EXACT SCIENCES CORPORATION Objective
The purpose of this Management's Discussion and Analysis is to better allow our investors to understand and view our company from management's perspective. We are providing an overview of our business and strategy including a discussion of our financial condition and results of 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 endedDecember 31, 2021 , which has been filed with theU.S. Securities and Exchange Commission ("SEC") (the "2021 Form 10-K").
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, that are
intended to be covered by the "safe harbor" created by those sections.
Forward-looking statements, which are based on certain assumptions and describe
our future plans, strategies and expectations, can generally be identified by
the use of forward-looking terms such as "believe," "expect," "may," "will,"
"should," "would," "could," "seek," "intend," "plan," "goal," "project,"
"estimate," "anticipate" or other comparable terms. All statements other than
statements of historical facts included in this Quarterly Report on Form 10-Q
regarding our strategies, prospects, expectations, financial condition,
operations, costs, plans and objectives are forward-looking statements. Examples
of forward-looking statements include, among others, statements we make
regarding expected future operating results; our strategies, positioning,
resources, capabilities and expectations for future events or performance; and
the anticipated benefits of our acquisitions, including estimated synergies and
other financial impacts. Forward-looking statements are neither historical facts
nor assurances of future performance or events. Instead, they are based only on
current beliefs, expectations and assumptions regarding the future of our
business, future plans and strategies, projections, anticipated events and
trends, the economy and other future conditions. Because forward-looking
statements relate to the future, they are subject to inherent uncertainties,
risks and changes in circumstances that are difficult to predict and many of
which are outside of our control. Actual results, conditions and events may
differ materially from those indicated in the forward-looking statements.
Therefore, you should not rely on any of these forward-looking statements.
Important factors that could cause actual results, conditions and events to
differ materially from those indicated in the forward-looking statements
include, among others, the following: uncertainties associated with the
coronavirus ("COVID-19") pandemic, including its possible effects on our
operations, including our supply chain and clinical studies, and the demand for
our products and services; our ability to efficiently and flexibly manage our
business amid uncertainties related to COVID-19; our ability to meet our payment
obligations under our indebtedness; our ability to raise additional capital in
amounts and on terms satisfactory to us, if at all; our ability to successfully
and profitably market our products and services; the acceptance of our products
and services by patients and healthcare providers; our ability to meet demand
for our products and services; the willingness of health insurance companies and
other payers to cover our products and services and adequately reimburse us for
such products and services; the amount and nature of competition for our
products and services; the effects of any judicial, executive or legislative
action affecting us or the healthcare system; recommendations, guidelines and
quality metrics issued by various organizations regarding cancer screening or
our products and services; our ability to successfully develop new products and
services and assess potential market opportunities; our ability to effectively
enter into and utilize strategic partnerships and acquisitions; our success
establishing and maintaining collaborative, licensing and supplier arrangements;
our ability to obtain and 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 changing macroeconomic conditions, including the effects of
inflation and interest rate and foreign currency exchange rate fluctuations and
any such efforts to hedge such effects; the possibility that the anticipated
benefits from our business acquisitions will not be realized in full or at all
or may take longer to realize than expected; the possibility that costs or
difficulties related to the integration of acquired businesses' operations or
the divestiture of business operations will be greater than expected and the
possibility that integration or divestiture efforts will disrupt our business
and strain management time and resources; the outcome of any litigation,
government investigations, enforcement actions or other legal proceedings; our
ability to retain and hire key personnel. 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 2021 Form 10-K and subsequently filed
Quarterly Reports on Form 10-Q. You are further cautioned not to place undue
reliance upon any such forward-looking statements, which speak only as of the
date made. Except as otherwise required by the federal securities laws, we
undertake no obligation to publicly update any forward-looking statement,
whether written or oral, that may be made from time to time, whether as a result
of new information, future developments or otherwise.
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Table of Contents
Overview
Acquisitions and Divestitures
OnAugust 2, 2022 , we completed the sale of the intellectual property and know-how related to our Oncotype DX Genomic Prostate Score® test ("GPS test") to MDxHealth SA ("MDxHealth"). We believe this will allow our team to focus on the highest impact projects core to our vision. As a result of the transaction, certain members of our dedicated urology teams transitioned to MDxHealth, a commercial-stage precision diagnostics company focused solely on prostate cancer and other urologic diseases. To ensure a smooth transition for patients, we have agreed to provide certain transitional services to MDxHealth, including employee leasing and lab services.
