UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2020~~March 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-35092

EXACT SCIENCES CORPORATION

(Exact name of registrant as specified in its charter)


Delaware			02-0478229
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)


5505 Endeavor Lane, Madison WI			53719
(Address of principal executive offices)			(Zip Code)

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

EXAS

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~July 30, 2020,~~May 3, 2021, the registrant had ~~150,167,320~~171,550,650 shares of common stock outstanding.

EXACT SCIENCES CORPORATION

INDEX


		Page Number
	Part I - Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets (unaudited) as of ~~June 30~~March 31 , 20202 201 and December 31, 20 1920	3

	Condensed Consolidated Statements of Operations (unaudited) for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 202 1 and 2020 ~~and 2019~~	4

	Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the Three ~~and Six~~ Months Ended ~~June 30~~March 31 , 20202 201 and 20 192020	5

	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the Three ~~and Six~~ Months Ended ~~June 30, 20~~20March 31, 2021 and ~~201~~9 2020	6

	Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~Six~~Three Months Ended ~~June 30, 20~~20March 31, 2021 and ~~and 201~~92020	87

	Notes to Condensed Consolidated Financial Statements (unaudited)	109

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4638

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5947

Item 4.	Controls and Procedures	6047

	Part II - Other Information

Item 1.	Legal Proceedings	6149

Item 1A.	Risk Factors	6149

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6449

Item 3.	Defaults Upon Senior Securities	6449

Item 4.	Mine Safety Disclosures	6449

Item 5	Other Information	6449

Item 6.	Exhibits	6550

	Signatures	6651

Table of Contents

EXACT SCIENCES CORPORATION

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share data - unaudited)

Part I — Financial ~~Information~~Information


		June 30, 2020		December 31, 2019
							March 31, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	703,926	$	177,254	Cash and cash equivalents	$	1,103,816	$	1,491,288
Marketable securities	Marketable securities	518,731		146,401		Marketable securities	274,151		348,699
Accounts receivable, net	Accounts receivable, net	163,608		130,667		Accounts receivable, net	256,135		233,185
Inventory	Inventory	82,215		61,724		Inventory	89,033		92,265
Prepaid expenses and other current assets	Prepaid expenses and other current assets	36,378		40,913		Prepaid expenses and other current assets	52,167		33,157
Total current assets	Total current assets	1,504,858		556,959		Total current assets	1,775,302		2,198,594
Long-term Assets:	Long-term Assets:					Long-term Assets:
Property, plant and equipment, net	Property, plant and equipment, net	463,437		455,325		Property, plant and equipment, net	482,736		451,986
Operating lease right-of-use assets	Operating lease right-of-use assets	132,751		126,444		Operating lease right-of-use assets	161,687		125,947
Goodwill	Goodwill	1,237,672		1,203,197		Goodwill	2,183,915		1,237,672
Intangible assets, net	Intangible assets, net	1,105,115		1,143,550		Intangible assets, net	2,073,932		847,123
Other long-term assets, net	Other long-term assets, net	23,902		20,293		Other long-term assets, net	56,945		63,770
Total assets	Total assets	$	4,467,735	$	3,505,768	Total assets	$	6,734,517	$	4,925,092
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Accounts payable	Accounts payable	$	30,998	$	25,973	Accounts payable	$	34,704	$	35,709
Accrued liabilities	Accrued liabilities	139,505		193,329		Accrued liabilities	214,143		233,604
Operating lease liabilities, current portion	Operating lease liabilities, current portion	9,871		7,891		Operating lease liabilities, current portion	15,290		11,483
Debt, current portion	Debt, current portion	1,319		834		Debt, current portion	1,319		1,319
Convertible notes, net, current portion						Convertible notes, net, current portion	312,832		312,716
Other current liabilities	Other current liabilities	40,581		8,467		Other current liabilities	50,626		38,265
Total current liabilities	Total current liabilities	222,274		236,494		Total current liabilities	628,914		633,096
Long-term Liabilities:	Long-term Liabilities:					Long-term Liabilities:
Convertible notes, net		1,534,383		803,605
Convertible notes, net, less current portion						Convertible notes, net, less current portion	1,862,992		1,861,685
Long-term debt, less current portion	Long-term debt, less current portion	22,944		24,032		Long-term debt, less current portion	22,041		22,342
Other long-term liabilities	Other long-term liabilities	50,311		34,911		Other long-term liabilities	414,195		51,342
Operating lease liabilities, less current portion	Operating lease liabilities, less current portion	126,630		118,665		Operating lease liabilities, less current portion	157,380		121,075
Total liabilities	Total liabilities	1,956,542		1,217,707		Total liabilities	3,085,522		2,689,540
Commitments and contingencies
Commitments and contingencies (Note 14)						Commitments and contingencies (Note 14)	0		0
Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—0 shares at June 30, 2020 and December 31, 2019		—		—
Common stock, $0.01 par value Authorized—200,000,000 shares issued and outstanding—149,980,798 and 147,625,696 shares at June 30, 2020 and December 31, 2019		1,501		1,477
Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—0 shares at March 31, 2021 and December 31, 2020						Preferred stock, $0.01 par value Authorized—5,000,000 shares issued and outstanding—0 shares at March 31, 2021 and December 31, 2020	0		0
Common stock, $0.01 par value Authorized—400,000,000 shares issued and outstanding—171,293,312 and 159,423,410 shares at March 31, 2021 and December 31, 2020						Common stock, $0.01 par value Authorized—400,000,000 shares issued and outstanding—171,293,312 and 159,423,410 shares at March 31, 2021 and December 31, 2020	1,714		1,595
Additional paid-in capital	Additional paid-in capital	3,819,798		3,406,440		Additional paid-in capital	5,723,977		4,279,327
Accumulated other comprehensive income (loss)		1,489		(100)
Accumulated other comprehensive income						Accumulated other comprehensive income	364		526
Accumulated deficit	Accumulated deficit	(1,311,595)		(1,119,756)		Accumulated deficit	(2,077,060)		(2,045,896)
Total stockholders’ equity	Total stockholders’ equity	2,511,193		2,288,061		Total stockholders’ equity	3,648,995		2,235,552
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	4,467,735	$	3,505,768	Total liabilities and stockholders’ equity	$	6,734,517	$	4,925,092

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

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EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Operations

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


		Three Months Ended June 30,						Six Months Ended June 30,
		2020		2019		2020		2019
											Three Months Ended March 31,
											2021		2020
Revenue	Revenue	$	268,868	$	199,870	$	616,689	$	361,913	Revenue	$	402,077	$	347,821

Operating expenses	Operating expenses									Operating expenses
Cost of sales (exclusive of amortization of acquired intangible assets)	Cost of sales (exclusive of amortization of acquired intangible assets)	77,892		51,139		159,498		93,966		Cost of sales (exclusive of amortization of acquired intangible assets)	109,993		81,606
Research and development	Research and development	32,673		29,972		76,182		61,757		Research and development	115,567		43,509
Sales and marketing	Sales and marketing	118,862		88,190		286,611		179,129		Sales and marketing	186,141		167,749
General and administrative	General and administrative	106,685		63,723		220,676		127,529		General and administrative	267,727		113,991
Amortization of acquired intangible assets	Amortization of acquired intangible assets	23,430		748		46,769		1,508		Amortization of acquired intangible assets	23,190		23,339
Total operating expenses	Total operating expenses	359,542		233,772		789,736		463,889		Total operating expenses	702,618		430,194

Other operating income		23,665		—		23,665		—
Loss from operations	Loss from operations	(67,009)		(33,902)		(149,382)		(101,976)		Loss from operations	(300,541)		(82,373)

Other income (expense)	Other income (expense)									Other income (expense)
Investment income, net	Investment income, net	2,912		7,669		3,009		14,324		Investment income, net	31,188		97
Interest expense	Interest expense	(22,912)		(12,712)		(48,065)		(34,702)		Interest expense	(4,616)		(54,604)
Total other income (expense)	Total other income (expense)	(20,000)		(5,043)		(45,056)		(20,378)		Total other income (expense)	26,572		(54,507)

Net loss before tax	Net loss before tax	(87,009)		(38,945)		(194,438)		(122,354)		Net loss before tax	(273,969)		(136,880)

Income tax benefit	Income tax benefit	867		443		2,599		913		Income tax benefit	242,805		2,237

Net loss	Net loss	$	(86,142)	$	(38,502)	$	(191,839)	$	(121,441)	Net loss	$	(31,164)	$	(134,643)

Net loss per share—basic and diluted	Net loss per share—basic and diluted	$	(0.58)	$	(0.30)	$	(1.29)	$	(0.95)	Net loss per share—basic and diluted	$	(0.18)	$	(0.91)

Weighted average common shares outstanding—basic and diluted	Weighted average common shares outstanding—basic and diluted	149,727		129,182		148,938		127,723		Weighted average common shares outstanding—basic and diluted	169,434		148,151

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

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EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Comprehensive Loss

(Amounts in thousands - unaudited)


		Three Months Ended June 30,						Six Months Ended June 30,
		2020		2019		2020		2019
											Three Months Ended March 31,
											2021		2020
Net loss	Net loss	$	(86,142)	$	(38,502)	$	(191,839)	$	(121,441)	Net loss	$	(31,164)	$	(134,643)
Other comprehensive loss, before tax:
Other comprehensive income (loss), before tax:										Other comprehensive income (loss), before tax:
Unrealized gain on available-for-sale investments	Unrealized gain on available-for-sale investments	3,206		1,952		1,564		4,128		Unrealized gain on available-for-sale investments	(332)		(1,642)
Foreign currency adjustment	Foreign currency adjustment	—		—		25		—		Foreign currency adjustment	0		25
Comprehensive loss, before tax	Comprehensive loss, before tax	(82,936)		(36,550)		(190,250)		(117,313)		Comprehensive loss, before tax	(31,496)		(136,260)
Income tax expense related to items of other comprehensive loss	Income tax expense related to items of other comprehensive loss	—		(464)		—		(984)		Income tax expense related to items of other comprehensive loss	170		0
Comprehensive loss, net of tax	Comprehensive loss, net of tax	$	(82,936)	$	(37,014)	$	(190,250)	$	(118,297)	Comprehensive loss, net of tax	$	(31,326)	$	(136,260)

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

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EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity

(Amounts in thousands, except share data - unaudited)

Common Stock Additional
Paid-In
Capital Other
Comprehensive
Income (Loss) Accumulated
Deficit Total
Stockholders’
Equity
Number of
Shares
$0.01
Par Value
Balance, January 1, 2020 147,625,696 $ 1,477 $ 3,406,440 $ (100) $ (1,119,756) $ 2,288,061
Equity component of convertible notes, net of tax and issuance costs — — 346,641 — — 346,641
Settlement of convertible notes, net of tax — — (64,199) — — (64,199)
Exercise of common stock options 160,286 2 4,298 — — 4,300
Issuance of common stock to fund the Company’s 2019 401(k) match 136,559 1 12,006 — — 12,007
Compensation expense related to issuance of stock options and restricted stock awards 1,141,376 11 29,549 — — 29,560
Issuance of common stock for business combinations 382,947 4 28,593 — — 28,597
Net loss — — — — (105,697) (105,697)
Accumulated other comprehensive loss — — — (1,617) — (1,617)
Balance, March 31, 2020 149,446,864 $ 1,495 $ 3,763,328 $ (1,717) $ (1,225,453) $ 2,537,653
Exercise of common stock options 208,434 2 6,636 — — 6,638
Compensation expense related to issuance of stock options and restricted stock awards 157,579 2 40,037 — — 40,039
Purchase of employee stock purchase plan shares 167,921 2 9,797 — — 9,799
Net loss — — — — (86,142) (86,142)
Accumulated other comprehensive income — — — 3,206 — 3,206
Balance, June 30, 2020 149,980,798 $ 1,501 $ 3,819,798 $ 1,489 $ (1,311,595) $ 2,511,193


	Common Stock			Additional Paid-In Capital		Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Number of Shares	$0.01 Par Value
Balance, January 1, 2021	159,423,410	$	1,595	$	4,279,327	$	526	$	(2,045,896)	$	2,235,552
Settlement of convertible notes, net of tax	344	—		26		—		—		26
Exercise of common stock options	967,107	10		8,749		—		—		8,759
Issuance of common stock to fund the Company’s 2020 401(k) match	162,606	2		22,932		—		—		22,934
Compensation expense related to issuance of stock options and restricted stock awards	1,355,435	13		158,239		—		—		158,252
Issuance of common stock for business combination and asset acquisition	9,384,410	94		1,254,704		—		—		1,254,798
Net loss	—	—		—		—		(31,164)		(31,164)
Accumulated other comprehensive loss	—	—		—		(162)		—		(162)
Balance, March 31, 2021	171,293,312	$	1,714	$	5,723,977	$	364	$	(2,077,060)	$	3,648,995

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

~~Table of Contents~~

~~EXACT SCIENCES CORPORATION~~

~~Condensed Consolidated Statements of Stockholders’ Equity~~

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

Common Stock Additional Paid-In Capital Other
Comprehensive
Income (Loss) Accumulated
Deficit Total
Stockholders’
Equity
Number of
Shares
$0.01
Par Value
Balance, January 1, 2019 123,192,540 $ 1,232 $ 1,716,894 $ (1,422) $ (1,035,763) $ 680,941
Equity component of convertible notes, net of tax and issuance costs — — 268,390 — — 268,390
Shares issued to settle convertible notes 2,158,991 22 182,413 — — 182,435
Settlement of convertible notes — — (300,768) — — (300,768)
Exercise of common stock options 235,278 2 3,648 — — 3,650
Issuance of common stock to fund the Company’s 2018 401(k) match 86,532 1 7,408 — — 7,409
Compensation expense related to issuance of stock options and restricted stock awards 3,410,481 35 16,131 — — 16,166
Net loss — — — — (82,939) (82,939)
Accumulated other comprehensive income — — — 1,656 — 1,656
Balance, March 31, 2019 129,083,822 $ 1,292 $ 1,894,116 $ 234 $ (1,118,702) $ 776,940
Equity component of convertible notes, net of issuance costs — — (22) — — (22)
Exercise of common stock options 78,793 1 1,347 — — 1,348
Compensation expense related to issuance of stock options and restricted stock awards 104,845 1 20,142 — — 20,143
Purchase of employee stock purchase plan shares 93,588 1 4,136 — — 4,137
Net loss — — — — (38,502) (38,502)
Accumulated other comprehensive income — — — 1,488 — 1,488
Balance, June 30, 2019 129,361,048 $ 1,295 $ 1,919,719 $ 1,722 $ (1,157,204) $ 765,532


	Common Stock			Additional Paid-In Capital		Other Comprehensive Income (Loss)		Accumulated Deficit		Total Stockholders’ Equity
	Number of Shares	$0.01 Par Value
Balance, January 1, 2020	147,625,696	$	1,477	$	3,178,552	$	(100)	$	(1,222,381)	$	1,957,548
Exercise of common stock options	160,286	2		4,298		—		—		4,300
Issuance of common stock to fund the Company’s 2019 401(k) match	136,559	1		12,006		—		—		12,007
Compensation expense related to issuance of stock options and restricted stock awards	1,141,376	11		29,549		—		—		29,560
Issuance of common stock for business combinations	382,947	4		28,593		—		—		28,597
Net loss	—	—		—		—		(134,643)		(134,643)
Accumulated other comprehensive loss	—	—		—		(1,617)		—		(1,617)
Balance, March 31, 2020	149,446,864	$	1,495	$	3,252,998	$	(1,717)	$	(1,357,024)	$	1,895,752

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

Table of ~~Contents~~Contents

EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands - unaudited)

Six Months Ended June 30,
2020 2019
Cash flows from operating activities:
Net loss $ (191,839) $ (121,441)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 33,632 13,507
Loss on disposal of property, plant and equipment 650 211
Unrealized loss on revaluation of marketable equity securities 333 —
Deferred tax benefit (3,222) (984)
Stock-based compensation 69,599 36,309
Loss on settlement of convertible notes 7,954 10,558
Amortization of convertible note debt discount and issuance costs 34,638 19,798
Amortization of deferred financing costs and other liabilities (2,505) (847)
Amortization of premium on short-term investments 503 (2,580)
Amortization of acquired intangible assets 46,769 1,508
Non-cash lease expense 6,860 1,762
Changes in assets and liabilities:
Accounts receivable, net (30,644) (18,574)
Inventory, net (20,260) (8,633)
Operating lease liabilities (4,997) (1,607)
Accounts payable and accrued liabilities (47,587) 25,725
Other assets and liabilities 43,419 (11,920)
Net cash used in operating activities (56,697) (57,208)
Cash flows from investing activities:
Purchases of marketable securities (640,085) (511,587)
Maturities and sales of marketable securities 268,483 447,674
Purchases of property, plant and equipment (33,455) (79,448)
Business combination, net of cash acquired (6,654) —
Other investing activities (516) (380)
Net cash used in investing activities (412,227) (143,741)
Cash flows from financing activities:
Proceeds from issuance of convertible notes, net 1,125,547 729,479
Proceeds from exercise of common stock options 10,938 4,998
Proceeds in connection with the Company’s employee stock purchase plan 9,799 4,137
Payments on settlement of convertible notes (150,054) (493,356)
Other financing activities (626) 319
Net cash provided by financing activities 995,604 245,577
Net increase in cash, cash equivalents and restricted cash 526,680 44,628
Cash, cash equivalents and restricted cash, beginning of period 177,528 160,430
Cash, cash equivalents and restricted cash, end of period $ 704,208 $ 205,058


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net loss	$	(31,164)	$	(134,643)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	20,508		16,006
Loss on disposal of property, plant and equipment	337		272
Unrealized gain on equity investments	(7)		669
Deferred tax benefit	(243,130)		(2,423)
Stock-based compensation	77,292		29,560
Post-combination expense for acceleration of unvested equity	80,960		0
Realized gain on preferred stock investment	(30,500)		0
Loss on settlement of convertible notes	0		50,819
Amortization of deferred financing costs, convertible note debt discount and issuance costs, and other liabilities	1,633		(64)
Amortization of premium on short-term investments	439		53
Amortization of acquired intangible assets	23,190		23,339
Asset acquisition IPR&D expense	52,263		0
Remeasurement of contingent consideration	2,879		0
Non-cash lease expense	5,740		3,329
Changes in assets and liabilities:
Accounts receivable, net	(22,950)		(6,322)
Inventory, net	3,232		(7,469)
Operating lease liabilities	(3,120)		(1,942)
Accounts payable and accrued liabilities	(15,862)		(18,296)
Other assets and liabilities	1,033		(2,715)
Net cash used in operating activities	(77,227)		(49,827)
Cash flows from investing activities:
Purchases of marketable securities	(162,498)		(425,168)
Maturities and sales of marketable securities	236,295		39,143
Purchases of property, plant and equipment	(12,920)		(13,048)
Business combination, net of cash acquired	(343,248)		(6,807)
Asset acquisition	(25,000)		0
Investments in privately held companies	(10,000)		0
Other investing activities	(141)		33
Net cash used in investing activities	(317,512)		(405,847)
Cash flows from financing activities:
Proceeds from issuance of convertible notes, net	0		1,125,547
Proceeds from exercise of common stock options	8,759		4,300
Payments on settlement of convertible notes	0		(150,054)
Other financing activities	(1,514)		(313)
Net cash provided by financing activities	7,245		979,480
Net increase (decrease) in cash, cash equivalents and restricted cash	(387,494)		523,806
Cash, cash equivalents and restricted cash, beginning of period	1,491,594		177,528
Cash, cash equivalents and restricted cash, end of period	$	1,104,100	$	701,334

Table of ~~Contents~~Contents

EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands - unaudited)


		Six Months Ended June 30,							Three Months Ended March 31,
		2020		2019			2021		2020
Supplemental disclosure of non-cash investing and financing activities	Supplemental disclosure of non-cash investing and financing activities					Supplemental disclosure of non-cash investing and financing activities
Property, plant and equipment acquired but not paid	Property, plant and equipment acquired but not paid	$	8,684	$	24,402	Property, plant and equipment acquired but not paid	$	8,697	$	13,631
Unrealized gain on available-for-sale investments, before tax	Unrealized gain on available-for-sale investments, before tax	$	1,564	$	4,128	Unrealized gain on available-for-sale investments, before tax	$	(332)	$	(1,642)
Issuance of 136,559 and 86,532 shares of common stock to fund the Company’s 401(k) matching contribution for 2019 and 2018, respectively		$	12,007	$	7,409
Issuance of 2,158,991 shares of common stock upon settlement of convertible notes		$	—	$	182,435
Retirement of equity component of convertible notes settled		$	(64,199)	$	(300,768)
Issuance of 382,947 shares for business combination		$	28,597	$	—
Issuance of 162,606 and 136,559 shares of common stock to fund the Company’s 401(k) matching contribution for 2020 and 2019, respectively						Issuance of 162,606 and 136,559 shares of common stock to fund the Company’s 401(k) matching contribution for 2020 and 2019, respectively	$	22,934	$	12,007
Issuance of 9,384,410 and 382,947 shares of common stock for business combinations and asset acquisition for 2021 and 2020, respectively						Issuance of 9,384,410 and 382,947 shares of common stock for business combinations and asset acquisition for 2021 and 2020, respectively	$	1,254,798	$	28,597
Business combination contingent consideration liability						Business combination contingent consideration liability	$	331,348	$	0
Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Interest paid	Interest paid	$	3,908	$	1,216	Interest paid	$	5,274	$	3,725

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

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

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

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements, which include the accounts of Exact Sciences Corporation and those of its wholly owned subsidiaries and variable interest entities, are unaudited and have been prepared on a basis substantially consistent with the Company’s audited financial statements and notes as of and for the year ended December 31, ~~2019~~2020 included in the Company’s Annual Report on Form 10-K (the ~~“2019~~“2020 Form 10-K”). All intercompany transactions and balances have been eliminated upon consolidation. These condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair statement of its financial position, operating results and cash flows for the periods presented. The condensed consolidated balance sheet at December 31, ~~2019~~2020 has been derived from audited financial statements, but does not contain all of the footnote disclosures from the ~~2019~~2020 Form 10-K. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year. The statements should be read in conjunction with the audited financial statements and related notes included in the ~~2019~~2020 Form 10-K.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are those that affect the Company’s financial statements materially and involve difficult, subjective or complex judgments by management, and actual results could differ from those estimates. These estimates include revenue recognition, valuation of ~~convertible notes, valuation of~~ intangible assets and goodwill, and accounting for income taxes among others. The Company’s critical accounting policies and estimates are explained further in the notes to the condensed consolidated financial statements in this Quarterly Report and the ~~2019~~2020 Form 10-K.

The spread of the coronavirus (“COVID-19”) has affected many segments of the global economy, including the cancer screening and diagnostics industry. The COVID-19 outbreak, which the World Health Organization has classified as a pandemic, has prompted governments and regulatory bodies throughout the world to enact broad precautionary measures, including “stay-at-home” orders, restrictions on the performance of “non-essential” services, public gatherings and travel. Health systems, including key markets where the Company operates, have been, or may be, overwhelmed with high volumes of patients suffering from COVID-19.

The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19, the extent to which it will impact worldwide macroeconomic conditions including interest rates, employment rates and health insurance coverage, the speed of the anticipated recovery, access to capital markets, and governmental and business reactions to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of ~~June 30, 2020~~March 31, 2021 and through the date of the filing of this Quarterly Report

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

on Form 10-Q. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, equity investments, software, and the carrying value of the goodwill and other long-lived assets. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in additional material impacts to the Company’s consolidated financial statements in future reporting periods.

The pandemic and related precautionary measures began to materially disrupt the Company's operations in March 2020 and may continue to disrupt the business for an unknown period of time. As a result, the pandemic impacted the Company's revenues and operating results for the three months ended March 31, 2021.

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

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~~Coronavirus Aid, Relief,~~EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Significant Accounting Policies

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

Reclassifications

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

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

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

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

As of January 1, 2019, the cumulative effect of adoption resulted in a decrease in additional-paid-in-capital of $260.2 million, a decrease in accumulated deficit of $26.6 million, and an increase to net deferred tax assets of $55.7 million offset by a corresponding increase of $55.7 million in the valuation allowance. As of January 1, 2020, the ~~Company received $23.7~~cumulative effect of adoption resulted in a decrease in additional-paid-in-capital of $227.8 million, ~~from~~an increase in accumulated deficit of $102.6 million, and an increase to the ~~United States Department~~net deferred tax assets of ~~Health and Human Services (“HHS”) as~~$83.2 million offset by a ~~distribution from the Public Health and Social Services Emergency Fund provided for~~corresponding increase of $74.7 million in the ~~CARES Act. The fund payments are grants, not loans,~~valuation allowance resulting in a net decrease of $8.5 million in recorded deferred tax liabilities. As of December 31, 2020, the cumulative effect of adoption resulted in an increase in the net carrying amount of convertible notes, net, current portion of $57.3 million and ~~HHS will not require repayment provided~~convertible notes, net, less current portion of $540.9 million, a decrease in additional-paid-in-capital of $510.3 million and other long-term liabilities of $10.2 million, an increase in accumulated deficit of $77.7 million, and an increase to net deferred tax assets of $146.0 million offset by a corresponding increase of $135.8 million in the ~~funds are utilized to offset expenses incurred to address COVID-19 or to replace lost revenues. The Company accepted the terms and conditions~~valuation allowance resulting in a net decrease of ~~the grant~~$10.2 million in ~~May 2020 and recognized the entire $23.7 million during~~recorded deferred tax liabilities. For the three months ended ~~June 30,~~March 31, 2020, ~~due to lost revenue attributable to COVID-19, which is reflected in other operating income~~interest expense in the condensed consolidated statement of operations. The Company cannot predict the extent to which the Company will receive any additional funds to be paid out under the Provider Relief Fund, and to what extent the financial impact of receiving such funds would do to effectively offset the broad implications of the COVID-19 pandemic which include increases in the Company’s costs and lost revenues.

~~Cash and Cash Equivalents~~

~~The Company considers cash on hand, demand deposits in bank, money market funds, and all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents.~~

~~Marketable Securities~~

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities carried at amortized cost are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value. The unrealized gains and losses, net of tax, on the Company’s debt securities are reported in other comprehensive income. Marketable equity securities are measured at fair value and the unrealized gains and losses, net of tax, are recognized in other income (expense) in the condensed consolidated statements of operations. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity computed under the straight-line method. Such amortization is included in investment income, net. Realized gains and losses and declines in valueoperations increased by $29.4 million as a result of ~~credit losses~~a decrease in cash interest and amortization of debt discounts, premiums, and issuance costs of $13.4 million, which was offset by an increase in loss on ~~available-for-sale securities~~extinguishment of $42.8 million in connection with the extinguishment of $100.0 million face value of 2025 Notes, income tax benefit increased by $0.5 million and net loss per share, basic and diluted, reported for the three months ended March 31, 2020 increased by $0.20 per share.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Net Loss Per Share

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

The following potentially issuable common shares were not included in the ~~condensed consolidated statements~~computation of operations as investment income, net. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in the condensed consolidated statements of operations as investment income, net.diluted net loss per share because they would have an anti-dilutive effect due to net losses for each period:


	March 31,
(In thousands)	2021	2020
Shares issuable in connection with acquisitions	157	157
Shares issuable upon exercise of stock options	2,633	2,841
Shares issuable upon the release of restricted stock awards	4,433	4,224
Shares issuable upon the release of performance share units	846	599
Shares issuable upon conversion of convertible notes	20,309	20,309
	28,378	28,130

(2) REVENUE

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

Disaggregation of ~~instruments issued~~Revenue

The following table presents the Company’s revenues disaggregated by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer. Investments in which the Company has the ability and intent, if necessary, to liquidate, in order to support its current operations (including those with a contractual term greater than one yearrevenue source:


	Three Months Ended March 31,
(In thousands)	2021		2020
Screening
Medicare Parts B & C	$	101,559	$	98,159
Commercial	127,874		109,369
Other	10,895		11,924
Total Screening	240,328		219,452
Precision Oncology
Medicare Parts B & C	$	43,116	$	47,034
Commercial	53,255		54,416
International	26,056		20,936
Other	6,980		5,983
Total Precision Oncology	129,407		128,369
COVID-19 Testing	$	32,342	$	0
Total	$	402,077	$	347,821

Screening revenue primarily includes laboratory service revenue from the ~~date of purchase), are classified as current.~~Cologuard test while Precision Oncology revenue primarily includes laboratory service revenue from global Oncotype DX products.

Revenue recognized from changes in transaction prices was $1.7 million and $5.4 million for the three months ended March 31, 2021 and 2020, respectively.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~The Company periodically evaluates its available-for-sale debt securities~~Deferred revenue balances are reported in ~~unrealized loss positions to determine whether any impairment is a result of a credit loss or~~ other factors. This evaluation includes, but is not limited to, significant quantitative and qualitative assessments and estimates regarding credit ratings, significance of a security’s loss position, adverse conditions specifically related to the security, and the payment structure of the security.

~~Allowance for Doubtful Accounts~~

~~The Company estimates an allowance for doubtful accounts against accounts receivable using historical collection trends, aging of accounts,~~ current and future implications surrounding the ability to collect such as economic conditions, and regulatory changes. The allowance for doubtful accounts is evaluated on a regular basis and adjusted when trends, significant events or other substantive evidence indicate that expected collections will be less than applicable accrual rates. At June 30, 2020 and December 31, 2019 the allowance for doubtful accounts recorded was not material toliabilities in the Company’s condensed consolidated balance ~~sheets. For~~sheets and were $39.8 million and $25.0 million as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, $38.5 million of the Company’s deferred revenue balance is a result of the billing terms pursuant to the existing COVID-19 laboratory service agreements (“LSAs”) with customers.

Revenue recognized for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, there~~which was ~~an immaterial amount of bad debt expense written off against~~included in the ~~allowance and charged to operating expense.~~

~~Inventory~~

~~Inventory is stated~~deferred revenue balance at the ~~lower~~beginning of ~~cost or net realizable value. The Company determines~~each period was $14.0 million and $0.2 million, respectively. Of the ~~cost~~$14.0 million of ~~inventory using~~revenue recognized for the first-in, first out method (“FIFO”). The Company estimates the recoverability of inventory by reference to internal estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory levels to identify inventory that may expire prior to expected sale, no longer meet quality specifications, or has a cost basis in excess of its estimated realizable value and records a charge to cost of sales for such inventory as appropriate.

