The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020, which has been filed with the SEC (the "2020 Form 10-K"). Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that are intended to be covered by the "safe harbor" created by those sections. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as "believe," "expect," "may," "will," "should," "would," "could," "seek," "intend," "plan," "goal," "project," "estimate," "anticipate" or other comparable terms. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q regarding our strategies, prospects, expectations, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding expected future operating results; our strategies, positioning, resources, capabilities and expectations for future events or performance; and the anticipated benefits of our acquisitions, including estimated synergies and other financial impacts. Forward-looking statements are neither historical facts nor assurances of future performance or events. Instead, they are based only on current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Actual results, conditions and events may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause actual results, conditions and events to differ materially from those indicated in the forward-looking statements include, among others, the following: uncertainties associated with the coronavirus (COVID-19) pandemic, including its possible effects on our operations, including our supply chain and clinical studies, and the demand for our cancer and COVID-19 testing products and services; our ability to efficiently and flexibly manage our business amid uncertainties related to COVID-19; our ability to successfully and profitably market our products and services; the acceptance of our products and services by patients and healthcare providers; our ability to meet demand for our products and services; the willingness of health insurance companies and other payers to cover our products and services and adequately reimburse us for such products and services; the amount and nature of competition for our products and services; the effects of any judicial, executive or legislative action affecting us or the healthcare system; recommendations, guidelines and quality metrics issued by various organizations regarding cancer screening or our products and services; our ability to successfully develop new products and services and assess potential market opportunities; our ability to effectively enter into and utilize strategic partnerships and acquisitions; our success establishing and maintaining collaborative, licensing and supplier arrangements; our ability to maintain regulatory approvals and comply with applicable regulations; our ability to manage an international business and our expectations regarding our international expansion and opportunities; the potential effects of foreign currency exchange rate fluctuations and our efforts to hedge such effects; the possibility that the anticipated benefits from our business acquisitions will not be realized in full or at all or may take longer to realize than expected; the possibility that costs or difficulties related to the integration of acquired businesses' operations will be greater than expected and the possibility that integration efforts will disrupt our business and strain management time and resources; the outcome of any litigation, government investigations, enforcement actions or other legal proceedings, including in connection with acquisitions; our ability to retain and hire key personnel, including employees at businesses we acquire. The risks included above are not exhaustive. Other important risks and uncertainties are described in the Risk Factors and in Management's Discussion and Analysis of Financial Condition and Results of Operations sections of the 2020 Form 10-K and subsequently filed Quarterly Reports on Form 10-Q. You are further cautioned not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.


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Overview
Exact Sciences Corporation (together with its subsidiaries, "Exact," "we," "us,"
"our" or the "Company") is a leading global cancer diagnostics company. We have
developed some of the most impactful brands in cancer diagnostics, and we are
currently working on the development of additional tests, with the goal of
bringing new innovative cancer tests to patients throughout the world.
Acquisitions
On January 5, 2021, we completed the acquisition ("Thrive Merger") of Thrive
Earlier Detection Corporation ("Thrive"). Thrive is a healthcare company
dedicated to developing a blood-based, multi-cancer screening test. We intend to
combine Thrive's expertise with our scientific capabilities, clinical
organization and commercial infrastructure to establish us as a leading
competitor in blood-based, multi-cancer screening.
On January 11, 2021, we acquired a worldwide exclusive license to the
proprietary Targeted Digital Sequencing ("TARDIS") technology from The
Translational Genomics Research Institute ("TGen"), an affiliate of City of
Hope. We intend to use the TARDIS technology to develop a test to detect small
amounts of tumor DNA that may remain in patients' blood after they have
undergone initial treatment, known as minimal residual disease ("MRD").
On April 14, 2021, we completed the acquisition of all of the outstanding equity
interests of Ashion Analytics, LLC ("Ashion"; such transaction the "Ashion
Acquisition") from PMed Management, LLC ("PMed"), which is a subsidiary of TGen.