Refer to Note 16 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for full discussion of acquisitions and divestitures completed during the year.
Our Screening Tests
Colorectal Cancer Screening
Colorectal cancer is the second leading cause of cancer deaths inthe United States and the leading cause of cancer deaths inthe United States among non-smokers. Each year inthe United States there are approximately 150,000 new cases of colorectal cancer and 53,000 deaths. It is widely accepted that colorectal cancer is among the most preventable, yet least prevented cancers. Our Cologuard® test is a non-invasive stool-based DNA ("sDNA") screening test that utilizes a multi-target approach to detect DNA and hemoglobin biomarkers associated with colorectal cancer and pre-cancer. Upon approval by theU.S. Food and Drug Administration ("FDA") inAugust 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. Clinical Genetic Testing
We provide more than 5,000 predefined genetic tests for nearly all clinically relevant genes, additional custom panels, and comprehensive germline, whole exome ("PGxome®"), and whole genome ("PGnome®") sequencing tests.
Our hereditary cancer test, RiskguardTM, helps people understand their inherited
risk of cancer, arming them with critical information to make better treatment
decisions.
Our Precision Oncology Tests
Our portfolio delivers actionable genomic insights to inform prognosis and
cancer treatment after a diagnosis. In breast cancer, the Oncotype DX Breast
Recurrence Score® test is the only test shown to predict the likelihood of
chemotherapy benefit as well as recurrence in invasive breast cancer. The
Oncotype DX® test is recognized as the standard of care and is included in all
major breast cancer treatment guidelines. The Oncomap™ ExTra test applies
comprehensive tumor profiling, utilizing whole exome and whole transcriptome
sequencing, to aid in therapy selection for patients with advanced, metastatic,
refractory, relapsed, or recurrent cancer. With an extensive panel of
approximately 20,000 genes and 169 introns, the Oncomap ExTra test is one of the
most comprehensive genomic (DNA) and transcriptomic (RNA) panels available
today. We enable patients to take a more active role in their cancer care and
makes it easy for providers to order tests, interpret results, and personalize
medicine by applying real-world evidence and guideline recommendations.
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Table of Contents
International Business Background and Products
We commercialize our Oncotype DX Breast Recurrence Score test internationally
through employees in Canada , Japan and eight European countries, as well as
through exclusive distribution agreements. We have provided our Oncotype tests
in more than 90 countries outside of the United States . We do not offer our
Cologuard test or COVID-19 testing outside of the United States .
Our research and development efforts are focused on developing new products and enhancing existing products to address unmet cancer needs and expand the clinical utility and addressable patient populations for our existing tests. We expect to advance liquid biopsy through biomarker discovery and validation in tissue, blood, or other fluids and to leverage recent business development activities to accelerate our leadership in earlier cancer detection and treatment guidance. We are pursuing the following opportunities: •Colorectal Cancer Screening. We are seeking opportunities to improve upon our Cologuard test's performance characteristics. InJanuary 2022 , we andMayo Foundation for Medical Education and Research ("Mayo") presented at theAmerican Society of Clinical Oncology Gastrointestinal Cancers Symposium findings from a study including prospectively collected samples that showed overall sensitivity of 95% for colorectal cancer at specificity of 92%. Subgroup analyses showed 83% sensitivity for high-grade dysplasia, the most dangerous pre-cancerous lesions, and 57% for all advanced pre-cancerous lesions. To establish the performance of an enhanced multi-target stool DNA test, we expect to enroll up to 29,000 patients 40 years of age and older in our multi-center, prospective BLUE-C study. The timing of any such enhancements to our Cologuard test is unknown and would be subject to FDA approval. We are also working to develop a blood-based screening test for colorectal cancer. •Multi-Cancer Early Detection ("MCED")Test Development . We are currently seeking to develop a blood-based, MCED test. InJanuary 2021 , we completed the acquisition ofThrive Earlier Detection Corporation ("Thrive"), a healthcare company dedicated to developing a blood-based, MCED test. We are combining Thrive's expertise with our scientific capabilities, clinical organization, and commercial infrastructure to bring an accurate blood-based, multi-cancer early detection test to patients. InSeptember 2022 , we announced data at theEuropean Society for Medical Oncology ("ESMO")Congress from a biomarker validation study, which demonstrated the ability to detect cancer signals from 15 organ sites, including 11 with no screening option available today, with a mean sensitivity of 61% and mean specificity of 98.2%. The multi-biomarker approach detected stage I and stage II cancers with a combined sensitivity of 38.7%. A larger case-control study is underway to further validate the results shared at ESMO and to determine the final design of the MCED test. We will then begin recruiting patients for the FDA registrational Study of All comeRs ("SOAR") trial during 2023. We expect that the SOAR trial will be the largest prospective, interventional MCED trial ever conducted inthe United States . •Minimal Residual Disease ("MRD")Test Development . We plan to offer both a tumor-informed and tumor-naive minimal residual disease test to help detect small amounts of tumor DNA that may remain in patients' blood after they have undergone initial treatment. Our goal is to support all patients in MRD and recurrence monitoring, whether there is access to tumor tissue to