Direct and indirect manufacturing costs incurred during process validation with probable future economic benefit are capitalized. Validation costs incurred for other research and development activities,three months ended March 31, 2021, which ~~are not permitted to be sold, have been expensed to research and development~~was included in the deferred revenue balance at the beginning of the period, $13.8 million related to COVID-19 testing.

(3) MARKETABLE SECURITIES

The following table sets forth the Company’s ~~condensed consolidated statements of operations.~~cash, cash equivalents, restricted cash, and marketable securities at March 31, 2021 and December 31, 2020:

~~Inventory~~


(In thousands)	March 31, 2021		December 31, 2020
Cash, cash equivalents, and restricted cash
Cash and money market	$	770,267	$	901,294
Cash equivalents	333,549		589,994
Restricted cash	284		306
Total cash, cash equivalents, and restricted cash	1,104,100		1,491,594
Marketable securities
Available-for-sale debt securities	274,151		347,178
Equity securities	0		1,521
Total marketable securities	274,151		348,699
Total cash and cash equivalents, restricted cash and marketable securities	$	1,378,251	$	1,840,293

Available-for-sale debt securities at March 31, 2021 consisted of the following:

(In thousands) June 30,
2020 December 31,
2019
Raw materials $ 35,713 $ 24,958
Semi-finished and finished goods 46,502 36,766
Total inventory $ 82,215 $ 61,724


(In thousands)	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss) (1)		Losses in Accumulated Other Comprehensive Income (Loss) (1)		Estimated Fair Value
Cash equivalents
U.S. government agency securities	$	318,194	$	5	$	0	$	318,199
Certificates of deposit	15,350		0		0		15,350
Total cash equivalents	333,544		5		0		333,549
Marketable securities
Corporate bonds	143,885		337		(21)		144,201
U.S. government agency securities	7,105		36		0		7,141
Certificates of deposit	90,360		2		(3)		90,359
Commercial paper	27,992		1		(1)		27,992
Asset backed securities	4,450		8		0		4,458
Total marketable securities	273,792		384		(25)		274,151
Total available-for-sale securities	$	607,336	$	389	$	(25)	$	607,700

~~Property, Plant~~______________

(1)Gains and ~~Equipment~~

~~Property, plant and equipment~~losses in accumulated other comprehensive income (loss) (“AOCI”) are stated at cost and depreciated using the straight-line method over the assets’ estimated useful lives. Land is stated at cost and does not depreciate. Additions and improvements are capitalized, including direct and indirect costs incurred to validate equipment and bring it to working conditions. Revalidation costs, including maintenance and repairs are expensed when incurred.

~~Software Development Costs~~

Costs related to internal use software, including hosting arrangements, are incurred in 3 stages: the preliminary project stage, the application development stage, and the post-implementation stage. Costs incurred during the preliminary project and post-implementation stages are expensed as incurred. Costs incurred during the application development stage that meet the criteria for capitalization are capitalized and amortized, when the software is ready for its intended use, using the straight-line basis over the estimated useful life of the software, or the duration of the hosting agreement.reported before tax impact.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


(In thousands)	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss) (1)		Losses in Accumulated Other Comprehensive Income (Loss) (1)		Estimated Fair Value
Cash equivalents
U.S. government agency securities	$	589,986	$	8	$	0	$	589,994
Total cash equivalents	589,986		8		0		589,994
Marketable securities
U.S. government agency securities	207,119		52		0		207,171
Asset backed securities	7,070		24		0		7,094
Corporate bonds	132,301		612		0		132,913
Total marketable securities	346,490		688		0		347,178
Total available-for-sale securities	$	936,476	$	696	$	0	$	937,172

______________

(1)Gains and losses in ~~Privately Held Companies~~AOCI are reported before tax impact.

The following table summarizes contractual underlying maturities of the Company’s available-for-sale debt securities at March 31, 2021:


	Due one year or less				Due after one year through four years
(In thousands)	Cost		Fair Value		Cost		Fair Value
Cash equivalents
U.S. government agency securities	$	318,194	$	318,199	$	—	$	—
Certificates of deposit	15,350		15,350		—		—
Total cash equivalents	333,544		333,549		—		—
Marketable securities
U.S. government agency securities	7,105		7,141		0		0
Corporate bonds	119,523		119,857		24,362		24,344
Certificates of deposit	90,360		90,359		0		0
Asset backed securities	0		0		4,450		4,458
Commercial paper	27,992		27,992		0		0
Total marketable securities	244,980		245,349		28,812		28,802
Total	$	578,524	$	578,898	$	28,812	$	28,802

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the gross unrealized losses and fair values of available-for-sale debt securities in an unrealized loss position as of March 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:


	Less than one year				One year or greater				Total
(In thousands)	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Cash equivalents
Certificates of deposit	$	11,000	$	0	$	0	$	0	$	11,000	$	0
Total cash equivalents	11,000		0		0		0		11,000		0
Marketable securities
Corporate bonds	53,635		(21)		0		0		53,635		(21)
Certificates of deposit	32,347		(3)		0		0		32,347		(3)
Commercial paper	9,999		(1)		0		0		9,999		(1)
Total marketable securities	95,981		(25)		0		0		95,981		(25)
Total available-for-sale securities	$	106,981	$	(25)	$	0	$	0	$	106,981	$	(25)

The Company ~~determines whether its~~evaluates investments, including investments in ~~privately held~~privately-held companies, that are ~~debt or equity based on their characteristics,~~ in ~~accordance with~~an unrealized loss position for impairment as a result of credit loss. It was determined that no credit losses exist as of March 31, 2021 and December 31, 2020 because the ~~applicable accounting guidance~~change in market value for ~~such investments. The Company also evaluates the investee to determine if the entity is~~those securities in an unrealized loss position has resulted from fluctuating interest rates rather than a ~~variable interest entity (“VIE”) and, if so, whether the Company is the primary beneficiary~~deterioration of the ~~VIE, in order to determine whether consolidation~~credit worthiness of the ~~VIE is required. If consolidation is~~issuers. The realized gain recorded on available-for-sale debt securities was not ~~required and the Company does not have voting control of the entity, the investment is evaluated~~material to determine if the equity method of accounting should be applied. The equity method applies to investments in common stock or in substance common stock where the Company exercises significant influence over the investee.

Investments in privately held companies determined to be equity securities are accounted for as non-marketable securities. The Company adjusts the carrying value of its non-marketable equity securities for changes from observable transactions for identical or similar investments of the same issuer, less impairment. All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in other income (expense) in the condensed consolidated statements of ~~operations.~~

~~Investments in privately held companies determined to be debt securities are accounted~~income for ~~as available-for-sale or held-to-maturity securities, in accordance with~~ the ~~applicable accounting guidance for such investments.~~

~~Derivative Financial Instruments~~three months ended March 31, 2021 and 2020.

The Company ~~hedges~~recorded a ~~portion~~loss of $16,000 and $0.7 million from its ~~foreign currency exposures related to outstanding monetary assets~~equity securities for the three months ended March 31, 2021 and ~~liabilities using foreign currency forward contracts.~~ 2020, respectively.

The ~~foreign currency forward contracts~~gains and losses recorded are included in ~~prepaid expenses and other current assets or in accrued liabilities~~investment income, net in the condensed consolidated balance sheets, depending on the contracts’ net position. These contracts are not designated as hedges, and as a result, changes in their fair value are recorded in other income (expense) in theCompany’s condensed consolidated statements of operations. ~~There were 0 gains~~

(4) INVENTORY

Inventory consisted of the following:


(In thousands)	March 31, 2021		December 31, 2020
Raw materials	$	40,858	$	43,083
Semi-finished and finished goods	48,175		49,182
Total inventory	$	89,033	$	92,265

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(5) PROPERTY, PLANT AND EQUIPMENT

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


(In thousands)	Estimated Useful Life	March 31, 2021		December 31, 2020
Property, plant and equipment
Land	n/a	$	4,466	$	4,466
Leasehold and building improvements	(1)	138,342		117,865
Land improvements	15 years	4,910		4,864
Buildings	30 - 40 years	200,997		200,980
Computer equipment and computer software	3 years	84,902		75,417
Laboratory equipment	3 - 10 years	156,001		142,110
Furniture and fixtures	3 - 10 years	26,810		24,968
Assets under construction	n/a	22,948		18,854
Property, plant and equipment, at cost		639,376		589,524
Accumulated depreciation		(156,640)		(137,538)
Property, plant and equipment, net		$	482,736	$	451,986

______________

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

Depreciation expense for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020 was $20.5 million and ~~2019. As of June 30, 2020 and December~~$16.0 million, respectively.

At March 31, ~~2019,~~2021, the Company had ~~open foreign currency forward contracts with notional amounts~~$22.9 million of ~~$16.0~~assets under construction which consisted of $7.4 million in laboratory equipment, $8.9 million related to building and ~~$17.9~~leasehold improvements, and $6.6 million ~~respectively. The Company's foreign exchange derivative instruments are classified as Level 2 within the fair value hierarchy as~~in capitalized costs related to software projects. Depreciation will begin on these assets once they are ~~valued using inputs that are observable~~placed into service upon completion in ~~the market or can be derived principally from or corroborated by observable market data. The fair value of the foreign currency forward contracts was 0 at June 30, 2020~~2021 and ~~December 31, 2019.~~2022.

(6) INTANGIBLE ASSETS AND GOODWILL

~~Intangible Assets~~Recent Accounting Pronouncements

~~Purchased intangible assets~~Recently Adopted Accounting Pronouncements

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

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

The Company’s convertible debt instruments will be accounted for as a ~~discounted cash flow model to value intangible assets.~~single liability measured at its amortized cost. The ~~discounted cash flow model requires assumptions about the timing and amount of future net cash flows, risk, the cost of capital, terminal values and market participants.~~

~~Patent costs~~notes are capitalized as incurred, only if the Company determines that there is some probable future economic benefit derived from the transaction. A capitalized patent is amortized over its estimated useful life, beginning when such patent is approved. Capitalized patent costs are expensed upon disapproval, upon a decision by the Company to no longer ~~pursue the patent~~bifurcated between debt and equity, rather accounted for entirely as debt at face value net of any discount or ~~when the related intellectual property~~premium and issuance costs. Interest expense is ~~either sold~~comprised of (1) cash interest payments, (2) amortization of any debt discounts or deemed to be no longer of value to the Company. The Company determined that all patent costs incurred during the three and six months ended June 30, 2020 and 2019 should be expensed and not capitalized as the future economic benefit derived from the patent costs incurred cannot be determined.

~~Acquired In-process Research and Development (IPR&D)~~

Acquired IPR&D represents the fair value assigned to research and development assets that have not reached technological feasibility. The value assigned to acquired IPR&D is determined by estimating the costs to develop the acquired technology into commercially viable products, estimating the resulting revenues from the projects and discounting the net cash flows to present value. The revenues and cost projections used to value acquired IPR&D are, as applicable, reducedpremiums based on the ~~probability~~original offering, and (3) amortization of ~~success. IPR&D projects acquired~~any debt issuance costs. Gain or loss on extinguishment of convertible notes is calculated as the difference between the (i) fair value of the consideration transferred and (ii) the sum of the carrying value of the debt at the time of repurchase.

As of January 1, 2019, the cumulative effect of adoption resulted in a ~~business combination that are not complete are capitalized~~decrease in additional-paid-in-capital of $260.2 million, a decrease in accumulated deficit of $26.6 million, and ~~accounted~~an increase to net deferred tax assets of $55.7 million offset by a corresponding increase of $55.7 million in the valuation allowance. As of January 1, 2020, the cumulative effect of adoption resulted in a decrease in additional-paid-in-capital of $227.8 million, an increase in accumulated deficit of $102.6 million, and an increase to the net deferred tax assets of $83.2 million offset by a corresponding increase of $74.7 million in the valuation allowance resulting in a net decrease of $8.5 million in recorded deferred tax liabilities. As of December 31, 2020, the cumulative effect of adoption resulted in an increase in the net carrying amount of convertible notes, net, current portion of $57.3 million and convertible notes, net, less current portion of $540.9 million, a decrease in additional-paid-in-capital of $510.3 million and other long-term liabilities of $10.2 million, an increase in accumulated deficit of $77.7 million, and an increase to net deferred tax assets of $146.0 million offset by a corresponding increase of $135.8 million in the valuation allowance resulting in a net decrease of $10.2 million in recorded deferred tax liabilities. For the three months ended March 31, 2020, interest expense in the condensed consolidated statement of operations increased by $29.4 million as a result of a decrease in cash interest and amortization of debt discounts, premiums, and issuance costs of $13.4 million, which was offset by an increase in loss on extinguishment of $42.8 million in connection with the extinguishment of $100.0 million face value of 2025 Notes, income tax benefit increased by $0.5 million and net loss per share, basic and diluted, reported for ~~as indefinite-lived intangible assets until completion or~~the three months ended March 31, 2020 increased by $0.20 per share.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

abandonment of the related R&D efforts. Upon successful completion of the project, the capitalized amount is amortized over its estimated useful life. If a project is abandoned, all remaining capitalized amounts are written off immediately. There are often major risks and uncertainties associated with IPR&D projects as we are required to obtain regulatory approvals in order to be able to market the resulting products. Such approvals require completing clinical trials that demonstrate the products effectiveness. Consequently, the eventual realized value of the IPR&D project may vary from its fair value at the date of acquisition, and IPR&D impairment charges may occur in future periods.

Capitalized IPR&D projects are tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company considers various factors for potential impairment, including the current legal and regulatory environment and the competitive landscape. Adverse clinical trial results, significant delays in obtaining marketing approval, the inability to bring a product to market and the introduction or advancement of competitors' products could result in partial or full impairment of the related intangible assets.

~~Goodwill~~

The Company evaluates goodwill for possible impairment in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350 on an annual basis during the fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors affecting the Company's business. Based on the qualitative assessment, if it is determined that the fair value of goodwill is more likely than not to be less than its carrying amount, the fair value of a reporting unit will be calculated and compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value.

~~Impairment of Long-Lived Assets~~

The Company evaluates 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. There were 0 impairment losses for the periods ended June 30, 2020 and December 31, 2019.

~~Fair Value Measurements~~

The FASB has issued authoritative guidance that requires fair value to be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under that standard, fair value measurements are separately disclosed by level within the fair value hierarchy. The fair value hierarchy establishes and prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

~~Convertible Notes~~

The Company accounts for convertible notes that may be settled in cash or equity upon conversion by separating the liability and equity components of the instruments in a manner that reflects the Company’s nonconvertible debt borrowing rate. The Company determines the carrying amount of the liability component of the convertible notes by using assumptions that market participants would use in pricing a debt instrument, including

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

market interest rates, credit standing, yield curves and volatilities. Determining the fair value of the debt component requires the use of accounting estimates and assumptions. These estimates and assumptions are judgmental in nature and could have a significant impact on the determination of the debt component, and the associated non-cash interest expense.

~~Leases~~

The Company acts as lessee in its lease agreements, which includes operating leases for corporate offices, laboratory space, warehouse space, vehicles and certain laboratory and office equipment. The Company also has finance leases for certain equipment, which are not material to the Company’s condensed consolidated financial statements.

The Company determines whether an arrangement is, or contains, a lease at inception. At the beginning of fiscal year 2019, the company adopted ASC Topic 842. The Company records the present value of operating lease payments as right-of-use (“ROU”) assets and lease liabilities on the condensed consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments based on the present value of lease payments over the lease term. Classification of operating lease liabilities as either current or non-current is based on the expected timing of payments due under the Company’s obligations.

As most of the Company’s leases do not provide an implicit interest rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term and at an amount equal to the lease payments in a similar economic environment. In order to determine the appropriate incremental borrowing rates, the Company has used a number of factors including the credit rating, and the lease term. Certain vehicle leases include variable lease payments that depend on an index or rate. Those lease payments are initially measured using the index or rate at the lease commencement date.

The ROU asset also consists of any lease incentives received. The lease terms used to calculate the ROU asset and related lease liability include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. “Reasonably certain” is assessed internally based on economic, industry, company, strategic and contractual factors. The leases have remaining lease terms of 1 year to 15 years, some of which include options to extend the lease for up to 10 years, and some of which include options to terminate the lease within 1 year. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense.

The Company accounts for leases acquired in business combinations by measuring the lease liability at the present value of the remaining lease payments as if the acquired lease were a new lease for the Company. This measurement includes recognition of a lease intangible for any below-market terms present in the leases acquired. The below-market lease intangible is included in the ROU asset on the condensed consolidated balance sheets and are amortized over the remaining lease term. The Company has not acquired any leases with above-market terms.

The Company has taken advantage of certain practical expedients offered to registrants at adoption of ASC 842. The Company does not apply the recognition requirements of ASC 842 to short-term leases. Instead, those lease payments are recognized in profit or loss on a straight-line basis over the lease term. Further, as a practical expedient, all lease contracts are accounted for as one single lease component, as opposed to separating lease and non-lease components to allocate the consideration within a single lease contract.

Net Loss Per ~~Share~~Share

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~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

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


		June 30,
					March 31,
(In thousands)	(In thousands)	2020	2019	(In thousands)	2021	2020
Shares issuable in connection with acquisitions				Shares issuable in connection with acquisitions	157	157
Shares issuable upon exercise of stock options	Shares issuable upon exercise of stock options	2,575	2,387	Shares issuable upon exercise of stock options	2,633	2,841
Shares issuable upon the release of restricted stock awards	Shares issuable upon the release of restricted stock awards	4,662	4,123	Shares issuable upon the release of restricted stock awards	4,433	4,224
Shares issuable upon the release of performance share units				Shares issuable upon the release of performance share units	846	599
Shares issuable upon conversion of convertible notes	Shares issuable upon conversion of convertible notes	20,309	12,197	Shares issuable upon conversion of convertible notes	20,309	20,309
		27,546	18,707
					28,378	28,130

~~Accounting for Stock-Based Compensation~~

(2) REVENUE

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

Disaggregation of ~~employee stock options, restricted stock, restricted stock units and shares purchased under an employee stock purchase plan (if certain parameters are not met), to be recognized in~~Revenue

The following table presents the ~~financial statements based on their grant date fair values. Forfeitures of any share-based awards are recognized as they occur. ~~Company’s revenues disaggregated by revenue source:


	Three Months Ended March 31,
(In thousands)	2021		2020
Screening
Medicare Parts B & C	$	101,559	$	98,159
Commercial	127,874		109,369
Other	10,895		11,924
Total Screening	240,328		219,452
Precision Oncology
Medicare Parts B & C	$	43,116	$	47,034
Commercial	53,255		54,416
International	26,056		20,936
Other	6,980		5,983
Total Precision Oncology	129,407		128,369
COVID-19 Testing	$	32,342	$	0
Total	$	402,077	$	347,821

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

Revenue ~~Recognition~~

~~Revenues are~~ recognized when control of the promised services are transferred to the patient’s healthcare provider, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. To determine revenue recognition for the arrangements that the Company determines are within the scope of FASB ASC Topic 606, ~~Revenue from Contracts with Customers~~, the Company performs the following five steps: (1) identify the contract(s) with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. See Note 2 for further discussion.

~~Foreign Currency Transactions~~

Prior to 2019, the Company’s international subsidiaries’ functional currency was the local currency and assets and liabilities were translated into U.S. dollars at the period-end exchange rate or historical rates, as appropriate. Condensed consolidated statements of operations were translated at average exchange rates for the period, and the cumulative translation adjustments resulting from changes in ~~exchange rates were included in~~transaction prices was $1.7 million and $5.4 million for the ~~Company’s condensed consolidated balance sheet as a component of additional paid-in capital. In 2019~~three months ended March 31, 2021 and 2020, the Company’s international subsidiaries use the U.S. dollar as the functional currency, resulting in the Company not being subject to gains and losses from foreign currency translation of the subsidiary financial statements. The Company recognizes gains and losses from foreign currency transactions in the condensed consolidated statements of operations. Net foreign currency transaction gains or losses were not material to the condensed consolidated statements of operations for the periods presented.

~~Reclassifications~~

Certain prior year amounts have been reclassified to conform to the current year presentation in the condensed consolidated financial statements and accompanying notes to the condensed consolidated financial statements including the amortization of acquired intangible assets, which is now presented as a separate line item on the Company's condensed consolidated statements of operations and was previously included in cost of sales, research and development, and general and administrative expenses. Due to these reclassifications, the Company is no longer presenting gross margin on the Company's condensed consolidated statements of operations.respectively.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Deferred revenue balances are reported in other current liabilities in the Company’s condensed consolidated balance sheets and were $39.8 million and $25.0 million as of March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, $38.5 million of the Company’s deferred revenue balance is a result of the billing terms pursuant to the existing COVID-19 laboratory service agreements (“LSAs”) with customers.

Revenue recognized for the three months ended March 31, 2021 and 2020, which was included in the deferred revenue balance at the beginning of each period was $14.0 million and $0.2 million, respectively. Of the $14.0 million of revenue recognized for the three months ended March 31, 2021, which was included in the deferred revenue balance at the beginning of the period, $13.8 million related to COVID-19 testing.

(3) MARKETABLE SECURITIES

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


(In thousands)	March 31, 2021		December 31, 2020
Cash, cash equivalents, and restricted cash
Cash and money market	$	770,267	$	901,294
Cash equivalents	333,549		589,994
Restricted cash	284		306
Total cash, cash equivalents, and restricted cash	1,104,100		1,491,594
Marketable securities
Available-for-sale debt securities	274,151		347,178
Equity securities	0		1,521
Total marketable securities	274,151		348,699
Total cash and cash equivalents, restricted cash and marketable securities	$	1,378,251	$	1,840,293

Available-for-sale debt securities at March 31, 2021 consisted of the following:


(In thousands)	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss) (1)		Losses in Accumulated Other Comprehensive Income (Loss) (1)		Estimated Fair Value
Cash equivalents
U.S. government agency securities	$	318,194	$	5	$	0	$	318,199
Certificates of deposit	15,350		0		0		15,350
Total cash equivalents	333,544		5		0		333,549
Marketable securities
Corporate bonds	143,885		337		(21)		144,201
U.S. government agency securities	7,105		36		0		7,141
Certificates of deposit	90,360		2		(3)		90,359
Commercial paper	27,992		1		(1)		27,992
Asset backed securities	4,450		8		0		4,458
Total marketable securities	273,792		384		(25)		274,151
Total available-for-sale securities	$	607,336	$	389	$	(25)	$	607,700

______________

(1)Gains and losses in accumulated other comprehensive income (loss) (“AOCI”) are reported before tax impact.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


(In thousands)	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss) (1)		Losses in Accumulated Other Comprehensive Income (Loss) (1)		Estimated Fair Value
Cash equivalents
U.S. government agency securities	$	589,986	$	8	$	0	$	589,994
Total cash equivalents	589,986		8		0		589,994
Marketable securities
U.S. government agency securities	207,119		52		0		207,171
Asset backed securities	7,070		24		0		7,094
Corporate bonds	132,301		612		0		132,913
Total marketable securities	346,490		688		0		347,178
Total available-for-sale securities	$	936,476	$	696	$	0	$	937,172

______________

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

The following table summarizes contractual underlying maturities of the Company’s available-for-sale debt securities at March 31, 2021:


	Due one year or less				Due after one year through four years
(In thousands)	Cost		Fair Value		Cost		Fair Value
Cash equivalents
U.S. government agency securities	$	318,194	$	318,199	$	—	$	—
Certificates of deposit	15,350		15,350		—		—
Total cash equivalents	333,544		333,549		—		—
Marketable securities
U.S. government agency securities	7,105		7,141		0		0
Corporate bonds	119,523		119,857		24,362		24,344
Certificates of deposit	90,360		90,359		0		0
Asset backed securities	0		0		4,450		4,458
Commercial paper	27,992		27,992		0		0
Total marketable securities	244,980		245,349		28,812		28,802
Total	$	578,524	$	578,898	$	28,812	$	28,802

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Notes to Condensed Consolidated Financial Statements

(Unaudited)


	Less than one year				One year or greater				Total
(In thousands)	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Cash equivalents
Certificates of deposit	$	11,000	$	0	$	0	$	0	$	11,000	$	0
Total cash equivalents	11,000		0		0		0		11,000		0
Marketable securities
Corporate bonds	53,635		(21)		0		0		53,635		(21)
Certificates of deposit	32,347		(3)		0		0		32,347		(3)
Commercial paper	9,999		(1)		0		0		9,999		(1)
Total marketable securities	95,981		(25)		0		0		95,981		(25)
Total available-for-sale securities	$	106,981	$	(25)	$	0	$	0	$	106,981	$	(25)

The Company recorded a loss of $16,000 and $0.7 million from its equity securities for the three months ended March 31, 2021 and 2020, respectively.

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

(4) INVENTORY

Inventory consisted of the following:


(In thousands)	March 31, 2021		December 31, 2020
Raw materials	$	40,858	$	43,083
Semi-finished and finished goods	48,175		49,182
Total inventory	$	89,033	$	92,265

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

(5) PROPERTY, PLANT AND EQUIPMENT

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


(In thousands)	Estimated Useful Life	March 31, 2021		December 31, 2020
Property, plant and equipment
Land	n/a	$	4,466	$	4,466
Leasehold and building improvements	(1)	138,342		117,865
Land improvements	15 years	4,910		4,864
Buildings	30 - 40 years	200,997		200,980
Computer equipment and computer software	3 years	84,902		75,417
Laboratory equipment	3 - 10 years	156,001		142,110
Furniture and fixtures	3 - 10 years	26,810		24,968
Assets under construction	n/a	22,948		18,854
Property, plant and equipment, at cost		639,376		589,524
Accumulated depreciation		(156,640)		(137,538)
Property, plant and equipment, net		$	482,736	$	451,986

______________

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

Depreciation expense for the three months ended March 31, 2021 and 2020 was $20.5 million and $16.0 million, respectively.

At March 31, 2021, the Company had $22.9 million of assets under construction which consisted of $7.4 million in laboratory equipment, $8.9 million related to building and leasehold improvements, and $6.6 million in capitalized costs related to software projects. Depreciation will begin on these assets once they are placed into service upon completion in 2021 and 2022.

(6) INTANGIBLE ASSETS AND GOODWILL

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In ~~June 2016, the FASB~~August 2020, The Financial Accounting Standards Board issued ~~ASU~~Accounting Standards Update (“ASU”) No. ~~2016-13,~~2020-06, ~~Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The updated guidance requires companies to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions,~~Debt – Debt with Conversion and ~~reasonable supportable forecasts. This replaces the existing incurred loss model~~Other Options (subtopic 470-20) and is applicable to the measurement of credit losses on financial assets, including trade receivables. The updates also require available-for-sale debt security credit losses to be recognized as allowances rather than a reduction in amortized cost.The guidance was adopted by the Company on January 1, 2020. The requirements of the ASU did not result in the recognition of a material allowance for current expected credit losses, as the Company’s analysis of collectability looks at historical experience as well as current and future implications surrounding the ability to collect. Adoption of the updated guidance did not have a material impact on the Company’s condensed consolidated financial statements.

~~In April 2019, the FASB issued ASU 2019-04,~~ ~~Codification Improvements to Topic 326, Financial Instruments –Credit Losses, Topic 815,~~ Derivatives and Hedging ~~and Topic 825, Financial Instruments.~~ The updated guidance provides clarity regarding measurement of securities without readily determinable fair values. The guidance was adopted on January 1, 2020 and did not have a material impact on the Company's condensed consolidated financial statements.

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Intangibles –Goodwill and Other –Internal-Use Software(Subtopic 350-40)~~– Contracts in Entity’s Own Equity (Subtopic 815-40). The update provided guidance for evaluating the accounting for fees paid by a customer in a cloud computing arrangement that is a service contract. The guidance was adopted on a prospective basis, beginning on January 1, 2020 and it did not have a material impact on the Company's condensed consolidated financial statements.

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820); Disclosure Framework -Changes to the Disclosure Requirements for Fair Value Measurement~~. The guidance provided an update to the disclosure requirements for fair value measurements under the scope of ASC 820. The updates were adopted on January 1, 2020 and did not have a material impact on the Company’s condensed consolidated financial statements.

~~In November 2018, the FASB issued ASU 2018-18,~~ ~~Collaborative Arrangements (Topic 808)~~. The update provided additional guidance regarding the interaction between Topic 808 on Collaborative Arrangements and Topic 606 on Revenue Recognition. The guidance was adopted on January 1, 2020 and did not have a material impact on the Company's condensed consolidated financial statements.

~~In December 2019, the FASB issued ASU No. 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The~~This update simplifies the accounting for ~~income taxes~~convertible debt instruments by removing the beneficial conversion and cash conversion separation models for convertible instruments. Under the update, the embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives or that do not result in substantial premiums accounted for as paid-in capital. The update also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will no longer be available. This standard may be adopted through ~~removing exceptions related to certain intraperiod allocations and deferred tax liabilities; clarifying guidance primarily related to evaluating the step-up tax basis for goodwill~~either a modified retrospective method of transition or a full retrospective method of transition. The amendments in ~~a business combination; and reflecting enacted changes in tax laws or rates in the annual effective tax rate. The amended guidance is~~this update are effective for fiscal years beginning after December 15, 2021, including interim ~~and annual~~ periods ~~in 2021, however early~~within those fiscal years. Early adoption is ~~permitted. The guidance was early adopted on January 1, 2020 and did not have a material impact on the Company’s condensed consolidated financial statements.~~permitted, but no earlier than fiscal years beginning after December 15, 2020.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The updated guidance provides optional expedients for applying the requirements of certain topics in the codification for contracts that are modified because of reference rate reform. In addition to the optional expedients, the update includes a general principle that permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The updated guidance is effective for all entities as of March 12, 2020 and through December 31, 2022. The Company adopted the ~~guidance upon~~standard on January 1, 2021 through application of the full retrospective method of transition. This method of adoption was applied to enhance comparability between the periods presented in the Company’s financial statements. The Company applied the standard to convertible notes outstanding as of the date of the first offering of the Company’s outstanding convertible notes as discussed in Note 9.