Ashion is a Clinical Laboratory Improvement Amendments ("CLIA") certified and
College of American Pathologists ("CAP") accredited sequencing lab based in
Phoenix, Arizona and developed GEMExTra®, one of the most comprehensive genomic
cancer tests available, and provides access to the whole exome, matched
germline, and transcriptome sequencing capabilities.
On May 3, 2021, we acquired approximately 90% of the outstanding capital stock
of PFS Genomics Inc. ("PFS"; such transaction, the "PFS Acquisition"), pursuant
to a share purchase agreement. PFS is a healthcare company focused on
personalizing treatment for breast cancer patients to improve outcomes and
reduce unnecessary treatment. We expect this acquisition to expand our ability
to help guide early stage breast cancer treatment through individualized
radiotherapy treatment decisions.
Our Cologuard Test
Colorectal cancer is the second leading cause of cancer deaths in the United
States and the leading cause of cancer deaths in the United States among
non-smokers. In 2020 in the United States there are projected to be
approximately 148,000 new cases of colorectal cancer and 53,000 deaths from
colorectal cancer. It is widely accepted that colorectal cancer is among the
most preventable, yet least prevented cancers.
Our Cologuard® test is a non-invasive stool-based DNA ("sDNA") screening test
that utilizes a multi-target approach to detect DNA and hemoglobin biomarkers
associated with colorectal cancer and pre-cancer. Upon approval by the U.S. Food
and Drug Administration ("FDA") in August 2014, our Cologuard test became the
first and only FDA-approved sDNA non-invasive colorectal cancer screening test.
Our Cologuard test is now indicated for average risk adults 45 years of age and
older.
Our Oncotype IQ Tests
With our Oncotype IQ Genomic Intelligence Platform we are applying our
world-class scientific and commercial expertise and infrastructure to lead the
translation of clinical and genomic data into clinically actionable results for
treatment planning throughout the cancer patient's journey, from diagnosis to
treatment selection and monitoring. Our Oncotype IQ Genomic Intelligence
Platform is currently comprised of our flagship line of Oncotype DX® gene
expression tests for breast, prostate and colon cancer, as well as Oncotype DX
AR-V7 Nucleus Detect® test, a liquid-based test for advanced stage prostate
cancer.
In October 2020, we announced the introduction of the Oncotype MAPTM Pan-Cancer
Tissue test, which is a rapid, comprehensive tumor profiling panel that aids
therapy selection for patients with advanced, metastatic, refractory, or
recurrent cancer.
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International Business Background and Products
We commercialize our Oncotype IQ tests internationally through employees in
Canada, Japan and six European countries, as well as through exclusive
distribution agreements. We have provided our Oncotype IQ tests in more than 90
countries outside of the United States. We do not offer our Cologuard test or
COVID-19 testing outside of the United States. Inclusion of our products in
guidelines and quality measures will be critical to our international success.
Pipeline Research and Development
Our research and development efforts are focused on developing new products and
enhancing existing products to address new cancer areas and expand the clinical
utility and addressable patient populations for our existing tests. We expect to
advance liquid biopsy through biomarker discovery and validation in tissue,
blood, or other fluids and to leverage recent business development activities to
accelerate our leadership in earlier cancer detection and treatment guidance. We
are pursuing the following opportunities:
•Colon Cancer Screening. We are seeking opportunities to improve upon our
Cologuard test's performance characteristics. In October 2019, we and Mayo
presented at the American College of Gastroenterology's 2019 Annual Scientific
Meeting findings from a blinded-case control study showing enhanced colorectal
cancer and advanced adenoma detection using newly discovered methylation
biomarkers. To establish the performance of an enhanced multi-target stool DNA
test, we expect to enroll more than 10,000 patients 40 years of age and older in
our multi-center, prospective BLUE-C study. The timing of any such enhancements
to our Cologuard test is unknown and would be subject to FDA approval. We are
also working to develop a blood-based screening test for colorectal cancer.