inform patient-specific biomarker targets or no access to tissue such that a predefined biomarker panel is used. We are currently evaluating different technological approaches for both test types. InJanuary 2021 , we acquired an exclusive license toThe Translational Genomics Research Institute ("TGen") proprietary Targeted Digital Sequencing ("TARDIS") technology to support development of our tumor-informed test. We have also published proof of concept data showing the ability of cancer-associated methylation markers to detect distantly recurrent colorectal cancer with promising performance. •Hereditary Cancer Testing. InDecember 2021 , we acquiredPreventionGenetics, LLC ("PreventionGenetics"), a DNA testing laboratory that provides more than 5,000 predefined genetic tests for nearly all clinically relevant genes, additional custom panels, and comprehensive germline whole exome and whole genome sequencing tests. We intend to use PreventionGenetics' capabilities to expand the use of hereditary cancer testing in theU.S. and globally. In the third quarter of 2022, we made our hereditary cancer test, Riskguard, available to oncologists through an early-access program. Research and development, which includes our clinical study programs, accounts for a material portion of our operating expenses. As we seek to enhance our current product portfolio and expand our product pipeline by developing additional cancer screening and diagnostic tests, we expect that our research and development expenditures will continue to increase. 41 -------------------------------------------------------------------------------- Table of Contents COVID-19 Testing Business In lateMarch 2020 , we began providing COVID-19 testing. We have partnered with various customers, including theState 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 inMadison, Wisconsin , where we run the assay in our laboratories and provide test results to ordering providers. As public health impacts of COVID-19 evolve, we intend to periodically reassess offering COVID-19 testing.
2022 Priorities
Our top priorities for 2022 are to (1) impact more lives, (2) advance new tests, and (3) take care of the people we serve.
Impact More Lives
We are committed to delivering critical answers to patients by getting more people tested with our laboratory testing services.
Advance New Tests
In 2022, we are focused on advancing new tests to provide better answers to patients, beginning with assessing risk for cancer through screening, and then changing the way cancer is detected and treated throughout the entire cancer journey. We plan to prioritize investments in clinical studies to support our three most important product development programs:(1) colon cancer screening tests, (2) multi-cancer early detection, and (3) minimal residual disease and recurrence testing.
Take Care of the People we Serve
We want to take even better care of everyone we serve. We plan to improve customer relations by delivering simple and smooth workflows, providing communication that is clear and easy to understand, and providing results that are fast and accurate. Our goal is to become a caring partner to answer questions and help people navigate what is a difficult time in their life.
Recent Developments and Trends
Impacts of COVID-19 and Current Inflationary Environment
COVID-19 has affected many segments of the global economy, including the cancer screening and diagnostics industry. The pandemic and related precautionary measures have significantly impacted, and may continue to impact, our workforce, supply chain, and operating results including our testing volumes, revenues, margins, and cash utilization, among other measures. 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 of the pandemic, we continue to provide COVID-19 testing. Our Screening and Precision Oncology businesses were negatively impacted by the pandemic but have in large part recovered. Future outbreaks of COVID-19 and its variants could diminish patients' and our sales representatives' access to healthcare provider offices. Pandemic-related supply chain disruptions, whether caused by restrictions or slowdowns in shipping or logistics, increases in demand for certain goods used in our operations, or otherwise, could impact our operations. The inflationary environment has resulted in higher prices, which have impacted costs incurred to generate revenue from our laboratory testing services, costs to attract and retain personnel, and other operating costs. The severity and duration of the current inflationary environment remains uncertain and may continue to impact our financial condition and results of operations. Additionally, fluctuations in foreign currency exchange rates can affect our financial position and results of operations. With the strengthening of theU.S. dollar against foreign currencies, the remeasurement of our foreign currency denominated transactions has resulted in decreased revenues. While the impact has not been material to our financial position to date and we make efforts to hedge our foreign currency exchange rate exposure, we cannot predict the extent to which currency fluctuations may affect our business and financial position in the future. 42
-------------------------------------------------------------------------------- Table of Contents Cologuard Promotion InMarch 2022 , we announced our partnership withKatie Couric , award winning journalist and colorectal cancer advocate, to continue to highlight the urgent need for people to get screened. Entitled 'Mission to Screen,' the year-long marketing and social-media campaign is educating Americans on the importance of early detection, starting colon cancer screening at age 45 for average risk individuals, and the availability of multiple screening options. 'Mission to Screen' is being placed in broadcast and digital outlets. It includes a national television commercial, a website featuring interviews with real doctors and patients, and a social media initiative encouraging people to share their reasons to screen.
