
terms
will
expire
at
the

106

Table
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annual
meeting
and
who
are
willing
to
continue
in
service.
The
candidates
are
evaluated
based
on
the
criteria
described
above,
the
candidate's
prior
service
as
a
director,
and
the
needs
of
the
board
of
directors
for
any
particular
talents
and
experience.
If
a
director
no
longer
wishes
to
continue
in
service,
if
the
nominating
and
corporate
governance
committee
decides
not
to
re-nominate
a
director,
or
if
a
vacancy
is
created
on
the
board
of
directors
because
of
a
resignation
or
an
increase
in
the
size
of
the
board
or
other
event,
then
the
committee
will
consider
whether
to
replace
the
director
or
to
decrease
the
size
of
the
board.
If
the
decision
is
to
replace
a
director,
the
nominating
and
corporate
governance
committee
will
consider
various
candidates
for
board
membership,
including
those
suggested
by
committee
members,
by
other
board
members,
a
director
search
firm
engaged
by
the
committee
or
our
stockholders.
Prospective
nominees
are
evaluated
by
the
nominating
and
corporate
governance
committee
based
on
the
membership
criteria
described
above
and
set
forth
in
our
governance
guidelines.

A
stockholder
who
wishes
to
recommend
a
prospective
nominee
to
the
board
for
consideration
by
the
nominating
and
corporate
governance
committee
should
notify
our
Corporate
Secretary
in
writing
at
our
principal
executive
office.
Such
notice
must
be
delivered
to
our
offices
by
the
deadline
relating
to
stockholder
proposals
to
be
considered
for
inclusion
in
our
proxy
materials,
as
set
forth
in
our
bylaws.

Each
notice
delivered
by
a
stockholder
who
wishes
to
recommend
a
prospective
nominee
to
our
board
for
consideration
by
the
nominating
and
corporate
governance
committee
generally
must
include
the
following
information
about
the
prospective
nominee:

•

the
name,
age,
business
address
and
residence
address
of
the
person;

the
principal
occupation
of
the
person;

the
number
of
shares
of
our
capital
stock
owned
by
the
person;

a
description
of
all
compensation
and
other
relationships
during
the
past
three
years
between
the
stockholder
and
the
person;

any
other
information
relating
to
the
person
required
to
be
disclosed
pursuant
to
Section
14
of
the
Securities
Exchange
Act
of
1934,
or
Exchange
Act;
and

the
person's
written
consent
to
serve
as
a
director
if
elected.

The
nominating
and
corporate
governance
committee
may
require
any
prospective
nominee
recommended
by
a
stockholder
to
furnish
such
other
information
as
the
committee
reasonably
may
require
to
determine
the
person's
eligibility
to
serve
as
an
independent
director
or
that
could
be
material
to
a
stockholder's
understanding
of
the
person's
independence
or
lack
thereof.

Limitation
on
liability
and
indemnification
matters

Our
amended
and
restated
certificate
of
incorporation
contains
provisions
that
limit
the
personal
liability
of
our
directors
for
monetary
damages
to
the
fullest
extent
permitted
by
the
General
Corporation
Law
of
the
State
of
Delaware,
or
the
DGCL.
Consequently,
our
directors
will
not
be
personally
liable
to
us
or
our
stockholders
for
monetary
damages
for
any
breach
of
fiduciary
duties
as
directors,
except
liability
for:

•

any
breach
of
the
director's
duty
of
loyalty
to
us
or
our
stockholders;

any
act
or
omission
not
in
good
faith
or
that
involves
intentional
misconduct
or
a
knowing
violation
of
law;

unlawful
payments
of
dividends
or
unlawful
stock
repurchases
or
redemptions
as
provided
in
Section
174
of
the
DGCL;

107

Table
of
Contents

•

or
any
transaction
from
which
the
director
derived
an
improper
personal
benefit.

Our
amended
and
restated
certificate
of
incorporation
and
amended
and
restated
bylaws
provide
that
we
are
required
to
indemnify
our
directors,
in
each
case
to
the
fullest
extent
permitted
by
the
DGCL.
Our
bylaws
also
provide
that
we
shall
advance
expenses
incurred
by
a
director
in
advance
of
the
final
disposition
of
any
action
or
proceeding,
and
permit
us
to
secure
insurance
on
behalf
of
any
officer,
director,
employee
or
other
agent
for
any
liability
arising
out
of
his
or
her
actions
in
that
capacity
regardless
of
whether
we
would
otherwise
be
permitted
to
indemnify
him
or
her
under
the
provisions
of
the
DGCL.
We
have
entered
into
agreements
to
indemnify
our
directors
and
expect
to
continue
to
enter
into
agreements
to
indemnify
our
directors.
With
certain
exceptions,
these
agreements
provide
for
indemnification
for
related
expenses
including,
among
other
things,
attorneys'
fees,
judgments,
fines
and
settlement
amounts
incurred
by
any
of
our
directors
in
any
action
or
proceeding.
We
believe
that
these
certificate
of
incorporation
and
bylaw
provisions
and
indemnification
agreements
are
necessary
to
attract
and
retain
qualified
persons
as
directors.
We
also
maintain
directors'
and
officers'
liability
insurance.

The
limitation
of
liability
and
indemnification
provisions
in
our
certificate
of
incorporation
and
bylaws
may
discourage
stockholders
from
bringing
a
lawsuit
against
our
directors
for
breach
of
their
fiduciary
duty
of
care.
They
may
also
reduce
the
likelihood
of
derivative
litigation
against
our
directors
and
officers,
even
though
an
action,
if
successful,
might
benefit
us
and
other
stockholders.
Further,
a
stockholder's
investment
may
be
adversely
affected
to
the
extent
that
we
pay
the
costs
of
settlement
and
damage
awards
against
directors
and
officers.
At
present,
there
is
no
pending
litigation
or
proceeding
involving
any
of
our
directors,
officers
or
employees
for
which
indemnification
is
sought,
and
we
are
not
aware
of
any
threatened
litigation
that
may
result
in
claims
for
indemnification.

Section
16(a)
beneficial
ownership
reporting
compliance

Section
16(a)
of
the
Securities
Exchange
Act
of
1934
requires
our
executive
officers
and
directors,
and
persons
who
own
more
than
10%
of
a
registered
class
of
our
equity
securities
to
file
reports
of
ownership
on
Forms
3,
4
and
5
with
the
SEC.
Officers,
directors
and
greater
than
10%
stockholders
are
required
to
furnish
us
with
copies
of
all
Forms
3,
4
and
5
they
file.
Based
solely
on
a
review
of
Forms
3,
4
and
5
furnished
to
us,
no
officer,
director
or
greater
than
10%
stockholder
failed
to
timely
file
any
such
Form
with
the
SEC
during
the
fiscal
year
ended
December
31,
2015.

ITEM
11.

Executive
Compensation.

2015
summary
compensation
table

The
following
table
presents
information
concerning
the
total
compensation
of
our
named
executive
officers,
for
services
rendered
to
us
in
all
capacities
during
the
fiscal
year
ended

108

Table
of
Contents

December
31,
2015.
Our
named
executive
officers
consist
of
our
Chief
Executive
Officer
and
the
two
other
highest
paid
executive
officers
who
were
serving
at
fiscal
year-end:

Name
and
principal
position
Randal
W.
Scott,
Ph.D.