The Company’s convertible debt instruments will be accounted for as a single liability measured at its amortized cost. The notes are no longer bifurcated between debt and equity, rather accounted for entirely as debt at face value net of any discount or premium and issuance ~~on March 12, 2020. There was no impact~~costs. Interest expense is comprised of (1) cash interest payments, (2) amortization of any debt discounts or premiums based on the ~~Company's~~original offering, and (3) amortization of any debt issuance costs. Gain or loss on extinguishment of convertible notes is calculated as the difference between the (i) fair value of the consideration transferred and (ii) the sum of the carrying value of the debt at the time of repurchase.

As of January 1, 2019, the cumulative effect of adoption resulted in a decrease in additional-paid-in-capital of $260.2 million, a decrease in accumulated deficit of $26.6 million, and an increase to net deferred tax assets of $55.7 million offset by a corresponding increase of $55.7 million in the valuation allowance. As of January 1, 2020, the cumulative effect of adoption resulted in a decrease in additional-paid-in-capital of $227.8 million, an increase in accumulated deficit of $102.6 million, and an increase to the net deferred tax assets of $83.2 million offset by a corresponding increase of $74.7 million in the valuation allowance resulting in a net decrease of $8.5 million in recorded deferred tax liabilities. As of December 31, 2020, the cumulative effect of adoption resulted in an increase in the net carrying amount of convertible notes, net, current portion of $57.3 million and convertible notes, net, less current portion of $540.9 million, a decrease in additional-paid-in-capital of $510.3 million and other long-term liabilities of $10.2 million, an increase in accumulated deficit of $77.7 million, and an increase to net deferred tax assets of $146.0 million offset by a corresponding increase of $135.8 million in the valuation allowance resulting in a net decrease of $10.2 million in recorded deferred tax liabilities. For the three months ended March 31, 2020, interest expense in the condensed consolidated ~~financial statements.~~statement of operations increased by $29.4 million as a result of a decrease in cash interest and amortization of debt discounts, premiums, and issuance costs of $13.4 million, which was offset by an increase in loss on extinguishment of $42.8 million in connection with the extinguishment of $100.0 million face value of 2025 Notes, income tax benefit increased by $0.5 million and net loss per share, basic and diluted, reported for the three months ended March 31, 2020 increased by $0.20 per share.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Net Loss Per Share

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


	March 31,
(In thousands)	2021	2020
Shares issuable in connection with acquisitions	157	157
Shares issuable upon exercise of stock options	2,633	2,841
Shares issuable upon the release of restricted stock awards	4,433	4,224
Shares issuable upon the release of performance share units	846	599
Shares issuable upon conversion of convertible notes	20,309	20,309
	28,378	28,130

(2) REVENUE

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

The core principle of ASC 606 is that the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company recognizes revenues from its products in accordance with that core principle, and key aspects considered by the Company include the following:

~~Contracts~~

The Company’s customer is primarily the patient, but the Company does not enter into a formal reimbursement contract with a patient. Accordingly, the Company establishes a contract with a patient in accordance with other customary business practices. However, under some Laboratory Service Agreements (“LSA”s) the Company contracts with a direct bill payer who then becomes the Company’s customer in these situations.

•~~Approval of a contract is established via the order submitted by the patient’s healthcare provider and the receipt of a sample in the laboratory.~~

•The Company is obligated to perform its laboratory services upon acceptance of a sample, and the patient and/or applicable payer are obligated to reimburse the Company for services rendered based on the patient’s insurance benefits.

•Payment terms are a function of a patient’s existing insurance benefits, including the impact of coverage decisions with CMS and applicable reimbursement contracts established between the Company and payers. However, when an order is received for a patient with no active insurance or insurance that does not cover our testing services, the Company requires payment from the patient prior to the commencement of the Company’s performance obligations.

•Once the Company releases a patient’s test result to the ordering healthcare provider, the Company is legally able to collect payment and bill an insurer, patient, direct bill payer, and/or health system, depending on payer contract status or patient insurance benefit status.

•In the case of some of the Company’s LSAs with various organizations, testing services are billed and the direct bill payer is obligated to pay prior to a result. Each provider is contracted to buy an explicit number of testing kits that must be returned to the Company for processing by an established deadline with this deferred revenue being recognized at the point in time results are released to the patient’s healthcare provider. In addition, for these types of LSAs all breakage (tests that are not returned to the Company for processing by their contracted deadline) is recognized as revenue upon the expiration of the contracted deadline.

•The Company’s consideration can be deemed variable or fixed depending on the structure of specific payer contracts, and the Company considers collection of such consideration to be probable to the extent that it is unconstrained.

~~Performance obligations~~

A performance obligation is a promise in a contract to transfer a distinct good or service (or a bundle of goods or services) to the customer. The Company’s contracts have a single performance obligation, which is satisfied upon rendering of services, which culminates in the release of a patient’s test result to the ordering healthcare provider. Or, in the context of some of the Company’s LSAs, the satisfaction of the performance obligation occurs at the end of the allotted testing window when a specimen sample is not received back for processing. The Company elects the practical expedient related to the disclosure of unsatisfied performance obligations, as the duration of time between providing testing supplies, the receipt of a specimen sample, and the release of a test result to the ordering healthcare provider is far less than one year.

~~Table of Contents~~

~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~Transaction price~~

The transaction price is the amount of consideration that the Company expects to collect in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes). The consideration expected from a contract with a customer may include fixed amounts, variable amounts, or both.

The consideration derived from the Company’s contracts may consist of fixed amounts, variable amounts or both fixed and variable amounts. Fixed consideration is derived from contracts that exist between the Company and direct bill payers who assume the downstream patient billing. The contracted reimbursement rate is deemed to be fixed as the Company expects to fully collect all amounts billed under these relationships. Variable consideration is primarily derived from third party and patient billing and can result due to several factors such as the amount of contractual adjustments, any patient co-payments, deductibles or patient adherence incentives, the existence of secondary payers, and claim denials.

The Company estimates the amount of variable consideration using the expected value method, which represents the sum of probability-weighted amounts in a range of possible consideration amounts. When estimating the amount of variable consideration, the Company considers several factors, such as historical collections experience, patient insurance eligibility and payer reimbursement contracts.

The Company limits the amount of variable consideration included in the transaction price to the unconstrained portion of such consideration. In other words, the Company recognizes revenue up to the amount of variable consideration that is not subject to a significant reversal until additional information is obtained or the uncertainty associated with the additional payments or refunds is subsequently resolved. Differences between original estimates and subsequent revisions, including final settlements, represent changes in the estimate of variable consideration and are included in the period in which such revisions are made. Revenue recognized from changes in transaction prices was $3.2 million and $1.8 million for the three months ended June 30, 2020 and 2019, respectively. Revenue recognized from changes in transaction prices was $8.6 million and $3.4 million for the six months ended June 30, 2020 and 2019, respectively.

The Company monitors its estimates of transaction price to depict conditions that exist at each reporting date. If the Company subsequently determines that it will collect more or less consideration than it originally estimated for a contract with a patient, it will account for the change as an increase or decrease in the estimate of the transaction price (i.e., an upward or downward revenue adjustment) in the period identified.

When the Company does not have significant historical experience or that experience has limited predictive value, the constraint over estimates of variable consideration may result in no revenue being recognized upon release of the performance obligations associated with the Company’s tests, with recognition, generally occurring at the date of cash receipt.

~~Allocate transaction price~~

~~The transaction price is allocated entirely to the performance obligation contained within the contract with a patient.~~

~~Point in time recognition~~

The Company’s single performance obligation is satisfied at a point in time. That point in time is defined as the date a patient’s specimen is processed, an outcome is obtained and released to the patient’s ordering healthcare provider or, in the context of some of the Company’s LSAs, that point in time could be the date the allotted testing window ends if a specimen sample is not received back for processing. The point in time in which revenue is recognized by the Company signifies fulfillment of the performance obligation to the patient or direct bill payer.

~~Table of Contents~~

~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Disaggregation of Revenue

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


		Three Months Ended June 30,						Six Months Ended June 30,
											Three Months Ended March 31,
(In thousands)	(In thousands)	2020		2019		2020		2019		(In thousands)	2021		2020
Screening	Screening									Screening
Medicare Parts B & C	Medicare Parts B & C	$	59,583	$	103,569	$	157,742	$	186,486	Medicare Parts B & C	$	101,559	$	98,159
Commercial	Commercial	65,080		88,818		174,449		162,169		Commercial	127,874		109,369
Other	Other	6,670		7,483		18,593		13,258		Other	10,895		11,924
Total Screening	Total Screening	131,333		199,870		350,784		361,913		Total Screening	240,328		219,452
Precision Oncology	Precision Oncology									Precision Oncology
Medicare Parts B & C	Medicare Parts B & C	$	33,994	$	—	$	81,028	$	—	Medicare Parts B & C	$	43,116	$	47,034
Commercial	Commercial	45,420		—		99,810		—		Commercial	53,255		54,416
International	International	19,018		—		39,980		—		International	26,056		20,936
Other	Other	4,524		—		10,508		—		Other	6,980		5,983
Total Precision Oncology	Total Precision Oncology	102,956		—		231,326		—		Total Precision Oncology	129,407		128,369
COVID-19 Testing	COVID-19 Testing	$	34,579	$	—	$	34,579	$	—	COVID-19 Testing	$	32,342	$	0
Total	Total	$	268,868	$	199,870	$	616,689	$	361,913	Total	$	402,077	$	347,821

~~Contract Balances~~

~~The timing of revenue recognition, billings and cash collections results~~Revenue recognized from changes in billed accounts receivable and deferred revenue on the condensed consolidated balance sheets. Generally, billing occurs subsequent to the release of a patient’s test result to the ordering healthcare provider, resulting in an account receivable. However, the Company sometimes receives advance payment from a patient or a direct bill payer before a test result is completed, resulting in deferred revenue. The deferred revenue balance is relieved upon release of the applicable patient’s test result to the ordering healthcare provider.

~~Deferred revenue balances are reported in other current liabilities in the Company’s condensed consolidated balance sheets and were $30.7~~transaction prices was $1.7 million and ~~$0.6~~$5.4 million as of June 30, 2020 and December 31, 2019, respectively. As of June 30, 2020, $30.2 million of the Company’s deferred revenue balance is a result of the billing terms pursuant to the existing COVID-19 LSAs with customers.

~~Revenue recognized~~ for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, which was included in the deferred revenue balance at the beginning of each period was $19 thousand and $0.2 million,~~ respectively. Revenue recognized for the six months ended June 30, 2020 and 2019, which was included in the deferred revenue balance at the beginning of each period was $0.2 million and $0.3 million, respectively.

~~Practical Expedients~~

~~The Company does not adjust the transaction price for the effects of a significant financing component, as at contract inception, the Company expects the collection cycle to be one year or less.~~

The Company expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within sales and marketing expenses in the Company’s condensed consolidated statements of operations.

2011

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~The Company incurs certain~~Deferred revenue balances are reported in other costs that are incurred regardless of whether a contract is obtained. Such costs are primarily related to legal services and patient communications (e.g. adherence reminder letters). These costs are expensed as incurred and recorded within general and administrative expensescurrent liabilities in the Company’s condensed consolidated ~~statements~~balance sheets and were $39.8 million and $25.0 million as of ~~operations.~~March 31, 2021 and December 31, 2020, respectively. As of March 31, 2021, $38.5 million of the Company’s deferred revenue balance is a result of the billing terms pursuant to the existing COVID-19 laboratory service agreements (“LSAs”) with customers.

(3) MARKETABLE SECURITIES

The following table sets forth the Company’s cash, cash equivalents, restricted cash, and marketable securities at ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

(In��thousands) June 30, 2020 December 31, 2019
Cash, cash equivalents, and restricted cash
Cash and money market $ 457,019 $ 146,932
Cash equivalents 246,907 30,322
Restricted cash (1) 282 274
Total cash, cash equivalents, and restricted cash 704,208 177,528
Marketable securities
Available-for-sale debt securities 517,346 144,685
Equity securities 1,385 1,716
Total marketable securities 518,731 146,401
Total cash and cash equivalents, restricted cash and marketable securities $ 1,222,939 $ 323,929

~~______________~~

~~(1)Restricted cash is included in other long-term assets on the condensed consolidated balance sheets. There was no restricted cash at June 30, 2019.~~


(In thousands)	March 31, 2021		December 31, 2020
Cash, cash equivalents, and restricted cash
Cash and money market	$	770,267	$	901,294
Cash equivalents	333,549		589,994
Restricted cash	284		306
Total cash, cash equivalents, and restricted cash	1,104,100		1,491,594
Marketable securities
Available-for-sale debt securities	274,151		347,178
Equity securities	0		1,521
Total marketable securities	274,151		348,699
Total cash and cash equivalents, restricted cash and marketable securities	$	1,378,251	$	1,840,293

Available-for-sale debt securities at ~~June 30, 2020~~March 31, 2021 consisted of the following:


		June 30, 2020
(In thousands)	(In thousands)	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss)		Losses in Accumulated Other Comprehensive Income (Loss)		Estimated Fair Value		(In thousands)	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss) (1)		Losses in Accumulated Other Comprehensive Income (Loss) (1)		Estimated Fair Value
Cash equivalents	Cash equivalents									Cash equivalents
U.S. government agency securities	U.S. government agency securities	$	246,905	$	4	$	(2)	$	246,907	U.S. government agency securities	$	318,194	$	5	$	0	$	318,199
Certificates of deposit										Certificates of deposit	15,350		0		0		15,350
Total cash equivalents	Total cash equivalents	246,905		4		(2)		246,907		Total cash equivalents	333,544		5		0		333,549
Marketable securities	Marketable securities									Marketable securities
Corporate bonds	Corporate bonds	219,264		1,297		—		220,561		Corporate bonds	143,885		337		(21)		144,201
U.S. government agency securities	U.S. government agency securities	256,425		102		(1)		256,526		U.S. government agency securities	7,105		36		0		7,141
Certificates of deposit	Certificates of deposit	10,000		—		—		10,000		Certificates of deposit	90,360		2		(3)		90,359
Commercial paper										Commercial paper	27,992		1		(1)		27,992
Asset backed securities	Asset backed securities	22,174		85		—		22,259		Asset backed securities	4,450		8		0		4,458
Commercial paper		7,996		4		—		8,000
Total marketable securities	Total marketable securities	515,859		1,488		(1)		517,346		Total marketable securities	273,792		384		(25)		274,151
Total available-for-sale securities	Total available-for-sale securities	$	762,764	$	1,492	$	(3)	$	764,253	Total available-for-sale securities	$	607,336	$	389	$	(25)	$	607,700

______________

(1)Gains and losses in accumulated other comprehensive income (loss) (“AOCI”) are reported before tax impact.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Available-for-sale debt securities at December 31, ~~2019~~2020 consisted of the following:


		December 31, 2019
(In thousands)	(In thousands)	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss)		Losses in Accumulated Other Comprehensive Income (Loss)		Estimated Fair Value		(In thousands)	Amortized Cost		Gains in Accumulated Other Comprehensive Income (Loss) (1)		Losses in Accumulated Other Comprehensive Income (Loss) (1)		Estimated Fair Value
Cash equivalents	Cash equivalents									Cash equivalents
U.S. government agency securities	U.S. government agency securities	$	30,320	$	2	$	—	$	30,322	U.S. government agency securities	$	589,986	$	8	$	0	$	589,994
Total cash equivalents	Total cash equivalents	30,320		2		—		30,322		Total cash equivalents	589,986		8		0		589,994
Marketable securities	Marketable securities									Marketable securities
U.S. government agency securities	U.S. government agency securities	140,745		10		(73)		140,682		U.S. government agency securities	207,119		52		0		207,171
Asset backed securities										Asset backed securities	7,070		24		0		7,094
Corporate bonds	Corporate bonds	4,017		—		(14)		4,003		Corporate bonds	132,301		612		0		132,913
Total marketable securities	Total marketable securities	144,762		10		(87)		144,685		Total marketable securities	346,490		688		0		347,178
Total available-for-sale securities	Total available-for-sale securities	$	175,082	$	12	$	(87)	$	175,007	Total available-for-sale securities	$	936,476	$	696	$	0	$	937,172

______________

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

The following table summarizes contractual underlying maturities of the Company’s available-for-sale debt securities at ~~June 30, 2020:~~March 31, 2021:


		Due one year or less						Due after one year through four years
											Due one year or less				Due after one year through four years
(In thousands)	(In thousands)	Cost		Fair Value		Cost		Fair Value		(In thousands)	Cost		Fair Value		Cost		Fair Value
Cash equivalents	Cash equivalents									Cash equivalents
U.S. government agency securities	U.S. government agency securities	$	246,905	$	246,907	$	—	$	—	U.S. government agency securities	$	318,194	$	318,199	$	—	$	—
Certificates of deposit										Certificates of deposit	15,350		15,350		—		—
Total cash equivalents	Total cash equivalents	246,905		246,907		—		—		Total cash equivalents	333,544		333,549		—		—
Marketable securities	Marketable securities									Marketable securities
U.S. government agency securities	U.S. government agency securities	249,239		249,295		7,186		7,231		U.S. government agency securities	7,105		7,141		0		0
Corporate bonds	Corporate bonds	162,241		162,992		57,023		57,569		Corporate bonds	119,523		119,857		24,362		24,344
Certificates of deposit	Certificates of deposit	10,000		10,000		—		—		Certificates of deposit	90,360		90,359		0		0
Asset backed securities										Asset backed securities	0		0		4,450		4,458
Commercial paper	Commercial paper	7,996		8,000		—		—		Commercial paper	27,992		27,992		0		0
Asset backed securities		2,390		2,393		19,784		19,866
Total marketable securities	Total marketable securities	431,866		432,680		83,993		84,666		Total marketable securities	244,980		245,349		28,812		28,802
Total	Total	$	678,771	$	679,587	$	83,993	$	84,666	Total	$	578,524	$	578,898	$	28,812	$	28,802

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The following table summarizes the gross unrealized losses and fair values of available-for-sale debt securities in an unrealized loss position as of ~~June 30, 2020,~~March 31, 2021, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:


		Less than one year						One year or greater							Total
																Less than one year				One year or greater				Total
(In thousands)	(In thousands)	Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		(In thousands)		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Cash equivalents	Cash equivalents													Cash equivalents
U.S. government agency securities		$	81,934	$	(2)	$	—	$	—	$	81,934	$	(2)
Certificates of deposit														Certificates of deposit		$	11,000	$	0	$	0	$	0	$	11,000	$	0
Total cash equivalents	Total cash equivalents	81,934		(2)		—		—		81,934		(2)		Total cash equivalents		11,000		0		0		0		11,000		0
Marketable securities	Marketable securities													Marketable securities
U.S. government agency securities		99,975		(1)		—		—		99,975		(1)
Corporate bonds														Corporate bonds		53,635		(21)		0		0		53,635		(21)
Certificates of deposit														Certificates of deposit		32,347		(3)		0		0		32,347		(3)
Commercial paper														Commercial paper		9,999		(1)		0		0		9,999		(1)
Total marketable securities	Total marketable securities	99,975		(1)		—		—		99,975		(1)		Total marketable securities		95,981		(25)		0		0		95,981		(25)
Total available-for-sale securities	Total available-for-sale securities	$	181,909	$	(3)	$	—	$	—	$	181,909	$	(3)	Total available-for-sale securities		$	106,981	$	(25)	$	0	$	0	$	106,981	$	(25)

The Company evaluates investments, including investments in privately-held companies, that are in an unrealized loss position for impairment as a result of credit loss. It was determined that no credit losses exist as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 because the change in market value for those securities in an unrealized loss position has resulted from fluctuating interest rates rather than a deterioration of the credit worthiness of the issuers. The ~~Company recorded a~~ realized gain recorded on available-for-sale debt securities was not material to the condensed consolidated statements of ~~$0.2 million and $0.2 million~~income for the three months ended ~~June 30, 2020~~March 31, 2021 and 2019, respectively, net of insignificant realized losses. The Company recorded a realized gain on available-for-sale debt securities of $0.1 million and $0.3 million for the six months ended June 30, 2020 and 2019, respectively, net of insignificant realized losses.2020.

The Company recorded a ~~gain of $0.4 million and a~~ loss of ~~$0.3~~$16,000 and $0.7 million from its equity securities for the three ~~and six~~ months ended ~~June 30,~~March 31, 2021 and 2020, ~~as compared to 0 gain or loss for the three and six months ended June 30, 2019.~~respectively.

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

(4) INVENTORY

Inventory consisted of the following:


(In thousands)	March 31, 2021		December 31, 2020
Raw materials	$	40,858	$	43,083
Semi-finished and finished goods	48,175		49,182
Total inventory	$	89,033	$	92,265

Table of Contents

EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~(4)~~(5) PROPERTY, PLANT AND EQUIPMENT

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


(In thousands)	(In thousands)	Estimated Useful Life	June 30, 2020		December 31, 2019		(In thousands)	Estimated Useful Life	March 31, 2021		December 31, 2020
Property, plant and equipment	Property, plant and equipment						Property, plant and equipment
Land	Land	n/a	$	4,466	$	4,466	Land	n/a	$	4,466	$	4,466
Leasehold and building improvements	Leasehold and building improvements	(1)	111,778		80,352		Leasehold and building improvements	(1)	138,342		117,865
Land improvements	Land improvements	15 years	2,399		1,766		Land improvements	15 years	4,910		4,864
Buildings	Buildings	30 - 40 years	165,926		112,815		Buildings	30 - 40 years	200,997		200,980
Computer equipment and computer software	Computer equipment and computer software	3 years	74,447		65,323		Computer equipment and computer software	3 years	84,902		75,417
Laboratory equipment	Laboratory equipment	3 - 10 years	130,323		104,008		Laboratory equipment	3 - 10 years	156,001		142,110
Furniture and fixtures	Furniture and fixtures	3 - 10 years	22,698		14,539		Furniture and fixtures	3 - 10 years	26,810		24,968
Assets under construction	Assets under construction	n/a	61,628		149,687		Assets under construction	n/a	22,948		18,854
Property, plant and equipment, at cost	Property, plant and equipment, at cost		573,665		532,956		Property, plant and equipment, at cost		639,376		589,524
Accumulated depreciation	Accumulated depreciation		(110,228)		(77,631)		Accumulated depreciation		(156,640)		(137,538)
Property, plant and equipment, net	Property, plant and equipment, net		$	463,437	$	455,325	Property, plant and equipment, net		$	482,736	$	451,986

______________

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

Depreciation expense for the three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ was ~~$17.6~~$20.5 million and ~~$7.1 million, respectively. Depreciation expense for the six months ended June 30, 2020 and 2019 was $33.4 million and $13.4~~$16.0 million, respectively.

At ~~June 30, 2020,~~March 31, 2021, the Company had ~~$61.6~~$22.9 million of assets under construction which consisted of ~~$11.5~~$7.4 million in laboratory equipment, ~~$43.9~~$8.9 million ofrelated to building and leasehold improvements, ~~$5.6~~and $6.6 million in capitalized costs related to software ~~projects, and $0.6 million related to furniture and fixtures.~~projects. Depreciation will begin on these assets once they are placed into ~~service. The Company expects to incur an additional $2.9 million to complete the laboratory equipment, $6.7 million to complete the building projects~~service upon completion in 2021 and ~~leasehold improvements, $2.0 million to complete the software projects, and minimal costs to complete the furniture and fixtures. These projects are expected to be completed throughout 2020 and 2021.~~2022.

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~(5)~~(6) INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

The following table summarizes the net-book-value and estimated remaining life of the Company’s intangible assets as of ~~June 30, 2020:~~March 31, 2021:

(In thousands) Weighted Average
Remaining
Life (Years) Cost Accumulated Amortization Net Balance at June 30, 2020
Finite-lived intangible assets
Trade name 15.4 $ 100,700 $ (4,109) $ 96,591
Customer relationships 13.3 2,700 (314) 2,386
Patents 8.4 22,689 (7,105) 15,584
Acquired developed technology 9.5 814,171 (52,766) 761,405
Supply agreements 7.0 30,000 (2,549) 27,451
Internally developed technology 2.3 1,796 (590) 1,206
Total finite-lived intangible assets 972,056 (67,433) 904,623
In-process research and development n/a 200,000 — 200,000
Internally developed technology in process n/a 492 — 492
Total intangible assets $ 1,172,548 $ (67,433) $ 1,105,115

~~The following table summarizes the net-book-value and estimated remaining life of the Company’s intangible assets as of December 31, 2019:~~


(In thousands)	(In thousands)	Weighted Average Remaining Life (Years)	Cost		Accumulated Amortization		Net Balance at December 31, 2019		(In thousands)	Weighted Average Remaining Life (Years)	Cost		Accumulated Amortization		Net Balance at March 31, 2021
Finite-lived intangible assets	Finite-lived intangible assets								Finite-lived intangible assets
Trade name	Trade name	15.9	$	100,700	$	(961)	$	99,739	Trade name	14.6	$	100,700	$	(8,832)	$	91,868
Customer relationships	Customer relationships	13.6	2,700		(224)		2,476		Customer relationships	12.5	2,700		(449)		2,251
Patents	Patents	8.8	22,690		(5,974)		16,716		Patents	3.5	10,441		(5,758)		4,683
Acquired developed technology	Acquired developed technology	9.9	806,371		(12,345)		794,026		Acquired developed technology	8.7	814,171		(113,525)		700,646
Supply agreements	Supply agreements	7.5	30,000		(571)		29,429		Supply agreements	6.2	30,000		(5,516)		24,484
Internally developed technology		2.5	1,229		(336)		893
Total finite-lived intangible assets	Total finite-lived intangible assets		963,690		(20,411)		943,279		Total finite-lived intangible assets		958,012		(134,080)		823,932
In-process research and development	In-process research and development	n/a	200,000		—		200,000		In-process research and development	n/a	1,250,000		—		1,250,000
Internally developed technology in process		n/a	271		—		271
Total intangible assets	Total intangible assets		$	1,163,961	$	(20,411)	$	1,143,550	Total intangible assets		$	2,208,012	$	(134,080)	$	2,073,932

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


(In thousands)	Weighted Average Remaining Life (Years)	Cost		Accumulated Amortization		Net Balance at December 31, 2020
Finite-lived intangible assets
Trade name	14.9	$	100,700	$	(7,258)	$	93,442
Customer relationships	12.8	2,700		(404)		2,296
Patents	3.7	10,441		(5,422)		5,019
Acquired developed technology	9.0	814,171		(93,278)		720,893
Supply agreements	6.5	30,000		(4,527)		25,473
Total intangible assets		$	958,012	$	(110,889)	$	847,123

As of ~~June 30, 2020,~~March 31, 2021, the estimated future amortization expense associated with the Company’s finite-lived intangible assets for each of the five succeeding fiscal years is as follows:


(In thousands)	(In thousands)			(In thousands)
2020		$	47,158
2021	2021	94,217		2021	$	69,572
2022	2022	94,012		2022	92,758
2023	2023	93,724		2023	92,755
2024	2024	93,345		2024	92,421
2025				2025	91,373
Thereafter	Thereafter	482,167		Thereafter	385,053
		$	904,623
					$	823,932

The Company’s acquired intangible assets are being amortized on a straight-line basis over the estimated useful life. ~~The amortization expense recorded from these intangible assets is reported in amortization of acquired intangible assets on the condensed consolidated statements of operations.~~

~~Goodwill~~

As a result of the the acquisition of Paradigm Diagnostics, Inc. (“Paradigm”) and Viomics, Inc. (“Viomics”) in March 2020, the Company recognized goodwill of $30.4 million, which includes an immaterial post-acquisition adjustment to goodwill in the second quarter of 2020. Refer to the Company’s 2019 10-K for further discussion on goodwill recorded from previous business combinations.

The Company evaluates goodwill for possible impairment in accordance with ASC 350 on an annual basis during the fourth quarter, or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Qualitative factors considered in this assessment include industry and market conditions, overall financial performance, and other relevant events and factors affecting the Company's business. Based on the qualitative assessment, if it is determined that the fair value of goodwill is more likely than not to be less than its carrying amount, the fair value of a reporting unit will be calculated and compared with its carrying amount and an impairment charge will be recognized for the amount that the carrying value exceeds the fair value. Due to the impact of COVID-19 on the Company’s operations, the Company performed a qualitative assessment of goodwill to determine if an event indicating impairment was present. No such indicators were identified as of June 30, 2020. There were 0 impairment losses for the ~~periods ended June 30, 2020 and December 31, 2019. During the six~~three months ended June 30, 2020, the Company recognized a measurement period adjustment to goodwill of $4.0 million related to an increase in Genomic Health’s pre-acquisition deferred tax liability due to finalization of certain income-tax related items.March 31, 2021 and 2020.

Goodwill

The change in the carrying amount of goodwill for the periods ended ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 is as follows:


(In thousands)
Balance, January 1, ~~2019~~2020	$	~~17,279~~
~~Genomic Health acquisition~~	~~1,185,918~~
~~Balance, December 31, 2019~~	1,203,197
Paradigm & Viomics acquisition	30,431
Genomic Health acquisition adjustment (1)	4,044
Balance, ~~June 30,~~December 31, 2020	$	1,237,672
Thrive acquisition	946,243
Balance, March 31, 2021	$	2,183,915

______________

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

There were 0 impairment losses for the three months ended March 31, 2021 and 2020.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~(6)~~(7) FAIR VALUE MEASUREMENTS

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

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

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

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

The following table presents the Company’s fair value measurements as of ~~June 30,~~March 31, 2021 along with the level within the fair value hierarchy in which the fair value measurements, in their entirety, fall.