•Multi-Cancer Screening Test Development. We are currently seeking to develop a
blood-based, multi-cancer screening test. In January 2021, we completed the
acquisition of Thrive, a healthcare company dedicated to developing a
blood-based, multi-cancer screening test. An early version of Thrive's test has
achieved promising results in a 10,000-patient, prospective, interventional
study detecting 10 different types of cancer, including seven with no current
recommended screening guidelines, with very few false positives. We intend to
combine Thrive's expertise with our scientific capabilities, clinical
organization and commercial infrastructure to establish us as a leading
competitor in blood-based, multi-cancer screening.
•Hepatocellular Carcinoma ("HCC") Test Development. We are currently developing
a blood-based biomarker test to serve as an alternative to ultrasound and
alpha-fetoprotein ("AFP") for use in HCC testing. HCC is the most common type of
liver cancer. Our goal is to provide a patient-friendly test that performs
better than the current guideline-recommended testing options. In November 2019,
we released the results of a 450-patient study which demonstrated 80% overall
sensitivity for HCC at 90% specificity with a novel combination of six
blood-based biomarkers for HCC. The study also showed 71% sensitivity for
early-stage HCC at 90% specificity. The study compared performance to the AFP
test, which demonstrated 45% sensitivity at 90% specificity for early stage HCC.
We currently expect to offer our test to select offices in the second quarter of
2021.
•Minimal Residual Disease ("MRD") Test Development. In January 2021 we acquired
an exclusive license to the TGen proprietary TARDIS technology. We are currently
seeking to utilize this compelling and technically distinct approach to develop
a test to detect small amounts of tumor DNA that may remain in patients' blood
after they have undergone initial treatment. In a study published in Science
Translational Medicine, TARDIS demonstrated high accuracy in assessing molecular
response and residual disease during neoadjuvant therapy to treat breast cancer.
TARDIS achieved up to 100-fold improvement beyond the current limit of
circulating tumor DNA detection. We intend to expand our precision oncology
business to become a leader in minimal residual disease testing, which will
leverage our existing foundation to deliver better solutions to patients
navigating cancer.
•Development Studies for Oncotype DX Products. We may also conduct or fund
clinical studies that could support additional opportunities for our Oncotype DX
products. For example, we are exploring clinical studies to expand the use of
genomic testing to address additional populations, including higher-risk
patients.
We may also use a number of other technologies across various development
programs and product implementations. While early-stage cancer continues to be
our main focus, we believe we also have an opportunity to expand our business
further along the patient's cancer journey, both through our research and
development process and strategic collaborations.
Research and development, which includes our clinical study programs, accounts
for a material portion of our operating expenses. As we seek to enhance our
current product portfolio and expand our product pipeline by developing
additional cancer screening and diagnostic tests, we expect that our research
and development expenditures will continue to increase.
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COVID-19 Testing Business
In late March 2020, we began providing COVID-19 testing. We have partnered with
various customers, including the State of Wisconsin Department of Health
Services, to administer testing. Customers are responsible for employing trained
personnel to collect specimens. Specimens are sent to our laboratory in Madison,
Wisconsin, where we run the assay in our laboratories and provide test results
to ordering providers. In light of the uncertainty surrounding the COVID-19
pandemic, we intend to periodically reassess our COVID-19 testing business. As
the pandemic abates and more people receive vaccinations, we expect declining
demand for COVID-19 testing.
2021 Priorities
Our top priorities for 2021 are to (1) get more people tested, (2) advance new
solutions, and (3) enhance our customer experience.
Get More People Tested
We are committed to delivering critical answers to patients by getting more
people tested with our Cologuard and Oncotype IQ tests. We will also continue to
provide COVID-19 testing to support our employees and to improve the country's
testing capacity.
