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 March 31, 2021

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

 For the transition period from                        to

 Commission File No. 001-36847

Invitae Corporation

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

 

Delaware	27-1701898
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

 1400 16th Street, San Francisco, California 94103

(Address of principal executive offices, Zip Code)

 (415) 374-7782

(Registrant’s telephone number, including area code)

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

Title of each class	Trading Symbol	Name of exchange on which registered
Common Stock, $0.0001 par value per share	NVTA	New York Stock Exchange

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 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 x 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  ☒

The number of shares of the registrant’s common stock outstanding as of April 30, 2021 was 199,837,259.

TABLE OF CONTENTS

		Page No.
PART I: Financial Information
Item 1.	Consolidated Financial Statements
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Loss	3
	Condensed Consolidated Statements of Stockholders' Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	37
Item 4.	Controls and Procedures	38
PART II: Other Information
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 6.	Exhibits	70
SIGNATURES		71

PART I — Financial Information

ITEM 1. Consolidated Financial Statements.

INVITAE CORPORATION

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

	March 31, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	194,218	$	124,794
Marketable securities	477,380		229,186
Accounts receivable	45,592		47,722
Inventory	30,656		32,030
Prepaid expenses and other current assets	31,889		20,200
Total current assets	779,735		453,932
Property and equipment, net	72,909		66,102
Operating lease assets	75,546		45,109
Restricted cash	10,275		6,686
Intangible assets, net	994,071		981,845
Goodwill	1,925,889		1,863,623
Other assets	14,889		13,188
Total assets	$	3,873,314	$	3,430,485
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	38,989	$	25,203
Accrued liabilities	94,036		86,058
Operating lease obligations	10,569		8,789
Finance lease obligations	2,190		1,695
Total current liabilities	145,784		121,745
Operating lease obligations, net of current portion	78,129		48,357
Finance lease obligations, net of current portion	3,645		3,123
Debt	106,685		104,449
Convertible senior notes, net	342,919		283,724
Deferred tax liability	50,568		51,538
Other long-term liabilities	769,295		841,256
Total liabilities	1,497,025		1,454,192
Commitments and contingencies (Note 8)
Stockholders’ equity:
Common stock	20		19
Accumulated other comprehensive income	50		1
Additional paid-in capital	3,829,553		3,337,120
Accumulated deficit	(1,453,334)		(1,360,847)
Total stockholders’ equity	2,376,289		1,976,293
Total liabilities and stockholders’ equity	$	3,873,314	$	3,430,485

See accompanying notes to unaudited condensed consolidated financial statements.

1

INVITAE CORPORATION

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(unaudited)

	Three Months Ended March 31,
	2021		2020
Revenue:
Test revenue	$	99,276	$	63,078
Other revenue	4,345		1,170
Total revenue	103,621		64,248
Cost of revenue	75,491		40,422
Research and development	80,358		55,668
Selling and marketing	51,240		42,120
General and administrative	8,896		23,822
Loss from operations	(112,364)		(97,784)
Other income, net	4,465		4,708
Interest expense	(8,393)		(5,451)
Net loss before taxes	(116,292)		(98,527)
Income tax benefit	(6,800)		—
Net loss	$	(109,492)	$	(98,527)
Net loss per share, basic and diluted	$	(0.56)	$	(0.99)
Shares used in computing net loss per share, basic and diluted	194,000		99,632

See accompanying notes to unaudited condensed consolidated financial statements. 

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INVITAE CORPORATION

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

 

	Three Months Ended March 31,
	2021		2020
Net loss	$	(109,492)	$	(98,527)
Other comprehensive income:
Unrealized income on available-for-sale marketable securities, net of tax	49		1,303
Comprehensive loss	$	(109,443)	$	(97,224)

See accompanying notes to unaudited condensed consolidated financial statements.

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INVITAE CORPORATION

Condensed Consolidated Statements of Stockholders' Equity

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2021		2020
Common stock:
Balance, beginning of period	$	19	$	10
Common stock issued	1		—
Balance, end of period	20		10
Accumulated other comprehensive income (loss):
Balance, beginning of period	1		(9)
Unrealized income (loss) on available-for-sale marketable securities, net of tax	49		1,303
Balance, end of period	50		1,294
Additional paid-in capital:
Balance, beginning of period	3,337,120		1,138,316
Common stock issued in connection with public offering, net	434,263		—
Common stock issued on exercise of stock options, net	1,760		1,145
Common stock issued pursuant to exercises of warrants	1,242		27
Common stock issued or issuable pursuant to acquisitions	74,822		42,453
Stock-based compensation expense	55,834		10,479
Reclassification of equity component of convertible senior notes	(75,488)		—
Reclassification of stock payable liabilities	—		(10,387)
Balance, end of period	3,829,553		1,182,033
Accumulated deficit:
Balance, beginning of period	(1,360,847)		(758,677)
Cumulative effect of adoption of ASU 2020-06	17,005		—
Net loss	(109,492)		(98,527)
Balance, end of period	(1,453,334)		(857,204)
Total stockholders' equity	$	2,376,289	$	326,133

See accompanying notes to unaudited condensed consolidated financial statements.

