6. Commitments and Contingencies

Operating Leases

As of March 31, 2016, the Company sub‑leases office facilities under non‑cancelable operating lease agreements. In January 2013, the Company amended its sublease agreement to expand its corporate headquarters. In connection with the amendment, the Company executed a letter of credit in favor of the lessors for $0.8 million, which is secured with a restricted cash account. The related subleases expire in October 2016.

On March 21, 2014, the Company entered into an additional sub‑lease agreement to expand its corporate headquarters for additional office and laboratory space. In connection with the sub-lease, the Company executed a letter of credit in April 2015 in favor of the lessors for $0.3 million, which is secured with a restricted cash account. The lease and additional sub‑lease expire in January 2017.

In April 2015, the Company entered into a sub-lease agreement for additional office space in Redwood City, California. The additional space carries a base rent of $62,700 per month. The lease period began in June 2015 and will terminate in August 2016. In addition, the Company has paid a security deposit of $125,500.

In September 2015, the Company’s subsidiary entered into a long-term lease agreement for laboratory and office space totaling approximately 94,000 square feet in Austin, Texas. The lease term is 132 months beginning in December 2015 with monthly payments beginning in December 2016, increasing from $133,000 to $207,500. Per the terms of the lease, the subsidiary has paid a security deposit of $375,000, and the landlord has allotted the subsidiary an allowance for leasehold improvements of up to $7.8 million.

In October 2015, the Company’s subsidiary entered into a one year lease agreement for temporary office space in Austin, Texas. The property carries a monthly rent of $12,900 per month for the 12 months of the lease and $12,900 per month on a month to month basis following the 12th month. The terms of the lease include a $12,900 security deposit.

In October 2015, the Company extended its corporate headquarters lease agreement for the lease of two spaces totaling approximately 88,000 square feet through October 5, 2023. Upon the expiree of the current lease, the lease agreement commences in October 2016 at a monthly rent of $0.2 million per month and increase each year thereafter to a maximum of $0.4 million in the final year of the initial term of the lease. The Company is entitled to a tenant improvement allowance of $0.4 million, to be expended prior to April 1, 2018, for the costs related to the design and construction of improvements to the facilities. The terms of the lease include a $0.5 million security deposit, and the option to extend the lease for an additional five years per the terms of the lease agreement.

The future annual minimum lease payments under all non-cancelable operating leases as of March 31, 2016 are as follows:


	Operating Leases
	(in thousands)
Year ending December 31:
2016 (nine months)	$	2,407
2017		5,442
2018		5,976
2019		6,140
2020		6,304
2021 and thereafter		25,922
Total future minimum lease payments	$	52,191

Rent expense for the three months ended March 31, 2016 and 2015 was $1.3 million and $0.5 million, respectively. The Company is also required to pay its share of facility operating expenses with respect to the facilities in which it operates.

Legal Proceedings

From time to time, the Company is involved in disputes, litigation, and other legal actions. The Company is aggressively defending its current litigation matters, and while there can be no assurances and the outcome of these matters is currently not determinable, the Company currently believes that there are no existing claims or proceedings that are likely to have a material adverse effect on its financial position. There are many uncertainties associated with any litigation and these actions or other third-party claims against the Company may cause the Company to incur costly litigation and/or substantial settlement charges.

In addition, the resolution of any intellectual property litigation may require the Company to make royalty payments, which could adversely affect gross margins in future periods. If this were to occur, the Company's business, financial condition, results of operations, and cash flows could be adversely affected. The actual liability in any such matters may be materially different from the Company's estimates, if any, which could result in the need to record or adjust a liability and record additional expenses. During the periods presented, the Company has not recorded any accrual for loss contingencies associated with such legal proceedings, determined that an unfavorable outcome is probable or reasonably possible, or determined that the amount or range of any possible loss is reasonably estimable.

On March 4, 2016, a lawsuit was filed against the Company in the Superior Court of the State of California for the County of San Diego, by a patient alleging that the Company failed to perform a test that was ordered. The complaint seeks unspecified damages. The Company has notified its insurer, who is providing a defense under a reservation of rights. The Company intends to vigorously defend against the claims in this lawsuit, but it cannot be certain of the outcome.