Advance New Solutions
In 2021, we are focused on advancing new solutions to provide answers to
patients throughout their cancer journeys. We plan to continue investing in
ongoing and additional clinical trials to support our product development
efforts in enhancing existing products. We also plan to bring new products to
patients and providers as further discussed in the Pipeline Research and
Development section above.
Enhance Our Customer Experience
Another priority for 2021 is to enhance our customer experience. To establish
long-term relationships with patients and providers, we plan to improve customer
communications and create new ways to personalize their experiences. Our goal is
to become the cancer diagnostic provider of choice for providers and patients.
Results of Operations
The spread of COVID-19 has affected many segments of the global economy,
including the cancer screening and diagnostics industry. The pandemic and
related precautionary measures began to materially disrupt our business in March
2020 and may continue to disrupt our business for an unknown period of time. As
a result, the pandemic has continued to have an impact on our 2021 operating
results, including our revenues, margins, and cash utilization, among other
measures.
Due to social distancing, stay-at-home orders, and other actions taken in
response to COVID-19, there was a significant and widespread decline in standard
wellness visits and preventive services beginning at the end of the first
quarter of 2020. We took steps to limit exposure to COVID-19 based on
recommendations from government and health agencies, including limiting
field-based, face-to-face interactions by our sales force. The decline in
field-based, face-to-face interactions with health care providers negatively
impacted Cologuard test orders beginning in March 2020 in our Screening
business, notwithstanding the availability of alternative ordering channels such
as telehealth. Order volumes recovered over the course of 2020 and by the first
quarter of 2021 exceeded pre-pandemic levels. Our Precision Oncology business
started to see weakening underlying conditions in April 2020 because of
COVID-19. The widespread decrease in preventive services, including mammograms
and prostate cancer screenings, negatively impacted Precision Oncology test
volumes beginning in May 2020 and continuing throughout the third quarter of
2020 due to the typical lag between cancer screening and genomic test ordering.
We began to see orders recovering in the fourth quarter of 2020 to near
pre-pandemic levels, and that recovery continued in the first quarter of 2021.
While we have seen recovery in our Screening and Precision Oncology businesses,
the impact of the pandemic is uncertain and subject to factors beyond our
control. As a result of the pandemic, we have continued to provide COVID-19
testing, the revenue from which has partially offset the pandemic's impact on
our Screening and Precision Oncology testing revenue.
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We expect to adjust our precautionary measures at our various locations based on
local recovery levels and applicable governmental regulations. For example, a
portion of the Company's and Pfizer's sales force has recommenced field-based
interactions, although access to healthcare providers remains limited and the
resumption of normal activities is expected to be gradual. Our business could be
negatively affected if we take excessive, ineffective or inadequate precautions.
As our Screening and Precision Oncology businesses have continued to recover
throughout the first quarter of 2021, we have continued to plan for future
growth through investing in our existing operations and through the acquisitions
further discussed above.
We have generated significant losses since inception and, as of March 31, 2021,
we had an accumulated deficit of approximately $2.08 billion. We expect to
continue to incur losses for the near future, and it is possible we may never
achieve profitability.
Revenue. Our revenue is primarily generated by our laboratory testing services
from our Cologuard, Oncotype IQ, and COVID-19 tests. Our Screening revenue,
which primarily includes laboratory service revenue from our Cologuard test, was
$240.3 million and $219.5 million for the three months ended March 31, 2021 and
2020, respectively. The increase was primarily due to an increase in the number
of completed Cologuard tests. Our Precision Oncology revenue, which primarily
includes laboratory service revenue from our global Oncotype products, was
$129.4 million and $128.4 million for the three months ended March 31, 2021 and
2020, respectively. The increase was primarily due to an increase in the number
of completed Oncotype IQ tests. For the three months ended March 31, 2021, we
also generated $32.3 million in revenue from our COVID-19 testing.
Our cost structure. Our selling, general and administrative expenses consist
primarily of non-research personnel salaries, office expenses, professional
fees, sales and marketing expenses incurred in support of our commercialization
efforts and non-cash stock-based compensation.