(In thousands)	Fair Value at March 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash, cash equivalents, and restricted cash
Cash and money market	$	770,267	$	770,267	$	0	$	0
U.S. government agency securities	318,199		0		318,199		0
Certificates of deposit	15,350		0		15,350		0
Restricted cash	284		284		0		0
Marketable securities
Corporate bonds	144,201		0		144,201		0
Certificates of deposit	90,359		0		90,359		0
Commercial paper	27,992		0		27,992		0
U.S. government agency securities	7,141		0		7,141		0
Asset backed securities	4,458		0		4,458		0
Liabilities
Contingent consideration	(336,540)		0		0		(336,540)
Total	$	1,041,711	$	770,551	$	607,700	$	(336,540)

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

(In thousands) Fair Value at June 30,
2020 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Cash, cash equivalents, and restricted cash
Cash and money market $ 457,019 $ 457,019 $ — $ —
U.S. government agency securities 246,907 — 246,907 —
Restricted cash 282 282 — —
Marketable securities
Corporate bonds 220,561 — 220,561 —
U.S. government agency securities 256,526 — 256,526 —
Certificates of deposit 10,000 — 10,000 —
Asset backed securities 22,259 — 22,259 —
Commercial paper 8,000 — 8,000 —
Equity Securities 1,385 1,385 — —
Liabilities
Contingent consideration (2,551) — — (2,551)
Total $ 1,220,388 $ 458,686 $ 764,253 $ (2,551)

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

The following table presents the Company’s fair value measurements as of December 31, 2019 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall.


(In thousands)	(In thousands)	Fair Value at December 31, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		(In thousands)	Fair Value at December 31, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and cash equivalents	Cash and cash equivalents									Cash and cash equivalents
Cash and money market	Cash and money market	$	146,932	$	146,932	$	—	$	—	Cash and money market	$	901,294	$	901,294	$	0	$	0
U.S. government agency securities	U.S. government agency securities	30,322		—		30,322		—		U.S. government agency securities	589,994		0		589,994		0
Restricted cash	Restricted cash	274		274		—		—		Restricted cash	306		306		0		0
Marketable securities	Marketable securities									Marketable securities
U.S. government agency securities	U.S. government agency securities	140,682		—		140,682		—		U.S. government agency securities	207,171		0		207,171		0
Corporate bonds	Corporate bonds	4,003		—		4,003		—		Corporate bonds	132,913		0		132,913		0
Asset backed securities										Asset backed securities	7,094		0		7,094		0
Equity securities	Equity securities	1,716		1,716		—		—		Equity securities	1,521		1,521		0		0
Liabilities	Liabilities									Liabilities
Contingent consideration	Contingent consideration	(2,879)		—		—		(2,879)		Contingent consideration	(2,477)		0		0		(2,477)
Total	Total	$	321,050	$	148,922	$	175,007	$	(2,879)	Total	$	1,837,816	$	903,121	$	937,172	$	(2,477)

There have been no changes in valuation techniques or transfers between fair value measurement levels during the periods ended ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. The fair value of Level 2 instruments classified as cash equivalents and marketable debt securities are valued using a third-party pricing agency where the valuation is based on observable inputs including pricing for similar assets and other observable market factors. The Company’s marketable equity security investment in Biocartis isheld as of December 31, 2020 was classified as a Level 1 ~~instrument. See Note 7 for additional information on Biocartis. ~~instrument prior to being sold in the first quarter of 2021.

Contingent Consideration

~~In connection with~~Certain of the ~~Biomatrica Acquisition, a contingent earn-out liability was created to account for an additional $20.0 million in contingent~~Company’s business combinations involve potential payment of future consideration that ~~could be earned based~~is contingent upon the achievement of certain regulatory and product revenue milestones being ~~met.~~ achieved. A liability is recorded for the estimated fair value of the contingent consideration on the acquisition date. The fair value of the contingent consideration is remeasured at each reporting period, and the change in fair value is recognized within general and administrative expenses on the Company’s condensed consolidated statements of operations.

The fair value of contingent consideration as of March 31, 2021 and December 31, 2020 was $336.5 million and $2.5 million, respectively, which was recorded in other long-term liabilities in the condensed consolidated balance sheets.

The following table provides a ~~roll-forward~~reconciliation of the ~~fair values~~beginning and ending balances of contingent consideration:


	Three months ended
(In thousands)	March 31, 2021		March 31, 2020
Beginning balance, January 1,	$	2,477	$	2,879
Purchase price contingent consideration (1)	331,348		0
Changes in fair value	2,879		0
Payments	(164)		(140)
Ending balance, March 31,	$	336,540	$	2,739

______________

(1)The increase in the contingent consideration ~~which includes Level 3 measurements:~~


~~(In thousands)~~	~~Contingent consideration~~
~~Balance, January 1, 2020~~	$	~~(2,879)~~
~~Changes in fair value~~	—
~~Gains (losses) recognized in earnings~~	—
~~Payments~~	~~328~~
~~Balance, June 30, 2020~~	$	~~(2,551)~~

~~As of June 30, 2020,~~liability during the ~~fair value of~~three months ended March 31, 2021 is due to the contingent ~~earn-out liability is classified as a component~~consideration associated with the acquisition of ~~other long-term liabilities in the Company’s condensed consolidated balance sheet.~~Thrive Earlier Detection Corporation (“Thrive”). Refer to Note 17 for further information.

2818

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

The fair value of the contingent consideration liability recorded relating to the U.S. Food and Drug Administration (“FDA”) approval and Centers for Medicare & Medicaid Services (“CMS”) coverage milestones associated with the Thrive acquisition was $334.2 million as of March 31, 2021. The Company evaluates the fair value of the Thrive related expected contingent consideration and the corresponding liability ~~each annual reporting period~~ using the ~~Monte Carlo Method,~~probability-weighted scenario based discounted cash flow model, which is consistent with the initial measurement of the expected ~~Biomatrica Acquisition earn-out~~contingent consideration liability. ~~The Company estimates projections during the earn-out period utilizing various potential pay-out scenarios.~~ Probabilities ~~were~~of success are applied to each potential scenario and the resulting values ~~were~~are discounted using a rate that considers present-value factor. The passage of time in addition to changes in projected milestone achievement timing, present-value factor, the degree of achievement if applicable, and probabilities of success may result in adjustments to the fair value measurement. The fair value measurements of contingent consideration for which a liability is recorded include significant unobservable inputs. As of March 31, 2021, the fair value of the contingent consideration liability was determined using a probability of success of 90.0% and a present-value factor of 2.3% to 2.5%, which equates to a weighted average ~~cost~~present-value factor of ~~capital as well as~~2.4%. The projected fiscal year of payment range is from 2025 to 2027 for a ~~specific risk premium~~median projected fiscal year of payment of 2026.

The fair value of the contingent consideration earnout liability related to certain revenue milestones associated with the ~~riskiness~~Biomatrica acquisition was $2.3 million as of March 31, 2021 and is measured using the Monte Carlo Method. As of March 31, 2021, the fair value of the ~~earn-out itself,~~earnout liability was determined using a volume volatility rate of 29.0%, volume discount rate of 13.1%, and a counter party discount rate of 5.2%. The projected fiscal year of payment range is from 2021 to 2023 for a median projected fiscal year of payment of 2022.

Unobservable inputs were weighted by the ~~related projections, and~~relative fair value of the ~~overall business.~~contingent consideration liability.

Non-Marketable Equity ~~Investment~~Investments

The Company has non-marketable equity investments which are initially recorded at the estimated fair value based on observable transactions. The Company has concluded it is not a primary beneficiary with regards to these investments and does not have the ability to exercise significant influence over the investees and thus has not consolidated the investees pursuant to the requirements of Accounting Standards Codification (“ASC”) 810, Consolidation. The Company will continue to assess its investments and future commitments to the investees and to the extent its relationship with the investees change and whether such change may require consolidation of the investees in future periods. The Company remeasures the fair value only when an observable transaction occurs during the period that would suggest a change in the carrying value of the investment. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company had non-marketable equity investments of ~~$11.8~~$26.7 million and $29.1 million, respectively, which are classified as a component of other long-term assets in the Company’s condensed consolidated balance sheets. ~~The~~As of March 31, 2021, the balance primarily consists of the Company’s preferred stock ~~investment~~investments in 18,258,838 shares of Epic Sciences, Inc. (“Epic Sciences”) and 21,520,648 shares of Renovia, Inc. of $10.8 million and $10.0 million, respectively. As of December 31, 2020, the balance primarily consisted of the Company’s preferred stock investments in Epic Sciences ~~represents~~and 5,025,764 shares of Thrive of $10.8 million and $12.5 million, respectively. See Note 17 for additional information regarding the Company’s investment in Thrive.

Other than the Company’s acquisition of ~~the total non-marketable equity investments. There~~Thrive further described in Note 17, there have been no other observable transactions during the three ~~and six~~ months ended March 31, 2021 and 2020 on the Company’s non-marketable equity investments.

Derivative Financial Instruments

As of March 31, 2021 and December 31, 2020, the Company had open foreign currency forward contracts with notional amounts of $26.4 million and $22.4 million, respectively. The Company's foreign exchange derivative instruments are classified as Level 2 within the fair value hierarchy as they are valued using inputs that are observable in the market or can be derived principally from or corroborated by observable market data. The fair value of the foreign currency forward contracts was zero at March 31, 2021 and December 31, 2020, and there were no gains or losses recorded for the three months ended March 31, 2021 and 2020.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(8) LONG-TERM DEBT

Construction Loan Agreement

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

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

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

As a condition to Fifth Third Bank’s initial advance of loan proceeds under the Construction Loan Agreement, the Company was required to first invest at least $16.4 million of its own cash into the construction project. The Company fulfilled its required initial investment and made its first draw on the Construction Loan in June 2018. In December 2019, the Company began making monthly payments towards the outstanding principal balance plus accrued interest. As of March 31, 2021 and December 31, 2020, the outstanding balance was $23.4 million and $23.8 million, respectively, from the Construction Loan, including $0.7 million of interest incurred, which is accrued for as an interest reserve and represents a portion of the loan balance. The Company capitalized the $0.7 million of interest to the construction project. The Company incurred approximately $0.2 million of debt issuance costs related to the Construction Loan, which are recorded as a direct deduction from the liability. The debt issuance costs are being amortized over the life of the Construction Loan.

The carrying amount of the Construction Loan approximates fair value due to the short maturity of this instrument. The Construction Loan is privately held with no public market for this debt and therefore is classified as a Level 3 fair value measurement. The change in the fair value during the three months ended March 31, 2021 was due to payments made on the loan resulting in a decrease in the liability.

The Construction Loan Agreement was amended effective June 30, 2020 to include a financial covenant to maintain a minimum liquidity of $250 million and ~~2019. See Note 7 for additional information regarding~~remove the ~~terms~~minimum tangible net worth covenant. As of March 31, 2021, the ~~investment~~Company is in ~~Epic Sciences.~~compliance with the covenant included in the amended agreement.

~~Fair Value of Long-Term Debt and Convertible Notes~~Tax Increment Financing Loan Agreements

The Company ~~measures~~entered into 2 separate Tax Increment Financing Loan Agreements (“TIFs”) in February 2019 and June 2019 with the ~~fair value~~City of ~~its convertible notes~~Madison, Wisconsin. The TIFs provide for $4.6 million of financing in the aggregate. In return for the loans, the Company is obligated to create and ~~long-term debt for disclosure purposes.~~ maintain 500 full-time jobs over a five-year period, starting on the date of occupancy of the buildings constructed. In the event that the job creation goals are not met, the Company would be required to pay a penalty.

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

As of December 31, 2019, the Company had earned and received payment of the full $4.6 million from the City of Madison. As of March 31, 2021 and December 31, 2020, the corresponding liability, which reflected when the expected benefit of the tax credit amortization would reduce future operating expenses, has been fully amortized.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(9) CONVERTIBLE NOTES

Convertible note obligations included in the condensed consolidated balance sheet consisted of the following ~~table summarizes~~as of March 31, 2021:


							Fair Value (2)
(In thousands)	Principal Amount		Unamortized Debt Discount and Issuance Costs		Net Carrying Amount		Amount		Leveling
2028 Convertible notes - 0.375%	$	1,150,000	$	(21,125)	$	1,128,875	$	1,493,563	2
2027 Convertible notes - 0.375%	747,500		(13,383)		734,117		1,011,255		2
2025 Convertible notes - 1.000% (1)	315,023		(2,191)		312,832		594,921		2

Convertible note obligations included in the ~~Company’s outstanding convertible notes and long-term debt:~~condensed consolidated balance sheet consisted of the following as of December 31, 2020:

June 30, 2020 December 31, 2019
(In thousands) Carrying Amount (1) Fair Value Carrying Amount (1) Fair Value
2028 Convertible notes (2) $ 786,711 $ 1,101,413 $ — $ —
2027 Convertible notes (2) 498,707 774,328 483,909 843,741
2025 Convertible notes (2) 248,965 419,015 319,696 592,482
Construction loan (3) 24,263 24,263 24,866 24,866


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

______________

(1)~~The carrying amounts presented~~Based on the Company’s share price on the days leading up to March 31, 2021 and December 31, 2020, holders of the 2025 Convertible Notes have the right to convert their debentures. As a result, the 2025 Convertible Notes are included within convertible notes, net, ~~of debt discounts and debt issuance costs (see Note 12 and Note 15 of~~current portion on the condensed consolidated ~~financial statements for further information).~~balance sheets.

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

Issuances and Settlements

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

In June 2018, the Company issued and sold an additional $218.5 million in ~~2020 resulting in a decrease in the liability.~~

~~(3)The carrying~~aggregate principal amount of 1.0% Convertible Notes (the “June 2025 Notes”). The June 2025 Notes were issued under the ~~construction loan approximates fair value due~~same indenture pursuant to which the ~~short-term nature of this instrument.~~Company previously issued the January 2025 Notes (the “Indenture”). The ~~construction loan is privately held with no public market for this debt~~January 2025 Notes and ~~therefore is classified~~the June 2025 Notes (collectively, the “2025 Notes”) have identical terms (including the same January 15, 2025 maturity date) and are treated as a ~~Level 3 fair value measurement.~~single series of securities. The ~~change~~net proceeds from the issuance of the June 2025 Notes were approximately $225.3 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.

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

offering expenses payable by the Company.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~(7)~~The Company utilized a portion of the proceeds from the issuance of the 2027 Notes to settle a portion of the 2025 Notes in privately negotiated transactions. In March 2019, the Company used cash of $494.1 million and an aggregate of 2.2 million shares of the Company’s common stock valued at $182.4 million for total consideration of $676.5 million to settle $493.4 million of the 2025 Notes, of which $0.7 million was used to pay off interest accrued on the 2025 Notes. The transaction resulted in a loss on settlement of convertible notes of $187.7 million, which is reflected in accumulated deficit in the Company’s condensed consolidated balance sheets. The loss represents the difference between (i) the fair value of the consideration transferred and (ii) the carrying value of the debt at the time of repurchase.

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

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

Summary of Conversion Features

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

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

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

Based on the closing price of the Company’s common stock of $131.78 on March 31, 2021, the if-converted values exceed the principal amount by $235.3 million, $134.7 million, and $93.8 million for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively.

Ranking of Convertible Notes

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

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


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

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

Interest expense includes the following:


	Three Months Ended March 31,
(In thousands)	2021		2020
Coupon interest expense	$	2,567	$	1,932
Amortization of debt discount and issuance costs	1,449		1,009
Loss on settlement of convertible notes	0		50,819
Total interest expense on convertible notes	4,016		53,760
Other interest expense	600		844
Total interest expense	$	4,616	$	54,604

The effective interest rates on the 2025 Notes, 2027 Notes, and 2028 Notes for the three months ended March 31, 2021 and 2020 were 1.18%, 0.67%, and 0.64% and 1.26%, 0.67%, and 0.63%, respectively. The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 3.80, 5.96, and 6.92 years for the 2025 Notes, 2027 Notes, and 2028 Notes, respectively.

(10) LICENSE AND COLLABORATION AGREEMENTS

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

Mayo

In June 2009 the Company entered into a license agreement with Mayo Foundation for Medical Education and Research (“Mayo”). The Company’s license agreement with Mayo was most recently amended and restated in ~~January 2019.~~September 2020. Under the license agreement, Mayo granted the Company an exclusive, worldwide license to certain Mayo patents and patent applications, as well as a non-exclusive, worldwide license with regard to certain Mayo know-how. The scope of the license covers any screening, surveillance or diagnostic test or tool for use in connection with any type of cancer, pre-cancer, disease or condition.

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

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

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

The license agreement will remain in effect, unless earlier terminated by the parties in accordance with the agreement, until the last of the licensed patents expires in ~~2037~~2038 (or later, if certain licensed patent applications are issued). However, if the Company is still using the licensed Mayo know-how or certain Mayo-provided biological specimens or their derivatives on such expiration date, the term shall continue until the earlier of the date the Company stops using such know-how and materials and the date that is five years after the last licensed patent expires. The license agreement contains customary termination provisions and permits Mayo to terminate the license agreement if the Company sues Mayo or its affiliates, other than any such suit claiming an uncured material breach by Mayo of the license agreement.

In addition to granting the Company a license to the covered Mayo intellectual property, Mayo provides the Company with product development and research and development assistance pursuant to the license agreement and other collaborative arrangements. In September 2020, Mayo also agreed to make available certain personnel to provide such assistance through January 2025. In connection with this collaboration, the Company incurred charges of ~~$1.0~~$1.2 million and ~~$1.1~~$1.0 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively. The Company incurred charges of $1.9 million and $2.6 million for the six months ended June 30, 2020 and 2019,~~ respectively. The charges incurred in connection with this collaboration are recorded in research and development expenses in the Company’s condensed consolidated statements of operations. ~~Certain~~

John Hopkins University (“JHU”)

Through the acquisition of ~~Mayo’s obligations to provide development assistance expired in January 2020. The~~Thrive, the Company ~~and Mayo are in discussions to amend the~~acquired a worldwide exclusive license agreement with JHU for use of several JHU patents and licensed know-how. The license is designed to ~~extend that date.~~enable the Company to leverage JHU proprietary data in the development and commercialization of a blood-based, multi-cancer screening test. The agreement terms include single-digit sales-based royalties and sales-based milestone payments of $10.0 million, $15.0 million, $20.0 million and upon achieving calendar year licensed product revenue using JHU proprietary data of $0.50 billion, $1.00 billion, and $1.50 billion, respectively.

~~Epic Sciences~~

(11) PFIZER PROMOTION AGREEMENT

In ~~June 2016, Genomic Health (now a wholly-owned subsidiary of~~August 2018, the ~~Company)~~Company entered into a ~~collaboration agreement~~Promotion Agreement (the “Original Promotion Agreement”) with ~~Epic Sciences,~~Pfizer Inc. (“Pfizer”), which was ~~superseded~~amended and ~~replaced~~restated in ~~March 2019 by~~October 2020 (the “Restated Promotion Agreement”). The Restated Promotion Agreement extends the relationship between the Company and Pfizer and restructures the manner in which the Company compensates Pfizer for promotion of the Cologuard test through a ~~license agreement~~service fee, and ~~laboratory~~provision of certain other sales and marketing services ~~agreement with Epic Sciences, under~~related to the Cologuard test. The Restated Promotion Agreement includes fixed and performance-related fees, some of which ~~Genomic Health was granted exclusive distribution rights~~retroactively went into effect on April 1, 2020. All payments to ~~commercialize Epic Sciences’ AR-V7 Nucleus Detect test~~Pfizer are recorded in sales and marketing expenses in the ~~United States, which is marketed as Oncotype DX AR-V7 Nucleus Detect.~~Company’s condensed consolidated statements of operations.

Under the Original Promotion Agreement, the service fee was calculated based on incremental gross profits over specified baselines during the term. Under the Restated Promotion Agreement, the service fee provides a fee-for-service model that includes certain fixed fees and performance-related bonuses. The performance-related bonuses are contingent upon the achievement of certain annual performance criteria with any applicable expense being recognized ratably upon achievement of the payment becoming probable. The Company ~~has primary responsibility, in accordance with applicable laws~~incurred charges of $22.7 million and ~~regulations, for marketing and promoting the test, order fulfillment, billing and collections of receivables, claims appeals, customer support, and providing and maintaining order management systems~~$19.4 million for the ~~test. Epic Sciences is~~service fee for the three months ended March 31, 2021 and 2020, respectively. The Company incurred charges of $26.6 million and $19.5 million for promotion, sales and marketing services performed by Pfizer on behalf of the Company during the three months ended March 31, 2021 and 2020, respectively. During 2022, and contingent upon the achievement of certain Cologuard test revenue metrics during 2021, the Company will pay Pfizer a royalty based on a low single-digit royalty rate applied to actual 2022 Cologuard test revenues. The term of the Restated Promotion Agreement runs through December 31, 2022.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

responsible for performing all tests, performing studies including analytic and clinical validation studies, and seeking Medicare coverage and a Medicare payment rate from the CMS for the test. The license and laboratory service agreement has a term of ten years from June 2016, unless terminated earlier under certain circumstances. The Oncotype DX AR-V7 Nucleus Detect test became commercially available in February 2018. The Company recognizes revenues for the test performed under this arrangement and Epic Sciences receives a fee per test performed that represents the fair market value for the testing services they perform.(12) STOCKHOLDERS’ EQUITY

~~As of June 30, 2020 and December 31, 2019,~~Thrive Acquisition Stock Issuance

In January 2021, the Company ~~owns 18,258,838~~completed its acquisition of Thrive. In connection with the acquisition, which is further described in Note 17, the Company issued 9.3 million common shares ~~of preferred stock of Epic Sciences recorded at~~that had a fair value of $10.8 million which is included in other-long term assets on the Company’s condensed consolidated balance sheets. The Company has concluded it is not the primary beneficiary and thus has not consolidated the investee pursuant to the requirements of ASC 810, Consolidation. The Company will continue to assess its investment and future commitments to the investee and to the extent its relationship with the investee changes, may be required to consolidate the investee in future periods. The Company determined that the investment is an equity investment for which the Company does not have the ability to exercise significant influence. The Company adjusts the carrying value of its non-marketable equity securities for changes from observable transactions for identical or similar investments of the same issuer, less impairment. All gains and losses on non-marketable equity securities, realized and unrealized, are recognized in other income (expense) in the condensed consolidated statements of operations.$1.19 billion.

~~Biocartis N.V.~~

In September 2017, Genomic Health entered into an exclusive license and development agreement with Biocartis, a molecular diagnostics company based in Belgium, to develop and commercialize an in vitro diagnosticTargeted Digital Sequencing (“~~IVD”~~TARDIS”) version of the Oncotype DX Breast Recurrence Score test on the Biocartis Idylla platform. Under the terms of the license and development agreement, the Company has an exclusive, worldwide, royalty-bearing license to develop and commercialize an IVD version of the Oncotype DX Breast Recurrence Score test on the Biocartis Idylla platform, and an option to expand the collaboration to include additional tests in oncology and urology. The Company has primary responsibility for developing, validating and obtaining regulatory authorizations and registrations for IVD Oncotype DX tests to be performed on the Idylla platform. The Company is also responsible for manufacturing and commercialization activities with respect to such tests.

Pursuant to the license and development agreement, Genomic Health recorded a one-time upfront license and option fee of $3.2 million. In December 2017, Genomic Health purchased 270,000 ordinary shares of Biocartis, a public company listed on the Euronext exchange, for a total cost of $4.0 million. This investment was subject to a lock-up agreement that expired in December 2018. The investment has been recognized at fair value, which the Company estimated to be $1.4 million and $1.7 million as of June 30, 2020 and December 31, 2019, respectively, and is included in marketable securities on the Company's condensed consolidated balance sheets.

Under a November 2018 addendum to the license and development agreement, the Company exercised its option to expand the collaboration to include tests in urology and obtained a right of first refusal to add a test for the non-invasive detection of prostate cancer in a pre-biopsy setting.

Additional terms of the license and development agreement and the addendum include the Company’s obligation to pay Biocartis an aggregate of €2.5 million in cash upon achievement of certain milestones and €2.0 million for the expansion of the collaboration to include additional tests in oncology. In addition, the Company will pay royalties based primarily on the future sales volumes of the Company’s tests performed on the Idylla platform.

~~(8) PFIZER PROMOTION AGREEMENT~~

In August 2018, the Company entered into a Promotion Agreement (“Promotion Agreement”) with Pfizer Inc. (“Pfizer”). Under the terms of the Promotion Agreement, Pfizer promotes Cologuard and provides certain sales, marketing, analytical and other commercial operations support. The Company agreed to pay Pfizer for promotion, sales and marketing costs incurred on behalf of the Company. The Company incurred charges of $21.1 million and $16.6 million for promotion, sales and marketing services performed by Pfizer on behalf of the Company during the

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

three months ended June 30, 2020 and 2019, respectively. The Company incurred charges of $40.5 million and $33.9 million for promotion, sales and marketing services performed by Pfizer on behalf of the Company during the six months ended June 30, 2020 and 2019, respectively. These costs are recorded in sales and marketing in the Company’s condensed consolidated statements of operations. The Company also agreed to pay Pfizer a service fee based on incremental gross profits over specified baselines during the term of the Promotion Agreement and royalties for Cologuard related revenues for a specified period after the expiration or termination of the Promotion Agreement. The initial term of the Promotion Agreement runs through December 31, 2021. The Company incurred charges of $2.1 million and $19.4 million for this service fee during the three months ended June 30, 2020 and 2019, respectively. The Company incurred charges of $21.7 million and $38.6 million for this service fee during the six months ended June 30, 2020 and 2019, respectively. These costs are recorded in sales and marketing in the Company’s condensed consolidated statements of operations.

~~(9) STOCKHOLDERS’ EQUITY~~

~~Convertible Notes Settlement~~License Acquisition Stock Issuance

In ~~March 2019,~~January 2021, the Company ~~used cash of $494.1 million and an aggregate of 2.2 million shares of~~acquired a worldwide exclusive license to the ~~Company’s common stock valued at $182.4 million for total consideration of $676.5 million to settle $493.4 million of the 2025 convertible notes. Refer to~~TARDIS technology from The Translational Genomics Research Institute (“TGen”), which is further described in Note ~~15 for further discussion of this settlement transaction.~~

~~Genomic Health Combination Stock Issuance~~

In November 2019, the Company completed the combination with Genomic Health in a cash and stock transaction valued at $2.5 billion. Of the $2.5 billion purchase price, $1.4 billion was settled through the issuance of 17.0 million shares of common stock. The Company incurred $0.4 million in stock issuance costs as17. As part ~~of the transaction. Refer to Note 16 for further discussion~~ of the consideration transferred, ~~as part of~~ the ~~combination with Genomic Health.~~Company issued 0.2 million shares valued at $27.3 million.

Paradigm and Viomics Acquisition Stock Issuance

In March 2020, the Company completed the acquisitions of Paradigm and Viomics. The purchase price for these acquisitions consisted of cash and stock valued at $40.4 million. Of the $40.4 million purchase price, $32.2 million is expected to be settled through the issuance of 0.4 million shares of common stock. Of the $32.2 million that will be settled through the issuance of common stock, ~~$28.6~~$28.8 million was issued inas of March ~~2020,~~31, 2021, and the remainder was withheld and may become issuable as additional merger consideration on June 3, 2021 subject to the terms and conditions of the acquisition agreements.

Changes in Accumulated Other Comprehensive Income (Loss)

The amount recognized in ~~accumulated other comprehensive income (loss) (“AOCI”)~~AOCI for the ~~six~~three months ended ~~June 30,~~March 31, 2021 were as follows:


(In thousands)	Unrealized Gain (Loss) on Marketable Securities		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2020	$	526	$	526
Other comprehensive loss before reclassifications	(292)		(292)
Amounts reclassified from accumulated other comprehensive loss	(40)		(40)
Net current period change in accumulated other comprehensive loss, before tax	(332)		(332)
Income tax expense related to items of other comprehensive income	170		170
Balance at March 31, 2021	$	364	$	364

The amounts recognized in AOCI for the three months ended March 31, 2020 were as follows:


(In thousands)	(In thousands)	Foreign Currency Translation Adjustments		Unrealized Gain (Loss) on Marketable Securities		Accumulated Other Comprehensive Income (Loss)		(In thousands)	Foreign Currency Translation Adjustments		Unrealized Gain (Loss) on Marketable Securities (1)		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2019	Balance at December 31, 2019	$	(25)	$	(75)	$	(100)	Balance at December 31, 2019	$	(25)	$	(75)	$	(100)
Other comprehensive income (loss) before reclassifications		—		1,564		1,564
Other comprehensive loss before reclassifications								Other comprehensive loss before reclassifications	0		(1,642)		(1,642)
Amounts reclassified from accumulated other comprehensive loss	Amounts reclassified from accumulated other comprehensive loss	25		—		25		Amounts reclassified from accumulated other comprehensive loss	25		0		25
Net current period change in accumulated other comprehensive loss	Net current period change in accumulated other comprehensive loss	25		1,564		1,589		Net current period change in accumulated other comprehensive loss	25		(1,642)		(1,617)
Balance at June 30, 2020		$	—	$	1,489	$	1,489
Balance at March 31, 2020								Balance at March 31, 2020	$	0	$	(1,717)	$	(1,717)

______________

(1)There was no tax impact from the amounts recognized in AOCI for the three months ended March 31, 2020.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~The amounts recognized in AOCI for the six months ended June 30, 2019 were as follows:~~

(In thousands) Foreign
Currency
Translation
Adjustments Unrealized
Gain (Loss)
on Marketable
Securities Accumulated
Other
Comprehensive
Income (Loss)
Balance at December 31, 2018 $ (25) $ (1,397) $ (1,422)
Other comprehensive loss before reclassifications — 3,784 3,784
Amounts reclassified from accumulated other comprehensive loss — 344 344
Net current period change in accumulated other comprehensive loss, before tax — 4,128 4,128
Income tax expense related to items of other comprehensive income — (984) (984)
Balance at June 30, 2019 $ (25) $ 1,747 $ 1,722

Amounts reclassified from AOCI for the ~~six~~three months ended ~~June 30,~~March 31, 2021 and 2020 ~~and 2019~~ were as follows:


		Affected Line Item in the Statements of Operations		Six Months Ended June 30,
									Affected Line Item in the Statements of Operations		Three Months Ended March 31,
Details about AOCI Components (In thousands)	Details about AOCI Components (In thousands)		Affected Line Item in the Statements of Operations			2020				2019	Details about AOCI Components (In thousands)	Affected Line Item in the Statements of Operations				2021				2020
Change in value of available-for-sale investments	Change in value of available-for-sale investments							Change in value of available-for-sale investments
Sales and maturities of available-for-sale investments	Sales and maturities of available-for-sale investments	Investment income, net		$	—	$	344	Sales and maturities of available-for-sale investments		Investment income, net				$	(40)			$	0
Foreign currency adjustment	Foreign currency adjustment	General and administrative		25		—		Foreign currency adjustment		General and administrative			0				25
Total reclassifications	Total reclassifications			$	25	$	344	Total reclassifications					$	(40)			$	25

~~(10)~~(13) STOCK-BASED COMPENSATION

Stock-Based Compensation Plans

The Company maintains the 2010 Omnibus Long-Term Incentive Plan (As Amended and Restated Effective July 27, 2017), the 2019 Omnibus Long-Term Incentive Plan, the 2010 Employee Stock Purchase Plan, and the 2016 Inducement Award ~~Plan and the 2000 Stock Option and Incentive~~ Plan (collectively, the “Stock Plans”).