Chairman and Chief Executive Officer

Sean
E.
George,
Ph.D.

President and Chief Operating Officer

Lisa
Alderson(4)

Chief Strategy Officer

Fiscal

year

2015

2014

2015

2014

2015

2014

Salary

($)

251,000

203,703

331,000

281,857

307,000

286,646

Option

awards

($)(1)

—

Total

($)
251,000

203,703

1,111,051(2)
1,442,051

736,212

739,076

538,051

454,355(3)

432,076(5)

251,405(6)

(1)

(2)

(3)

(4)

(5)

(6)

The
amounts
in
this
column
represent
the
aggregate
fair
value
of
the
option
awards
computed
as
of
the
grant
dates
in
accordance
with
FASB
ASC
Topic
718,
rather
than
amounts
paid
to
or
realized
by
the
individual.
See
the
notes
to
our
consolidated
financial
statements
for
a
discussion
of
assumptions
made
in
determining
the
grant
date
fair
value
and
compensation
expense
of
our
stock
options.

On
August
4,
2015,
we
granted
Dr.
George
an
option
to
purchase
180,000
shares
of
our
common
stock
at
an
exercise
price
of
$9.90
per
share.
The
option
vests
as
to
25%
of
the
shares
on
the
one-year
anniversary
of
the
grant
date
and
1/48th
of
the
shares
vest
each
month
thereafter
over
the
remaining
three
years.

On
each
of
February
28,
2014
and
October
15,
2014,
we
granted
Dr.
George
an
option
to
purchase
50,000
shares
of
our
common
stock
at
an
exercise
price
of
$3.42
and
$8.70
per
share,
respectively.
The
options
vest
as
to
25%
of
the
shares
on
the
one-year
anniversary
of
the
grant
date
and
1/48th
of
the
shares
vest
each
month
thereafter
over
the
remaining
three
years.

Ms.
Alderson,
who
served
as
our
Chief
Commercial
Officer
until
her
appointment
as
Chief
Strategy
Officer
in
2015,
resigned
effective
as
of
March
1,
2016.
In
connection
with
her
resignation,
Ms.
Alderson
entered
into
a
Separation
and
Release
of
Claims
Agreement
dated
March
8,
2016,
or
the
Separation
Agreement,
pursuant
to
which
Ms.
Alderson
is
entitled
to
receive,
among
other
things,
a
cash
payment
equal
to
12
weeks
of
base
salary,
10
months
of
accelerated
vesting
of
all
unvested,
outstanding
equity
incentive
awards
and
an
extension
of
the
exercisability
of
all
vested,
outstanding
options
through
December
31,
2017.
For
a
description
of
the
Separation
Agreement
see
"Item
9B.
Other
Information."

On
August
4,
2015,
we
granted
Ms.
Alderson
an
option
to
purchase
70,000
shares
of
our
common
stock
at
an
exercise
price
of
$9.90
per
share.
The
option
vests
as
to
25%
of
the
shares
on
the
one-year
anniversary
of
the
grant
date
and
1/48th
of
the
shares
vest
each
month
thereafter
over
the
remaining
three
years.

On
February
28,
2014
and
October
15,
2014,
we
granted
Ms.
Alderson
an
option
to
purchase
33,333
shares
and
25,000
shares,
respectively,
of
our
common
stock
at
an
exercise
price
of
$3.42
and
$8.70
per
share,
respectively.
The
options
vest
as
to
25%
of
the
shares
on
the
one-
year
anniversary
of
the
grant
date
and
1/48th
of
the
shares
vest
each
month
thereafter
over
the
remaining
three
years.

109

Table
of
Contents

2015
outstanding
equity
awards
at
fiscal
year-end

The
following
table
presents
information
regarding
outstanding
equity
awards
held
by
our
named
executive
officers
as
of
December
31,
2015:

Name
Randal
W.
Scott,
Ph.D.

Sean
E.
George,
Ph.D.

Lisa
Alderson

Option
awards

Stock
awards

Number
of

securities

underlying

unexercised

options

(exercisable)

(#)

Number
of

securities

underlying

unexercised

options

(unexercisable)

(#)

Grant

date

Option

exercise

price

($/share)

Option

expiration

date

Number
of

shares
or

units
of

stock
that

have
not

vested

(#)

Market
value

of
shares
or

units
of

stock
that

have
not

vested

($)

—

11-16-12

2-28-14

10-15-14

8-4-15

11-16-12

2-28-14

10-15-14

8-4-15

27,777

22,916

14,583

—

34,721

15,277

7,291

—

5,556(1)

27,084

35,417

180,000

1.26

3.42

8.70

9.90

11-16-22

2-28-24(2)

10-15-24(2)

8-4-25(2)

6,945(1)

1.26

11-16-22(3)

18,056

17,709

70,000

3.42

8.70

9.90

2-28-24(3)

10-15-24(3)

8-4-25(3)

—

2,777(1)(4) $

—

22,799(5)
—

—

(1)

(2)

(3)

(4)

(5)

The
awards
vest
as
to
25%
of
the
shares
on
the
one-year
anniversary
of
the
vesting
start
date
of
August
31,
2012
and
1/48th
of
the
shares
vest
each
month
thereafter
over
the
remaining
three
years.

The
options
vest
as
to
25%
of
the
shares
on
the
one-year
anniversary
of
the
grant
date
and
1/48th
of
the
shares
vest
each
month
thereafter
over
the
remaining
three
years.

Ms.
Alderson
resigned
effective
as
of
March
1,
2016.
Pursuant
to
the
Separation
Agreement,
vesting
of
an
aggregate
of
26,577
shares
of
common
stock
underlying
outstanding
stock
options
was
accelerated
and
may
be
exercised
until
December
31,
2017
at
which
time
her
remaining
outstanding
and
unexercised
stock
options
will
expire.
For
a
description
of
the
Separation
Agreement
see
"Item
9B.
Other
Information."

Represents
shares
acquired
upon
the
early
exercise
of
a
time-based
stock
option,
which
shares
are
subject
to
a
right
of
repurchase
at
the
original
exercise
price
paid
for
the
shares
if
the
executive
terminates
employment
before
the
shares
have
vested.
Pursuant
to
the
Separation
Agreement,
vesting
of
2,083
shares
acquired
upon
the
early
exercise
of
a
time-based
option,
representing
the
full
balance
of
such
shares
outstanding
and
unvested
at
February
29,
2016,
was
accelerated.
For
a
description
of
the
Separation
Agreement
see
"Item
9B.
Other
Information."

Based
on
the
closing
price
of
$8.21
as
reported
on
the
New
York
Stock
Exchange
on
December
31,
2015.

Compensation
committee
interlocks
and
insider
participation

None
of
the
members
of
our
compensation
committee
is
or
has
in
the
past
served
as
one
of
our
officers
or
employees.
None
of
our
executive
officers
currently
serves,
or
in
the
past
year
has
served,
as
a
member
of
a
board
of
directors
or
compensation
committee
of
any
entity
that
has
one
or
more
executive
officers
serving
on
our
board
of
directors
or
compensation
committee.

110

Table
of
Contents

ITEM
12.