Cost of sales includes costs related to inventory production and usage, shipment
of collection kits and tissue samples, royalties and the cost of services to
process tests and provide results to healthcare providers.
We expect that revenue and cost of sales for our services will continue to
fluctuate and be affected by the test volume of our products, our operating
efficiencies, patient adherence rates, payer mix, the levels of reimbursement,
and payment patterns of payers and patients.
Cost of sales (exclusive of amortization of acquired intangible assets). Cost of
sales increased to $110.0 million for the three months ended March 31, 2021
compared to $81.6 million for the three months ended March 31, 2020. The
increase in cost of sales is primarily due to an increase in production costs
from an increase in completed Cologuard and Oncotype IQ tests and costs incurred
from our COVID-19 testing including a charge of $6.0 million for a reserve of
excess inventory related to our COVID-19 testing. We also incurred an increase
in personnel expenses to support the increase in volume and future growth of our
tests.
                                             Three Months Ended March 31,
Amounts in millions                          2021               2020       Change
Production costs                    $      60.6               $ 44.1      $ 16.5
Personnel expenses                         31.0                 22.3         8.7
Facility and support services              14.2                 12.4         1.8
Stock-based compensation                    4.1                  2.5         1.6
Other cost of sales expenses                0.1                  0.3        (0.2)
Total cost of sales expense         $     110.0               $ 81.6      $ 28.4





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Table of Contents Research and development expenses. Research and development expenses increased to $115.6 million for the three months ended March 31, 2021 compared to $43.5 million for the three months ended March 31, 2020. The increase in research and development expenses was primarily due to our acquisition of the license to the TARDIS technology in January 2021, which resulted in an expense of $52.3 million upon acquisition. The acquisition is further described in Note 17 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. In addition, there was an increase in stock-based compensation and personnel expenses incurred primarily due to our acquisition of Thrive in January 2021.


                                                      Three Months Ended March 31,
Amounts in millions                                   2021               2020       Change
Licensed technology acquisition              $      52.3               $    -      $ 52.3
Personnel expenses                                  21.7                 16.4         5.3
Direct research and development                     19.0                 18.3         0.7
Stock-based compensation                            14.8                  3.9        10.9
Facility and support services                        6.0                  2.9         3.1
Professional fees                                    1.0                  1.1        (0.1)
Other research and development                       0.8                  0.9        (0.1)
Total research and development expenses      $     115.6               $ 43.5      $ 72.1

General and administrative expenses. General and administrative expenses increased to $267.7 million for the three months ended March 31, 2021 compared to $114.0 million for the three months ended March 31, 2020. The increase in general and administrative expenses was primarily due to $115.0 million in acquisition and integration related costs as part of our acquisition of Thrive in January 2021, which primarily consists of integration related stock-based compensation and professional and legal fees incurred. Personnel expenses and stock-based compensation also increased due to an increase in headcount to prepare for future growth in our operations and from our recent acquisitions.


                                                        Three Months Ended March 31,
Amounts in millions                                    2021              2020        Change
Stock-based compensation                        $    131.4             $  14.5      $ 116.9
Personnel expenses                                    72.5                53.2         19.3
Professional and legal fees                           35.3                21.8         13.5
Facility and support services                         15.2                15.4         (0.2)
Other general and administrative                      13.3                 9.1          4.2
Total general and administrative expenses       $    267.7             $ 114.0      $ 153.7

Sales and marketing expenses. Sales and marketing expenses increased to $186.1 million for the three months ended March 31, 2021 compared to $167.7 million for the three months ended March 31, 2020. The increase in sales and marketing expenses was primarily due to an increase in direct marketing spend to support the future growth of our products and increased personnel expenses and stock-based compensation as a result of an increase in headcount. This increase was partially offset by a decrease in professional fees as a result of holding our national sales meeting virtually in 2021 due to COVID-19 precautions.