~~Stock-Based Compensation Expense~~Construction Loan Agreement

The ~~Company records stock-based compensation expense~~carrying amount of the Construction Loan approximates fair value due to the short maturity of this instrument. The Construction Loan is privately held with no public market for this debt and therefore is classified as a Level 3 fair value measurement. The change in ~~connection with~~ the amortization of restricted stock and restricted stock unit awards (“RSUs”), stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees, non-employee consultants and non-employee directors. The Company recorded approximately $40.0 million and $20.1 million in stock-based compensation expensefair value during the three months ended March 31, 2021 was due to payments made on the loan resulting in a decrease in the liability.

The Construction Loan Agreement was amended effective June 30, 2020 to include a financial covenant to maintain a minimum liquidity of $250 million and ~~2019, respectively.~~ remove the minimum tangible net worth covenant. As of March 31, 2021, the Company is in compliance with the covenant included in the amended agreement.

Tax Increment Financing Loan Agreements

The Company entered into 2 separate Tax Increment Financing Loan Agreements (“TIFs”) in February 2019 and June 2019 with the City of Madison, Wisconsin. The TIFs provide for $4.6 million of financing in the aggregate. In return for the loans, the Company is obligated to create and maintain 500 full-time jobs over a five-year period, starting on the date of occupancy of the buildings constructed. In the event that the job creation goals are not met, the Company would be required to pay a penalty.

The Company records the earned financial incentives as the full-time equivalent positions are filled. The amount earned is recorded ~~approximately $69.6~~as a liability and amortized as a reduction of operating expenses over a two-year period, which is the timeframe when the TIFs will be repaid through property taxes.

As of December 31, 2019, the Company had earned and received payment of the full $4.6 million from the City of Madison. As of March 31, 2021 and ~~$36.3~~December 31, 2020, the corresponding liability, which reflected when the expected benefit of the tax credit amortization would reduce future operating expenses, has been fully amortized.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

(9) CONVERTIBLE NOTES

Convertible note obligations included in the condensed consolidated balance sheet consisted of the following as of March 31, 2021:


							Fair Value (2)
(In thousands)	Principal Amount		Unamortized Debt Discount and Issuance Costs		Net Carrying Amount		Amount		Leveling
2028 Convertible notes - 0.375%	$	1,150,000	$	(21,125)	$	1,128,875	$	1,493,563	2
2027 Convertible notes - 0.375%	747,500		(13,383)		734,117		1,011,255		2
2025 Convertible notes - 1.000% (1)	315,023		(2,191)		312,832		594,921		2

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


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

______________

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

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

Issuances and Settlements

In January 2018, the Company issued and sold $690.0 million in ~~stock-based compensation expense during~~aggregate principal amount of 1.0% Convertible Notes (the “January 2025 Notes”) with a maturity date of January 15, 2025. The January 2025 Notes accrue interest at a fixed rate of 1.0% per year, payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The net proceeds from the ~~six months ended June 30, 2020~~issuance of the January 2025 Notes were approximately $671.1 million, after deducting underwriting discounts and ~~2019, respectively.~~commissions and the offering expenses payable by the Company.

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

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

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

Summary of Conversion Features

Ranking of Convertible Notes

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


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

Interest expense includes the following:


	Three Months Ended March 31,
(In thousands)	2021		2020
Coupon interest expense	$	2,567	$	1,932
Amortization of debt discount and issuance costs	1,449		1,009
Loss on settlement of convertible notes	0		50,819
Total interest expense on convertible notes	4,016		53,760
Other interest expense	600		844
Total interest expense	$	4,616	$	54,604

(10) LICENSE AND COLLABORATION AGREEMENTS

Mayo

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

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

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

In addition to granting the Company a license to the covered Mayo intellectual property, Mayo provides the Company with product development and research and development assistance pursuant to the license agreement and other collaborative arrangements. In September 2020, Mayo also agreed to make available certain personnel to provide such assistance through January 2025. In connection with this collaboration, the Company incurred charges of $1.2 million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively. The charges incurred in connection with this collaboration are recorded in research and development expenses in the Company’s condensed consolidated statements of operations.

John Hopkins University (“JHU”)

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

(11) PFIZER PROMOTION AGREEMENT

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

Under the Original Promotion Agreement, the service fee was calculated based on incremental gross profits over specified baselines during the term. Under the Restated Promotion Agreement, the service fee provides a fee-for-service model that includes certain fixed fees and performance-related bonuses. The performance-related bonuses are contingent upon the achievement of certain annual performance ~~goals, including financial performance targets and operational milestones. Determining the appropriate amount to~~criteria with any applicable expense ~~based on the anticipated~~being recognized ratably upon achievement of the ~~stated goals requires judgment, including forecasting future financial results.~~payment becoming probable. The ~~estimate~~Company incurred charges of $22.7 million and $19.4 million for the service fee for the three months ended March 31, 2021 and 2020, respectively. The Company incurred charges of $26.6 million and $19.5 million for promotion, sales and marketing services performed by Pfizer on behalf of the ~~timing~~Company during the three months ended March 31, 2021 and 2020, respectively. During 2022, and contingent upon the achievement of certain Cologuard test revenue metrics during 2021, the Company will pay Pfizer a royalty based on a low single-digit royalty rate applied to actual 2022 Cologuard test revenues. The term of the expense recognition is revised periodically based on the probability of achieving the goals and adjustments are made as appropriate. The cumulative impact of any revision is reflected in the period of the change. If the financial performance targets and operational milestones are not achieved, the award would not vest, so no compensation cost would be recognized and any previously recognized stock-based compensation expense would be reversed.Restated Promotion Agreement runs through December 31, 2022.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

(12) STOCKHOLDERS’ EQUITY

Thrive Acquisition Stock Issuance

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

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

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

Paradigm and Viomics Acquisition Stock Issuance

In March 2020, the Company completed the acquisitions of Paradigm and Viomics. The purchase price for these acquisitions consisted of cash and stock valued at $40.4 million. Of the $40.4 million purchase price, $32.2 million is expected to be settled through the issuance of 0.4 million shares of common stock. Of the $32.2 million that will be settled through the issuance of common stock, $28.8 million was issued as of March 31, 2021, and the remainder was withheld and may become issuable as additional merger consideration on June 3, 2021 subject to the terms and conditions of the acquisition agreements.

Changes in Accumulated Other Comprehensive Income (Loss)

The amount recognized in AOCI for the three months ended March 31, 2021 were as follows:


(In thousands)	Unrealized Gain (Loss) on Marketable Securities		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2020	$	526	$	526
Other comprehensive loss before reclassifications	(292)		(292)
Amounts reclassified from accumulated other comprehensive loss	(40)		(40)
Net current period change in accumulated other comprehensive loss, before tax	(332)		(332)
Income tax expense related to items of other comprehensive income	170		170
Balance at March 31, 2021	$	364	$	364

The amounts recognized in AOCI for the three months ended March 31, 2020 were as follows:


(In thousands)	Foreign Currency Translation Adjustments		Unrealized Gain (Loss) on Marketable Securities (1)		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2019	$	(25)	$	(75)	$	(100)
Other comprehensive loss before reclassifications	0		(1,642)		(1,642)
Amounts reclassified from accumulated other comprehensive loss	25		0		25
Net current period change in accumulated other comprehensive loss	25		(1,642)		(1,617)
Balance at March 31, 2020	$	0	$	(1,717)	$	(1,717)

______________

(1)There was no tax impact from the amounts recognized in AOCI for the three months ended March 31, 2020.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

In June 2020, the Company modified certain of the operational milestones within the outstanding performance-based equity awards, which were not deemed to have an impact on vesting and 0 incremental stock-based compensation expense was recordedAmounts reclassified from AOCI for the three ~~and six~~ months ended ~~June 30, 2020. This modification impacted awards held by 36 employees.~~March 31, 2021 and 2020 were as follows:

In connection with the combination with Genomic Health, the Company accelerated the vesting of shares of previously unvested stock options and restricted stock units for employees with qualifying termination events. During the three and six months ended June 30, 2020, the Company accelerated 9,132 shares and 43,480 shares of previously unvested stock options, respectively, and 10,525 shares and 28,814 shares of previously unvested restricted stock units, respectively, and recognized the additional non-cash stock-based compensation expense of $0.6 million and $3.5 million, respectively, for the accelerated awards.


	Affected Line Item in the Statements of Operations	Three Months Ended March 31,
Details about AOCI Components (In thousands)		2021		2020
Change in value of available-for-sale investments
Sales and maturities of available-for-sale investments	Investment income, net	$	(40)	$	0
Foreign currency adjustment	General and administrative	0		25
Total reclassifications		$	(40)	$	25

As a result of workforce reductions in April 2020 due to the COVID-19 pandemic, the Company accelerated the vesting of previously unvested stock options and restricted stock units for employees that were terminated.

(13) STOCK-BASED COMPENSATION

Stock-Based Compensation Plans

The Company ~~accelerated 708 shares of previously unvested stock options and 33,123 shares of previously unvested restricted stock units, and recognized~~maintains the ~~additional non-cash stock-based compensation expense of $1.8 million for the accelerated awards.~~

~~Determining Fair Value~~

~~Valuation and Recognition~~ – The fair value of each service-based option award is estimated on the date of grant using the Black-Scholes option-pricing model. The fair value of service-based awards for each restricted stock unit award is determined on the date of grant using the closing stock price on that day. The estimated fair value of these awards is recognized to expense using the straight-line method over the vesting period. For awards that vest when a performance condition is achieved, the Company performs an evaluation of internal and external factors to determine the number of shares that are most likely to vest based on the probability of what performance conditions will be met. The Black-Scholes pricing model utilizes the following assumptions:

~~Expected Term~~ – Expected life of an option award is the average length of time over which the Company expects employees will exercise their options, which is based on historical experience with similar grants. Expected life of a market measure-based award is based on the applicable performance period.

~~Expected Volatility~~ ~~- Expected volatility is based on the Company’s historical stock volatility data over the expected term of the awards.~~

~~Risk-Free Interest Rate~~ ~~- The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent expected term.~~

~~Forfeitures~~ ~~- The Company recognizes forfeitures as they occur.~~

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~The fair value of each option is based on the assumptions in the following table:~~

Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Option Plan Shares
Risk-free interest rates (1) (1) 0.98% - 1.47% 2.54% - 2.59%
Expected term (in years) (1) (1) 4.68 - 6.15 6.28
Expected volatility (1) (1) 65.67% - 77.51% 64.95% - 65.00%
Dividend yield (1) (1) —% —%
Weighted average fair value per share of options granted during the period (1) (1) $58.77 $57.11
ESPP Shares
Risk-free interest rates 0.12% - 0.2% 2.31% - 2.44% 0.12% - 0.2% 2.31% - 2.44%
Expected term (in years) 0.5 - 2 0.5 - 2 0.5 - 2 0.5 - 2
Expected volatility 63.7% - 89.0% 55.0% - 57.6% 63.7% - 89.0% 55.0% - 57.6%
Dividend yield —% —% —% —%
Weighted average fair value per share of stock purchase rights granted during the period $30.60 $35.91 $30.60 $35.91

~~______________~~

~~(1)The Company did not grant options under its~~ 2010 Omnibus Long-Term Incentive Plan or(As Amended and Restated Effective July 27, 2017), the 2019 Omnibus Long-Term Incentive Plan, ~~during~~ the ~~period indicated.~~

2010 Employee Stock ~~Option, Restricted Stock, and Restricted Stock Unit Activity~~

~~A summary of stock option activity under the Stock Plans during the six months ended June 30, 2020 is as follows:~~

Options Shares Weighted
Average
Exercise
Price Weighted
Average
Remaining
Contractual
Term(Years) Aggregate
Intrinsic
Value(1)
(Aggregate intrinsic value in thousands)
Outstanding, January 1, 2020 2,700,293 $ 34.01 2.9
Granted 309,143 97.66
Exercised (368,720) 29.67
Forfeited (65,438) 83.87
Outstanding, June 30, 2020 2,575,278 $ 41.01 6.5 $ 123,979
Exercisable, June 30, 2020 1,653,394 $ 26.10 5.5 $ 101,761

~~______________~~

~~(1)The total intrinsic value of options exercised during the six months ended June 30, 2020 and 2019 was $20.4 million and $22.6 million, respectively, determined as of the date of exercise.~~

~~A summary of restricted stock and restricted stock unit activity under the Stock Plans during the six months ended June 30, 2020 is as follows:~~

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

Restricted
Shares and RSUs Weighted
Average Grant
Date Fair Value
Outstanding, January 1, 2020 4,384,005 $ 63.41
Granted 1,835,695 92.25
Released (1,350,088) 47.00
Forfeited (208,076) 79.45
Outstanding, June 30, 2020 4,661,536 $ 78.84

As of June 30, 2020, there was $300.9 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. The Company expects to recognize that cost over a weighted average period of 3.0 years.

~~(11) NEW MARKET TAX CREDIT~~

During the fourth quarter of 2014, the Company received approximately $2.4 million in net proceeds from financing agreements related to working capital and capital improvements at 1 of its Madison, Wisconsin facilities. This financing arrangement was structured with an unrelated third-party financial institution (the “Investor”), an investment fund, and its majority owned community development entity in connection with the Company’s participation in transactions qualified under the federal New Markets Tax Credit (“NMTC”) program, pursuant to Section 45D of the Internal Revenue Code of 1986, as amended. The Company is required to be in compliance through December 2021 with various regulations and contractual provisions that apply to the NMTC arrangement. Noncompliance with applicable requirements could result in the Investor’s projected tax benefits not being realized and, therefore, require the Company to indemnify the Investor for any loss or recapture of NMTC related to the financing until such time as the recapture provisions have expired under the applicable statute of limitations. The Company does not anticipate any credit recapture will be required in connection with this financing arrangement.

~~The Investor and its majority owned community development entity are considered Variable Interest Entities (“VIEs”)~~Purchase Plan, and the ~~Company is~~2016 Inducement Award Plan (collectively, the ~~primary beneficiary of the VIEs. This conclusion was reached based on the following:~~“Stock Plans”).

•the ongoing activities of the VIEs — collecting and remitting interest and fees and NMTC compliance — were all considered in the initial design and are not expected to significantly affect performance throughout the life of the VIE;

•~~contractual arrangements obligate the Company to comply with NMTC rules and regulations and provide various other guarantees to the Investor and community development entity;~~

•~~the Investor lacks a material interest in the underlying economics of the project; and~~

•~~the Company is obligated to absorb losses of the VIEs.~~

Because the Company is the primary beneficiary of the VIEs, they have been included in the consolidated financial statements. There are no other assets, liabilities or transactions in these VIEs outside of the financing transactions executed as part of the NMTC arrangement.

~~(12) DEBT~~

Construction Loan Agreement

~~Table of Contents~~

~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

As a condition to Fifth ~~Third’s~~Third Bank’s initial advance of loan proceeds under the Construction Loan Agreement, the Company was required to first invest at least $16.4 million of its own cash into the construction project. The Company fulfilled its required initial investment and made its first draw on the Construction Loan in June 2018. In December 2019, the Company began making monthly payments towards the outstanding principal balance plus accrued interest. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the outstanding balance was ~~$24.5~~$23.4 million and ~~$25.0~~$23.8 million, respectively, from the Construction Loan, including $0.7 million of interest incurred, which is accrued for as an interest reserve and represents a portion of the loan balance. The Company capitalized the $0.7 million of interest to the construction project. The Company incurred approximately $0.2 million of debt issuance costs related to the Construction Loan, which are recorded as a direct deduction from the liability. The debt issuance costs are being amortized over the life of the Construction Loan.

The Construction Loan Agreement was amended effective June 30, 2020 to include a financial covenant to maintain a minimum liquidity of $250 million and remove the minimum tangible net worth covenant. ~~Prior to the amendment, the Company was not in compliance with a minimum tangible net worth covenant due to the combination with Genomic Health.~~ As of ~~June 30, 2020,~~March 31, 2021, the Company is in compliance with the covenant included in the amended agreement.

Tax Increment Financing Loan Agreements

The Company entered into 2 separate Tax Increment Financing Loan Agreements (“TIFs”) in February 2019 and June 2019 with the City of Madison, Wisconsin. The TIFs provide for $4.6 million of financing in the aggregate. In return for the loans, the Company is obligated to create and maintain 500 full-time jobs over a ~~five-year~~five-year period, starting on the date of occupancy of the buildings constructed. In the event that the job creation goals are not met, the Company would be required to pay a penalty.

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

~~By the end~~As of December 31, 2019, the Company had earned and received payment of the full $4.6 million from the City of Madison. As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the ~~Company has recorded a~~corresponding liability, ~~of $ $1.1 million and $2.7 million, respectively, in other current liabilities on the Company’s condensed consolidated balance sheets, reflecting~~which reflected when the expected benefit of the ~~financial benefits~~tax credit amortization ~~will~~would reduce future operating ~~expenses.~~expenses, has been fully amortized.

3720

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

(9) CONVERTIBLE NOTES

Convertible note obligations included in the condensed consolidated balance sheet consisted of the following as of March 31, 2021:


							Fair Value (2)
(In thousands)	Principal Amount		Unamortized Debt Discount and Issuance Costs		Net Carrying Amount		Amount		Leveling
2028 Convertible notes - 0.375%	$	1,150,000	$	(21,125)	$	1,128,875	$	1,493,563	2
2027 Convertible notes - 0.375%	747,500		(13,383)		734,117		1,011,255		2
2025 Convertible notes - 1.000% (1)	315,023		(2,191)		312,832		594,921		2

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


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

______________

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

Issuances and Settlements

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

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

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

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

Summary of Conversion Features

Ranking of Convertible Notes

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

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


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

Interest expense includes the following:


	Three Months Ended March 31,
(In thousands)	2021		2020
Coupon interest expense	$	2,567	$	1,932
Amortization of debt discount and issuance costs	1,449		1,009
Loss on settlement of convertible notes	0		50,819
Total interest expense on convertible notes	4,016		53,760
Other interest expense	600		844
Total interest expense	$	4,616	$	54,604

(10) LICENSE AND COLLABORATION AGREEMENTS

Mayo

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

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In addition to granting the Company a license to the covered Mayo intellectual property, Mayo provides the Company with product development and research and development assistance pursuant to the license agreement and other collaborative arrangements. In September 2020, Mayo also agreed to make available certain personnel to provide such assistance through January 2025. In connection with this collaboration, the Company incurred charges of $1.2 million and $1.0 million for the three months ended March 31, 2021 and 2020, respectively. The charges incurred in connection with this collaboration are recorded in research and development expenses in the Company’s condensed consolidated statements of operations.

John Hopkins University (“JHU”)

(11) PFIZER PROMOTION AGREEMENT

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

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(12) STOCKHOLDERS’ EQUITY

Thrive Acquisition Stock Issuance

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

Paradigm and Viomics Acquisition Stock Issuance

In March 2020, the Company completed the acquisitions of Paradigm and Viomics. The purchase price for these acquisitions consisted of cash and stock valued at $40.4 million. Of the $40.4 million purchase price, $32.2 million is expected to be settled through the issuance of 0.4 million shares of common stock. Of the $32.2 million that will be settled through the issuance of common stock, $28.8 million was issued as of March 31, 2021, and the remainder was withheld and may become issuable as additional merger consideration on June 3, 2021 subject to the terms and conditions of the acquisition agreements.

Changes in Accumulated Other Comprehensive Income (Loss)

The amount recognized in AOCI for the three months ended March 31, 2021 were as follows:


(In thousands)	Unrealized Gain (Loss) on Marketable Securities		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2020	$	526	$	526
Other comprehensive loss before reclassifications	(292)		(292)
Amounts reclassified from accumulated other comprehensive loss	(40)		(40)
Net current period change in accumulated other comprehensive loss, before tax	(332)		(332)
Income tax expense related to items of other comprehensive income	170		170
Balance at March 31, 2021	$	364	$	364

The amounts recognized in AOCI for the three months ended March 31, 2020 were as follows:


(In thousands)	Foreign Currency Translation Adjustments		Unrealized Gain (Loss) on Marketable Securities (1)		Accumulated Other Comprehensive Income (Loss)
Balance at December 31, 2019	$	(25)	$	(75)	$	(100)
Other comprehensive loss before reclassifications	0		(1,642)		(1,642)
Amounts reclassified from accumulated other comprehensive loss	25		0		25
Net current period change in accumulated other comprehensive loss	25		(1,642)		(1,617)
Balance at March 31, 2020	$	0	$	(1,717)	$	(1,717)

______________

(1)There was no tax impact from the amounts recognized in AOCI for the three months ended March 31, 2020.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Amounts reclassified from AOCI for the three months ended March 31, 2021 and 2020 were as follows:


	Affected Line Item in the Statements of Operations	Three Months Ended March 31,
Details about AOCI Components (In thousands)		2021		2020
Change in value of available-for-sale investments
Sales and maturities of available-for-sale investments	Investment income, net	$	(40)	$	0
Foreign currency adjustment	General and administrative	0		25
Total reclassifications		$	(40)	$	25

(13) STOCK-BASED COMPENSATION

Stock-Based Compensation Plans

Stock-Based Compensation Expense

The Company records stock-based compensation expense in connection with the amortization of restricted stock and restricted stock unit awards (“RSUs”), stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees, non-employee consultants and non-employee directors. The Company recorded $163.5 million and $29.6 million in stock-based compensation expense during the three months ended March 31, 2021 and 2020, respectively.

As of March 31, 2021, there was $492.3 million of expected total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. The Company expects to recognize that cost over a weighted average period of 3.0 years.

In connection with the acquisition of Thrive, the Company accelerated the vesting of shares of previously unvested stock options and restricted stock units for employees with qualifying termination events. During the three months ended March 31, 2021, the Company accelerated 99,014 shares of previously unvested stock options and 27,479 shares of previously unvested restricted stock awards and restricted stock units. During the three months ended March 31, 2021, the Company recorded $13.5 million of non-cash stock-based compensation for the accelerated awards. As further discussed in Note 17, the Company also recorded $86.2 million in stock-based compensation related to accelerated vesting of awards held by Thrive employees in connection with the acquisition.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Stock Options

The Company determines the fair value of each service-based option award on the date of grant using the Black-Scholes option-pricing model, which utilizes several key assumptions which are disclosed in the following table:


	Three Months Ended March 31,
	2021	2020
Option Plan Shares
Risk-free interest rates	(1)	1.26% - 1.47%
Expected term (in years)	(1)	6.15
Expected volatility	(1)	65.67% - 65.71%
Dividend yield	(1)	0%

______________

(1)The Company did not grant stock options under its 2010 Omnibus Long-Term Incentive Plan or 2019 Omnibus Long-Term Incentive Plan during the period.

A summary of stock option activity under the Stock Plans is as follows:


Options	Shares	Weighted Average Exercise Price (1)		Weighted Average Remaining Contractual Term(Years)	Aggregate Intrinsic Value(1)
(Aggregate intrinsic value in thousands)
Outstanding, January 1, 2021	2,231,059	$	39.67	6.0
Granted	0	0
Assumed through acquisition	1,393,748	5.51
Exercised	(967,135)	9.06
Forfeited	(24,850)	66.87
Outstanding, March 31, 2021	2,632,822	$	32.57	6.5	$	261,190
Vested and expected to vest, March 31, 2021	2,632,822	$	32.57	6.5	$	261,190
Exercisable, March 31, 2021	1,895,614	$	25.36	5.8	$	201,724

______________

(1)The weighted average grant date fair value of options granted during the three months ended March 31, 2020 was $58.86.

(2)The total intrinsic value of options exercised during the three months ended March 31, 2021 and 2020 was $126.0 million and $10.2 million, respectively, determined as of the date of exercise.

The Company received approximately $8.8 million and $4.3 million from stock option exercises during the three months ended March 31, 2021 and 2020, respectively.

Restricted Stock and Restricted Stock Units

The fair value of restricted stock and restricted stock units is determined on the date of grant using the closing stock price on that day.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

A summary of restricted stock and restricted stock unit activity during the three months ended March 31, 2021 is as follows:


Restricted stock and restricted stock units	Shares	Weighted Average Grant Date Fair Value (2)
Outstanding, January 1, 2021	3,968,214	$	79.39
Granted	1,540,278	143.66
Assumed through acquisition	242,123	127.79
Released (1)	(1,197,282)	67.58
Forfeited	(86,286)	94.47
Outstanding, March 31, 2021	4,467,047	$	107.05

______________

(1)The fair value of restricted stock units vested and converted to shares of the Company’s common stock was $80.9 million and $54.6 million during the three months ended March 31, 2021 and 2020, respectively.

(2)The weighted average grant date fair value of the restricted stock units granted during the three months ended March 31, 2020 was $93.21.

Performance Share Units

The Company issued performance-based equity awards to certain employees which vest upon the achievement of certain performance goals, including financial performance targets and operational milestones.

In February 2021, the Company issued additional performance-based equity awards to certain employees which vest upon the achievement of certain performance goals, including financial performance targets and operational milestones.

A summary of performance share-based compensation arrangements granted under all equity compensation unit activity is as follows:


Performance share units	Shares (1)	Weighted Average Grant Date Fair Value (2)
Outstanding, January 1, 2021	618,515	$	93.22
Granted	229,618	147.81
Released	0	0
Forfeited	(2,075)	147.81
Outstanding, March 31, 2021	846,058	$	107.90

______________

(1)The performance share units listed above assumes attainment of maximum payout rates as set forth in the performance criteria. Applying actual or expected payout rates, the number of outstanding performance share units as of March 31, 2021 was 239,533.

(2)The weighted average grant date fair value of the performance share units granted during the three months ended March 31, 2020 was $98.18.

Employee Stock Purchase Plan (“ESPP”)

There were no shares issued under the 2010 Employee Stock Purchase Plan during the three months ended March 31, 2021 and 2020.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

(14) COMMITMENTS AND CONTINGENCIES

Leases

Supplemental disclosure of cash flow information related to the Company’s cash and non-cash activities with its ~~operating~~ leases are as follows:


		Six Months Ended June 30, 2020								Three Months Ended March 31, 2021
(In thousands)	(In thousands)	2020		2019		(In thousands)	2021			2020
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Operating cash flows from operating leases	$	12,289	$	2,419	Operating cash flows from operating leases	$	5,558		$	5,619
Operating cash flows from finance leases						Operating cash flows from finance leases	248			5
Finance cash flows from finance leases						Finance cash flows from finance leases	1,203			61
Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Right-of-use assets obtained in exchange for new operating lease liabilities (1)	Right-of-use assets obtained in exchange for new operating lease liabilities (1)	13,024		20,511		Right-of-use assets obtained in exchange for new operating lease liabilities (1)	40,406			1,254
Right-of-use assets obtained in exchange for new finance lease liabilities						Right-of-use assets obtained in exchange for new finance lease liabilities	639			663
Weighted-average remaining lease term - operating leases (in years)						Weighted-average remaining lease term - operating leases (in years)	8.69			9.50
Weighted-average remaining lease term - finance leases (in years)						Weighted-average remaining lease term - finance leases (in years)	3.45			2.60
Weighted-average discount rate - operating leases						Weighted-average discount rate - operating leases	6.41		%	6.78		%
Weighted-average discount rate - finance leases						Weighted-average discount rate - finance leases	5.66		%	5.44		%

~~______________~~_____________

(1)For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2021, this includes right-of-use assets ~~obtained from~~acquired as part of the ~~initial adoption~~acquisition of ~~ASC 842~~Thrive of ~~approximately $17.9~~$39.0 million.

As of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company’s right-of-use assets from operating leases are ~~$132.8~~$161.7 million and ~~$126.4~~$125.9 million, respectively, which are reported in operating lease right-of-use assets in the Company’s condensed consolidated balance sheets. As of ~~June 30, 2020,~~March 31, 2021, the Company has outstanding operating lease obligations of ~~$136.5~~$172.7 million, of which ~~$9.9~~$15.3 million is reported in operating lease liabilities, current portion and ~~$126.6~~$157.4 million is reported in operating lease liabilities, less current portion in the Company’s condensed consolidated balance sheets. As of December 31, ~~2019,~~2020, the Company had outstanding operating lease obligations of ~~$126.6~~$132.6 million, of which ~~$7.9~~$11.5 million is reported in operating lease liabilities, current portion and ~~$118.7~~$121.1 million is reported in operating lease liabilities, less current portion in the Company’s condensed consolidated balance sheets. The Company calculates its incremental borrowing rates for specific lease terms, used to discount future lease payments, as a function of the U.S. Treasury rate and an indicative Moody’s rating for operating leases.

As of March 31, 2021 and December 31, 2020, the Company’s right-of-use assets from finance leases are $17.9 million and $18.6 million, respectively, which are reported in other long-term assets, net in the Company’s condensed consolidated balance sheets. As of March 31, 2021, the Company has outstanding finance lease obligations of $18.1 million, of which $4.9 million is reported in other current liabilities and $13.2 million is reported in other long-term liabilities in the Company’s condensed consolidated balance sheets. As of December 31, 2020, the Company had outstanding finance lease obligations of $18.7 million, of which $4.7 million is reported in other current liabilities and $14.0 million is reported in other long-term liabilities in the Company’s condensed consolidated balance sheets. The ~~Company’s weighted average~~Company calculates its incremental borrowing rates for specific lease terms, used to discount future lease payments, as a function of the U.S. Treasury rate and ~~weighted average~~an indicative Moody’s rating for finance leases.