Results of Operations
We have generated significant losses since inception and, as ofSeptember 30, 2022 , we had an accumulated deficit of approximately$3.14 billion . We expect to continue to incur losses for the near future, and it is possible we may never achieve profitability.
Revenue. Our revenue is primarily generated by our laboratory testing services from our Cologuard, Oncotype, and COVID-19 tests.
Three Months Ended September 30,
Amounts in millions 2022 2021 Change
Screening $ 360.8 $ 280.4 $ 80.4
Precision Oncology 151.4 145.4 6.0
COVID-19 Testing 10.9 30.6 (19.7)
Total $ 523.1 $ 456.4 $ 66.7
Nine Months Ended September 30,
Amounts in millions 2022 2021 Change
Screening $ 1,021.2 $ 784.6 $ 236.5
Precision Oncology 458.1 412.6 45.4
COVID-19 Testing 52.1 96.0 (44.0)
Total $ 1,531.3 $ 1,293.3 $ 238.0
The increase in Screening revenue, which primarily includes laboratory service
revenue from our Cologuard test, was mainly due to an increase in the number of
completed Cologuard tests and revenue generated from new products as a result of
our acquisition of PreventionGenetics in the fourth quarter of 2021. Improved
sales team productivity, more patients rescreening with our Cologuard test, and
first-time users in the 45 to 49 age group contributed to the increase in
completed Cologuard tests for the three and nine months ended September 30,
2022 . Relative recovery from the COVID-19 pandemic contributed to sales team
productivity for the three and nine months ended September 30, 2022 . The
increase in Precision Oncology revenue, which primarily includes laboratory
service revenue from our global Oncotype products, was mainly due to an increase
in the number of completed Oncotype tests, both domestically and
internationally, and revenue generated from new products as a result of our
acquisition of Ashion Analytics, LLC ("Ashion") in the second quarter of 2021.
Continued adoption by node-positive patients following the RxPONDER publication
in the New England Journal of Medicine also contributed to the increase in
completed Oncotype tests for the three and nine months ended September 30, 2022 .
The increase in completed Oncotype tests was partially offset by a decrease in
revenues from our GPS test, which was divested on August 2, 2022 .
During the three and nine months ended September 30, 2022 , revenue recognized
from changes in transaction price was $6.4 million and $17.6 million ,
respectively. During the three and nine months ended September 30, 2021 , there
was a downward adjustment to revenue from a change in transaction price of $0.2
million and $13.2 million , respectively. The increase to revenue in 2022 is a
result of improvements made in our order to cash operations, specifically within
our billing systems and processes.
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We expect continuing revenue growth for our Cologuard and Oncotype products
subject to seasonal variability. We would expect revenue from our COVID-19
testing to decline as the pandemic abates and alternative testing options become
more widely available. Our revenues are affected by the test volume of our
products, patient adherence rates, payer mix, the levels of reimbursement, our
order to cash operations, and payment patterns of payers and patients.
Cost of sales (exclusive of amortization of acquired intangible assets). 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. The increase in cost
of sales for the three and nine months ended September 30, 2022 is primarily due
to an increase in production costs and personnel expenses, which is primarily
due to an increase in completed Cologuard and Oncotype tests and the
corresponding increase in headcount to support the increase in tests completed.
In addition, our production costs and personnel expenses have risen as a result
of the inflationary environment discussed above. The increase was partially
offset by a reduction in the number of COVID-19 tests completed year over year.
We expect that cost of sales will generally continue to increase in future
periods as a result of an increase in our existing laboratory testing services
and as we launch our pipeline products. We also expect to see a corresponding
increase in personnel and support services associated with this growth.