                                                  Three Months Ended March 31,
Amounts in millions                              2021               2020        Change
Personnel expenses                       $      85.0              $  81.0      $  4.0
Direct marketing costs                          41.4                 33.4         8.0
Professional and legal fees                     27.6                 32.1        (4.5)
Facility and support services                   17.7                 12.3         5.4
Stock-based compensation                        13.2                  8.7         4.5
Other sales and marketing expenses               1.2                  0.2         1.0
Total sales and marketing expenses       $     186.1              $ 167.7      $ 18.4


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Amortization of acquired intangible assets. Amortization of acquired intangible
assets decreased to $23.2 million for the three months ended March 31, 2021
compared to $23.3 million for the three months ended March 31, 2020. The
decrease in amortization of acquired intangible assets was primarily due to the
write-off of certain acquired intangible assets that were deemed to be impaired
in the third quarter of 2020.
Investment income, net. Investment income, net increased to $31.2 million for
the three months ended March 31, 2021 compared to $0.1 million for the three
months ended March 31, 2020. The increase in investment income, net was
primarily due to the realized gain of $30.5 million that was recorded on our
preferred stock investment in Thrive, which represented the adjustment to our
historical investment to its fair value prior to our acquisition of Thrive. Our
acquisition of Thrive is further described in Note 17 of our condensed
consolidated financial statements included in this Quarterly Report on Form
10-Q.
Interest expense. Interest expense decreased to $4.6 million for the three
months ended March 31, 2021 compared to $54.6 million for the three months ended
March 31, 2020. The decrease is primarily due to the loss on settlement of
convertible notes of $50.8 million recorded during three months ended March 31,
2020. Interest expense recorded from our outstanding convertible notes totaled
$4.0 million and $2.9 million during the three months ended March 31, 2021 and
2020, respectively. Of the interest expense recorded on outstanding convertible
notes for the three months ended March 31, 2021 and 2020, $1.4 million and
$1.0 million of interest expense relates to amortization of debt discount and
debt issuance costs, respectively. The remaining interest expense recorded on
outstanding convertible notes relates to the stated interest that is paid out in
cash. The convertible notes are further described in Note 9 of our condensed
consolidated financial statements included in this Quarterly Report on Form
10-Q. In addition, we recognized an immaterial amount of interest expense
relating to stated interest expense on our construction loan for the three
months ended March 31, 2021 and 2020.
Income tax benefit. Income tax benefit increased to $242.8 million for the three
months ended March 31, 2021 compared to $2.2 million for the three months ended
March 31, 2020. This increase in income tax benefit is primarily due to an
income tax benefit of $239.2 million recorded during the three months ended
March 31, 2021, as a result of the change in the deferred tax asset valuation
allowance resulting from the Thrive Merger.
Liquidity and Capital Resources
We have financed our operations since inception primarily through public
offerings of our common stock and convertible debt and through revenue generated
by the sale of our Cologuard test, and since the completion of our Genomic
Health combination, of Oncotype IQ tests. As of March 31, 2021, we had
approximately $1.10 billion in unrestricted cash and cash equivalents and
approximately $274.2 million in marketable securities.
The majority of our investments in marketable securities consist of fixed income
investments, and all are deemed available-for-sale. The objectives of this
portfolio are to provide liquidity and safety of principal while striving to
achieve the highest rate of return. Our investment policy limits investments to
certain types of instruments issued by institutions with investment grade credit
ratings and places restrictions on maturities and concentration by type and
issuer.
Net cash used in operating activities was $77.2 million for the three months
ended March 31, 2021 compared to cash use of $49.8 million for the three months
ended March 31, 2020. The increase in cash used in operating activities for the
three months ended March 31, 2021 was primarily due to the increase in operating
expenses incurred to prepare for future growth in our business and an increase
in costs incurred to process our tests due to the increase in volume. This was
partially offset by an increase in cash receipts as a result of an increase in
revenue. The increase in revenue was driven by an increase in completed
Cologuard, Oncotype IQ, and COVID-19 tests. This was partially offset by an
increase in cash payments made related to expenses necessary to process our
tests.