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INVITAE CORPORATION

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net loss	$	(109,492)	$	(98,527)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	16,574		6,056
Stock-based compensation	58,775		29,278
Amortization of debt discount and issuance costs	2,735		3,632
Remeasurements of liabilities associated with business combinations	(66,999)		(3,367)
Benefit from income taxes	(6,800)		—
Post-combination expense for acceleration of unvested equity	2,959		—
Other	3,790		(659)
Changes in operating assets and liabilities, net of businesses acquired:
Accounts receivable	2,814		(5,167)
Inventory	1,374		(6,619)
Prepaid expenses and other current assets	(11,237)		(434)
Other assets	811		602
Accounts payable	10,232		13,085
Accrued expenses and other long-term liabilities	4,944		(240)
Net cash used in operating activities	(89,520)		(62,360)
Cash flows from investing activities:
Purchases of marketable securities	(325,956)		—
Proceeds from sales of marketable securities	—		12,532
Proceeds from maturities of marketable securities	74,763		24,965
Acquisition of businesses, net of cash acquired	(14,954)		(32,199)
Purchases of property and equipment	(6,431)		(3,831)
Other	(980)		(667)
Net cash provided by (used in) investing activities	(273,558)		800
Cash flows from financing activities:
Proceeds from public offerings of common stock, net	434,263		—
Proceeds from issuance of common stock, net	2,551		1,172
Other	(723)		(621)
Net cash provided by financing activities	436,091		551
Net increase (decrease) in cash, cash equivalents and restricted cash	73,013		(61,009)
Cash, cash equivalents and restricted cash at beginning of period	131,480		157,572
Cash, cash equivalents and restricted cash at end of period	$	204,493	$	96,563
Supplemental cash flow information of non-cash investing and financing activities:
Equipment acquired through finance leases	$	1,740	$	—
Purchases of property and equipment in accounts payable and accrued liabilities	$	6,341	$	3,956
Common stock issued for acquisition of businesses	$	74,822	$	42,453
Consideration payable for acquisition of businesses	$	—	$	5,773
Operating lease assets obtained in exchange for lease obligations, net	$	32,279	$	2,131

See accompanying notes to unaudited condensed consolidated financial statements.

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INVITAE CORPORATION

Notes to Condensed Consolidated Financial Statements

1. Organization and description of business

Invitae Corporation ("Invitae," “the Company," "we," "us," and "our") was incorporated in the State of Delaware on January 13, 2010, as Locus Development, Inc. and we changed our name to Invitae Corporation in 2012. We offer high-quality, comprehensive, affordable genetic testing across multiple clinical areas, including hereditary cancer, cardiology, neurology, pediatrics, personalized oncology, metabolic conditions and rare diseases. To augment our offering and realize our mission, we have acquired multiple assets and businesses which further expanded our test menu and suite of genome management offerings and accelerated our entry into key genomics markets. Invitae operates in one segment.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020. The results for the three months ended March 31, 2021 are not necessarily indicative of the results expected for the full fiscal year or any other periods.   

2. Summary of significant accounting policies

Principles of consolidation

Our unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. We base these estimates on current facts, historical and anticipated results, trends and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. Actual results could differ materially from those judgments, estimates and assumptions. We evaluate our estimates on an ongoing basis.

Concentrations of credit risk and other risks and uncertainties

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, marketable securities and accounts receivable. Our cash and cash equivalents are primarily held by financial institutions in the United States. Such deposits may exceed federally insured limits.

6

Cash, cash equivalents and restricted cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statements of cash flows (in thousands):

	March 31, 2021		December 31, 2020
Cash and cash equivalents	$	194,218	$	124,794
Restricted cash	10,275		6,686
Total cash, cash equivalents and restricted cash	$	204,493	$	131,480

Fair value of financial instruments

Our financial instruments consist principally of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities, finance leases and liabilities associated with business combinations. The carrying amounts of certain of these financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued and other current liabilities approximate their current fair value due to the relatively short-term nature of these accounts. Based on borrowing rates available to us, the carrying value of our finance leases approximate their fair values. Liabilities associated with business combinations are recorded at their estimated fair value.

Prior period reclassifications

We have reclassified certain amounts in prior periods to conform with current presentation.