The Company executed a lease ~~term remaining on~~agreement for a new facility in Redwood City, California that will commence in the second quarter of 2021. The Company anticipates that it will recognize $8.5 million for the operating lease right-of-use assets and $8.4 million for the operating lease liabilities ~~is approximately 6.83%~~in the condensed consolidated balance sheet, respectively, upon commencement of the lease. The Company executed a lease agreement for a new facility in La Jolla, California that will commence in 2021. The Company anticipates that it will recognize $22.8 million for the operating lease right-of-use assets and ~~9.20 years, respectively.~~$22.8 million for the operating lease liabilities in the condensed consolidated balance sheet, respectively, upon commencement of the lease.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Legal Matters

The Company is currently responding to civil investigative demands initiated by the United States Department of Justice (“DOJ”) ~~is investigating~~concerning (1) Genomic ~~Health's~~Health’s compliance with the Medicare Date of Service billing ~~regulation. In March 2017, Genomic Health received a civil investigative demand (“CID”) from~~regulations and (2) allegations that the ~~U.S. Attorney's Office~~Company offered or gave gift cards to patients in exchange for returning the ~~Eastern District~~Cologuard screening test, in violation of ~~New York in connection~~the Federal Anti-Kickback Statute and False Claims Act. The Company has been cooperating with ~~this matter~~these inquires and has produced ~~specific~~ documents in response ~~to the CID. In July 2019 and January 2020, Genomic Health received additional subpoenas~~thereto. Adverse outcomes from ~~the DOJ related to this inquiry and the Company is cooperating with those requests. An adverse outcome~~these investigations could include the Company being required to pay treble damages, incur civil and criminal penalties, paying attorneys' fees, entering into a corporate integrity agreement, being excluded from participation in government healthcare programs, including Medicare and Medicaid, and other adverse actions that could materially and adversely affect the Company's business, financial condition and results of ~~operation..~~

~~The DOJ's investigation is still in process and~~operation. Refer to the ~~scope and outcome of the investigation is not determinable at this time. See Note 16~~Company’s 2020 Form 10-K for additional information on the Company's fair value determination of ~~this~~the pre-acquisition loss ~~contingency.~~contingency related to the Genomic Health investigation.

In connection with the Company's combination with Genomic Health, on June 22, 2020, Suzanne Flannery, a purported former stockholder of Genomic Health, filed a Verified Individual and Class Action Complaint in the Delaware Court of Chancery, captioned Flannery v. Genomic Health, Inc., et al., C.A. No. 2020-0492. Flannery amended her complaint on November 23, 2020. The amended complaint asserts individual and class action claims, including: (i) a violation of 8 Del. C. § 203 by Genomic Health, Exact Sciences and a purported controlling group of former Genomic Health stockholders; (ii) conversion by Genomic Health, Exact Sciences and Spring Acquisition Corp.; (iii) breach of fiduciary duty by Genomic Health's former directors; (iv) breach of fiduciary duty by the purported controlling group; and (v) aiding and abetting breach of fiduciary duty against Exact Sciences, Spring Acquisition and Goldman Sachs & Co. LLC, Genomic Health's financial advisor in the combination. The amended complaint seeks, among other things, declaratory relief, unspecified monetary damages and attorneys' fees and costs. All defendants moved to dismiss the amended complaint. Oral argument on defendants’ motions to dismiss the amended complaint has been set for May 2021.

These investigations and litigation matters are still in process and their scope and outcome is not determinable at this time. There can be no assurance that any settlement, resolution, or other outcome of ~~this matter~~these matters during any subsequent reporting period will not have a material adverse effect on the Company’s results of operations or cash flows for that period or on the Company’s financial position.

(15) NEW MARKET TAX CREDIT

The Investor and its majority owned community development entity are considered Variable Interest Entities (“VIEs”) and the Company is the primary beneficiary of the VIEs. This conclusion was reached based on the following:

•contractual arrangements obligate the Company to comply with NMTC rules and regulations and provide various other guarantees to the Investor and community development entity;

•the Investor lacks a material interest in the underlying economics of the project; and

•the Company is obligated to absorb losses of the VIEs.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~(14)~~Because the Company is the primary beneficiary of the VIEs, they have been included in the consolidated financial statements. There are no other assets, liabilities or transactions in these VIEs outside of the financing transactions executed as part of the NMTC arrangement.

(16) WISCONSIN ECONOMIC DEVELOPMENT TAX CREDITS

During the first quarter of 2015, the Company entered into an agreement with the Wisconsin Economic Development Corporation (“WEDC”) to earn $9.0 million in refundable tax credits on the condition that the Company expends $26.3 million in capital investments and establishes and maintains 758 full-time positions over a ~~seven-year~~seven-year period. The tax credits earned are first applied against the tax liability otherwise due, and if there is no such liability present, the claim for tax credits will be reimbursed in cash to the Company. The maximum amount of the refundable tax credit to be earned for each year is fixed, and the Company earns the credits by meeting certain capital investment and job creation thresholds over the ~~seven-year~~seven-year period. Should the Company earn and receive the job creation tax credits but not maintain those full-time positions through the end of the agreement, the Company may be required to pay those credits back to the WEDC.

The Company records the earned tax credits as job creation and capital investments occur. The amount of tax credits earned is recorded as a liability and amortized as a reduction of operating expenses over the expected period of benefit. The tax credits earned from capital investment are recognized as an offset to depreciation expense over the expected life of the acquired capital assets. The tax credits earned related to job creation are recognized as an offset to operational expenses over the life of the agreement, as the Company is required to maintain the minimum level of full-time positions through the ~~seven-year~~seven-year period.

As of ~~June 30, 2020,~~March 31, 2021, the Company has earned all $9.0 million of the refundable tax credits and has received payment of ~~$5.9~~$7.5 million from the WEDC. The unpaid portion is ~~$3.1~~$1.5 million, of which ~~$1.6 million~~ is reported in prepaid expenses and other current ~~assets and $1.5 million is reported in other long-term~~ assets, reflecting when collection of the refundable tax credits is expected to occur. As of ~~June 30,~~March 31, 2021 and December 31, 2020, the ~~Company also has recorded a $1.1 million~~corresponding liability, ~~in other current liabilities,~~ which ~~reflects~~reflected when the expected benefit of ~~the~~ tax credit amortization ~~will~~would reduce future operating ~~expenses.~~expenses, has been fully amortized.

During the three ~~and six~~ months ended ~~June 30,~~March 31, 2020, the Company amortized $0.6 million and $1.2 million, respectively, of the tax credits earned as a reduction of operating expenses. During the three and six months ended June 30, 2019, the Company amortized $0.6 million and $1.2 million, respectively, of the tax credits earned as a reduction of operating expenses.

~~(15) CONVERTIBLE NOTES~~(17) BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

~~Convertible note obligations~~Business Combinations

Thrive Earlier Detection Corporation

On January 5, 2021, the Company completed the acquisition (“Thrive Merger”) of all of the outstanding capital stock of Thrive. Thrive, headquartered in Cambridge, Massachusetts, is a healthcare company dedicated to incorporating earlier cancer detection into routine medical care. The Company expects that combining Thrive's early-stage screening test, CancerSEEK, with the Company’s scientific platform, clinical organization and commercial infrastructure will establish the Company as a leading competitor in blood-based, multi-cancer screening. The Company has included the financial results of Thrive in the ~~condensed~~ consolidated ~~balance sheets consisted~~financial statements from the date of the ~~following:~~

(In thousands) Coupon Interest Rate Effective Interest
Rate Fair Value of Liability Component at
Issuance (1) June 30, 2020 December 31, 2019
2028 Convertible notes 0.375% 5.2% $ 790,608 $ 1,150,000 $ —
2027 Convertible notes 0.375% 6.3% 472,501 747,500 747,500
2025 Convertible notes 1.000% 6.0% 227,103 315,049 415,049
Total Convertible notes 2,212,549 1,162,549
Less: Debt discount (2) (648,281) (342,463)
Less: Debt issuance costs (3) (29,885) (16,481)
Net convertible debt $ 1,534,383 $ 803,605

~~______________~~

~~(1)~~As each of the convertible instruments may be settled in cash upon conversion, for accounting purposes, they were separated into a liability component and an equity component. The amount allocated to the equity component is the difference between the principal value of the instrument and the fair value of the liability component at issuance. The resulting debt discount is being amortized to interest expense at the respective effective interest rate over the contractual term of the debt. A portion of the 2025 Convertible Notes have beencombination.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~extinguished or converted.~~The combination date fair value of the consideration transferred for Thrive was approximately $2.19 billion, which consisted of the following:


(In thousands)
Common stock issued	$	1,175,431
Cash	584,996
Contingent consideration	331,348
Fair value of replaced equity awards	52,245
Previously held equity investment fair value	43,034
Total purchase price	$	2,187,054

The Company issued 9,323,266 common shares that had a fair value of $1.19 billion based on the average of the high and low market price of the Company's shares on the acquisition date, which was $127.79. Of the total consideration for common stock issued, $1.18 billion was allocated to the purchase consideration and $16.0 million was recorded as compensation within general and administrative expenses in the condensed consolidated statement of operations on the acquisition date due to accelerated vesting of legacy Thrive restricted stock awards (“RSA”) and RSU awards in connection with the acquisition.

The company paid $590.2 million in cash on the acquisition date. Of the total consideration for cash, $585.0 million was allocated to the purchase consideration and $5.2 million was recorded as compensation within general and administrative expenses on the acquisition date due to accelerated vesting of legacy Thrive RSU and RSA awards that were cash-settled in connection with the acquisition.

The contingent consideration arrangement requires the Company to pay up to $450.0 million of additional cash consideration to Thrive’s former shareholders upon the achievement of two discrete events, FDA approval and CMS coverage, for $150.0 million and up to $300.0 million, respectively. The fair value of the ~~liability component~~contingent consideration arrangement at ~~issuance reflected above represents~~ the ~~liability value at issuance for the applicable portion of the 2025 Notes which remain outstanding at June 30, 2020.~~acquisition date was $352.0 million. The fair value of the ~~liability component~~contingent consideration was estimated using a probability-weighted scenario based discounted cash flow model. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. The key assumptions are described in Note 7. Of the total fair value of the ~~2025 Notes at issuance~~contingent consideration, $331.3 million was ~~$654.8~~allocated to the consideration transferred, $6.4 million ~~with~~was allocated to the Company’s previous ownership interest in Thrive, and $14.3 million was deemed compensatory as participation is dependent on replaced unvested equity ~~component being $269.7 million.~~

~~(2)The unamortized discount consists of~~awards vesting which requires future service. Compensation expense related to the ~~following:~~

(In thousands) June 30, 2020 December 31, 2019
2028 Convertible notes $ 347,191 $ —
2027 Convertible notes 239,267 253,340
2025 Convertible notes 61,823 89,123
Total unamortized discount $ 648,281 $ 342,463

~~(3)Debt issuance costs consists of the following:~~

(In thousands) June 30, 2020 December 31, 2019
2028 Convertible notes $ 16,098 $ —
2027 Convertible notes 9,525 10,251
2025 Convertible notes 4,262 6,230
Total debt issuance costs $ 29,885 $ 16,481

~~Issuances and Settlements~~

~~In January 2018, the Company issued and sold $690.0~~milestones could be up to $18.2 million in aggregate principal amount of 1.0% Convertible Notes (the “January 2025 Notes”) with a maturity date of January 15, 2025. The January 2025 Notes accrue interest at a fixed rate of 1.0% per year, payable semi-annually in arrears on January 15 and July 15 of each year, beginning on July 15, 2018. The net proceeds from the issuance of the January 2025 Notes were approximately $671.1 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.

In June 2018, the Company issued and sold an additional $218.5 million in aggregate principal amount of 1.0% Convertible Notes (the “June 2025 Notes”). The June 2025 Notes were issued under the same indenture pursuant to which the Company previously issued the January 2025 Notes (the “Indenture”). The January 2025 Notes and the June 2025 Notes (collectively, the “2025 Notes”) have identical terms (including the same January 15, 2025 maturity date)undiscounted and will be ~~treated~~recognized in the future once probable and payable. As of March 31, 2021, there were no significant changes in the range of outcomes for the contingent consideration recognized as a ~~single series of securities. The net proceeds from the issuance~~result of the ~~June 2025 Notes were approximately $225.3~~acquisition of Thrive, although the recognized amount increased by $2.9 million ~~after deducting underwriting discounts and commissions and the offering expenses payable by the Company.~~

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

The Company ~~utilized~~replaced unvested stock options, RSUs, and RSAs and vested stock options with a ~~portion~~combination-date fair value of $197.0 million. Of the total consideration for replaced equity awards, $52.2 million was allocated to the consideration transferred and $144.8 million was deemed compensatory as it was attributable to post acquisition vesting. Of the total compensation related to replaced awards, $65.0 million was expensed on the acquisition date due to accelerated vesting of stock options in connection with the acquisition and $79.8 million relates to future services and will be expensed over the remaining service periods of the ~~proceeds from~~unvested stock options, RSUs, and RSAs on a straight-line basis. Including expense recognized for accelerated vesting of RSUs and RSAs described above, total expected stock-based compensation expense is $166.0 million, of which $86.2 million was recognized immediately to general and administrative expenses in the ~~issuance~~condensed consolidated statement of operations due to accelerated vesting.

The fair value of the ~~2027 Notes to settle a portion~~stock options assumed by the Company was determined using the Black-Scholes option pricing model. The fair value of the ~~2025 Notes in privately negotiated transactions. In March 2019,~~RSA and RSUs assumed by the Company ~~used cash~~was determined based on the average of ~~$494.1 million~~the high and ~~an aggregate~~low market price of ~~2.2 million~~the Company's shares on the acquisition date. The share conversion ratio of 0.06216 was applied to convert Thrive’s outstanding equity awards for Thrive’s common stock into equity awards for shares of the Company’s common stock valued at $182.4 million for total consideration of $676.5 million to settle $493.4 million of the 2025 Notes, of which $375.0 million was allocated to the liability component, $300.8 million was allocated to the equity component, and $0.7 million was used to pay off interest accrued on the 2025 Notes. The consideration transferred was allocated to the liability and equity components of thestock.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~2025 Notes using~~The fair value of options assumed were based on the equivalent rate that reflected the borrowing rate for a similar non-convertible debt instrument immediately prior to settlement. The transaction resulted in a loss on settlement of convertible notes of $10.6 million, which is recorded in interest expenseassumptions in the following table:


Option Plan Shares Assumed
Risk-free interest rates						0.11% - 0.12%
Expected term (in years)						1.26 - 1.57
Expected volatility						65.54% - 71.00%
Dividend yield						0%
Weighted average fair value per share of options assumed						$109.74 - $124.89

The company previously held a preferred stock investment of $12.5 million in Thrive and recognized a gain of approximately $30.5 million on the transaction within investment income, net on the Company’s ~~condensed~~ consolidated statement of ~~operations.~~operations, which represented the adjustment of the Company’s historical investment to the acquisition date fair value. The ~~loss represents~~fair value of the ~~difference between (i)~~Company’s previous ownership in Thrive was determined based on the pro-rata share payout applied to the Company’s interest combined with the fair value of the ~~liability component and (ii) the sum~~Company’s share of the ~~carrying value~~contingent consideration arrangement, as discussed above.

The following table summarizes the estimated fair values of the ~~debt component~~assets acquired and ~~any unamortized debt issuance costs~~liabilities assumed at the ~~time of repurchase.~~acquisition date.

In February 2020, the Company issued and sold $1,150.0 million in aggregate principal amount of 0.375% Convertible Notes (the “2028 Notes” and, collectively with the 2025 Notes and the 2027 Notes, the “Notes”) with a maturity date of March 1, 2028. The 2028 Notes accrue interest at a fixed rate of 0.375% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2020. The net proceeds from the issuance of the 2028 Notes were approximately $1,125.6 million, after deducting underwriting discounts and commissions and the offering expenses payable by the Company.


(In thousands)
Cash and cash equivalents	$	241,748
Prepaid expenses and other current assets	3,939
Property, plant and equipment	29,977
Operating lease right-of-use assets	39,027
Other long-term assets	67
In-process research and development (IPR&D)	1,250,000
Total identifiable assets acquired	$	1,564,758

Accounts payable	(3,222)
Accrued liabilities	(6,218)
Operating lease liabilities, current portion	(2,980)
Operating lease liabilities, less current portion	(38,622)
Deferred tax liability	(272,905)
Total liabilities assumed	$	(323,947)
Net identifiable assets acquired	$	1,240,811

Goodwill	946,243
Net assets acquired	$	2,187,054

In February 2020, the Company used $150.1 million of the proceeds from the issuance of the 2028 Notes to settle $100.0 million of the 2025 Notes, of which $85.5 million was allocated to the liability component, $64.2 million, net of a tax impact of $0.3 million, was allocated to the equity component, and $0.1 million was used to pay off interest accrued on the 2025 Notes. The consideration transferred was allocated to the liability and equity components of the 2025 Notes using the equivalent rate that reflected the borrowing rate for a similar non-convertible debt instrument immediately prior to settlement. The transaction resulted in a loss on settlement of convertible notes of $8.0 million, which is recorded in interest expense in the Company’s condensed consolidated statement of operations. The lossIPR&D represents ~~the difference between (i)~~ the fair value assigned to research and development assets that have not reached technological feasibility. The primary basis for determining technological feasibility of these projects is obtaining regulatory approval to market the underlying product and expected commercial release. The amounts capitalized are accounted for as indefinite-lived intangible assets, subject to impairment testing, until completion or abandonment of the ~~liability component~~research and ~~(ii)~~development efforts associated with the ~~sum~~projects. The company recorded $1.25 billion of IPR&D related to a project associated with the ~~carrying value~~development of an FDA approved blood-based, multi cancer screening test. The IPR&D asset was valued using the ~~debt component~~multiple-period excess earnings method approach, which involves significant unobservable inputs (Level 3 inputs). These inputs include projected sales, margin, required rate of return and ~~any unamortized debt issuance costs at~~tax rate, as well as estimates of achievement probability and timing related to the ~~time of repurchase.~~

~~Summary of Conversion Features~~

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

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

~~Based on the closing price of our common stock of $86.94 on June 30, 2020, the if-converted values on our Notes do not exceed the principal amount.~~Note 10.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~Ranking of Convertible Notes~~

The Notes are the Company’s senior unsecured obligations and (i) rank senior in right of payment to all of its future indebtedness that is expressly subordinated in right of payment to the Notes; equal in right of payment to allcalculation of the ~~Company’s future liabilities that are not so subordinated, unsecured indebtedness; (ii) are effectively junior to all~~excess of ~~our existing and future secured indebtedness and other secured obligations, to~~ the ~~extent of~~purchase price over the estimated fair value of the tangible net assets ~~securing~~and intangible assets acquired was recorded to goodwill, which is primarily attributed to the research and development workforce expertise, next generation sequencing capabilities and expected synergies. The total goodwill related to this combination is not deductible for tax purposes.

The total purchase price allocation is preliminary and based upon estimates and assumptions that ~~indebtedness~~are subject to change within the measurement period as additional information for the estimates is obtained. The measurement period remains open pending the completion of valuation procedures related to certain acquired assets and ~~other secured obligations; and (iii) are structurally subordinated to all indebtedness and other~~ liabilities assumed, primarily in connection with the IPR&D asset, as well as finalization of the pre-combination income tax returns.

The net loss before tax of Thrive included in the Company’s ~~subsidiaries.~~consolidated statement of operations from the combination date of January 5, 2021 to March 31, 2021 was $142.8 million.

~~While~~The following unaudited pro forma financial information summarizes the ~~Notes~~combined results of operations for the Company and Thrive, as though the companies were combined as of the beginning of January 1, 2020.


	Three Months Ended March 31,
(In thousands)	2021		2020
Total revenues	$	402,077	$	347,821
Net loss before tax	(192,569)		(230,359)

The unaudited pro forma financial information for all periods presented above has been calculated after adjusting the results of Thrive to reflect the business combination accounting effects resulting from this combination. The Company incurred $86.2 million of stock-based compensation expense related to accelerated vesting in connection with the acquisition, $13.5 million of stock-based compensation expense related to accelerated vesting for employees with qualifying termination events, and $10.3 million of transaction costs incurred to execute the acquisition. These expenses are ~~currently classified~~included in general and administrative expenses on the condensed consolidated statement of operations for the three months ended March 31, 2021 and are reflected in pro forma earnings for the three months ended March 31, 2020 in the table above. The Company recorded a realized gain of $30.5 million during the three months ended March 31, 2021 in investment income, net on the Company’s condensed consolidated ~~balance sheets at June 30, 2020 as long-term, the future convertibility and resulting balance sheet classification~~statement of ~~this liability will be monitored at each quarterly reporting date and will be analyzed dependent upon market prices of~~operations relating to the Company’s ~~common stock during the prescribed measurement periods. In the event that the holders of the Notes have the election~~pre-acquisition investment in Thrive. This gain has been adjusted to ~~convert the Notes at any time during the prescribed measurement period, the Notes would then be considered a current obligation and classified as such.~~

~~The Company allocates total transaction costs of the Notes to the liability and equity components~~$7.6 million based on ~~their relative values. Transaction costs~~the Company’s interest in Thrive as of January 1, 2020 and is reflected in pro forma earnings for the three months ended March 31, 2020 in the table above. The historical consolidated financial statements have been adjusted in the unaudited pro forma combined financial information to give effect to pro forma events that are directly attributable to the ~~liability component are amortized to interest expense over the term~~business combination and factually supportable. The unaudited pro forma financial information is for informational purposes only and is not indicative of the ~~Notes,~~results of operations that would have been achieved if the combination had taken place as of January 1, 2020.

During 2021, the Company incurred $10.3 million of acquisition-related costs recorded in general and ~~transaction~~administrative expenses in the condensed consolidated statement of operations. These costs ~~attributable~~include fees associated with financial, legal, accounting and other advisors incurred to complete the merger.

In connection with acquisition-related severances, the Company recorded $13.5 million of expense related to vesting of previously unvested equity ~~component are netted with~~awards and $2.0 million of additional benefit charges in the ~~equity component in stockholders’ equity. The following table summarizes the original transaction costs at the time~~first quarter of ~~issuance for each set of Notes and the respective allocation to the liability and equity components:~~

(In thousands) January 2025 Notes June 2025 Notes 2027 Notes 2028 Notes
Transaction costs allocated to:
Liability component $ 13,569 $ 5,052 $ 11,395 $ 16,811
Equity component 5,340 2,311 6,632 7,642
Total transaction costs $ 18,909 $ 7,363 $ 18,027 $ 24,453

~~Interest expense includes the following:~~

Three Months Ended June 30, Six Months Ended June 30,
(In thousands) 2020 2019 2020 2019
Debt issuance costs amortization $ 1,139 $ 645 $ 1,961 $ 1,330
Debt discount amortization 18,946 10,074 32,677 18,468
Loss on settlement of convertible notes — — 7,954 10,558
Coupon interest expense 2,567 1,739 4,498 3,846
Total interest expense on convertible notes 22,652 12,458 47,090 34,202
Other interest expense 260 254 975 500
Total interest expense $ 22,912 $ 12,712 $ 48,065 $ 34,702

The remaining period over which the unamortized debt discount will be recognized as non-cash interest expense is 7.67, 6.71, and 4.55 years for the 2028 Notes, 2027 Notes, and 2025 Notes, respectively.

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~~EXACT SCIENCES CORPORATION~~

~~Notes to Condensed Consolidated Financial Statements~~

~~(Unaudited)~~

~~(16) BUSINESS COMBINATIONS~~2021.

Paradigm Diagnostics, Inc. and Viomics, Inc.

On March 3, 2020, the Company acquired all of the outstanding capital stock of Paradigm and Viomics, two related party companies of one another headquartered in Phoenix, Arizona, in transactions that ~~are~~were deemed to be a single business combination in accordance with ASC 805, Business Combinations, (“the Paradigm Acquisition”). Paradigm provides comprehensive genomic-based profiling tests that assist in the diagnosis and therapy recommendations for late-stage cancer. Viomics provides a platform for identification of biomarkers.

The Company entered into this acquisition to enhance its product portfolio in cancer diagnostics and to enhance its capabilities for biomarker identification.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The acquisition date fair value of the consideration to be transferred for Paradigm and Viomics was $40.4 million, which consists of $32.2 million payable in shares of the Company’s common stock and $8.2 million which was settled through a cash payment. Of the $32.2 million to be settled through the issuance of common stock, ~~$28.6~~$28.8 million was issued inas of March ~~2020,~~31, 2021, and the remaining ~~$3.6~~$3.4 million, which was withheld and may become payable as additional merger consideration, is included in other current liabilities in the condensed consolidated balance sheet as of ~~June 30, 2020.~~March 31, 2021. The purchase price was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values ~~at the date of acquisition~~ as follows:


~~(In thousands)~~
~~Net operating assets~~	$	~~5,373~~
~~Goodwill~~	~~30,431~~
~~Developed technology~~	~~7,800~~
~~Net operating liabilities~~	~~(3,203)~~
~~Total purchase price~~	$	~~40,401~~


(In thousands)	Preliminary Allocation March 3, 2020		Measurement Period Adjustments		Final Allocation March 3, 2021
Net operating assets	$	6,133	$	(760)	$	5,373
Goodwill	29,695		736		30,431
Developed technology	7,800		0		7,800
Net operating liabilities	(3,123)		(80)		(3,203)
Total purchase price	$	40,505	$	(104)	$	40,401

The measurement period adjustments primarily related to accounts receivable valuation and working capital adjustments.

The fair value of identifiable intangible assets has been determined using the income approach, which involves significant unobservable inputs (Level 3 inputs). These inputs include projected sales, margin, weighted average cost of capital and tax rate.

Developed technology represents purchased technology that had reached technological feasibility and for which development had been completed as of the acquisition date. Fair value was determined using future discounted cash flows related to the projected income stream of the developed technology for a discrete projection period. Cash flows were discounted to their present value as of the closing date. Developed technology is amortized on a straight-line basis over its estimated useful life of 15 years.

The calculation of the excess of the purchase price over the estimated fair value of the tangible net assets and intangible assets acquired was recorded to goodwill, which is primarily attributed to the assembled workforce, and expected synergies. The total goodwill related to this acquisition is not deductible for tax purposes.

The Company agreed to issue to the previous investors in Viomics equity interests with an acquisition-date fair value of up to $8.4 million in Viomics, vesting over 4 years based on certain retention arrangements. Payment is contingent upon continued employment with the Company over the four year vesting period and is recognized as stock-based compensation expense in general and administrative expense in the condensed consolidated statement of operations.

~~The partial year results from the operations of Paradigm and Viomics are included in the Company’s condensed consolidated financial statements and not disclosed separately due to immateriality.~~ Pro forma disclosures have not been included due to immateriality.

Asset Acquisitions

TARDIS License Agreement

On January 11 2021, the Company entered into a worldwide exclusive license to the proprietary TARDIS technology from TGen, an affiliate of City of Hope. Under the agreement, the Company acquired a royalty-free, worldwide exclusive license to proprietary TARDIS patents and know-how. The Company intends to develop and commercialize the TARDIS technology as a minimal residual disease (“MRD”) test. The Company accounted for this transaction as an asset acquisition. In connection with the asset acquisition, the Company paid upfront fair value consideration of $52.3 million comprised of $25.0 million in cash and issuance of 0.2 million shares of common stock valued at $27.3 million based on the average of the high and low market price of the Company’s shares on the acquisition date. In addition, the Company is obligated to make milestone payments to TGen of $10.0 million and $35.0 million upon achieving cumulative product revenue related to MRD detection and/or treatment totaling $100.0 million and $250.0 million, respectively. These payments are contingent upon achievement of these cumulative revenues on or before December 31, 2030. The upfront consideration was recorded to research and development expense in the condensed consolidated statement of operations immediately after acquisition as the asset was deemed to be incomplete and had no alternative future use at the time of acquisition. The Company will record the sales milestones once achievement is deemed probable. No acquisition related costs were incurred in this asset acquisition.

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EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~Genomic Health, Inc.~~

On November 8, 2019, the Company acquired all of the outstanding capital stock of Genomic Health. Genomic Health, headquartered in Redwood City, California, provides genomic-based diagnostic tests that address both the overtreatment and optimal treatment of early and late stage cancer.

The Company entered into this combination to create a leading global cancer diagnostics company and provide a robust platform for continued growth. This combination provides the Company with a commercial presence in more than 90 countries in which the combined company expects to continue to increase adoption of current tests, and to bring new innovative cancer tests to patients around the world.

Refer to the Company’s 2019 10-K for detailed disclosures on the combination, including the fair value of the consideration transferred, purchase price allocation, and goodwill and intangible assets identified in the transaction. During the period ended June 30, 2020, there were no material changes to the purchase price allocation.

~~(17)~~(18) SEGMENT INFORMATION

Management determined that the Company functions as a single operating segment, and thus reports as a single reportable segment. This operating segment is focused on the development and global commercialization of clinical laboratory services allowing healthcare providers and patients to make individualized treatment decisions. Management assessed the discrete financial information routinely reviewed by the Company's Chief Operating Decision Maker, its President and Chief Executive Officer, to monitor the Company's operating performance and support decisions regarding allocation of resources to its operations. Performance is continuously monitored at the consolidated level to timely identify deviations from expected results.

The following table summarizes total revenue from customers by geographic region. Product revenues are attributed to countries based on ship-to location.


		Three Months Ended June 30,						Six Months Ended June 30,							Three Months Ended March 31,
(In thousands)	(In thousands)	2020		2019		2020		2019		(In thousands)	2021		2020
United States	United States	$	249,850	$	199,870	$	576,709	$	361,913	United States	$	376,021	$	326,885
Outside of United States	Outside of United States	19,018		—		39,980		—		Outside of United States	26,056		20,936
Total revenues	Total revenues	$	268,868	$	199,870	$	616,689	$	361,913	Total revenues	$	402,077	$	347,821

Long-lived assets located in countries outside of the United States are not significant.