Three Months Ended September 30,
Amounts in millions 2022 2021 Change
Production costs $ 87.3 $ 63.9 $ 23.4
Personnel expenses 39.0 31.7 7.3
Facility and support services 16.5 15.7 0.8
Stock-based compensation 4.5 4.3 0.2
Other cost of sales expenses 0.6 0.1 0.5
Total cost of sales expense $ 147.9 $ 115.7 $ 32.2
Nine Months Ended September 30,
Amounts in millions 2022 2021 Change
Production costs $ 244.6 $ 188.8 $ 55.8
Personnel expenses 118.4 92.4 26.0
Facility and support services 48.7 44.9 3.8
Stock-based compensation 14.3 12.8 1.5
Other cost of sales expenses 1.2 0.8 0.4
Total cost of sales expense $ 427.2 $ 339.7 $ 87.5
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-------------------------------------------------------------------------------- Table of Contents Research and development expenses. Research and development expenses for the nine months endedSeptember 30, 2021 included$52.3 million for the acquisition of the exclusive license to TARDIS inJanuary 2021 and$33.1 million incurred for the acquisition ofPFS Genomics, Inc. , which was completed inJune 2021 . These acquisitions were accounted for as asset acquisitions, as opposed to theMay 2022 acquisition ofOmicEra Diagnostics GmbH , which was accounted for as a business combination, and are further described in Note 16 of our condensed consolidated financial statements in this Quarterly Report on Form 10-Q. When excluding the impact of these asset acquisitions, research and development expenses increased by$15.4 million and$87.2 million for the three and nine months endedSeptember 30, 2022 primarily due to an increase in BLUE-C and MCED clinical trial related expenses. In addition, personnel expenses and facility and support services increased due to an increase in headcount and other resources needed to support our ongoing clinical trials, which was partially offset by favorable stock-based compensation expense primarily driven by a decrease in expense associated with equity awards issued in connection with the Thrive acquisition. We expect that research and development expenses will generally continue to increase in future periods as we continue to invest to advance new tests. Three Months Ended September 30, Amounts in millions 2022 2021 Change Direct research and development$ 32.3 $ 28.7 $ 3.6 Personnel expenses 34.6 25.1 9.5 Facility and support services 12.2 6.4 5.8 Stock-based compensation 7.7 12.2 (4.5) Professional fees 1.1 1.7 (0.6) Other research and development 2.9 1.3 1.6 Total research and development expenses$ 90.8 $ 75.4 $ 15.4 Nine Months Ended September 30, Amounts in millions 2022 2021 Change Direct research and development$ 123.8 $ 74.9 $ 48.9 Personnel expenses 106.0 69.7 36.3 Facility and support services 32.8 18.8 14.0 Stock-based compensation 27.2 39.3 (12.1) Professional fees 3.1 4.7 (1.6) Other research and development 6.2 4.5 1.7 Licensed technology acquisition - 85.3 (85.3) Total research and development expenses$ 299.1 $ 297.2 $ 1.9 45
-------------------------------------------------------------------------------- Table of Contents Sales and marketing expenses. The decrease in sales and marketing expenses for the three months endedSeptember 30, 2022 was primarily due to a decrease in professional and legal fees incurred related to our promotion agreement with Pfizer Inc. ("Pfizer"), which was amended in the fourth quarter of 2021 as further discussed in Note 11 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. This was partially offset by an increase in personnel expenses and direct marketing spend. The increase in sales and marketing expenses for the nine months endedSeptember 30, 2022 was primarily due to an increase in direct marketing spend to support the future growth of our products and increased personnel expenses and stock-based compensation as a result of an increase in headcount, including the approximately 400 former Pfizer sales representatives that were onboarded in the third quarter of 2021. This increase was partially offset by a decrease in professional and legal fees related to our promotion agreement with Pfizer. We expect sales and marketing expenses to increase in future periods to support growth of our Cologuard, Oncotype, and pipeline products, but expect it to decrease as a percentage of revenue over time. Three Months Ended September 30, Amounts in millions 2022 2021 Change Personnel expenses$ 99.3 $ 92.3 $ 7.0 Direct marketing costs 53.8 48.0 5.8 Stock-based compensation 14.3 14.7 (0.4) Facility and support services 11.7 16.7 (5.0) Professional and legal fees 8.1 23.0 (14.9) Other sales and marketing expenses 0.5 1.9 (1.4) Total sales and marketing expenses$ 187.7 $ 196.6 $ (8.9) Nine Months Ended September 30, Amounts in millions 2022 2021 Change Personnel expenses$ 336.6 $ 264.3 $ 72.3 Direct marketing costs 175.5 136.5 39.0 Stock-based compensation 47.3 41.6 5.7 Facility and support services 37.4 50.0 (12.6) Professional and legal fees 37.1 81.5 (44.4) Other sales and marketing expenses 1.9 3.7 (1.8) Total sales and marketing expenses$ 635.8 $ 577.6 $ 58.2 46