Immaterial correction of an error

We determined the historical classification of certain acquisition-related obligations as equity and the subsequent measurement of such obligations was inappropriate and instead should have been classified as liabilities and subsequently measured at fair value with changes recognized in other income (expense), net during the three months ended March 31, 2020. We determined that the impact of the error to previously issued financial statements was not material and have corrected the immaterial error in the three months ended March 31, 2020. The impact of this correction was an increase to other long-term liabilities of $10.1 million, a corresponding decrease to additional paid-in capital of $10.4 million and an increase to other income, net of $0.3 million.

Recent accounting pronouncements

We evaluate all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board ("FASB") for consideration of their applicability. ASUs not included in the disclosures in this report were assessed and determined to be either not applicable or are not expected to have a material impact on our consolidated financial statements.

Recently adopted accounting pronouncements

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share calculations as a result of these changes. This new standard is effective for our interim and annual periods beginning January 1, 2022, and earlier adoption is permitted. We elected to adopt the amendments on a modified retrospective basis effective January 1, 2021 which required a cumulative-effect adjustment to retained earnings. The cumulative-effect adjustment resulted in a decrease in accumulated deficit of $17.0 million related to the reversal of the equity component and associated issuance costs as well as adjustment of the related amortization costs of our existing convertible senior notes due in 2024. Reporting periods beginning on or after January 1, 2021 are presented under this new guidance while prior periods have not been adjusted and continue to be reported in accordance with our historic accounting under GAAP. See further information about our Senior Convertible Notes in Note 8, “Commitments and contingencies.”

7

3. Revenue, accounts receivable and deferred revenue

Test revenue is generated from sales of diagnostic tests and precision oncology products to four groups of customers: biopharmaceutical partners, patients who pay directly, patients' insurance carriers, and other business-to-business customers (e.g., hospitals, clinics, medical centers). Test revenue is generated in two ways: through a centralized lab and decentralized through the shipment of reactions to biopharmaceutical partners and other business-to-business customers. We refer to the set of reagents needed to perform a next-generation sequencing test as a "reaction." Amounts billed and collected, and the timing of collections, vary based on the type of payer. Other revenue consists principally of revenue recognized under contracts for biopharmaceutical development services and other collaboration and genome network agreements and is accounted for under the provisions provided in ASC 606, Revenue from Contracts with Customers.

Our revenue as disaggregated by payer category and revenue subtype was as follows (in thousands):

	Patient				Biopharma partner		Other business-to-business		Three Months Ended March 31, 2021
	Insurance		Direct
Test revenue:
Centralized	$	60,891	$	8,949	$	10,274	$	10,472	$	90,586
Decentralized	—		—		383		8,307		8,690
Total test revenue	60,891		8,949		10,657		18,779		99,276
Other revenue	—		—		3,062		1,283		4,345
Total revenue	$	60,891	$	8,949	$	13,719	$	20,062	$	103,621

	Patient				Biopharma partner		Other business-to-business		Three Months Ended March 31, 2020
	Insurance		Direct
Test revenue:
Centralized	$	43,790	$	5,791	$	4,312	$	9,185	$	63,078
Total test revenue	43,790		5,791		4,312		9,185		63,078
Other revenue	—		—		453		717		1,170
Total revenue	$	43,790	$	5,791	$	4,765	$	9,902	$	64,248

We recognize revenue related to billings based on estimates of the amount that will ultimately be realized. Cash collections for certain tests delivered may differ from rates originally estimated. As a result of new information, we update our estimate quarterly of the amounts to be recognized for previously delivered tests which resulted in the following increases to revenue and decreases to our loss from operations and basic and diluted net loss per share (in millions, except per share amounts):

	Three Months Ended March 31,
	2021		2020
Revenue	$	4.3	$	1.4
Loss from operations	$	(4.3)	$	(1.4)
Net loss per share, basic and diluted	$	(0.02)	$	(0.01)

Influence of COVID-19

Our billable volumes decreased significantly in the second half of March 2020 as compared to the first few months of 2020 as a result of COVID-19 and related limitations and priorities across the healthcare system. Our daily test volumes have consistently increased from the low in March 2020, although we are currently still experiencing changes in product mix due to the impact of COVID-19. COVID-19 could have a material impact on our financial results for the foreseeable future, particularly on product mix and as a result, the revenue we recognize. We have reviewed and adjusted for the impact of COVID-19 on our estimates related to revenue recognition and expected credit losses.

8

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law which was a stimulus bill intended to bolster the economy, among other things, and provide assistance to qualifying businesses and individuals. The CARES Act included an infusion of funds into the healthcare system; in April 2020, we received $3.8 million as a part of this initiative, and in January 2021, we received an additional $2.3 million. These payments were recognized as other income, net in our consolidated statement of operations in the period received. At this time, we are not certain of the availability, extent or impact of any future relief provided under the CARES Act.