Net cash used in investing activities was $317.5 million for the three months
ended March 31, 2021 compared to cash use of $405.8 million for the three months
ended March 31, 2020. The decrease in cash used in investing activities for the
three months ended March 31, 2021 compared to the same period in 2020 was
primarily the result of the timing of purchases, sales, and maturities of
marketable securities. Excluding the impact of purchases, sales, and maturities
of marketable securities, net cash used in investing activities was
$391.3 million for the three months ended March 31, 2021 compared to
$19.8 million for the three months ended March 31, 2020. Cash use consisted
primarily of our acquisition of Thrive of $343.2 million, our TARDIS license
asset acquisition of $25.0 million, purchases of property and equipment of
$12.9 million, and investments in privately held companies of $10.0 million for
the three months ended March 31, 2021. Cash use primarily consisted of purchase
of property and equipment of $13.0 million and business combinations of
$6.8 million for the three months ended March 31, 2020.
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Net cash provided by financing activities was $7.2 million for the three months
ended March 31, 2021 compared to $979.5 million for the three months ended March
31, 2020. The cash provided by financing activities during the three months
ended March 31, 2021 consisted of proceeds of $8.8 million from the exercise of
stock options, which was partially offset with cash outflows of $1.5 million for
other financing activities. The cash provided by financing activities for the
three months ended March 31, 2020 was primarily the result of proceeds of
$1.13 billion from our issuance of Convertible Notes with a maturity date of
March 1, 2028 (the "2028 Notes"), and we used $150.1 million of cash to settle a
portion of the 2025 Notes. In addition, during the three months ended March 31,
2020 we received proceeds of $4.3 million from the exercise of stock options.
As described above, on April 14, 2021, we completed the Ashion Acquisition,
under which we acquired Ashion in a cash and stock transaction valued at
approximately $89.4 million, which included cash consideration of $75.0 million
on the closing date. On May 3, 2021, we completed the PFS Acquisition, under
which we acquired 90% of PFS for cash consideration of $30.6 million, which was
paid at closing.
We expect that cash and cash equivalents and marketable securities on hand at
March 31, 2021 will be sufficient to fund our current operations for at least
the next twelve months including the cash consideration paid as part of the
Ashion Acquisition and PFS Acquisition in April 2021 and May 2021, respectively,
based on current operating plans. However, we may need to raise additional
capital to fully fund our current strategic plan, which includes successfully
commercializing our Cologuard test and Oncotype IQ products and developing a
pipeline of future products. Additionally, we may enter into transactions to
acquire other businesses, products, services, or technologies as part of our
strategic plan. If we are unable to obtain sufficient additional funds to enable
us to fund our operations through the completion of such plan, our results of
operations and financial condition would be materially adversely affected, and
we may be required to delay the implementation of our plan and otherwise scale
back our operations. Even if we successfully raise sufficient funds to complete
our plan, there is no certainty that we will be successful in generating
sufficient cash flow from operations or achieving and maintaining profitable
operations in the future to enable us to meet our obligations as they come due.
A table reflecting certain of our specified contractual obligations as of
December 31, 2020 was provided in the Management's Discussion and Analysis of
Financial Condition and Results of Operation of our 2020 Form 10-K. There were
no material changes outside the ordinary course of our business in our specified
contractual obligations during the three months ended March 31, 2021.