Security
Ownership
Of
Certain
Beneficial
Owners
and
Management
and
Related
Stockholder
Matters.

Equity
compensation
plan
information

The
following
table
summarizes
the
number
of
outstanding
options
granted
to
our
employees,
consultants
and
directors,
as
well
as
the
number
of
shares
of
common
stock
remaining
available
for
future
issuance
under
our
equity
compensation
plans
as
of
December
31,
2015.

Equity
compensation
plans
approved
by
security
holders
Equity
compensation
plans
not
approved
by
security

holders
Total

Number
of

Securities
to
be

Issued
upon

Exercise
of

Outstanding

Options
and

Rights
(a)

3,659,713(1)$

—

3,659,713
$

Weighted
Average

Exercise
Price
of

Outstanding

Options
and
Rights
(b)

Number
of
Securities

Remaining
Available
for

Future
Issuance

Under
Equity

Compensation
Plans

(Excluding
Securities

Reflected
in
Column(a))

7.38

—

7.38

2,268,938(2)

—

2,268,938

(1)

(2)

Includes
1,745,562
shares
issuable
upon
exercise
of
options
outstanding
under
our
2010
Stock
Plan
and
1,914,151
shares
issuable
upon
exercise
of
options
outstanding
under
our
2015
Stock
Incentive
Plan,
which
became
effective
in
connection
with
our
initial
public
offering
in
February
2015.
Shares
subject
to
outstanding
awards
under
our
2010
Stock
Plan
that
are
subsequently
forfeited
or
terminated
for
any
reason
before
being
exercised
or
settled,
including
shares
subject
to
vesting
restrictions
that
are
subsequently
forfeited,
will
become
available
for
awards
under
our
2015
Stock
Incentive
Plan.

Represents
shares
available
for
future
issuance
under
our
2015
Stock
Incentive
Plan
as
of
December
31,
2015.
No
shares
of
common
stock
are
available
for
future
issuance
under
our
2010
Stock
Plan
other
than
to
satisfy
the
exercise
of
stock
options
granted
under
that
plan
prior
to
its
termination
upon
the
closing
of
our
initial
public
offering
in
February
2015.

Security
ownership
of
certain
beneficial
owners
and
management

The
following
table
sets
forth
information
regarding
the
number
of
shares
of
common
stock
beneficially
owned
on
March
2,
2016,
by:

•

each
person
who
is
known
by
us
to
beneficially
own
5%
or
more
of
our
common
stock;

each
of
our
named
executive
officers
and
directors;
and

all
of
our
current
executive
officers
and
directors
as
a
group.

We
have
determined
beneficial
ownership
in
accordance
with
SEC
rules.
Except
as
indicated
by
the
footnotes
below,
we
believe,
based
on
the
information
furnished
to
us,
that
the
persons
and
entities
named
in
the
table
below
have
sole
voting
and
investment
power
with
respect
to
all
shares
of
common
stock
that
they
beneficially
own,
subject
to
applicable
community
property
laws.

Applicable
percentage
ownership
is
based
on
31,976,501
shares
of
common
stock
outstanding
at
March
2,
2016.
In
computing
the
number
of
shares
of
common
stock
beneficially
owned
by
a
person
and
the
percentage
ownership
of
that
person,
we
deemed
to
be
outstanding
all
shares
of
common
stock
subject
to
options
held
by
that
person
or
entity
that
are
exercisable
within
60
days
of
March
2,
2016.
We
did
not
deem
these
shares
outstanding,
however,
for
the
purpose
of
computing
the
percentage
ownership
of
any
other
person.

111

Table
of
Contents

Except
as
otherwise
set
forth
in
footnotes
to
the
table
below,
the
address
of
each
of
the
persons
listed
below
is
c/o
Invitae
Corporation,
458
Brannan
Street,
San
Francisco,
California
94107.

Name
and
address
of
beneficial
owner
Named Executive Officers and Directors:
Randal
W.
Scott,
Ph.D.

Sean
E.
George,
Ph.D.(1)
Lisa
Alderson(2)
Eric
Aguiar,
M.D.

Geoffrey
S.
Crouse(3)
Christine
M.
Gorjanc
All
current
executive
officers
and
directors
as
a
group
(7
persons)(4)
5% Stockholders:
Entities
Affiliated
with
Baker
Brothers
Advisors,
L.P.(5)
Entities
Affiliated
with
BlackRock,
Inc.(6)
Entities
Affiliated
withThomas,
McNerney
&
Partners
II,
L.P.(7)
Entities
Affiliated
with
Wellington
Management
Group
LLP.(8)
Genomic
Health,
Inc.(9)
Entities
Affiliated
with
Camber
Capital
Management
LLC(10)

Number
of

beneficially

owned

Percentage
of

beneficially

owned

3,439,559

311,796

73,277

10,000

31,759

—

3,844,188

6,554,967

4,208,121

3,732,460

3,569,778

2,207,793

2,024,943

10.7%
1.0%
*

—

12.0%

20.4%
13.1%
11.6%
11.1%
6.9%
6.3%

(1)

(2)

(3)

(4)

(5)

(6)

Represents
beneficial
ownership
of
less
than
1%.

Includes
options
to
purchase
76,388
shares
of
common
stock
exercisable
within
60
days
of
March
2,
2016.

Includes
options
to
purchase
48,958
shares
of
common
stock
exercisable
within
60
days
of
March
2,
2016.

Includes
options
to
purchase
12,500
shares
of
common
stock
exercisable
within
60
days
of
March
2,
2016.

Includes
options
to
purchase
an
aggregate
of
235,518
shares
of
common
stock
exercisable
within
60
days
of
March
2,
2016.

According
to
a
Schedule
13D
filed
jointly
on
August
27,
2015,
by
Baker
Bros.
Advisors
LP
("Adviser"),
Baker
Bros.
Advisors
(GP)
LLC,
Julian
C.
Baker
and
Felix
J.
Baker
Adviser
has
sole
voting
and
dispositve
power
with
respect
to
6,554,967
shares
held
by
the
following
limited
partnerships
and
funds:
Baker
Brothers
Life
Sciences,
L.P.("Life
Sciences"),;
667,
L.P.
("667");
and
14159,
L.P.
("14159").
Of
the
6,554,967
shares,
5,816,409
shares
are
held
by
Life
Sciences;
665,187
shares
are
held
by
667;
and
73,371
shares
are
held
by
14159,
L.P.
("14159").
Adviser
is
the
investment
advisor
of
Life
Sciences,
667,
and
14159.
Julian
C.
Baker
and
Felix
J.
Baker
are
managing
members
of
Baker
Bros.
Advisors
(GP)
LLC,
the
general
partner
of
the
Adviser
and,
as
such,
share
voting
and
dispositive
power
with
respect
to
the
shares
owned
by
the
limited
partnership
and
the
funds.
Baker
Bros.
Advisors
(GP)
LLC,
Adviser,
Julian
C.
Baker
and
Felix
J.
Baker
disclaim
beneficial
ownership
of
the
securities.
The
principal
address
for
the
entities
affiliated
with
Adviser
is
667
Madison
Avenue,
21st
Floor,
New
York,
NY
10065.