Accounts receivable

The majority of our accounts receivable represents amounts billed to biopharmaceutical partners and other business-to-business customers for test and other revenue recognized, and estimated amounts to be collected from third-party insurance payers for genetic testing revenue recognized. Also included are amounts due under the terms of collaboration and genome network agreements for diagnostic testing and data aggregation reporting services provided and proprietary platform access rights transferred.

We also record unbilled revenue for revenue recognized but yet to be billed for services provided to biopharmaceutical companies related to companion diagnostic development. This contract receivable was $6.6 million and $4.3 million as of March 31, 2021 and December 31, 2020, respectively, and was included in prepaid expenses and other current assets on the consolidated balance sheets.

Deferred revenue

We record a contract liability when cash payments are received or due in advance of our performance related to one or more performance obligations. The deferred revenue balance primarily consists of advanced billings for biopharmaceutical development services, including billings at the initiation of performance-based milestones, and recognized as revenue in the applicable future period when the revenue is earned. Also included are prepayments related to our consumer direct channel. During the three months ended March 31, 2021, we recognized revenue of $1.7 million from deferred revenue recorded in prior periods.

4. Business combinations

Singular Bio

In June 2019, we acquired 100% of the fully diluted equity of Singular Bio, Inc. ("Singular Bio"), a privately held company developing single molecule detection technology, for approximately $57.3 million, comprised of $53.9 million in the form of 2.5 million shares of our common stock and the remainder in cash.

In June 2019, we granted approximately $90.0 million of restricted stock units ("RSU") under our 2015 Stock Incentive Plan as inducement awards to new employees who joined Invitae in connection with our acquisition of Singular Bio. $45.0 million of the RSUs are time-based and vested in three equal installments in December 2019, June 2020, and December 2020, subject to the employee's continued service with us ("Time-based RSUs") and $45.0 million of the RSUs are performance-based RSUs ("PRSUs") that vest upon the achievement of certain performance conditions. Since the number of awards granted is based on a 30-day volume weighted-average share price with a fixed dollar value, these Time-based RSUs and PRSUs are liability-classified and the fair value is estimated at each reporting period based on the number of shares that are expected to be issued at each reporting date and our closing stock price, which combined are categorized as Level 3 inputs. Therefore, fair value of these awards and the number of shares issued are not fixed until the awards vest.

During the three months ended March 31, 2021, we recorded research and development stock-based compensation expense of nil related to the Time-based RSUs, and $2.4 million related to the PRSUs based on our evaluation of the probability of achieving performance conditions. During the three months ended March 31, 2020, we recorded research and development stock-based compensation expense of $7.6 million related to the Time-based RSUs and $11.2 million related to the PRSUs. As of March 31, 2021, the Time-based RSUs and PRSUs had a total fair value of $43.9 million and $46.2 million, respectively, based on a total estimated issuance of 3.6 million shares and expectation of the achievement of the performance conditions. As of March 31, 2021, all of the Time-based RSUs and 1.3 million of the PRSUs had vested with a total fair value of $80.0 million which was recorded in common stock issued or issuable pursuant to business combinations in the consolidated statements of stockholders' equity upon issuance.

9

Jungla

In July 2019, we acquired 100% of the equity interest of Jungla Inc. ("Jungla"), a privately held company developing a platform for molecular evidence testing in genes, for approximately $59.0 million, comprised of $44.9 million in the form of shares of our common stock and the remainder in cash.

We may be required to pay contingent consideration based on achievement of post-closing development milestones. As of the acquisition date, the fair value of this contingent consideration was $10.7 million including cash and common stock. These milestones are expected to be completed within approximately two years of the date of acquisition. The material factors that may impact the fair value of the contingent consideration, and therefore, this liability, are the probabilities and timing of achieving the related milestones and the discount rate used to estimate the fair value. Significant changes in any of the probabilities of success would result in a significant change in the fair value, which is estimated at each reporting date with changes reflected as a general and administrative expense. As of March 31, 2021, the fair value of this contingent consideration was $7.1 million.

Diploid

In March 2020, we acquired 100% of the equity interest of Orbicule BV ("Diploid"), a developer of artificial intelligence software capable of diagnosing genetic disorders using sequencing data and patient information, for approximately $82.3 million in cash and shares of our common stock. Of the stock purchase price consideration issued, approximately 0.4 million shares are subject to a hold-back to satisfy indemnification obligations that may arise.

As of March 31, 2021, we had a stock payable liability related to our acquisition of Diploid of $16.1 million which represents the hold-back obligation to issue 0.4 million shares subject to indemnification claims that may arise. This liability is adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input, with the change recorded in other income (expense), net.