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of
operations is based on our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the U.S. ("GAAP"). The preparation of these financial statements requires us
to make estimates and assumptions that affect the amounts reported in our
condensed consolidated financial statements and accompanying notes. On an
ongoing basis, we evaluate our estimates and judgments. We base our estimates on
historical experience and on various other factors that are believed to be
appropriate under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 1 of
our financial statements included in our 2020 Form 10-K, as well as our
Management's Discussion and Analysis of Financial Condition and Results of
Operations on our 2020 Form 10-K, we believe that the following accounting
policies and judgments are most critical to aid in fully understanding and
evaluating our reported financial results. Other than the adoption of Accounting
Standards Update 2020-06 fully discussed in Note 9 of our condensed consolidated
financial statements in this Quarterly Report on Form 10-Q, there have not been
any significant changes to our critical accounting policies and estimates during
the three months ended March 31, 2021.
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Revenue Recognition. Revenues are recognized when we release a result to the
ordering healthcare provider, in an amount that reflects the consideration we
expect to collect in exchange for those services. The amount of revenue we
recognize is based on the established billing rates less contractual and other
adjustments, which yields the constrained amount that we expect to ultimately
collect. We determine the amount we expect to ultimately collect, using
historical collections, established reimbursement rates and other adjustments.
The expected amount is typically lower than, if applicable, the agreed-upon
reimbursement amount due to several factors, such as the amount of any patient
co-payments, out-of-network payers, the existence of secondary payers and claim
denials. The consideration derived from our contracts is fixed when we contract
with a direct bill payer. Our ability to collect is not contingent on the
customer's ability to collect through their downstream billing efforts.
In the case of some of our laboratory service agreements ("LSAs") with various
organizations, the right to bill and collect exists prior to the receipt of a
specimen and release of a test result to the ordering healthcare provider, which
results in deferred revenue. The deferred revenue balance is generally relieved
upon the release of the applicable patient's test result to the ordering
healthcare provider or as of the date the customer has surpassed the window of
time in which they are able to exercise their rights for testing services. We
believe these points in time represent our fulfillment of our obligations to the
customer.
The quality of our billing operations, most notably those activities that relate
to obtaining the correct information in order to bill effectively for services
provided, directly impacts the collectability of our receivables and revenue
estimates. As such, we continually assess the state of our order to cash
operations in order to identify areas of risk and opportunity that allow us to
appropriately estimate receivables and revenue. Upon ultimate collection, the
aggregate amount received from payers and patients where reimbursement was
estimated is compared to previous collection estimates and, if necessary, the
contractual allowance is adjusted. Finally, should we later determine the
judgments underlying estimated collections change, our financial results could
be negatively impacted in future quarters.
Business Combinations and Asset Acquisitions. Business Combinations are
accounted for under the acquisition method in accordance with Accounting
Standards Codification ("ASC") 805, Business Combinations. The acquisition
method requires identifiable assets acquired and liabilities assumed and any
non-controlling interest in the business acquired be recognized and measured at
fair value on the acquisition date, which is the date that the acquirer obtains
control of the acquired business. The amount by which the fair value of
consideration transferred as the purchase price exceeds the net fair value of
assets acquired and liabilities assumed is recorded as goodwill. Acquisitions
that do not meet the definition of a business combination under the ASC are
accounted for as asset acquisitions. Asset acquisitions are accounted for by
allocating the cost of the acquisition to the individual assets acquired and
liabilities assumed on a relative fair value basis. Goodwill is not recognized
in an asset acquisition with any consideration in excess of net assets acquired
allocated to acquired assets on a relative fair value basis. Transaction costs
are expensed in a business combination and are considered a component of the
cost of the acquisition in an asset acquisition.
Impairment of Long-Lived Assets. We evaluate the fair value of long-lived
assets, which include property, plant and equipment, intangible assets, and
investments in privately held companies, for impairment whenever events or
changes in circumstances indicate that the carrying amounts of the assets may
not be fully recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future
undiscounted net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
Recent Accounting Pronouncements
See Note 1 in the Notes to Condensed Consolidated Financial Statements for the
discussion of Recent Accounting Pronouncements.
Off-Balance Sheet Arrangements
As of March 31, 2021, we had no off-balance sheet arrangements.

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