According
to
Schedule
13G
filed
jointly
on
February
16,
2016,
by
Thomas,
McNerney
&
Partners
II,
L.P.
("TMP
II"),
TMP
Associates
II,
L.P.
("TMPA
II"),
TMP
Nominee
II,
LLC
("TMPN
II"),
Thomas,
McNerney
&
Partners
II,
LLC
("TMP
II
LLC"),
James
E.
Thomas,
and
Peter
McNerney
(collectively,
"TMP
Entities"),
TMP
II
LLC,
the
general
partner
of
TMP
II
and
TMPA
II,
has
voting
and
dispositive
power
over
3,732,460
shares
(the
"Total
TMP
II
Shares").
Of

112

Table
of
Contents

the
3,732,460
shares:
3,682,968
shares
are
held
by
TMP
II;
13,256
shares
are
held
by
TMPA
II;
and
36,236
shares
held
by
TMPN
II.
TMPN
II
has
entered
into
an
agreement
with
TMP
II
LLC
that
directs
TMPN
II
to
vote
and
dispose
of
securities
in
the
same
manner
as
directed
by
TMP
II
LLC
with
respect
to
the
shares
held
by
TMP
II
and
TMPA
II.
Consequently,
TMP
II
LLC
may
be
deemed
to
own
beneficially
the
Total
TMP
II
Shares.
James
E.
Thomas
and
Peter
McNerney
are
the
managers
of
TMPN
II
and
have
shared
voting
and
dispositive
power
over
such
securities,
provided
that
they
are
obligated
to
exercise
such
power
in
the
same
manner
as
TMP
II
LLC
votes
and
disposes
of
the
shares
over
which
TMP
II
LLC
exercises
voting
and
dispositive
power.
James
E.
Thomas
is
the
sole
manager
of
TMP
II
LLC
and
may
be
deemed
to
beneficially
own
the
Total
TMP
II
Shares.
By
virtue
of
their
relationship
as
affiliated
entities
ultimately
controlled
by
TMP
II
LLC
and
its
individual
manager,
each
of
the
TMP
Enities,
other
than
Peter
McNerney,
may
be
deemed
to
share
the
power
to
direct
the
disposition
and
vote
of
the
Total
TMP
II
Shares.
Peter
McNerney
may
be
deemed
to
share
the
power
to
direct
the
disposition
and
vote
of
the
shares
held
by
TMPN
II.
Associates.
The
principal
address
of
TMP
II
and
its
affiliates
is
60
South
Sixth
Street,
Suite
3620,
Minneapolis,
MN
55402.

According
to
Amendment
No.1
to
Schedule
13G
filed
by
BlackRock,
Inc.
("BlackRock")
on
January
8,
2016,
BlackRock
has
sole
voting
power
with
respect
to
4,195,562
shares
and
sole
dispositive
power
with
respect
to4,208,121
shares
as
the
parent
holding
company
of
BlackRock
(Luxembourg)
S.A.,
BlackRock
Advisors,
LLC,
BlackRock
Asset
Management
Canada
Limited,
BlackRock
Fund
Advisors,
BlackRock
Institutional
Trust
Company,
N.A.,
BlackRock
International
Limited,
BlackRock
Investment
Management
(Australia)
Limited,
BlackRock
Investment
Management,
LLC,
and
BlackRock
Japan
Co
Ltd.
The
principal
address
for
BlackRock
is
55
East
52nd
Street,
New
York,
NY
10022.

According
to
Amendment
No.
1
to
Schedule
13G
filed
jointly
on
February
11,
2016
by
Wellington
Management
Group
LLP
("Wellington"),Wellington
Group
Holdings
LLP,
Wellington
Investment
Advisors
LLP,
Wellington
Management
Global
Holdings,
Ltd.
and
Wellington
Management
Company
LLP,
Wellington
has
shared
voting
power
with
respect
to
3,098,643
shares
and
shared
dispositive
power
with
respect
to
3,569,778
shares
as
the
parent
of
Wellington
Group
Holdings
LLP,
Wellington
Management
Global
Holdings,
Ltd.,
and
Wellington
Investment
Advisors
LLP.
Wellington
Investment
Advisors
Holdings
LLP
controls
directly,
or
indirectly
through
Wellington
Management
Global
Holdings,
Ltd.:
Wellington
Management
Company
LLP,
Wellington
Management
Canada
LLC,
Wellington
Management
Singapore
Pte
Ltd..
Wellington
Management
Hong
Kong
Ltd,
Wellington
Management
International
Ltd,
Wellington
Management
Japan
Pte
Ltd
and
Wellington
Management
Australia
Pty
Ltd.
(the
"Wellington
Investment
Advisers").
The
shares
are
owned
of
record
by
clients
of
the
Wellington
Investment
Advisers.
Wellington
Investment
Advisors
Holdings
LLP
is
owned
by
Wellington
Group
Holdings
LLP.
Wellington
Group
Holdings
LLP
is
owned
by
Wellington.
The
address
of
Wellington
280
Congress
Street,
Boston,
MA
02210.

(7)

(8)

(9)

According
to
a
Schedule
13G
filed
by
Genomic
Health,
Inc.
on
February
12,
2016,
Genomic
Health,
Inc.
has
sole
voting
and
dispositve
power
with
respect
to
2,207,793
shares.
The
address
of
Genomic
Health,
Inc.
is
301
Penobscot
Drive,
Redwood
City,
CA
94036.

(10) According
to
Amendment
No.1
to
Schedule
13G
filed
jointly
on
February
12,
2016
by
Camber
Capital
Management
LLC
and
Stephen

Dubois,
Camber
Capital
Management
LLC
and
Stephen
DuBois
share
voting
and
dispositve
power
with
respect
to
the
2,024,943
shares
.
The
address
of
Camber
Capital
Management
LLC
and
Stephen
DuBois
is
101
Huntington
Avenue,
Suite
2550,
Boston,
MA
02199.

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Table
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Contents

ITEM
13.

Certain
Relationships
and
Related
Transactions,
and
Director
Independence.

In
addition
to
the
cash
and
equity
compensation
arrangements
of
our
directors
and
named
executive
officers
discussed
above
under
the
sections
entitled
"Item
10.
Directors,
Executive
Officers
and
Corporate
Governance",
and
"Item
11.
Executive
Compensation",
respectively,
the
following
is
a
description
of
transactions
since
January
1,
2015
to
which
we
have
been
a
party
in
which
the
amount
involved
exceeded
or
will
exceed
$120,000
and
in
which
any
of
our
directors,
executive
officers,
beneficial
holders
of
more
than
5%
of
our
capital
stock,
or
entities
affiliated
with
or
immediate
family
members
of
any
of
the
foregoing,
had
or
will
have
a
direct
or
indirect
material
interest.