Genelex and YouScript

In April 2020, we acquired 100% of the equity interest of Genelex Solutions, LLC ("Genelex") and YouScript Incorporated ("YouScript") to bring pharmacogenetic testing and integrated clinical decision support to Invitae. We acquired Genelex for approximately $13.2 million, primarily in shares of our common stock. Of the stock purchase price consideration issued, approximately 0.1 million shares were subject to a hold-back to satisfy indemnification obligations that may arise. We acquired YouScript for approximately $52.7 million, including cash consideration of $24.5 million and the remainder in shares of our common stock. Of the purchase price consideration for YouScript, approximately $1.4 million and 0.5 million shares of our common stock were subject to a hold-back to satisfy indemnification obligations that may arise.

As of the acquisition date, we recorded stock payable liabilities of $6.2 million to represent the hold-back obligation to issue shares subject to indemnification claims that may arise. These liabilities are adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input. As of March 31, 2021, the value of this liability was $19.7 million with the change recorded in other income (expense), net. In April 2021, the amounts held back to satisfy indemnification obligations for Genelex were released in full to the former shareholders.

We may be required to pay contingent consideration in the form of additional shares of our common stock in connection with the acquisition of Genelex if, within a specified period following the closing, we achieve a certain product milestone, in which case we would issue shares of our common stock with a value equal to a portion of the gross revenues actually received by us for a pharmacogenetic product reimbursed through certain payers during an earn-out period of up to four years. As of the acquisition date, the fair value of this contingent consideration was $2.0 million in the form of shares of our common stock. The material factors that may impact the fair value of the contingent consideration, and therefore, this liability, are the probabilities and timing of achieving the related milestone, the estimated revenues achieved for a pharmacogenetic product and the discount rate used to estimate the fair value. Significant changes in any of the probabilities of success would result in a significant change in the fair value, which is estimated at each reporting date with changes reflected as general and administrative expense. As of March 31, 2021, the fair value of this contingent consideration was $1.3 million.

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ArcherDX

In October 2020, we acquired ArcherDX, Inc. ("ArcherDX"), a genomics analysis company democratizing precision oncology. Under the terms of the agreement, we acquired ArcherDX for upfront consideration consisting of 30.0 million shares of our common stock and $325.0 million in cash, plus up to an additional 27.0 million shares of our common stock payable in connection with the achievement of certain milestones. During the three months ended March 31, 2021, Invitae and the sellers of ArcherDX reached an agreement to reduce the purchase price by $1.2 million based on the final acquired net working capital. This adjustment was recorded during the three months ended March 31, 2021 and reduced the contingent consideration liability and goodwill by approximately $1.2 million.

Our purchase price allocation for the acquisition is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to our deferred tax liability assumed in connection with the acquisition. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.

We may be required to pay contingent consideration based on achievement of post-closing development and revenue milestones. As of the acquisition date, the total fair value of the contingent consideration was $945.2 million. The milestones are expected to be completed within approximately two years from the date of the acquisition, with one of them being achieved in November 2020 which resulted in the issuance of 5.0 million shares of our common stock and a cash payment of $1.9 million. The material factors that may impact the fair value of the contingent consideration, and therefore the liability, are (i) the estimated number of shares issued, (ii) the volatility assumptions of our common stock used in the Monte Carlo simulation, (iii) the probabilities and timing of achievement of milestones and (iv) discount rates, all of which are Level 3 inputs not supported by market activity. Significant changes in any of these inputs may result in a significant change in fair value, which is estimated at each reporting date with changes reflected as general and administrative expense. As of March 31, 2021, the fair value of the contingent consideration representing the remaining milestones was $723.5 million.

In connection with the acquisition, we granted awards of Invitae common stock to new employees who joined Invitae in connection with our acquisition of ArcherDX which vest upon the achievement of the contingent consideration milestones discussed above and are subject to the employee’s continued service with us, unless terminated without cause in which case vesting is only dependent on milestone achievement. As the number of shares that are expected to be issued are fixed, the awards are equity-classified. During the three months ended March 31, 2021, we recorded $40.6 million in stock-based compensation expense related to the ArcherDX milestones, of which $30.4 million was due to an accounting modification of certain awards whereby the employee's continued substantive services are no longer required.

One Codex

In February 2021, we acquired 100% of the equity interest of Reference Genomics, Inc. d/b/a One Codex ("One Codex"), a company developing and commercializing products and services relating to microbiome sequencing, analysis and reporting, for upfront consideration consisting of $17.3 million in cash and 1.4 million shares of our common stock, of which approximately 0.2 million shares are subject to a hold back to satisfy indemnification obligations that may arise following the closing. These shares subject to a hold back were issued to a third-party at the closing date to hold in escrow until the escrow period is complete, and as such were classified as equity. We included the financial results of One Codex in our consolidated financial statements from the acquisition date, which were not material.

