Investments

9 Months Ended

Sep. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

Equity method investment

Investment in NantOmics

In 2015, the Company purchased a total of 169,074,539 Series A-2 units of NantOmics, LLC (“NantOmics”), a related party of the Company, for an aggregate purchase price of $250,774. The Series A-2 units do not have any voting rights and, at the time of purchase, represented approximately 14.28% of NantOmics’ issued and outstanding membership interests. NantOmics is majority owned by NantWorks and delivers molecular diagnostic capabilities with the intent of providing actionable intelligence and molecularly driven decision support for cancer patients and their providers at the point of care.

The Company applies the equity method to account for its investment in NantOmics as the interest in the equity is similar to a partnership interest. Further, the Company has the ability to exert significant influence over the operating and financial policies of the entity since NantWorks controls both NantHealth and NantOmics. The difference between the carrying amount of the investment in NantOmics and the Company’s underlying equity in NantOmics’ net assets relate to both definite and indefinite-lived intangible assets. At the time of the purchase, the Company attributed $28,195 and $14,382 of these differences to NantOmics’ developed technologies and its reseller agreement with the Company, respectively, prior to the application of developed technology intangibles included in NantOmics net assets, and the remaining basis differences were attributed to goodwill. The Company amortizes the basis differences related to the definite-lived intangible assets over the assets’ estimated useful lives and records these amounts as a reduction in the carrying amount of its investment and an increase in its equity method loss.

At February 28, 2018, the Company transferred 9,088,362 of the Series A-2 units to NantOmics as consideration for the assignment of NantHealth Labs, Inc. (see Note 19). An additional 564,779 units were transferred by May 31, 2018. This reduced NantHealth's ownership of NantOmics to approximately 13.58%.

At June 30, 2020, the Company determined that an other-than-temporary-impairment of $28,227, the full remaining carrying value of the Company's investment in NantOmics, had occurred, predominantly attributed to (i) limited progress by NantOmics in completing revenue generating transactions for paid molecular analysis services for the research and pharmaceutical industries; (ii) limited progress in completing licensing transactions for proprietary molecular analysis technologies and/or intellectual property of NantOmics; and (iii) the Company's decision to shift future laboratory operations in-house related to the GPS Cancer and Omics Core products to better control the supply chain and CMS reimbursement process, which the Company expects to result in reduced fees to NantOmics. The other-than-temporary-impairment was based on judgments and estimates that were forward looking in nature and it is reasonably possible that the estimates could change in the near term. The Company believes the assumptions on projected financial information are reasonable. However, actual results may differ materially from those projections.

Pertaining to the Company's share of NantOmics' income or loss, amortization of basis differences, and other-than-temporary impairments, for the nine months ended September 30, 2020, the Company recognized losses of $31,702. For the three and nine months ended September 30, 2019, the Company recognized losses of $1,983 and $6,401, respectively. The Company did not recognize any income or losses during the three months ended September 30, 2020.

The Company reports its share of NantOmics’ income or loss and the amortization of basis differences using a one quarter lag. As the Company's equity method investment in NantOmics was reduced to zero during the second quarter of 2020, the Company discontinued to apply the equity method to record additional losses until NantOmics subsequently reports net income and that net income equals the share of net losses not recognized during the period the equity method was suspended. For the three months ended September 30, 2020, NantOmics continued to generate a net loss.

The Company used the following summarized financial information for NantOmics for the nine months ended June 30, 2020, and the three and nine months ended June 30, 2019, to record its equity method losses for the nine months ended September 30, 2020 and the three and nine months ended September 30, 2019:


	Three Months Ended June 30,		Nine Months Ended June 30,
	2019		2020		2019
Revenues	$	847	$	349	$	3,913
Gross loss	(1,239)		(1,641)		(2,573)
Loss from operations	(4,436)		(7,806)		(17,541)
Impairment on equity investments	—		—		(12,265)
Net loss	(3,333)		(2,618)		(26,263)
Net loss attributable to NantOmics	(3,296)		(2,559)		(26,005)