Investors'
rights
agreement

In
August
2014,
we
entered
into
a
fifth
amended
and
restated
investors'
rights
agreement
with
certain
holders
of
our
outstanding
convertible
preferred
stock,
including
Genomic
Health,
Inc.,
an
entity
with
which
our
director
Randal
W.
Scott
was
affiliated
when
it
made
its
initial
investment
in
our
convertible
preferred
stock
in
2011,
and
Thomas,
McNemey
&
Partners
II,
L.P.
and
affiliates,
entities
with
which
our
director
Eric
Aguiar
was
affiliated
until
January
1,
2016,
as
well
as
Baker
Brothers
Life
Sciences,
L.P.
and
its
affiliates,
BlackRock,
Inc.
and
its
affiliates,
and
funds
advised
by
Wellington
Management
Company
LLP.
This
agreement
provides
that
certain
holders
of
common
stock
issued
upon
conversion
of
our
preferred
stock
have
the
right
to
demand
that
we
file
a
registration
statement
or
request
that
their
shares
of
common
stock
be
covered
by
a
registration
statement
that
we
are
otherwise
filing.
In
addition
to
the
registration
rights,
the
investors'
rights
agreement
provided
for
certain
information
rights,
board
observer
rights
and
rights
of
first
offer
if
we
propose
to
offer
or
sell
any
new
equity
securities.
The
provisions
of
the
investors'
rights
agreement,
other
than
those
relating
to
registration
rights,
terminated
upon
completion
of
our
initial
public
offering.

Right
of
first
refusal
and
co-sale
agreement

In
August
2014,
we
entered
into
a
fifth
amended
and
restated
right
of
first
refusal
and
co-sale
agreement
with
certain
holders
of
our
preferred
stock,
including
Genomic
Health,
Inc.,
an
entity
with
which
our
director
Randal
W.
Scott
was
affiliated
when
it
made
its
initial
investment
in
our
convertible
preferred
stock
in
2011,
and
Thomas,
McNemey
&
Partners
II,
L.P.
and
affiliates,
entities
with
which
our
director
Eric
Aguiar
was
affiliated
until
January
1,
2016,
as
well
as
Baker
Brothers
Life
Sciences,
L.P.
and
its
affiliates,
BlackRock,
Inc.
and
its
affiliates,
and
funds
advised
by
Wellington
Management
Company
LLP.
This
agreement
provided
certain
holders
of
preferred
stock
a
right
of
purchase
and
of
co-sale
in
respect
of
sales
of
shares
of
capital
stock
and
for
a
market
stand-off
following
an
initial
public
offering.
These
rights
of
purchase
and
co-sale
terminated
immediately
prior
to
the
completion
of
our
initial
public
offering.

Voting
agreement

In
August
2014,
we
entered
into
a
fifth
amended
and
restated
voting
agreement
with
certain
holders
of
our
preferred
stock,
including
Genomic
Health,
Inc.,
an
entity
with
which
our
director
Randal
W.
Scott
was
affiliated
when
it
made
its
initial
investment
in
our
convertible
preferred
stock
in
2011,
and
Thomas,
McNemey
&
Partners
II,
L.P.
and
affiliates,
entities
with
which
our
director
Eric
Aguiar
was
affiliated
until
January
1,
2016,
as
well
as
Baker
Brothers
Life
Sciences,
L.P.
and
its
affiliates,
BlackRock,
Inc.
and
its
affiliates,
and
funds
advised
by
Wellington
Management
Company
LLP.
This
agreement
contained
provisions
regarding
voting
and
size
of
our
board
of
directors,
board
of
directors
composition
and
removal
rights,
and
drag-along
sale
rights.
The
voting
agreement
terminated
upon
the
completion
of
our
initial
public
offering.

114

Table
of
Contents

Management
rights

In
connection
with
our
sale
of
convertible
preferred
stock
to
our
investors,
we
were
party
to
management
rights
letters
with
certain
purchasers
of
our
convertible
preferred
stock,
including
Thomas,
McNerney
&
Partners
II,
L.P.
and
its
affiliates,
BlackRock,
Inc.
and
its
affiliates,
and
OrbiMed
Private
Investments
V,
L.P.,
pursuant
to
which
such
entities
were
granted
certain
management
rights,
including
the
right
to
consult
with
and
advise
our
management
on
significant
business
issues,
attend
board
of
directors
meetings
and
receive
board
materials
in
certain
cases,
review
our
financial
data
and
operating
plans,
examine
our
books
and
records
and
inspect
our
facilities.
These
management
rights
terminated
upon
the
completion
of
our
initial
public
offering.

Indemnification
agreements

We
have
entered
into
indemnification
agreements
with
our
directors
and
executive
officers.
These
agreements
require
us
to
indemnify
these
individuals
to
the
fullest
extent
permitted
under
Delaware
law
against
liabilities
that
may
arise
by
reason
of
their
service
to
us,
and
to
advance
expenses
incurred
as
a
result
of
any
proceeding
against
them
as
to
which
they
could
be
indemnified.

Related
party
transaction
policy

We
have
adopted
a
written
policy
that
our
executive
officers,
directors,
holders
of
more
than
5%
of
any
class
of
our
voting
securities,
and
any
member
of
the
immediate
family
of
and
any
entity
affiliated
with
any
of
the
foregoing
persons,
are
not
permitted
to
enter
into
a
related
party
transaction
with
us
without
the
prior
consent
of
our
audit
committee,
or
other
independent
members
of
our
board
of
directors
in
the
event
it
is
inappropriate
for
our
audit
committee
to
review
such
transaction
due
to
a
conflict
of
interest.
Any
request
for
us
to
enter
into
a
transaction
with
an
executive
officer,
director,
principal
stockholder,
or
any
of
their
immediate
family
members
or
affiliates,
in
which
the
amount
involved
exceeds
$120,000
must
first
be
presented
to
our
audit
committee
for
review,
consideration
and
approval.
In
approving
or
rejecting
any
such
proposal,
our
audit
committee
will
consider
the
relevant
facts
and
circumstances
available
and
deemed
relevant
to
our
audit
committee,
including,
but
not
limited
to,
whether
the
transaction
is
on
terms
no
less
favorable
than
terms
generally
available
to
an
unaffiliated
third
party
under
the
same
or
similar
circumstances
and
the
extent
of
the
related
party's
interest
in
the
transaction.
All
of
the
transactions
described
above
were
entered
into
prior
to
the
adoption
of
such
policy.

Although
we
did
not
have
a
written
policy
for
the
review
and
approval
of
transactions
with
related
persons
prior
to
the
closing
of
our
initial
public
offering,
our
board
of
directors
has
historically
reviewed
and
approved
any
transaction
where
a
director
or
officer
had
a
financial
interest,
including
all
of
the
transactions
described
above.
Prior
to
approving
such
a
transaction,
the
material
facts
as
to
a
director's
or
officer's
relationship
or
interest
as
to
the
agreement
or
transaction
were
disclosed
to
our
board
of
directors.
Our
board
of
directors
would
take
this
information
into
account
when
evaluating
the
transaction
and
in
determining
whether
such
a
transaction
was
fair
to
us
and
in
the
best
interests
of
all
of
our
stockholders.
In
addition,
for
each
related
party
transaction
described
above,
the
disinterested
directors
in
the
context
of
each
such
transaction
approved
the
applicable
agreement
and
transaction.

Director
Independence

This
information
can
be
found
in
"Item
10.
Directors,
Executive
Officers
and
Corporate
Governance—Director
Independence."

115

Table
of
Contents

ITEM
14.

Principal
Accountant
Fees
and
Services.

The
audit
committee
has
appointed
Ernst
&
Young
LLP
as
our
independent
registered
public
accounting
firm
for
the
fiscal
year
ending
December
31,
2016.
Ernst
&
Young
LLP
audited
our
financial
statements
for
the
years
ended
December
31,
2015
and
2014.