The following table summarizes the purchase price and post-combination expense recorded as a part of the acquisition of One Codex (in thousands):

	Purchase Price		Post-combination Expense
Cash transferred	$	16,504	$	783
Hold-back consideration - common stock	8,113		359
Common stock transferred	58,774		2,600
Total	$	83,391	$	3,742

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Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by us. While we believe that our estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different valuations assigned to the individual assets acquired and liabilities assumed, and the resulting amount of goodwill. The following table summarizes the fair values of assets acquired and liabilities assumed through our acquisition of One Codex at the date of acquisition (in thousands):

Cash	$	1,549
Accounts receivable	684
Developed technology	23,841
Customer relationships	440
Total identifiable assets acquired	26,514
Other liabilities	(415)
Deferred tax liability	(6,150)
Net identifiable assets acquired	19,949
Goodwill	63,442
Total purchase price	$	83,391

Based on the guidance provided in ASC 805, Business Combinations, we accounted for the acquisition of One Codex as a business combination and determined that 1) One Codex was a business which combines inputs and processes to create outputs, and 2) substantially all of the fair value of gross assets acquired was not concentrated in a single identifiable asset or group of similar identifiable assets.

Our purchase price allocation for the acquisition is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to our deferred tax liability assumed in connection with the acquisition. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.

We measured the identifiable assets and liabilities assumed at their acquisition date fair values separately from goodwill. The intangible assets acquired were developed technology related to One Codex's microbiome and infectious disease platform and its customer relationships in place at time of acquisition. The fair value of the intangible assets was estimated using an income approach with an estimated useful life of nine years.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of One Codex resulted in the recognition of $63.4 million of goodwill which we believe relates primarily to expansion of the acquired technology to apply to new areas of genetic testing. The goodwill created as a result of the acquisition of One Codex is not deductible for tax purposes.

5. Goodwill and intangible assets

Goodwill

The changes in the carrying amounts of goodwill were as follows (in thousands):

Balance as of December 31, 2020	$	1,863,623
Goodwill adjustment	(1,176)
Goodwill acquired	63,442
Balance as of March 31, 2021	$	1,925,889

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Intangible assets

The following table presents details of our intangible assets (in thousands):

	March 31, 2021							December 31, 2020
	Cost		Accumulated Amortization		Net		Weighted-Average Useful Life (in Years)	Cost		Accumulated Amortization		Net		Weighted-Average Useful Life (in Years)
Customer relationships	$	41,515	$	(9,497)	$	32,018	10.8	$	41,075	$	(8,292)	$	32,783	10.8
Developed technology	421,404		(41,079)		380,325		10.5	397,563		(31,013)		366,550		10.6
Non-compete agreement	286		(243)		43		5.0	286		(229)		57		5.0
Trade name	21,085		(888)		20,197		12.0	21,085		(447)		20,638		12.0
Patent assets and licenses	496		(112)		384		15.0	496		(103)		393		15.0
Right to develop new technology	19,359		(643)		18,716		15.0	19,359		(323)		19,036		15.0
In-process research and development	542,388		—		542,388		n/a	542,388		—		542,388		n/a
	$	1,046,533	$	(52,462)	$	994,071	10.8	$	1,022,252	$	(40,407)	$	981,845	10.9

Acquisition-related intangibles included in the above table are finite-lived, other than in-process research and development which has an indefinite life, and are carried at cost less accumulated amortization. Customer relationships related to our 2017 business combinations are being amortized on an accelerated basis, in proportion to estimated cash flows. All other finite-lived acquisition-related intangibles are being amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are realized. Amortization expense was $12.1 million and $3.6 million for the three months ended March 31, 2021 and 2020, respectively. Amortization expense is recorded to cost of revenue, research and development, selling and marketing and general and administrative expense.

The following table summarizes our estimated future amortization expense of intangible assets with finite lives as of March 31, 2021 (in thousands):

2021 (remainder of year)	$	37,325
2022	48,095
2023	47,083
2024	46,804
2025	45,051
Thereafter	227,325
Total estimated future amortization expense	$	451,683

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6. Balance sheet components

Inventory

Inventory consisted of the following (in thousands):

	March 31, 2021		December 31, 2020
Raw materials	$	20,976	$	21,324
Work in progress	7,743		8,847
Finished goods	1,937		1,859
Total inventory	$	30,656	$	32,030

While we have not experienced significant disruption in our supply chain and we do not yet know the full impact COVID-19 will have on our supply chain, we have increased our inventory on hand to respond to potential future disruptions that may occur.