~~(18)~~(19) INCOME TAXES

The Company recorded an income tax benefit of ~~$0.9~~$242.8 million and ~~$0.4~~a benefit of $2.2 million for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, respectively. The Company recorded an income tax benefit of $2.6 million and $0.9 million for the six months ended June 30, 2020 and 2019,~~ respectively. The Company’s income tax benefit recorded during the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2021, is primarily related to ~~future limitations on and expiration~~an income tax benefit of ~~certain Federal and State deferred tax assets. As~~$239.2 million recorded as a result of ~~these limitations,~~ the ~~recording of a~~change in the deferred tax asset valuation allowance ~~resulted in~~resulting from the Thrive Merger. In connection with the Thrive Merger, a deferred tax liability was recorded for identified intangible assets. These deferred tax liabilities are considered a source of future taxable income which allowed the Company to reduce its pre-merger deferred tax asset valuation allowance As a result, a deferred tax liability of approximately ~~$26.5~~$38.9 million ~~remaining~~was recorded as of ~~June 30, 2020,~~March 31, 2021, which is included in other long-term liabilities on the Company’s condensed consolidated balance sheet. The Company’s income tax benefit recorded during the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020 was primarily related to ~~the intraperiod~~future limitations on and expiration of certain Federal and State deferred tax ~~allocation rules that required the Company to allocate the provision for income taxes between continuing operations and other categories of earnings.~~assets. The Company continues to maintain a full valuation allowance against its deferred tax assets based on management’s determination that it is more likely than not the benefit will not be realized.

The Company had $17.7 million and $16.6 million of unrecognized tax benefits at March 31, 2021 and December 31, 2020, respectively. These amounts have been recorded as a reduction to the Company’s deferred tax asset, if recognized they would not have an impact on the effective tax rate due to the existing valuation allowance. Certain of the Company's unrecognized tax benefits could change due to activities of various tax authorities, including possible settlement of audits, or through normal expiration of various statutes of limitations. The Company does not expect a material change in unrecognized tax benefits in the next twelve months.

As of March 31, 2021, due to the carryforward of unutilized net operating losses and research and development credits, the Company is subject to U.S.federal income tax examinations for the tax years 2001 through 2021, and to state income tax examinations for the tax years 2001 through 2021. No interest or penalties related to income taxes have been accrued or recognized as of March 31, 2021.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

~~The~~(20) SUBSEQUENT EVENTS

On April 14, 2021 the Company ~~had $11.3~~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 for a fair value of approximately $89.4 million, comprised of $73.2 million, net of cash received, and $10.2 million of unrecognized tax benefits at June 30, 2020 and December 31, 2019, respectively. The Company does not anticipate a material change to its unrecognized tax benefits over the next 12 months that would affect its effective tax rate. Unrecognized tax benefits may change during the next 12 months for items that arise in the ordinary course of business.

~~Accrued interest and penalties related to unrecognized tax benefits are recognized as part~~125,444 shares of the Company’s ~~income tax provision~~common stock with an acquisition date fair value of $16.2 million based on the average of the high and low market price of the Company’s shares on the acquisition date. An additional $20.0 million and $30.0 million would be payable in ~~its condensed consolidated statements~~cash upon the Company’s commercial launch, on or before the tenth anniversary of ~~operations. The Company~~the Ashion Acquisition, of a test for MRD detection and/or treatment (the “Commercial Launch Milestone”) and the Company’s achievement, on or before the fifth anniversary of the Ashion Acquisition of cumulative revenues from MRD products of $500.0 million (the “MRD Product Revenue Milestone”), respectively. Ashion is ~~subject~~a Clinical Laboratory Improvement Amendments (“CLIA”) certified and College of American Pathologists “(CAP”) accredited sequencing lab based in Phoenix, Arizona. Ashion developed GEMExTra®, one of the most comprehensive genomic cancer tests available, and provides access to ~~U.S. federal income tax examinations~~whole exome, matched germline, and transcriptome sequencing capabilities. Due to the proximity of the completion of the acquisition to the filing of this Form 10-Q, the accounting for the ~~tax years 2001 through 2020, state income tax examinations for~~preliminary purchase price allocation is not complete, including the ~~tax years 2003 through 2020,~~valuation of assets acquired and ~~for the years 2014 through 2020 in foreign jurisdictions.~~liabilities assumed.

~~(19) SUBSEQUENT EVENTS~~

~~In July 2020,~~On May 3, 2021, the Company acquired ~~4.0 million shares~~approximately 90% of ~~Series B Preferred Stock~~the outstanding capital stock of ~~Thrive Earlier Detection Corp.~~PFS Genomics Inc. (“~~Thrive”~~PFS”; such transaction, the “PFS Acquisition”), pursuant to a ~~private~~share purchase agreement. PFS is a healthcare company focused on personalizing treatment for ~~$10.0 million.~~breast cancer patients to improve outcomes and reduce unnecessary treatment. The Company ~~previously acquired a $1.0~~expects this acquisition to expand our ability to help guide early stage breast cancer treatment through individualized radiotherapy treatment decisions. Under the terms of the PFS Acquisition, the Company paid $30.6 million ~~investment in~~cash at closing. Due to the ~~Series A Preferred Stock~~proximity of ~~Thrive. The Series B investment, along with~~ the ~~prior Series A investment, will be reflected as non-marketable equity investments. The Company has evaluated these investments and concluded consolidation~~completion of the acquisition to the filing of this Form 10-Q, the accounting for the preliminary purchase price allocation is not required as Thrive is not a VIE and the Company does not have the ability to exercise significant influence over the investee. A member of the Company’s Board of Directors holds an investment in Thrive through his investment firm and holds a seat on the Board of Directors of Thrive. The Company has concluded that its investments in Thrive are not deemed to be related party transactions as a result of its director’s separate interests in Thrive.complete.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations

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, ~~2019,~~2020, which has been filed with the SEC (the ~~“2019~~“2020 Form 10-K”).

Forward-Looking ~~Statements~~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, anticipated results of~~results; our ~~sales, marketing~~strategies, positioning, resources, capabilities and ~~patient adherence efforts,~~ expectations ~~concerning payer reimbursement,~~for future events or performance; and the anticipated ~~results~~benefits of our ~~product development efforts.~~acquisitions, including estimated synergies and other financial impacts. Forward-looking statements are neither historical facts nor assurances of future ~~performance.~~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 ~~success of our efforts to facilitate patient access to Cologuard via telehealth; 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 ~~the adoption, modification or repeal of any law, rule, order, interpretation or policy relating to the healthcare system, including without limitation as a result of~~ any judicial, executive or legislative ~~action;~~action affecting us or the ~~effects of changes in pricing, coverage and reimbursement for our products and services, including without limitation as a result of the Protecting Access to Medicare Act of 2014;~~healthcare system; recommendations, guidelines and quality metrics issued by various organizations ~~such as the U.S. Preventive Services Task Force, the American Society of Clinical Oncology, the American Cancer Society, and the National Committee for Quality Assurance~~ 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 ~~such as through our Promotion Agreement with Pfizer, Inc.,~~ 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 ~~cannot~~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~~businesses’ operations will be greater than expected and the possibility ~~of disruptions to~~that integration efforts will disrupt our business ~~during integration efforts~~ and strain on management time and resources; the outcome of any litigation, government investigations, enforcement actions or other legal ~~proceedings;~~proceedings, including in connection with acquisitions; our ability to retain and ~~the other~~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 ~~2019~~2020 Form 10-K and subsequently filed Quarterly Reports on Form 10-Q. WeYou 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, ~~for other types of cancer,~~ 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 ~~(“U.S.”)~~ and the leading cause of cancer deaths in the ~~U.S.~~United States among non-smokers. In 2020 in the ~~U.S.~~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~~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 original premarket approval submission to the FDA for Cologuard included the results of our pivotal DeeP-C clinical trial that had over 10,000 patients enrolled at 90 sites in the U.S. and Canada. The results of our DeeP-C clinical trial for Cologuard were published in the New England Journal of Medicine in April 2014. The peer-reviewed study, “Multi-target Stool DNA Testing for Colorectal-Cancer Screening,” highlighted the performance of Cologuard in the trial population:

•~~Cancer Sensitivity: 92%~~

•~~Stage I and II Cancer Sensitivity: 94%~~

•~~High-Grade Dysplasia Sensitivity: 69%~~

•~~Specificity: 87%~~

~~Our~~ Oncotype DXIQ 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~~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 DXDX® 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.

~~We believe our~~In October 2020, we announced the introduction of the Oncotype ~~DX tests provide information~~MAPTM Pan-Cancer Tissue test, which is a rapid, comprehensive tumor profiling panel that ~~has the following benefits:~~

•~~Improved Quality of Treatment Decisions.~~ We believe our approach to genomic-based cancer analysis improves the quality of cancer treatment decisions by providing an individualized analysis of each patient’s tumor that is correlated to clinical outcome, rather than solely using subjective, anatomic and qualitative factors to determine treatments. Our Oncotype DX testsaids therapy selection for breast cancer, Ductal Carcinoma in Situ (“DCIS”), prostate cancer, and colon cancer have been analytically and clinically validated in multiple published studies. The Recurrence Score® results from our tests have been demonstrated to classify patients into recurrence risk categories different than classifications based primarily on clinical and pathologic features. Additionally, multiple decision impact studies conducted worldwide consistently show that the Recurrence Score result changes treatment decisions in more than 30% of patients. As a result, we believe our tests enable patients and healthcare providers to make more informed decisions about the risks and benefits of various treatments, and consequently design an individualized treatment plan.with advanced, metastatic, refractory, or recurrent cancer.

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•~~Improved Health Economics of Cancer Care.~~ We believe that improving the quality of treatment decisions can result in significant economic benefits. The results of a number of clinical studies have demonstrated that by using the Oncotype DX Breast Recurrence Score® test, physicians and patients can better evaluate treatment options, such as whether a patient will or will not benefit from chemotherapy. Patients are benefited when (1) those who aren’t likely to benefit from chemotherapy avoid it and the associated chemotoxicities and (2) those who are likely to benefit from chemotherapy receive it resulting in reduced incidence of distant recurrences. These better clinical outcomes increase survival rates and also save the patient as well as the healthcare system significant costs.

International Business Background and Products

~~Prior to our combination with Genomic Health, we did not have international revenue.~~ We ~~now~~ commercialize our Oncotype DXIQ tests internationally through employees in Canada, Japan and six European countries, as well as through exclusive distribution agreements. We have provided our Oncotype DXIQ 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 ~~U.S.~~

United States. Inclusion of our products in guidelines and quality measures will be critical to our international success. The Oncotype DX breast cancer test is recognized in international guidelines issued by the St. Gallen International Breast Cancer Expert Panel and European Society for Medical Oncology and has been included in certain guidelines and recommendations in England, Germany and Japan. We have obtained coverage for our invasive breast cancer test outside of the U.S., including coverage for certain patients in Canada, France, Spain, Germany, Italy, Ireland, Israel, Saudi Arabia, Switzerland, and the United Kingdom. We expect that broadening coverage and reimbursement for our Oncotype DX tests outside of the United States will take years.

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. These development efforts may lead to a variety of possible new products, including risk assessment, screening and prevention, early disease diagnosis, adjuvant and/or neoadjuvant disease treatment, metastatic disease treatment selection and patient monitoring.

Through our collaboration with Mayo Foundation for Medical Education and Research, we have successfully performed validation studies on multiple types of cancer using tissue, blood and other samples. We are currently focusing our research and development efforts on building a pipeline of potential future products and services with a focus on improving Cologuard's performance characteristics and on developing blood or other fluid-based (“liquid biopsy”) tests. We expect to advance liquid biopsy through biomarker discovery and validation in tissue, blood, or other ~~fluids.~~

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 ~~Cologuard’s~~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 and hemoglobin.~~biomarkers. To establish the performance of ~~the novel~~an enhanced multi-target stool DNA test, we ~~recently launched the BLUE-C study, a multi-center, prospective study. We~~ expect to enroll more than 10,000 patients 40 years of age and older in ~~the~~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.

~~Table~~•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 ~~Contents~~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 ~~seeking to develop~~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 ~~develop~~provide a patient-friendly test that performs better than the current ~~standard of care.~~guideline-recommended testing options. In November 2019, we released the results of a ~~443-patient~~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~~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 ~~may explore~~are exploring clinical studies to expand the use of genomic testing to address additional populations, including higher-risk patients.

~~Coronavirus (“COVID-19”) Pandemic~~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.

~~The spread~~Research and development, which includes our clinical study programs, accounts for a material portion of ~~COVID-19 has affected many segments of the global economy, including the~~our operating expenses. As we seek to enhance our current product portfolio and expand our product pipeline by developing additional cancer screening and ~~diagnostics industry. The COVID-19 outbreak, which the World Health Organization has classified as a pandemic, has prompted governments~~diagnostic tests, we expect that our research and regulatory bodies throughout the world to enact broad precautionary measures, including “stay at home” orders, restrictions on the performance of “non-essential” services, public gatherings and travel. Health systems, including in key markets where we operate, have been, or may be, overwhelmed with high volumes of patients suffering from COVID-19. The territories in which we market, sell, distribute and perform our tests are attempting to address the COVID-19 pandemic in varying ways, including stay-at-home orders, temporarily closing businesses, restricting gatherings, restricting travel, and mandating social distancing and face coverings. Certain jurisdictions have begun re-opening only to return to restrictions due to increases in new COVID-19 cases. The level and nature of the disruption caused by COVID-19 is unpredictable, may be cyclical and long-lasting and may vary from location to location.

~~The pandemic and related precautionary measures began to materially disrupt our business in March 2020 and may~~development expenditures will continue to disrupt our business for an unknown period of time. As a result, we anticipate significant impact to our 2020 operating results, including our revenues, margins, and cash utilization, among other measures.

Beginning in March 2020, we undertook temporary precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring most employees to work remotely; suspending field-based, face-to-face interactions by our sales force; requiring on-site employees to undergo COVID-19 testing, wear personal protective equipment (including face masks or shields) and maintain social distancing; pausing all non-essential travel worldwide for our employees; and limiting employee attendance at industry events and in-person work-related meetings, to the extent those events and meetings are continuing. Our commercial partner for Cologuard, Pfizer, Inc. (“Pfizer”) has taken similar precautions, including suspending face-to-face interactions between sales representatives and healthcare providers.

We expect to adjust our precautionary measures at our various locations based on local recovery levels and applicable governmental regulations. For example, a portion of our sales force has recommenced field-based interactions, although access to healthcare providers remains limited. Our business could be negatively affected if we take excessive, ineffective or inadequate precautions.

Due to social distancing, stay-at-home orders, and other actions taken in response to COVID-19, there has been a significant and widespread decline in standard wellness visits and preventive services. That decline negatively impacted Cologuard test orders in our Screening business, notwithstanding the availability of alternative ordering channels such as telehealth. Cologuard test orders declined 32 percent year-over-year for the three months ended June 30, 2020.

The Precision Oncology business started to see weakening underlying conditions in April 2020 because of COVID-19, more notably in the U.S. prostate business and in certain international geographies. The widespread decrease in preventive services, including mammograms and prostate cancer screenings, negatively impacted Precision Oncology test volumes during May and June 2020 due to the typical lag between cancer screening and genomic test ordering.increase.

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Despite our efforts, the ultimate impact of COVID-19 depends on factors beyond our knowledge or control, including the duration and severity of the outbreak, as well as third-party actions taken to contain its spread and mitigate its public health effects.

COVID-19 Testing Business

In late March 2020, we began providing COVID-19 testing. ~~The U.S. Food and Drug Administration (FDA) has granted us Emergency Use Authorization to test for SARS-CoV-2, the virus that causes COVID-19, in upper respiratory samples.~~ 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.

~~2020~~2021 Priorities

As a result of COVID-19 and its impact to our business, we have re-prioritized our goals for 2020 with a focus on serving patients who continue to need the healthcare services we provide while aligning our cost structure with the anticipated lower sales volumes and revenues. Our top priorities for ~~2020~~2021 are to (1) get more people tested, (2) ~~take care of our customers,~~advance new solutions, and (3) ~~preserve financial strength.~~enhance our customer experience.

Get More People Tested

~~Business continuity plans~~We are ~~in place at all of~~committed to delivering critical answers to patients by getting more people tested with our ~~sites to help sustain operations~~Cologuard and ensure continuity of services for patients during this unprecedented time. Despite the COVID-19 pandemic, many people still need to be screened for colorectal cancer, and treated for breast, colon, and prostate cancers. Our lab facilities presently remain operational so that we canOncotype IQ tests. We will also continue to ~~process~~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, ofincluding our ~~Cologuard, Oncotype DX~~revenues, margins, and ~~COVID-19 tests.~~

~~Take Care of our Customers~~cash utilization, among other measures.

Due to social distancing, stay-at-home orders, and other actions taken in response to COVID-19, there ~~has been~~was a significant and widespread decline in standard wellness visits and preventive ~~services.~~services beginning at the end of the first quarter of 2020. We ~~have taken~~took steps to limit exposure to COVID-19 based on recommendations from government and health agencies, including limiting field-based, face-to-face interactions by our sales force. The ~~sales team that is not engaged~~decline in field-based, face-to-face interactions ~~will serve healthcare~~with health care providers ~~via telephone~~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 ~~online technologies until it is safe~~by the first quarter of 2021 exceeded pre-pandemic levels. Our Precision Oncology business started to ~~return 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 ~~field.~~

~~Preserve Financial Strength~~

~~In order to minimize the adverse impacts to our business and operations anticipated during~~third quarter of 2020 due to the ~~COVID-19~~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 ~~initiated proactive~~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 ~~achieve cost savings. Actions~~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 ~~taken include~~continued to plan for future growth through investing in our existing operations and through the reduction of base pay for our chief executive officer to effectively zero, elimination of the Board of Directors annual cash retainer, reducing base salaries for our executive team, and reducing the quarterly sales commissions. We implemented a workforce reduction, involuntary furloughs, work schedule reductions, as well as a voluntary furlough program. Additionally, we reduced investments in marketing and other promotional activities, paused certain clinical trial activities, reduced travel and professional services, and delayed or terminated certain capital projects. We also saw a reduction in certain volume based cost of goods sold expenses consistent with the reduction in revenue. These actions are expected to contribute to significant cost savings in 2020.

~~Results of Operations~~acquisitions further discussed above.

We have generated significant losses since inception and, as of ~~June 30, 2020,~~March 31, 2021, we had an accumulated deficit of approximately ~~$1.3~~$2.08 billion. We expect to continue to incur losses for the near future, and it is possible we may never achieve profitability. ~~As mentioned in further detail above, we expect the recent outbreak of COVID-19 will have an adverse impact on our operations in 2020. ~~

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Revenue. Our revenue is primarily generated by our laboratory testing services from our Cologuard, Oncotype DXIQ, 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 June 30, 2020 and 2019, we generated Screening revenue of $131.3 million and $199.9 million, respectively. For the six months ended June 30, 2020 and 2019, we generated Screening revenue of $350.8 million and $361.9 million, respectively. Screening includes laboratory service revenue from Cologuard and revenue from Biomatrica products. For the three months ended June 30, 2020, we generated Precision Oncology revenue of $103.0 million. For the six months ended June 30, 2020, we generated Precision Oncology revenue of $231.3 million. Precision Oncology includes laboratory service revenue from global Oncotype DX and Paradigm products. For the three and six months ended June 30, 2020,March 31, 2021, we also generated ~~$34.6~~$32.3 million in revenue from our COVID-19 testing.

For the three and six months ended June 30, 2020, our revenue was adversely impacted by the effects of the COVID-19 outbreak on our Screening and Precision Oncology testing services, which effects were partially offset by 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 ~~gross margin~~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 ~~$77.9~~$110.0 million for the three months ended ~~June 30, 2020 from $51.1~~March 31, 2021 compared to $81.6 million for the three months ended ~~June 30, 2019. Cost of sales increased to $159.5 million for the six months ended June 30, 2020 from $94.0 million for the six months ended June 30, 2019.~~March 31, 2020. The increase in cost of sales is primarily due to an increase in production costs ~~incurred on our Precision Oncology~~from an increase in completed Cologuard and Oncotype IQ tests ~~due to the completion of the combination with Genomic Health in November 2019~~ and costs incurred from our ~~COVID~~COVID-19 testing ~~which was partially offset by lower~~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 ~~driven costs from~~and future growth of our ~~Screening business due to the adverse impact of COVID-19.~~tests.


		Three Months Ended June 30,											Three Months Ended March 31,
Amounts in millions	Amounts in millions	2020		2019		Change		Amounts in millions	2021		2020		Change
Production costs	Production costs	$	38.8	$	36.6	$	2.2	Production costs	$	60.6	$	44.1	$	16.5
Personnel expenses	Personnel expenses	22.9		8.2		14.7		Personnel expenses	31.0		22.3		8.7
Facility and support services	Facility and support services	13.0		4.8		8.2		Facility and support services	14.2		12.4		1.8
Stock-based compensation	Stock-based compensation	3.3		1.4		1.9		Stock-based compensation	4.1		2.5		1.6
Other cost of sales expenses	Other cost of sales expenses	(0.1)		0.1		(0.2)		Other cost of sales expenses	0.1		0.3		(0.2)
Total cost of sales expense	Total cost of sales expense	$	77.9	$	51.1	$	26.8	Total cost of sales expense	$	110.0	$	81.6	$	28.4

Six Months Ended June 30,
Amounts in millions 2020 2019 Change
Production costs $ 83.0 $ 66.9 $ 16.1
Personnel expenses 45.2 16.3 28.9
Facility and support services 25.3 8.2 17.1
Stock-based compensation 5.8 2.5 3.3
Other cost of sales expenses 0.2 0.1 0.1
Total cost of sales expense $ 159.5 $ 94.0 $ 65.5

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Research and development expenses. Research and development expenses increased to ~~$32.7~~$115.6 million for the three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$30.0~~$43.5 million for the three months ended ~~June 30, 2019. Research and development expenses increased to $76.2 million for the six months ended June 30, 2020 compared to $61.8 million for the six months ended June 30, 2019.~~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 ~~costs~~expenses incurred primarily due to ~~increased headcount from the combination with Genomic Health~~our acquisition of Thrive in ~~November 2019, which was partially offset by a reduction of certain direct research and development costs due to the cost saving measures taken as a result of the COVID-19 pandemic.~~January 2021.

Three Months Ended June 30,
Amounts in millions 2020 2019 Change
Personnel expenses $ 15.4 $ 7.5 $ 7.9
Direct research and development 6.8 16.3 (9.5)
Stock-based compensation 5.6 3.3 2.3
Facility and support services 3.5 1.1 2.4
Professional fees 0.7 1.1 (0.4)
Other research and development 0.7 0.7 —
Total research and development expenses $ 32.7 $ 30.0 $ 2.7

Six Months Ended June 30,
Amounts in millions 2020 2019 Change
Personnel expenses $ 31.8 $ 15.9 $ 15.9
Direct research and development 25.1 34.9 (9.8)
Stock-based compensation 9.6 5.9 3.7
Facility and support services 6.4 2.1 4.3
Professional fees 1.8 2.0 (0.2)
Other research and development 1.5 1.0 0.5
Total research and development expenses $ 76.2 $ 61.8 $ 14.4

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	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 ~~$106.7~~$267.7 million for the three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$63.7~~$114.0 million for the three months ended ~~June 30, 2019. General and administrative expenses increased to $220.7 million for the six months ended June 30, 2020 compared to $127.5 million for the six months ended June 30, 2019.The~~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 ~~the operations of Genomic Health being included~~an increase in headcount to prepare for future growth in our ~~results after the completion of the combination in November 2019~~operations and ~~to support the overall growth of the Company.~~from our recent acquisitions.

Three Months Ended June 30,
Amounts in millions 2020 2019 Change
Personnel expenses $ 51.9 $ 26.7 $ 25.2
Professional and legal fees 15.2 10.3 4.9
Stock-based compensation 19.0 10.3 8.7
Facility and support services 14.0 12.9 1.1
Other general and administrative 6.6 3.5 3.1
Total general and administrative expenses $ 106.7 $ 63.7 $ 43.0

Six Months Ended June 30,
Amounts in millions 2020 2019 Change
Personnel expenses $ 105.1 $ 56.7 $ 48.4
Professional and legal fees 37.0 19.3 17.7
Stock-based compensation 33.4 18.5 14.9
Facility and support services 29.4 25.9 3.5
Other general and administrative 15.8 7.1 8.7
Total general and administrative expenses $ 220.7 $ 127.5 $ 93.2

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	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 ~~$118.9~~$186.1 million for the three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$88.2~~$167.7 million for the three months ended ~~June 30, 2019. Sales and marketing expenses increased to $286.6 million for the six months ended June 30, 2020 compared to $179.1 million for the six months ended June 30, 2019.The~~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 ~~hiring additional sales and marketing personnel including the Precision Oncology team from the completion of the Genomic Health combination~~an increase in ~~November 2019, which~~headcount. This increase was partially offset by a ~~reduction~~decrease in ~~advertising and marketing spend during the second quarter of 2020~~professional fees as a result of ~~the~~holding our national sales meeting virtually in 2021 due to COVID-19 ~~pandemic. ~~precautions.


		Three Months Ended June 30,											Three Months Ended March 31,
Amounts in millions	Amounts in millions	2020		2019		Change		Amounts in millions	2021		2020		Change
Personnel expenses	Personnel expenses	$	60.4	$	36.8	$	23.6	Personnel expenses	$	85.0	$	81.0	$	4.0
Direct marketing costs and professional fees		29.7		23.8		5.9
Direct marketing costs								Direct marketing costs	41.4		33.4		8.0
Professional and legal fees	Professional and legal fees	5.4		21.5		(16.1)		Professional and legal fees	27.6		32.1		(4.5)
Facility and support services	Facility and support services	10.9		0.9		10.0		Facility and support services	17.7		12.3		5.4
Stock-based compensation	Stock-based compensation	12.1		5.1		7.0		Stock-based compensation	13.2		8.7		4.5
Other sales and marketing expenses	Other sales and marketing expenses	0.4		0.1		0.3		Other sales and marketing expenses	1.2		0.2		1.0
Total sales and marketing expenses	Total sales and marketing expenses	$	118.9	$	88.2	$	30.7	Total sales and marketing expenses	$	186.1	$	167.7	$	18.4

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Six Months Ended June 30,
Amounts in millions 2020 2019 Change
Personnel expenses $ 141.3 $ 73.2 $ 68.1
Direct marketing costs and professional fees 63.1 45.9 17.2
Professional and legal fees 37.5 48.9 (11.4)
Facility and support services 23.2 1.6 21.6
Stock-based compensation 20.8 9.4 11.4
Other sales and marketing expenses 0.7 0.1 0.6
Total sales and marketing expenses $ 286.6 $ 179.1 $ 107.5

Amortization of acquired intangible assets. Amortization of acquired intangible assets ~~increased~~decreased to ~~$23.4~~$23.2 million for the three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$0.7~~$23.3 million for the three months ended ~~June 30, 2019. Amortization of acquired intangible assets increased to $46.8 million for the six months ended June 30, 2020 compared to $1.5 million for the six months ended June 30, 2019.~~March 31, 2020. The ~~increase~~decrease in amortization of acquired intangible assets was primarily due to the ~~Genomic Health combination.~~

~~Other operating income.~~ ~~Other operating income increased~~write-off of certain acquired intangible assets that were deemed to ~~$23.7 million for~~be impaired in the three and six months ended June 30, 2020 compared to zero for the three and six months ended June 30, 2019. The income generated during the three and six months ended June 30, 2020 represents the funding received under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) Provider Relief Fund, which was accepted from the Departmentthird quarter of ~~Health & Human Services in May~~ 2020.

Investment income, net. Investment income, net ~~decreased~~increased to ~~$2.9~~$31.2 million for the three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$7.7~~$0.1 million for the three months ended ~~June 30, 2019. Investment income, net decreased to $3.0 million for the six months ended June 30, 2020 compared to $14.3 million for the six months ended June 30, 2019.~~March 31, 2020. The ~~decrease~~increase in investment income, net was due to a decrease in realized gains generated from the sale of marketable securities and a decrease in the average rate of return on investments due to an decrease in market interest rates and a lower average balance in marketable securities for the six months ended June 30, 2020 when compared to the same period in 2019.

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~~Interest expense.~~ Interest expense increased to $22.9 million for the three months ended June 30, 2020 compared to $12.7 million for the three months ended June 30, 2019. Interest expense increased to $48.1 million for the six months ended June 30, 2020 compared to $34.7 million for the six months ended June 30, 2019. The increase is primarily due to the ~~issuance~~realized gain of ~~additional convertible notes~~$30.5 million that was recorded on our preferred stock investment in ~~February 2020 as~~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 1517 of our condensed consolidated financial statements included in this Quarterly Report ~~which was partially offset by lower interest rates~~ 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 ~~issued in February~~of $50.8 million recorded during three months ended March 31, 2020. Interest expense recorded from our outstanding convertible notes totaled ~~$22.7~~$4.0 million and ~~$12.5~~$2.9 million during the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. Interest expense recorded from our outstanding convertible notes totaled $39.1 million and $23.6 million during the six months ended June 30, 2020 and 2019, respectively. In addition to the $39.1 million in interest expense recorded on outstanding convertible notes, an additional $8.0 million and $10.6 million was recorded during the six months ended June 30, 2020 and 2019, respectively, as a result of the settlement of convertible notes, as further described in Note 15 of our condensed consolidated financial statements included in this Quarterly Report. Of the ~~$22.7 million and $12.5 million in~~ interest expense recorded on outstanding convertible notes for the three months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019, $20.1~~$1.4 million and $10.7 million of interest expense relates to amortization of debt discount and debt issuance costs, respectively. Of the $39.1 million and $23.6 million in interest expense recorded on outstanding convertible notes for the six months ended June 30, 2020 and 2019, $34.6 million and $19.8$1.0 million of interest expense relates to amortization of debt discount and debt issuance costs, respectively. The remaining ~~$5.5 million and $4.3 million of~~ interest expense ~~for the six months ended June 30, 2020 and 2019, respectively,~~recorded on outstanding convertible notes relates to the stated interest that ~~was~~is paid out in ~~cash during the years~~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 ~~outstanding convertible notes~~construction loan for the three months ended March 31, 2021 and ~~construction loan.~~2020.