The
following
table
sets
forth
the
fees
billed
by
Ernst
&
Young
LLP
for
audit
and
other
services
rendered
in
2015
and
2014:

Audit
Fees(1)
Audit-related
Fees(2)
Tax
Fees
All
Other
Fees

Total

Year
Ended
December
31,
2014
2015
(In
thousands)

(In
thousands)

1,182
$
27

—

1,209
$

1,110

—

1,110

(1)

(2)

Audit
fees
include
fees
and
out-of-pocket
expenses,
whether
or
not
yet
invoiced,
for
professional
services
provided
in
connection
with
the
audit
of
our
annual
financial
statements
and
review
of
our
quarterly
financial
statements,
and
also
include
fees
for
our
IPO,
review
of
our
registration
statements,
and
services
provided
in
connection
with
other
SEC
filings.

Audit-related
fees
include
review
of
documents
relating
to
our
lease
agreement
for
a
laboratory
and
headquarters
in
San
Francisco,
California.

Pre-approval
policies
and
procedures

In
connection
with
our
IPO,
the
audit
committee
established
a
policy
to
pre-approve
all
audit
and
permissible
non-audit
services
provided
by
our
independent
registered
public
accounting
firm.
All
of
the
services
provided
in
2015
were
pre-approved
to
the
extent
required.
During
the
approval
process,
the
audit
committee
considers
the
impact
of
the
types
of
services
and
the
related
fees
on
the
independence
of
the
independent
registered
public
accounting
firm.
The
services
and
fees
must
be
deemed
compatible
with
the
maintenance
of
that
firm's
independence,
including
compliance
with
rules
and
regulations
of
the
SEC.
Throughout
the
year,
the
audit
committee
will
review
any
revisions
to
the
estimates
of
audit
and
non-audit
fees
initially
approved.

116

Table
of
Contents

ITEM
15.

Exhibits
and
Financial
Statement
Schedules.

(a)

Documents
filed
as
part
of
this
report

Financial
Statements:

PART
IV

Reference
is
made
to
the
Index
to
Financial
Statements
of
Invitae
Corporation
included
in
Item
8
of
Part
II
hereof.

Financial
Statement
Schedules

All
schedules
have
been
omitted
because
they
are
not
required,
not
applicable,
or
the
required
information
is
included
in
the
financial
statements
or
notes
thereto.

Exhibits

See
Item
15(b)
below.
Each
management
contract
or
compensating
plan
or
arrangement
required
to
be
filed
has
been
identified.

(b)

Exhibits

Exhibit

Number

3.1

Description
Restated
Certificate
of
Incorporation
of
the
Registrant
(incorporated
by
reference
to
Exhibit
3.1
to
the
Registrant's
Current
Report
on
Form
8-K
filed
February
23,
2015).

3.2
Amended
and
Restated
Bylaws
of
the
Registrant
(incorporated
by
reference
to
Exhibit
3.2
to
the
Registrant's

Current
Report
on
Form
8-K
filed
February
23,
2015).

4.1

4.2

Form
of
Common
Stock
Certificate
(incorporated
by
reference
to
Exhibit
4.1
to
the
Registrant's
Registration
Statement
on
Form
S-1
(File
No.
333-201433),
as
amended,
declared
effective
on
February
11,
2015).

Fifth
Amended
and
Restated
Investors'
Rights
Agreement,
dated
August
26,
2014,
among
Invitae
Corporation
and
certain
investors
(incorporated
by
reference
to
Exhibit
4.2
to
the
Registrant's
Registration
Statement
on
Form
S-1
(File
No.
333-201433),
as
amended,
declared
effective
on
February
11,
2015).

4.3
Omnibus
Approval
and
Amendment
with
Respect
to:
Series
F
Preferred
Stock
Purchase
Agreement;
Fifth

Amended
and
Restated
Investors'
Rights
Agreement;
and
Fifth
Amended
and
Restated
Voting
Agreement,
dated
October
9,
2014,
among
Invitae
Corporation
and
certain
investors
(incorporated
by
reference
to
Exhibit
4.3
to
the
Registrant's
Registration
Statement
on
Form
S-1
(File
No.
333-201433),
as
amended,
declared
effective
on
February
11,
2015).

10.1

10.2#

Form
of
Indemnification
Agreement
between
the
Registrant
and
its
officers
and
directors
(incorporated
by
reference
to
Exhibit
10.1
to
the
Registrant's
Registration
Statement
on
Form
S-1
(File
No.
333-201433)
,
as
amended,
declared
effective
on
February
11,
2015).

2010
Stock
Plan
and
forms
of
agreements
thereunder
(incorporated
by
reference
to
Exhibits
10.2,
10.3
and
10.4
to
the
Registrant's
Registration
Statement
on
Form
S-1
(File
No.
333-201433),
as
amended,
declared
effective
on
February
11,
2015).

117

Table
of
Contents

Exhibit

Number

10.3#

2015
Stock
Incentive
Plan
and
forms
of
agreements
thereunder
(incorporated
by
reference
to
Exhibits
10.5,
10.6
and
10.7
to
the
Registrant's
Registration
Statement
on
Form
S-1
(File
No.
333-201433),
as
amended,
declared
effective
on
February
11,
2015).

Description

10.4#

Form
of
Notice
of
Restricted
Stock
Unit
Award
and
Restricted
Stock
Unit
Agreement
for
Awards
Granted
under
the
2015
Stock
Incentive
Plan
(incorporated
by
reference
to
Exhibit
10.1
to
the
Registrant's
Current
Report
on
Form
8-K
filed
with
the
SEC
on
August
6,
2015).

10.5# Employee
Stock
Purchase
Plan
(incorporated
by
reference
to
Exhibit
10.8
to
the
Registrant's
Registration

Statement
on
Form
S-1
(File
No.
333-201433),
as
amended,
declared
effective
on
February
11,
2015).

10.6

10.7

10.8

10.9

10.10

10.11

Lease
(Standard
Form),
dated
September
1,
2011,
by
and
between
Invitae
Corporation
(f/k/a
Locus
Development,
Inc.)
and
Martin
E.
Harband,
Trustee
of
the
Harband
Family
Trust,
as
amended
(incorporated
by
reference
to
Exhibit
10.12
to
the
Registrant's
Registration
Statement
on
Form
S-1
(File
No.
333-201433),
as
amended,
declared
effective
on
February
11,
2015).

Sublease,
dated
December
6,
2013,
by
and
between
Invitae
Corporation
and
Sutter
West
Bay
Hospitals
(incorporated
by
reference
to
Exhibit
10.13
to
the
Registrant's
Registration
Statement
on
Form
S-1
(File
No.
333-
201433),
as
amended,
declared
effective
on
February
11,
2015).

Lease,
dated
October
31,
2012,
by
and
between
Invitae
Corporation
and
278
University
Investors,
LLC
(incorporated
by
reference
to
Exhibit
10.14
to
the
Registrant's
Registration
Statement
on
Form
S-1
(File
No.
333-
201433),
as
amended,
declared
effective
on
February
11,
2015).