Property and equipment, net

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

	March 31, 2021		December 31, 2020
Leasehold improvements	$	26,224	$	26,516
Laboratory equipment	48,434		45,342
Computer equipment	11,141		10,939
Software	705		566
Furniture and fixtures	1,968		1,967
Automobiles	58		58
Construction-in-progress	19,446		12,061
Total property and equipment, gross	107,976		97,449
Accumulated depreciation and amortization	(35,067)		(31,347)
Total property and equipment, net	$	72,909	$	66,102

Depreciation expense was $3.8 million and $2.0 million for the three months ended March 31, 2021 and 2020, respectively.

Accrued liabilities

Accrued liabilities consisted of the following (in thousands):

	March 31, 2021		December 31, 2020
Accrued compensation and related expenses	$	33,348	$	25,221
Compensation and other liabilities associated with business combinations	27,515		25,600
Deferred revenue	5,264		6,378
Other	27,909		28,859
Total accrued liabilities	$	94,036	$	86,058

Other long-term liabilities

Other long-term liabilities consisted of the following (in thousands):

	March 31, 2021		December 31, 2020
Deferred revenue, non-current	1,380		1,380
Compensation and other liabilities associated with business combinations, non-current	753,815		825,976
Other	14,100		13,900
Total other long-term liabilities	$	769,295	$	841,256

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7. Fair value measurements

 Financial assets and liabilities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The authoritative guidance establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity.

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

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

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

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

The following tables set forth the fair value of our consolidated financial instruments that were measured at fair value on a recurring basis (in thousands):

	March 31, 2021
	Amortized Cost		Unrealized				Estimated Fair Value
			Gains		Losses				Level 1		Level 2		Level 3
Financial assets:
Money market funds	$	177,176	$	—	$	—	$	177,176	$	177,176	$	—	$	—
U.S. Treasury notes	403,840		47		(4)		403,883		403,883		—		—
U.S. government agency securities	73,490		7		—		73,497		—		73,497		—
Total financial assets	$	654,506	$	54	$	(4)	$	654,556	$	581,059	$	73,497	$	—
Financial liabilities:
Stock payable liability							$	35,858	$	—	$	—	$	35,858
Contingent consideration							731,842		—		—		731,842
Total financial liabilities							$	767,700	$	—	$	—	$	767,700

	March 31, 2021
Reported as:
Cash equivalents	$	166,901
Restricted cash	10,275
Marketable securities	477,380
Total cash equivalents, restricted cash, and marketable securities	$	654,556
Accrued liabilities	$	14,577
Other long-term liabilities	753,123
Total liabilities	$	767,700

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	December 31, 2020
	Amortized Cost		Unrealized				Estimated Fair Value
			Gains		Losses				Level 1		Level 2		Level 3
Financial assets:
Money market funds	$	83,109	$	—	$	—	$	83,109	$	83,109	$	—	$	—
U.S. Treasury notes	164,894		7		(15)		164,886		164,886		—		—
U.S. government agency securities	64,291		9		—		64,300		—		64,300		—
Total financial assets	$	312,294	$	16	$	(15)	$	312,295	$	247,995	$	64,300	$	—
Financial liabilities:
Stock payable liability							$	39,237	$	—	$	—	$	39,237
Contingent consideration							796,639		—		—		796,639
Total financial liabilities							$	835,876	$	—	$	—	$	835,876

	December 31, 2020
Reported as:
Cash equivalents	$	76,423
Restricted cash	6,686
Marketable securities	229,186
Total cash equivalents, restricted cash, and marketable securities	$	312,295
Accrued liabilities	$	10,592
Other long-term liabilities	825,284
Total liabilities	$	835,876

There were no transfers between Level 1, Level 2 and Level 3 during the periods presented. The total fair value of investments with unrealized losses at March 31, 2021 was $82.5 million. Our debt securities of U.S. government agencies are classified as Level 2 as they are valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to benchmark yields, interest rate curves, reported trades, broker/dealer quotes and reference data.

Stock payable liabilities relate to certain indemnification hold-backs resulting from business combinations that are settled in shares of our common stock. We elected to account for these liabilities using the fair value option due to the inherent nature of the liabilities and the changes in value of the underlying shares that will ultimately be issued to settle the liabilities. The estimated fair value of these liabilities is classified as Level 3 and determined based upon the number of shares that are issuable to the sellers and the quoted closing price of our common stock as of the reporting date. The number of shares that will ultimately be issued is subject to adjustment for indemnified claims that existed as of the closing date for each acquisition. Changes in the number of shares issued and share price can significantly affect the estimated fair value of the liabilities. During the three months ended March 31, 2021 and 2020, the change in fair value related to stock payable liabilities recorded to other income (expense), net was income of $3.4 million during both periods.