Income tax benefit. Income tax benefit increased to ~~$0.9~~$242.8 million for the three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$0.4~~$2.2 million for the three months ended ~~June 30, 2019. Income tax benefit increased to $2.6 million for the six months ended June 30, 2020 compared to $0.9 million for the six months ended June 30, 2019.~~March 31, 2020. This increase in income tax benefit is primarily due to ~~future limitations on and expiration~~an income tax benefit of ~~certain Federal and State~~$239.2 million recorded during the three months ended March 31, 2021, as a result of the change in the deferred tax ~~assets.~~asset valuation allowance resulting from the Thrive Merger.

Liquidity and Capital ~~Resources~~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 ~~the~~our Cologuard test, and since the completion of our Genomic Health combination, of Oncotype DXIQ tests. As of ~~June 30, 2020,~~March 31, 2021, we had approximately ~~$703.9 million~~$1.10 billion in unrestricted cash and cash equivalents and approximately ~~$518.7~~$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 ~~$56.7~~$77.2 million for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$57.2~~cash use of $49.8 million for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The ~~principal use of~~increase in cash used in operating activities for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was primarily due to the increase in operating expenses incurred to prepare for future growth in our business and ~~2019~~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 ~~fund~~expenses necessary to process our ~~net loss.~~tests.

Net cash used in investing activities was ~~$412.2~~$317.5 million for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$143.7~~cash use of $405.8 million for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. The ~~increase~~decrease in cash used in investing activities for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared to the same period in ~~2019~~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 ~~$40.6~~$391.3 million for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$79.8~~$19.8 million for the ~~six~~three months ended ~~June 30, 2019.~~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 ~~$33.5~~$12.9 million, and ~~$79.4~~investments in privately held companies of $10.0 million for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021. Cash use primarily consisted of purchase of property and ~~2019, respectively,~~equipment of $13.0 million and ~~an acquisition~~business combinations of ~~$6.7 million. There were also minimal purchases of intangible assets during~~$6.8 million for the ~~six~~three months ended ~~June 30, 2020 and 2019.~~March 31, 2020.

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Net cash provided by financing activities was ~~$995.6~~$7.2 million for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 compared to ~~$245.6~~$979.5 million for the ~~six~~three months ended ~~June 30, 2019. During~~March 31, 2020. The cash provided by financing activities during the ~~six~~three months ended ~~June 30, 2020, we received net cash~~March 31, 2021 consisted of ~~$1,125.5~~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 Convertible Notes with an original maturity date of January 15, 2025 (the “2025 Notes”). The cash provided by financing activities for the six months ended June 30, 2019 was primarily the result of proceeds of $729.5 million from our issuance of Convertible Notes with a maturity date of March 15, 2027 (the “2027 Notes”, and, collectively with the 2025 Notes and 2028 Notes, the “Notes”), and we used $493.4 million of cash to settle a portion of the 2025 Notes. In addition, during the ~~six~~three months ended ~~June 30,~~March 31, 2020 we received proceeds of ~~$10.9~~$4.3 million from the exercise of stock ~~options~~options.

As described above, on April 14, 2021, we completed the Ashion Acquisition, under which we acquired Ashion in a cash and ~~$9.8~~stock transaction valued at approximately $89.4 million, ~~from our employee stock purchase plan.~~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 ~~June 30, 2020~~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 DXIQ 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 ~~cannot assure that our business~~ will ~~ever generate~~be successful in generating sufficient cash flow from operations or achieving and maintaining profitable operations in the future to ~~become profitable.~~

~~The spread of COVID-19 and measures~~enable us to ~~prevent further spread, have significantly disrupted~~meet our business, and may continue to disrupt our business for an unknown period of time. The full impact of the outbreak is uncertain at this time and continues to evolve globally. We do not yet know the extent to which COVID-19 will negatively impact our financial results or liquidity. The outbreak has disrupted our operations,obligations as well as the operations and behaviors of healthcare providers, patients and suppliers. Depending on how healthcare providers, patients and suppliers are adversely impacted by the pandemic, as well as the overall duration and severity of the pandemic, our liquidity could be materially and adversely affected. Management continues to monitor and assess the evolving developments with respect to COVID-19.they come due.

A table reflecting certain of our specified contractual obligations as of December 31, ~~2019~~2020 was provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operation of our ~~2019~~2020 Form 10-K. During the six months ended June 30, 2020, we issued $1,150.0 million in aggregate principal amount of 0.375% Convertible Notes that will mature on March 1, 2028. The holders of the Notes may convert prior to September 1, 2027 only under certain circumstances and may convert at any time after September 1, 2027. The Notes accrue interest at a fixed rate of 0.375% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2020. Of the cash received upon issuance of the 2028 Notes, approximately $150.1 million was used to repay a portion of the outstanding principal balance and accrued interest of the 2025 Notes held by certain Noteholders. Upon repayment of such portion of the outstanding principal balance of the 2025 Notes, there was $315.0 million in aggregate principal balance remaining under the 2025 Notes. See Note 15 of the condensed consolidated financial statements included in this Quarterly Report for further details. With the exception of this item, thereThere were no material changes outside the ordinary course of our business in our specified contractual obligations during the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

Critical Accounting Policies and ~~Estimates~~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 ~~United States~~U.S. (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported ~~amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the~~in our condensed consolidated financial statements ~~as well as the reported revenues~~ and ~~expenses during the reporting periods.~~accompanying notes. On an ongoing basis, we evaluate our estimates and ~~judgments, including those related to revenue recognition, tax positions and stock-based compensation.~~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.

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~~Our~~While our significant accounting policies are more fully described in Note 1 of our financial statements included in our ~~2019~~2020 Form 10-K, as well as our Management’s Discussion and Analysis of Financial Condition and Results of Operations on our ~~2019~~2020 Form ~~10-K. There~~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 ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021.

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Revenue Recognition. ~~We recognize revenue on the~~Revenues are recognized when we release of a ~~test~~ result to anthe ordering healthcare provider, ~~for tests performed based on our estimate of the~~in an amount that reflects the consideration we ~~will ultimately~~expect to collect ~~at the time the release is complete.~~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, ~~on a per-payer or per-agreement basis,~~ 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 who assumes the downstream patient billing.~~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 ~~breakage occurs (tests~~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 ~~are not returned~~allow us to our laboratory for processing by their contracted deadline) for certain LSAs. We consider this breakage date to be the time at which the patient or direct bill payer obtains control of the promised test service.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.

~~Convertible Notes.~~ We account for convertible debt instruments that may be settled in cash or equity upon conversion by separating the liability and equity components of the instruments in a manner that reflects our nonconvertible debt borrowing rate. In February 2020 we issued the 2028 Notes of $1,150.0 million in aggregate principal amount of 0.375% Convertible Notes with a maturity date of March 1, 2028. As part of that issuance, we settled approximately $100.0 million in outstanding 2025 Notes. We determined the carrying amount of the liability component of the 2028 Notes by using assumptions that market participants would use in pricing a debt instrument, including market interest rates, credit standing, yield curves and volatilities. Determining the fair value of the debt component requires the use of accounting estimates and assumptions. These estimates and assumptions are judgmental in nature and could have a significant impact on the determination of the debt component, and the associated non-cash interest expense.

For the February 2020 offering, we allocated $346.6 million, net of tax, to the equity component of the convertible debt instrument. That equity component is treated as a discount on the liability component of the Notes, which is amortized over the eight-year term of the 2028 Notes using the effective interest rate method. In addition, debt issuance costs related to the 2028 Notes was $24.4 million. We allocated the costs to the liability and equity components of the 2028 Notes based on their relative values. The debt issuance costs allocated to the liability component are being amortized over the life of the 2028 Notes as additional non-cash interest expense. The transaction costs allocated to the equity component are netted with the equity component of the convertible debt instrument in stockholders’ equity.

Business ~~Combinations.~~Combinations and Asset Acquisitions. Business Combinations are accounted for under the acquisition method in accordance with ~~ASC~~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.

~~Table~~Impairment of ~~Contents~~Long-Lived Assets.

~~In March 2020, we recognized goodwill of $30.4 million from the acquisitions of Paradigm and Viomics.~~ We evaluate ~~goodwill~~the fair value of long-lived assets, which include property, plant and equipment, intangible assets, and investments in privately held companies, for impairment ~~on an annual basis~~whenever events or ~~more frequently should an event or change~~changes in ~~circumstance occur that indicates~~circumstances indicate that the carrying ~~amount is in excess~~amounts of the ~~fair value. There were no impairment losses for the periods ended June 30, 2020~~assets may not be fully recoverable. Recoverability of assets to be held and ~~December 31, 2019. Refer to Note 5 and Note 16~~used is measured by a comparison of the ~~condensed consolidated financial statements included in this Quarterly Report for further discussion~~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 ~~goodwill recorded. ~~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~~Pronouncements

See Note 1 in the Notes to Condensed Consolidated Financial Statements for the discussion of Recent Accounting Pronouncements.

Off-Balance Sheet ~~Arrangements~~Arrangements

As of ~~June 30, 2020,~~March 31, 2021, we had no off-balance sheet arrangements.

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Item 3. Quantitative and Qualitative Disclosures About Market ~~Risk~~Risk

Interest Rate Risk

Our exposure to market risk is principally confined to our cash, cash equivalents and marketable securities. We invest our cash, cash equivalents, and marketable securities in securities of the U.S. governments and its agencies and in investment-grade, highly liquid investments consisting of commercial paper, bank certificates of deposit, and corporate bonds, which as of ~~June 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 were classified as available-for-sale. We place our cash, cash equivalents, restricted cash, and marketable securities with high-quality financial institutions, limit the amount of credit exposure to any one institution, and have established investment guidelines relative to diversification and maturities designed to maintain safety and liquidity.

Based on a hypothetical ten percent adverse movement in interest rates, the potential losses in future earnings, fair value of risk-sensitive financial instruments, and cash flows are immaterial, although the actual effects may differ materially from the hypothetical analysis. While we believe our cash, cash equivalents, restricted cash, and marketable securities do not contain excessive risk, we cannot provide absolute assurance that, in the future, our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash, cash equivalents, restricted cash, and marketable securities at one or more financial institutions that are in excess of federally insured limits. Given the potential instability of financial institutions, we cannot provide assurance that we will not experience losses on these deposits. We do not utilize interest rate hedging agreements or other interest rate derivative instruments.

A hypothetical ten percent change in interest rates would not have a material adverse impact on our future operating results or cash flows. All of our significant interest-bearing liabilities bear interest at fixed rates and therefore are not subject to fluctuations in market interest rates; however, because these interest rates are fixed, we may be paying a higher interest rate, relative to market, in the future if circumstances change.

Foreign Currency Risk

Substantially all of our revenues are recognized in U.S. dollars, although a ~~growing percentage~~small portion is denominated in foreign currency as we continue to expand into markets outside of the U.S. Certain expenses related to our international activities are payable in foreign currencies. As a result, factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets will affect our financial results.

Prior to 2019, the functional currency for each of our international subsidiaries was its local currency. For 2019 our international subsidiaries use the U.S. dollar as the functional currency, resulting in us not being subject to gains and losses from foreign currency translation of the subsidiary financial statements. In September 2017, Genomic Health (now a wholly owned subsidiary) started entering into forward contracts to mitigate the impact of adverse movements in foreign exchange rates related to the re-measurement of monetary assets and liabilities and hedge our foreign currency exchange rate exposure. As of ~~June 30, 2020,~~March 31, 2021, we had open foreign currency forward contracts with notional amounts of ~~$16.0~~$26.4 million. Although the impact of currency fluctuations on our financial results has been immaterial in the past, there can be no guarantee that the impact of currency fluctuations related to our international activities will not be material in the future.

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Item 4. Controls and ~~Procedures~~Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our principal executive officer and our principal financial officer concluded that, as of ~~June 30, 2020,~~March 31, 2021, our disclosure controls and procedures were effective. Disclosure controls and procedures enable us to record, process, summarize and report information required to be included in our Exchange Act filings within the required time period. Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the periodic reports filed with the SEC is accumulated and communicated to our management, including our principal executive, financial and accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

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In ~~November 2019, the Company~~January 2021, we acquired all of the outstanding capital stock of ~~Genomic Health~~Thrive (see Note ~~16 to~~17 of the accompanying condensed consolidated financial statements for additional information). As of ~~June 30, 2020,~~March 31, 2021, management is in the process of evaluating and integrating the internal controls of ~~Genomic Health~~Thrive into the Company’s existing operations. Other than the controls enhanced or implemented to integrate the ~~Genomic Health~~Thrive business, there have been no significant changes in ~~the Company’s~~ internal ~~controls~~control over financial reporting during the quarter ended ~~June 30, 2020~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal ~~controls~~control over financial reporting.

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Part II - Other Information

Item 1. Legal ~~Proceedings~~Proceedings

From time to time we are a party to various legal proceedings arising in the ordinary course of our business. Legal proceedings, including litigation, government investigations and enforcement actions could result in material costs, occupy significant management resources and entail civil and criminal penalties.

The ~~United States Department of Justice (“DOJ”)~~information called for by this item is investigating Genomic Health’s compliance with the Medicare Date of Service billing regulation. In March 2017, Genomic Health received a civil investigative demand (“CID”) from the U.S. Attorney’s Office for the Eastern District of New York in connection with this matter and has produced specific documents in responseincorporated by reference to the ~~CID. In July 2019 and January 2020, Genomic Health received additional subpoenas from~~information in Note 14 of the ~~DOJ related~~Notes to Condensed Consolidated Financial Statements included in Part I of this inquiry and we are cooperating with those requests. An adverse outcome could include our being required to pay treble damages, incur civil and criminal penalties, paying attorney’s fees, entering into a corporate integrity agreement, being excluded from participation in government healthcare programs, including Medicare and Medicaid, and other adverse actions that could materially and adversely affect our business, financial condition and results of operations.

~~In connection with our combination with Genomic Health,~~Quarterly Report on June 22, 2020, Suzanne Flannery, a purported former stockholder of Genomic Health, filed a Verified Individual and Class Action Complaint in the Delaware Court of Chancery, captioned Flannery v. Genomic Health, Inc., et al., C.A. No. 2020-0492. The complaint asserts individual and class action claims, including: (i) a violation of 8 Del. C. § 203 by Genomic Health's former directors; (ii) conversion by Genomic Health, Exact and Spring Acquisition Corp.; (iii) breach of fiduciary duty by Genomic Health's former directors; (iv) breach of fiduciary duty by a purported controlling group of former Genomic Health stockholders comprised of funds managed by former Genomic Health directors, Julian Baker and Felix Baker; and (v) aiding and abetting breach of fiduciary duty against Exact, Spring Acquisition and Goldman Sachs & Co. LLC, Genomic Health's financial advisor in the combination. The complaint seeks, among other things, declaratory relief, unspecified monetary damages and attorneys' fees and costs. All defendants intend to move to dismiss the complaint.Form 10-Q.

Item 1A. Risk ~~Factors~~Factors

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control. In addition to the other information set forth in this report, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I, “Item 1A. Risk Factors” in the ~~2019~~2020 Form 10-K and in Part II, “Item 1A. Risk Factors” in our subsequently filed Quarterly Reports on Form 10-Q. ~~Other than the factors set forth below, there~~There have been no material changes to the risk factors described in the ~~2019~~2020 Form ~~10-K and in subsequently filed Quarterly Reports on Form 10-Q.~~

~~The COVID-19 outbreak has and may further materially and adversely affect our business and financial results.~~

The COVID-19 outbreak, which the World Health Organization has classified as a pandemic, together with related precautionary measures, began to materially disrupt our business in March 2020 and may continue to disrupt our business for an unknown period of time. The territories in which we market, sell, distribute and perform our tests are attempting to address the COVID-19 pandemic in varying ways, including stay-at-home orders, temporarily closing businesses, restricting gatherings, restricting travel, and mandating social distancing and face coverings. Certain jurisdictions have begun re-opening only to return to restrictions due to increases in new COVID-19 cases. The level and nature of the disruption caused by COVID-19 is unpredictable, may be cyclical and long-lasting and may vary from location to location. As a result, we anticipate significant impact to at least our 2020 operating results, including our revenues, margins, and cash utilization, among other measures.

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Beginning in March 2020, we undertook temporary precautionary measures intended to help minimize the risk of the virus to our employees, including requiring most employees to work remotely; suspending field-based, face-to-face interactions by our sales force; requiring on-site employees to undergo COVID-19 testing, wear personal protective equipment (including face masks or shields) and maintain social distancing; pausing all non-essential travel worldwide for our employees; and limiting employee attendance at industry events and in-person work-related meetings, to the extent those events and meetings are continuing. Our commercial partner for Cologuard, Pfizer, Inc. (“Pfizer”) has taken similar precautions, including suspending face-to-face interactions between sales representatives and healthcare providers.

~~The COVID-19 pandemic has materially impacted our business, and may continue to impact our business for an unknown period of time. Such impacts may include the following:~~

•Both our and Pfizer’s sales teams have been, and for an extended period of time may continue to be, limited in their interactions with healthcare providers, and therefore, also limited in their ability to engage in various types of healthcare provider education activities as contemplated by our and Pfizer’s Cologuard promotion agreement;

•We and Pfizer may continue to be limited in performing healthcare provider education and other activities contemplated by the promotion agreement and therefore may not realize the expected benefits from the promotion agreement. Before the pandemic, we were already discussing potential modifications of the promotion agreement with Pfizer, and those discussions have continued and have been affected by the pandemic. Any failure to conclude those negotiations in a manner satisfactory to us and to Pfizer could, among other things, have an adverse impact on our relationship with Pfizer or result in either party electing to terminate the agreement early;

•Healthcare providers or patients have canceled or delayed scheduling, and for an extended period of time may continue to cancel or delay scheduling, standard wellness visits and other non-emergency appointments and procedures (including mammograms and prostate cancer screenings), contributing to a decline in orders for our products or services;

•~~Restrictions on travel, commerce and shipping may prevent patients and pathologists from shipping samples to our clinical laboratories;~~

•Illnesses, quarantines, financial hardships, restrictions on travel, commerce and shipping, or other consequences of the pandemic, may disrupt our supply chain or other business relationships, and we or other parties may assert rights under force majeure clauses to excuse performance;

•We have experienced, and for an extended period of time may continue to experience, reduced volumes at our clinical laboratories and we may need to suspend operations at some or all of our clinical laboratories;

•We have taken, and may take additional, cost cutting measures, which may hinder our efforts to commercialize our products or delay the development of future products and services. We might not realize all of the cost savings we expect to achieve as a result of those efforts;

•~~We and our partners have postponed or cancelled clinical studies, which may delay or prevent our launch of future products and services;~~

•~~Our workforce, much of which has been asked to work remotely in an effort to reduce the spread of COVID-19, may be infected by the virus or otherwise distracted;~~

•A combination of factors, including infection from the virus, supply shortfalls, and inability to obtain or maintain equipment, could adversely affect our lab capacity and our ability to meet the demand for our testing services. In March of 2020 we began offering a COVID-19 test and by devoting lab capacity to that test, we may experience capacity limitations that adversely affect our ability to provide Cologuard and other tests that may generate more revenue and higher profits; and

•We may inaccurately estimate the duration or severity of the COVID-19 pandemic, which could cause us to misalign our staffing, spending, activities and precautionary measures with market current or future market conditions.

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Additionally, the anticipated economic consequences of the COVID-19 pandemic have adversely impacted financial markets, resulting in high share price volatility, reduced market liquidity, and substantial declines in the market prices of the securities of most publicly traded companies, including Exact. Volatile or declining markets for equities could adversely affect our ability to raise capital when needed through the sale of shares of common stock or other equity or equity-linked securities. If these market conditions persist when and if we need to raise capital, and if we are able to sell shares of our common stock under then prevailing market conditions, we might have to accept lower prices for our shares and issue a larger number of shares than might have been the case under better market conditions, resulting in significant dilution of the interests of our stockholders.

~~We currently offer COVID-19 testing, but there can be no assurance that we will continue to be able to successfully offer, perform or generate revenues from the test.~~

In late March 2020, we began providing COIVD-19 testing. The U.S. Food and Drug Administration (FDA) has granted us Emergency Use Authorization to test for SARS-CoV-2, the virus that causes COVID-19, in upper respiratory samples.

While we have entered into a limited number of contracts to provide COVID-19 testing and expect to pursue additional contracts, there can be no assurance that our efforts to offer and perform COVID-19 testing will be successful. The success of our test, our ability to continue to generate revenues from COVID-19 testing, and our ability to generate profits from COVID-19 testing will depend on a variety of factors, including:

•~~the level of demand for COVID-19 testing, the price we are able to charge for performing the test, and the length of time for which that demand persists;~~

•~~the availability of COVID-19 testing, from other laboratories;~~

•~~acceptance of our COVID-19 testing in the medical community;~~

•~~the emergence of other forms of COVID-19 testing (including antigen and antibody screening tests) and other sample collection methods, which healthcare providers and patients may prefer to our test;~~

•~~the period of time for which the FDA will permit us to offer COVID-19 testing under an Emergency Use Authorization;~~

•~~our ability to maintain regulatory approvals to perform and market COVID-19 testing and to respond to any changes in regulatory requirements;~~

•~~the potential for supply disruptions and our reliance on certain single-source suppliers;~~

•~~the potential for disruption in the delivery of patient samples to our laboratories;~~

•~~the capacity of our laboratories to satisfy both COVID-19 testing and other testing demands;~~

•~~the complexity of billing for, and collecting revenue for, our test;~~

•~~healthcare provider and patient compliance with instructions for performing the nasal swab and providing samples to our laboratories;~~

•~~our ability to maintain laboratory operations during the COVID-19 pandemic and to perform the test accurately and punctually; and~~

•~~the ease of use of our ordering and reporting process.~~

Additionally, we have previously only offered cancer screening and diagnostic tests. The addition of COVID-19 testing may divert resources and distract management’s attention from other projects that may be more profitable or strategic. If we are unable to successfully provide COVID-19 testing while continuing to operate our existing Screening and Precision Oncology business, our results of operations, financial position and reputation may suffer.

~~Table of Contents~~

~~Our business is subject to complex and evolving laws, as well as customer and patient expectations, regarding data privacy, protection and security.~~

The interpretation and application of consumer, health related and data protection laws in the U.S., Europe and elsewhere are often uncertain, contradictory and in flux. In order to mitigate concerns about overseas data transfers and to comply with provisions of the GDPR and its predecessor regulations, we self-certified with the Department of Commerce for compliance with the U.S.-E.U. Privacy Shield. However, on July 16, 2020, the Court of Justice of the European Union rendered its judgment in ~~Data Protection Commissioner v. Facebook Ireland~~, invalidating the U.S.-E.U. Privacy Shield program. Although we expect to implement other measures to ensure compliance with the GDPR, the changing legal landscape could cause us to incur substantial costs or change our operations and compliance procedures, all of which may adversely affect our business.

If we fail to comply with the GDPR and other applicable data privacy, protection and security laws, or if we fail to satisfy customer or patient concerns regarding data handling, we could be subject to government enforcement actions, private litigation, civil or criminal penalties, reduced orders and adverse publicity.10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~Not applicable.~~In January 2021, we entered into an amendment to a services and license agreement with The Translational Genomics Research Institute, an affiliate of City of Hope (“TGen”), pursuant to which we acquired a worldwide exclusive license to TGen’s proprietary Targeted Digital Sequencing (“TARDIS”) technology. As part of the agreement, in January 2021 we issued TGen 191,336 shares of restricted stock.

We believe that the offer and sale of the securities referenced were exempt from registration under the Securities Act of 1933 (the “Securities Act”) by virtue of Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder as transactions not involving any public offering. Use of this exemption is based on the following facts:

•Neither we nor any person acting on our behalf solicited any offer to buy or sell securities by any form of general solicitation or advertising.

•At the time of the purchase, TGen was an accredited investor, as defined in Rule 501(a) of the Securities Act.

•TGen has had access to information regarding Exact and is knowledgeable about us and our business affairs.

Item 3. Defaults Upon Senior ~~Securities~~Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other ~~Information~~Information

Not applicable.

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Item 6. ~~Exhibits~~Exhibits

The following documents are filed as part of this Form 10-Q.

Exhibit
Number

Exhibit Description

Filed
with
This
Report

Incorporated
by Reference
herein from
Form or
Schedule

Filing
Date

SEC File /
Registration
Number

3.1

Sixth Amended and Restated Certificate of Incorporation of the Registrant

S-1 (Exhibit 3.3)

12/4/2000

333-48812

3.2

Amendment to Sixth Amended and Restated Certificate of Incorporation of the Registrant

8-K (Exhibit 3.1)

7/24/2020

001-35092

3.3

~~Fourth~~Fifth Amended and Restated By-Laws of the Registrant

8-K (Exhibit 3.1)

~~1/31/2020~~3/3/2021

001-35092

~~4.2~~

~~Third Supplemental Indenture, dated February 27, 2020, between the Company and U.S. Bank National Association, as Trustee (including the form of 0.3750% Convertible Senior Notes due 2028).~~

8-K
(Exhibit 4.2)

~~2/27/2020~~

~~001-35092~~

10.1*

~~Employment Agreement, dated as of April 20, 2020, by and between Gisela Paulsen and the Registrant~~

10.2*

~~The Registrant’s Non-Employee Director Compensation Policy, dated April 21, 2020~~

~~10.3~~

~~Amendment No. 1 to Construction Loan Agreement and Construction Note, dated June 30, 2020, by and between Fifth Third Bank, National Association and CG Growth LLC~~

31.1

Certification Pursuant to Rule 13(a)-14(a) or Rule 15d-14(a) of Securities Exchange Act of 1934

31.2

Certification Pursuant to Rule 13(a)-14(a) or Rule 15d-14(a) of Securities Exchange Act of 1934

32.1

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

The following materials from the Quarterly Report on Form 10-Q of Exact Sciences Corporation for the quarter ended ~~September 30, 2019~~March 31, 2021 filed on ~~October 29, 2019,~~May 4, 2021, formatted in Inline eXtensible Business Reporting Language (“iXBRL”): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statement of Changes in Stockholders’ Equity, (iv) Condensed Consolidated Statements of Cash Flows and (v) related notes to these financial statements

104

The cover page from our Quarterly Report for the period ended ~~September 30, 2019,~~March 31, 2021, filed with the Securities and Exchange Commission on ~~October 29, 2019,~~May 4, 2021, is formatted in Inline Extensible Business Reporting Language (“iXBRL”)

~~______________~~

*~~Indicates a management contract or any compensatory plan, contract or arrangement.~~

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~~SIGNATURES~~SIGNATURES

Pursuant to the requirements 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.


		EXACT SCIENCES CORPORATION

Date: ~~July 31, 2020~~May 4, 2021	By:	/s/ Kevin T. Conroy
		Kevin T. Conroy
		President and Chief Executive Officer (Principal Executive Officer)

Date: ~~July 31, 2020~~May 4, 2021	By:	/s/ Jeffrey T. Elliott
		Jeffrey T. Elliott
		Executive Vice President, Chief Financial Officer and Chief Operating Officer (Principal Financial and Accounting Officer)

6651


(In��thousands)	June 30, 2020		December 31, 2019
Cash, cash equivalents, and restricted cash
Cash and money market	$	457,019	$	146,932
Cash equivalents	246,907		30,322
Restricted cash (1)	282		274
Total cash, cash equivalents, and restricted cash	704,208		177,528
Marketable securities
Available-for-sale debt securities	517,346		144,685
Equity securities	1,385		1,716
Total marketable securities	518,731		146,401
Total cash and cash equivalents, restricted cash and marketable securities	$	1,222,939	$	323,929


(In thousands)	Fair Value at June 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash, cash equivalents, and restricted cash
Cash and money market	$	457,019	$	457,019	$	—	$	—
U.S. government agency securities	246,907		—		246,907		—
Restricted cash	282		282		—		—
Marketable securities
Corporate bonds	220,561		—		220,561		—
U.S. government agency securities	256,526		—		256,526		—
Certificates of deposit	10,000		—		10,000		—
Asset backed securities	22,259		—		22,259		—
Commercial paper	8,000		—		8,000		—
Equity Securities	1,385		1,385		—		—
Liabilities
Contingent consideration	(2,551)		—		—		(2,551)
Total	$	1,220,388	$	458,686	$	764,253	$	(2,551)


Options	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term(Years)	Aggregate Intrinsic Value(1)
(Aggregate intrinsic value in thousands)
Outstanding, January 1, 2020	2,700,293	$	34.01	2.9
Granted	309,143	97.66
Exercised	(368,720)	29.67
Forfeited	(65,438)	83.87
Outstanding, June 30, 2020	2,575,278	$	41.01	6.5	$	123,979
Exercisable, June 30, 2020	1,653,394	$	26.10	5.5	$	101,761


	Restricted Shares and RSUs	Weighted Average Grant Date Fair Value
Outstanding, January 1, 2020	4,384,005	$	63.41
Granted	1,835,695	92.25
Released	(1,350,088)	47.00
Forfeited	(208,076)	79.45
Outstanding, June 30, 2020	4,661,536	$	78.84


(In thousands)	Coupon Interest Rate	Effective Interest Rate	Fair Value of Liability Component at Issuance (1)		June 30, 2020		December 31, 2019
2028 Convertible notes	0.375%	5.2%	$	790,608	$	1,150,000	$	—
2027 Convertible notes	0.375%	6.3%	472,501		747,500		747,500
2025 Convertible notes	1.000%	6.0%	227,103		315,049		415,049
Total Convertible notes					2,212,549		1,162,549
Less: Debt discount (2)					(648,281)		(342,463)
Less: Debt issuance costs (3)					(29,885)		(16,481)
Net convertible debt					$	1,534,383	$	803,605