Sublease,
dated
November
21,
2014,
by
and
between
Invitae
Corporation
and
InMobi
Inc
(incorporated
by
reference
to
Exhibit
10.15
to
the
Registrant's
Registration
Statement
on
Form
S-1
(File
No.
333-201433),
as
amended,
declared
effective
on
February
11,
2015).

Lease
Agreement
dated
as
of
September
2,
2015
by
and
between
1400
16th
Street
LLC,
a
Delaware
limited
liability
company,
and
Invitae
Corporation
(incorporated
by
reference
to
the
Registrant's
Current
Report
on
Form
8-K
filed
with
the
SEC
on
September
4,
2015).

Loan
and
Security
Agreement
dated
as
of
July
17,
2015
between
Silicon
Valley
Bank
and
Invitae
Corporation
(incorporated
by
reference
to
Exhibit
10.1
to
the
Registrant's
Current
Report
on
Form
8-K
filed
with
the
SEC
on
July
22,
2015).

21.1

List
of
Subsidiaries
(incorporated
by
reference
to
Exhibit
21.1
to
the
Registrant's
Registration
Statement
on
Form
S-1
(File
No.
333-201433),
as
amended,
declared
effective
on
February
11,
2015).

23.1* Consent
of
independent
registered
public
accounting
firm.

24.1*

Power
of
Attorney
(contained
on
the
signature
page
to
this
Form
10-K).

31.1*

Principal
Executive
Officer's
Certifications
Pursuant
to
Section
302
of
the
Sarbanes-Oxley
Act
of
2002.

31.2*

Principal
Financial
Officer's
Certifications
Pursuant
to
Section
302
of
the
Sarbanes-Oxley
Act
of
2002.

32.1*+ Certification
Pursuant
to
18
U.S.C.
§
1350
(Section
906
of
Sarbanes-Oxley
Act
of
2002).

118

Table
of
Contents

Exhibit

Number

Description

32.2*+ Certification
Pursuant
to
18
U.S.C.
§
1350
(Section
906
of
Sarbanes-Oxley
Act
of
2002).

101.INS
XBRL
Instance
Document

101.SCH
XBRL
Taxonomy
Extension
Schema

101.CAL
XBRL
Taxonomy
Extension
Calculation
Linkbase

101.DEF
XBRL
Taxonomy
Extension
Definition
Linkbase

101.LAB
XBRL
Taxonomy
Extension
label
Linkbase

101.PRE
XBRL
Taxonomy
Extension
Presentation
Linkbase

Indicates
management
contract
or
compensatory
plan
or
arrangement.

Filed
herewith.

In
accordance
with
Item
601(b)(32)(ii)
of
Regulation
S-K
and
SEC
Release
No.
34-47986,
the
certifications
furnished
in
Exhibits
32.1
and
32.2
hereto
are
deemed
to
accompany
this
Form
10-K
and
will
not
be
deemed
"filed"
for
purposes
of
Section
18
of
the
Securities
Exchange
Act
of
1934
(the
"Exchange
Act")
or
deemed
to
be
incorporated
by
reference
into
any
filing
under
the
Exchange
Act
or
the
Securities
Act
of
1933
except
to
the
extent
that
the
registrant
specifically
incorporates
it
by
reference.

Copies
of
the
above
exhibits
not
contained
herein
are
available
to
any
stockholder,
upon
payment
of
a
reasonable
per
page
fee,
upon
written
request
to:
Chief
Financial
Officer,
Invitae
Corporation,
458
Brannan
Street,
San
Francisco,
California
94107.

(c)

Financial
Statement
Schedules

Reference
is
made
to
Item
15(a)
2
above.

119

Table
of
Contents

Pursuant
to
the
requirements
of
Section
13
or
15(d)
of
the
Securities
Exchange
Act
of
1934,
the
registrant
has
duly
caused
this
report
to
be
signed
on
its
behalf
by
the
undersigned,
thereunto
duly
authorized.

SIGNATURES

INVITAE
CORPORATION

By:

/s/
RANDAL
W.
SCOTT,
PH.D.

Randal
W.
Scott,
Ph.D.

Chief Executive Officer

Date:
March
10,
2016

POWER
OF
ATTORNEY

KNOW
ALL
PERSONS
BY
THESE
PRESENT,
that
each
person
whose
signature
appears
below
constitutes
and
appoints
Randal
W.
Scott
and
Lee
Bendekgey,
and
each
of
them,
his
true
and
lawful
attorneys-in-fact,
each
with
full
power
of
substitution,
for
him
or
her
in
any
and
all
capacities,
to
sign
any
amendments
to
this
report
on
Form
10-K
and
to
file
the
same,
with
exhibits
thereto
and
other
documents
in
connection
therewith,
with
the
Securities
and
Exchange
Commission,
hereby
ratifying
and
confirming
all
that
each
of
said
attorneys-
in-fact
or
their
substitute
or
substitutes
may
do
or
cause
to
be
done
by
virtue
hereof.

Pursuant
to
the
requirements
of
the
Securities
Exchange
Act
of
1934,
this
report
has
been
signed
below
by
the
following
persons,
on
behalf
of
the
registrant
on
the
dates
and
the
capacities
indicated.

Signature

Title

Date

/s/
RANDAL
W.
SCOTT,
PH.D.

Chairman
of
the
Board
of
Directors
and
Chief

March
10,
2016

Randal
W.
Scott,
Ph.D.

Executive
Officer
(Principal
Executive
Officer)

/s/
LEE
BENDEKGEY

Chief
Financial
Officer,
General
Counsel
and

March
10,
2016

Lee
Bendekgey

Secretary
(Principal
Financial
Officer)

/s/
PATRICIA
E.
DUMOND

Vice
President,
Finance
(Principal
Accounting

March
10,
2016

Patricia
E.
Dumond

Officer)

/s/
SEAN
E.
GEORGE,
PH.D.

President,
Chief
Operating
Officer
and
Director

March
10,
2016

Sean
E.
George,
Ph.D.

/s/
ROBERT
L.
NUSSBAUM,
M.D.

Chief
Medical
Officer

March
10,
2016

Robert
L.
Nussbaum,
M.D.

120

Table
of
Contents

Signature

Title

Date

/s/
ERIC
AGUIAR,
M.D.

Eric
Aguiar,
M.D.

Director

March
10,
2016

/s/
GEOFFREY
S.
CROUSE

Geoffrey
S.
Crouse

Director

March
10,
2016

/s/
CHRISTINE
M.
GORJANC

Christine
M.
Gorjanc

Director

March
10,
2016

121

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Consent
of
Independent
Registered
Public
Accounting
Firm

We
consent
to
the
incorporation
by
reference
in
the
Registration
Statement
(Form
S-8
No.
333-202066)
pertaining
to
the
2015
Stock
Incentive
Plan,
the
Employee
Stock
Purchase
Plan
and
the
2010
Stock
Incentive
Plan
of
Invitae
Corporation
of
our
report
dated
March
10,
2016,
with
respect
to
the
consolidated
financial
statements
of
Invitae
Corporation
included
in
this
Annual
Report
(Form
10-K)
for
the
year
ended
December
31,
2015.