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8. Commitments and contingencies

Leases

In 2015, we entered into an operating lease agreement for our headquarters and main production facility in San Francisco, California which commenced in 2016. This lease expires in 2026 and we may renew the lease for an additional ten years. This optional period was not considered reasonably certain to be exercised and therefore we determined the lease term to be a ten-year period expiring in 2026. In connection with the execution of the lease, we provided a security deposit of approximately $4.6 million which is included in restricted cash in our consolidated balance sheets. We also have other operating leases for office and laboratory space domestically and internationally. We expect to enter into new leases and modify existing leases as we support continued growth of our operations.

We have entered into various finance lease agreements to obtain laboratory equipment. The terms of our finance leases are generally three years and are typically secured by the underlying equipment. The portion of the future payments designated as principal repayment and related interest was classified as a finance lease obligation on our consolidated balance sheets. Finance lease assets are recorded within other assets on our consolidated balance sheets.

Debt financing

In October 2020, we entered into a credit agreement with a financial institution under which we borrowed $135.0 million (the "2020 Term Loan") concurrent with the closing of the ArcherDX acquisition. The 2020 Term Loan is secured by a first priority lien on all of our and our subsidiaries' assets, and is guaranteed by us and our subsidiaries. The 2020 Term Loan bears interest at an annual rate equal to three-month LIBOR, subject to a 2.00% LIBOR floor, plus a margin of 8.75%. If three-month LIBOR can no longer be determined or if the applicable governmental authority ceases to supervise or sanction such rates, then we shall endeavor to agree with the administrative agent, an alternate rate of interest that gives due consideration to the then prevailing market convention for determining interest for comparable loans in the United States; provided that until such alternative rate of interest is agreed, the 2020 Term Loan shall bear interest at the Wall Street Journal Prime Rate. The 2020 Term Loan will mature on (i) June 1, 2024 if at such time our 2024 Notes (defined below) are outstanding and are due to mature on September 1, 2024 (provided that if, prior to such date, the maturity date of at least 80% of the 2024 Notes is extended to a date that is prior to September 1, 2025, the maturity date for the 2020 Term Loan will be automatically extended to a date that is 90 days prior to such 2024 Notes maturity date as extended), or (ii) otherwise, on June 1, 2025. The full amount of the 2020 Term Loan is due upon maturity. Debt discounts, including debt issuance costs, related to the 2020 Term Loan of $32.8 million were recorded as a direct deduction from the debt liability and are being amortized to interest expense over the term of the 2020 Term Loan. Interest expense related to our debt financings, excluding the impact of our 2024 Notes (defined below), was $5.9 million and nil for the three months ended March 31, 2021 and 2020, respectively.

Convertible senior notes due 2024

In September 2019, we issued, at par value, $350.0 million aggregate principal amount of 2.00% convertible senior notes due 2024 (the "2024 Notes") in a private offering. The 2024 Notes are our senior unsecured obligations and will mature on September 1, 2024, unless earlier converted, redeemed or repurchased. The 2024 Notes bear cash interest at a rate of 2.0% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020.

Upon conversion, the 2024 Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. The initial conversion rate for the 2024 Notes is 33.6293 shares of our common stock per $1,000 principal amount of the 2024 Notes (equivalent to an initial conversion price of approximately $29.74 per share of common stock).

If we undergo a fundamental change (as defined in the indenture governing the 2024 Notes), the holders of the 2024 Notes may require us to repurchase all or any portion of their 2024 Notes for cash at a repurchase price equal to 100% of the principal amount of the 2024 Notes to be repurchased plus accrued and unpaid interest to, but excluding, the redemption date.

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The 2024 Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding March 1, 2024, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2024 Notes on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call any or all of the 2024 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after March 1, 2024 until the close of business on the business day immediately preceding the maturity date, holders may convert their 2024 Notes at any time, regardless of the foregoing circumstances. These notes were convertible at the option of the holders during the quarters beginning on January 1, 2021 and April 1, 2021 due to the sale price of our common stock during the quarters ended December 31, 2020 and March 31, 2021, respectively. No holders converted their notes during the three months ended March 31, 2021.

We may not redeem the 2024 Notes prior to September 6, 2022. We may redeem for cash all or any portion of the 2024 Notes, at our option, on or after September 6, 2022 and on or before the 30th scheduled trading day immediately before the maturity date if the last reported sale price of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

We adopted the provisions of ASU 2020-06 on January 1, 2021; see further information in Note 2, "Summary of significant accounting policies." The 2024 Notes consisted of the following (in thousands):

	March 31, 2021		December 31, 2020
Outstanding principal	$	350,000	$	350,000
Unamortized debt discount and issuance costs	(7,081)		(66,276)
Net carrying amount, liability component	$	342,919	$	283,724

As of March 31, 2021, the fair value of the 2024 Notes was $