On February 17, 2016, March 10, 2016, March 28, 2016 and April 4, 2016, four purported class action lawsuits were filed in the Superior Court of the State of California for the County of San Mateo (the “San Mateo Superior Court”), against the Company, its directors and certain of its officers and 5% stockholders and their affiliates, and each of the underwriters of its July 1, 2015 initial public offering (the "IPO"). The complaints assert claims under Sections 11, 12(a)(2) and 15 of the Securities Act of 1933, as amended. The complaints allege, among other things, that the Registration Statement and Prospectus for the Company’s IPO contained materially false or misleading statements, and/or omitted material information that was required to be disclosed, about the Company’s business and prospects. Among other relief, the complaints seek class certification, unspecified compensatory damages, rescission, attorneys' fees, and costs. The Company has removed these actions to the United States District Court for the Northern District of California; a motion to remand the actions to the San Mateo Superior Court is pending. The Company intends to defend the matter vigorously, but it cannot be certain of the outcome.

On January 6, 2012, the Company filed a declaratory judgment action in the U.S. District Court for the Northern District of California, alleging that U.S. Patent No. 6,258,540 licensed by Sequenom, Inc. ("Sequenom") from Isis Innovation Limited, Inc. ("Isis") (the '540 patent), is invalid, unenforceable and not infringed by the Company. The '540 patent relates to non-invasive prenatal diagnosis methods. This case was consolidated in the Northern District of California with a case that Sequenom, an affiliate of Sequenom, and Isis brought on January 24, 2012 in the Southern District of California alleging infringement by the Company and DNA Diagnostics Center, Inc., the Company's licensee, and at the time, the distributor of its non-invasive paternity test, of certain claims of the '540 patent. Ariosa Diagnostics, Inc. ("Ariosa") and Verinata Health, Inc. ("Verinata"), now a division of Illumina, Inc., also filed declaratory judgment actions regarding the '540 patent against Sequenom in the Northern District. Sequenom asserted counterclaims of infringement of the '540 patent against both Ariosa and Verinata in those respective cases. All of these cases were designated related cases. On October 30, 2013, the District Court issued an order granting Ariosa's motion for summary judgment in its case against Sequenom, finding that the claims asserted against Ariosa are invalid under 35 U.S.C. §101 for reciting non-patentable subject matter. Many of the claims of the '540 patent asserted against the Company were invalidated by this order. Subsequently, Sequenom entered into stipulations with Verinata and the Company conditionally agreeing that the remaining asserted claims of the '540 Patent should be deemed invalid under 35 U.S.C. §101. The Court then entered judgment in favor of Verinata and the Company in their respective cases in November 2013. Sequenom has appealed all three judgments to the Court of Appeals for the Federal Circuit ("CAFC"). The CAFC has consolidated the Ariosa, Verinata and the Company's cases for purposes of appeal, such that the CAFC can make a single ruling on the '540 patent claims that apply to all parties involved. The appellate arguments were heard on November 7, 2014. On December 2, 2014, Sequenom and Verinata settled the pending claims between them. On June 12, 2015, the CAFC affirmed the district court's finding of invalidity with respect to the Company and Ariosa. On August 13, 2015, Sequenom requested a rehearing en banc by the full panel of the CAFC, and on October 19, 2015, the Company and Ariosa each filed a response to Sequenom’s request. On December 2, 2015, Sequenom’s petition for a rehearing en banc was denied. On March 21, 2016, Sequenom filed a petition for writ of certiorari with the Supreme Court. The Company intends to continue to vigorously assert its claims and defend against the counterclaims in this lawsuit, but it cannot be certain of the outcome.

Third-Party Payer Reimbursement Audits

In November 2014, a third-party payer sought information as part of an investigative audit of claims which it had paid for certain genetic testing. The Company complied with their request and provided responsive information. In a letter dated June 2, 2015, the third-party payer alleged that it had overpaid $1.9 million to the Company, which it claimed was an overpayment reflecting the difference between what it paid to the Company and what it contended it should have paid based on its fee schedule and coverage determinations. In August 2015, the Company reached an agreement for a settlement payment of $1.2 million as part of a complete settlement of this matter. This charge was recorded against “revenue” in the second quarter of 2015.

Contractual Commitment

As of March 31, 2016, the Company has non‑cancelable contractual commitments with a supplier for approximately $13.3 million and other material supplier commitments for approximately $5.3 million in the aggregate for inventory material used in the laboratory testing process.

In January 2015, the Company entered into a laboratory services agreement. As of March 31, 2016, there was a total remaining minimum of approximately $3.6 million through October 2016.