Exhibit
23.1

/s/
Ernst
&
Young
LLP

Redwood
City,
California

March
10,
2016

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23.1

Consent
of
Independent
Registered
Public
Accounting
Firm

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PRINCIPAL
EXECUTIVE
OFFICER'S
CERTIFICATION
PURSUANT
TO

SECTION
302
OF
THE
SARBANES-OXLEY
ACT
OF
2002

Exhibit
31.1

I,
Randal
W.
Scott,
certify
that:

I
have
reviewed
this
annual
report
on
Form
10-K
of
Invitae
Corporation;

Based
on
my
knowledge,
this
report
does
not
contain
any
untrue
statement
of
a
material
fact
or
omit
to
state
a
material
fact
necessary
to
make
the
statements
made,
in
light
of
the
circumstances
under
which
such
statements
were
made,
not
misleading
with
respect
to
the
period
covered
by
this
report;

Based
on
my
knowledge,
the
financial
statements,
and
other
financial
information
included
in
this
report,
fairly
present
in
all
material
respects
the
financial
condition,
results
of
operations
and
cash
flows
of
the
registrant
as
of,
and
for,
the
periods
presented
in
this
report;

The
registrant's
other
certifying
officer(s)
and
I
are
responsible
for
establishing
and
maintaining
disclosure
controls
and
procedures
(as
defined
in
Exchange
Act
Rules
13a-15(e)
and
15d-15(e))
for
the
registrant
and
have:

Designed
such
disclosure
controls
and
procedures,
or
caused
such
disclosure
controls
and
procedures
to
be
designed
under
our
supervision,
to
ensure
that
material
information
relating
to
the
registrant,
including
its
consolidated
subsidiaries,
is
made
known
to
us
by
others
within
those
entities,
particularly
during
the
period
in
which
this
report
is
being
prepared;

Evaluated
the
effectiveness
of
the
registrant's
disclosure
controls
and
procedures
and
presented
in
this
report
our
conclusions
about
the
effectiveness
of
the
disclosure
controls
and
procedures,
as
of
the
end
of
the
period
covered
by
this
report
based
on
such
evaluation;
and

Disclosed
in
this
report
any
change
in
the
registrant's
internal
control
over
financial
reporting
that
occurred
during
the
registrant's
most
recent
fiscal
quarter
(the
registrant's
fourth
fiscal
quarter
in
the
case
of
an
annual
report)
that
has
materially
affected,
or
is
reasonably
likely
to
materially
affect,
the
registrant's
internal
control
over
financial
reporting;
and

The
registrant's
other
certifying
officer(s)
and
I
have
disclosed,
based
on
our
most
recent
evaluation
of
internal
control
over
financial
reporting,
to
the
registrant's
auditors
and
the
audit
committee
of
the
registrant's
board
of
directors
(or
persons
performing
the
equivalent
functions):

All
significant
deficiencies
and
material
weaknesses
in
the
design
or
operation
of
internal
control
over
financial
reporting
which
are
reasonably
likely
to
adversely
affect
the
registrant's
ability
to
record,
process,
summarize
and
report
financial
information;
and

Any
fraud,
whether
or
not
material,
that
involves
management
or
other
employees
who
have
a
significant
role
in
the
registrant's
internal
control
over
financial
reporting.

Date:
March
10,
2016

/s/
RANDAL
W.
SCOTT,
PH.D.

Randal
W.
Scott,
Ph.D.

Chairman of the Board of Directors and Chief Executive Officer
(Principal Executive Officer)

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Exhibit
31.1

PRINCIPAL
EXECUTIVE
OFFICER'S
CERTIFICATION
PURSUANT
TO
SECTION
302
OF
THE
SARBANES-OXLEY
ACT
OF
2002

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--
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here
to
rapidly
navigate
through
this
document

PRINCIPAL
FINANCIAL
OFFICER'S
CERTIFICATION
PURSUANT
TO

SECTION
302
OF
THE
SARBANES-OXLEY
ACT
OF
2002

Exhibit
31.2

I,
Lee
Bendekgey,
certify
that:

I
have
reviewed
this
annual
report
on
Form
10-K
of
Invitae
Corporation;

Any
fraud,
whether
or
not
material,
that
involves
management
or
other
employees
who
have
a
significant
role
in
the
registrant's
internal
control
over
financial
reporting.

Date:
March
10,
2016

/s/
LEE
BENDEKGEY

Lee
Bendekgey

Chief Financial Officer, General Counsel and Secretary
(Principal Financial Officer)

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Exhibit
31.2

PRINCIPAL
FINANCIAL
OFFICER'S
CERTIFICATION
PURSUANT
TO
SECTION
302
OF
THE
SARBANES-OXLEY
ACT
OF
2002

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--
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here
to
rapidly
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through
this
document

CERTIFICATION
PURSUANT
TO

18
U.S.C.
SECTION
1350,

AS
ADOPTED
PURSUANT
TO

SECTION
906
OF
THE
SARBANES-OXLEY
ACT
OF
2002

Exhibit
32.1

In
connection
with
the
annual
report
of
Invitae
Corporation
(the
"Company")
on
Form
10-K
for
the
year
ended
December
31,
2015,
as
filed
with
the
Securities
and
Exchange
Commission
on
the
date
hereof
(the
"Report"),
the
undersigned
officer
of
the
Company
certifies,
pursuant
to
18
U.S.C.
Section
1350,
as
adopted
pursuant
to
Section
906
of
the
Sarbanes-Oxley
Act
of
2002,
that,
to
such
officer's
knowledge:

(1)

The
Report
fully
complies
with
the
requirements
of
Section
13(a)
or
15(d)
of
the
Securities
Exchange
Act
of
1934;
and

(2)

The
information
contained
in
the
Report
fairly
presents,
in
all
material
respects,
the
financial
condition
and
results
of
operations
of
the
Company.

Date:
March
10,
2016

/s/
RANDAL
W.
SCOTT,
PH.D.

Randal
W.
Scott,
Ph.D.

Chairman of the Board of Directors and Chief Executive Officer
(Principal Executive Officer)

QuickLinks

Exhibit
32.1

CERTIFICATION
PURSUANT
TO
18
U.S.C.
SECTION
1350,
AS
ADOPTED
PURSUANT
TO
SECTION
906
OF
THE
SARBANES-OXLEY
ACT
OF
2002

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--
Click
here
to
rapidly
navigate
through
this
document

CERTIFICATION
PURSUANT
TO

18
U.S.C.
SECTION
1350,

AS
ADOPTED
PURSUANT
TO

SECTION
906
OF
THE
SARBANES-OXLEY
ACT
OF
2002

Exhibit
32.2

(1)

The
Report
fully
complies
with
the
requirements
of
Section
13(a)
or
15(d)
of
the
Securities
Exchange
Act
of
1934;
and

(2)

The
information
contained
in
the
Report
fairly
presents,
in
all
material
respects,
the
financial
condition
and
results
of
operations
of
the
Company.

Date:
March
10,
2016

/s/
LEE
BENDEKGEY

Lee
Bendekgey

Chief Financial Officer, General Counsel and Secretary
(Principal Financial Officer)

QuickLinks

Exhibit
32.2

CERTIFICATION
PURSUANT
TO
18
U.S.C.
SECTION
1350,
AS
ADOPTED
PURSUANT
TO
SECTION
906
OF
THE
SARBANES-OXLEY
ACT
OF
2002