-------------------------------------------------------------------------------- Table of Contents General and administrative expenses. General and administrative expenses for the three and nine months endedSeptember 30, 2021 included$10.2 million and$141.4 million in acquisition and integration related costs as part of our acquisitions completed during the year, which primarily consisted of integration related stock-based compensation and professional and legal fees incurred. Acquisition and integration related costs were not significant for the three and nine months endedSeptember 30, 2022 . When excluding the impact of acquisition and integration related costs, personnel expenses increased due to an increase in headcount to support our growth in our operations and from our recent acquisitions. In addition, facility and support services increased to support the build out of our facilities and our increased headcount. The decrease in other general and administrative expenses is primarily due to gains of$5.9 million and$57.6 million recorded during the three and nine months endedSeptember 30, 2022 as a result of the change in fair value of our outstanding contingent consideration as further described in Note 7 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. We expect significant leverage in general and administrative expenses going forward, but expenses will generally continue to increase in future periods due to an increase in headcount that will be necessary to support the growth in our existing and pipeline products. Three Months Ended September 30, Amounts in millions 2022 2021 Change Personnel expenses$ 93.6 $ 79.3 $ 14.3 Facility and support services 36.4 25.7 10.7 Professional and legal fees 32.6 34.1 (1.5) Stock-based compensation 23.0 32.4 (9.4) Other general and administrative 6.4 15.0 (8.6) Total general and administrative expenses$ 192.0 $ 186.5 $ 5.5 Nine Months Ended September 30, Amounts in millions 2022 2021 Change Personnel expenses$ 292.8 $ 225.5 $ 67.3 Facility and support services 103.0 60.8 42.2 Professional and legal fees 89.5 99.2 (9.7) Stock-based compensation 72.1 189.6 (117.5) Other general and administrative (14.0) 46.8 (60.8) Total general and administrative expenses$ 543.4
Amortization of acquired intangible assets. Amortization of acquired intangible assets decreased to$23.5 million for the three months endedSeptember 30, 2022 compared to$23.9 million for the three months endedSeptember 30, 2021 . The decrease is primarily due to reduced amortization on the intangible assets that were disposed of related to the sale of the GPS test, which was partially offset by amortization of intangible assets acquired as part of our acquisitions of PreventionGenetics inDecember 2021 and OmicEra inMay 2022 . Amortization of acquired intangible assets increased to$74.5 million for the nine months endedSeptember 30, 2022 , compared to$71.0 million for the nine months endedSeptember 30, 2021 . The increase in amortization of acquired intangible assets for the nine months endedSeptember 30, 2022 was due to the amortization of intangible assets acquired as part of our acquisitions described above in addition to Ashion inApril 2021 . Impairment of long-lived assets. Impairment of long-lived assets decreased to$5.9 million and$12.5 million for the three and nine months endedSeptember 30, 2022 , respectively, compared to$20.2 million for the three and nine months endedSeptember 30, 2021 . The impairment charges recorded during the three months endedSeptember 30, 2022 included impairments to the supply agreement intangible asset acquired as part of the combination withGenomic Health , and a building lease inRedwood City, California . For the nine months endedSeptember 30, 2022 , we also recorded an impairment on the acquired developed technology intangible asset acquired as part of the acquisition ofParadigm Diagnostics, Inc. ("Paradigm"). The impairment charge recorded during the three and nine months endedSeptember 30, 2021 related to the supply agreement intangible asset acquired as part of the combination withGenomic Health . 47 -------------------------------------------------------------------------------- Table of Contents Other operating loss. Other operating loss increased to$13.2 million for the three and nine months endedSeptember 30, 2022 compared to zero for the three and nine months endedSeptember 30, 2021 . The$13.2 million loss for the three and nine months endedSeptember 30, 2022 represents the loss on the sale of our GPS test to MDxHealth, which is the difference between the carrying value of the asset sold as of the closing date and the consideration received from the sale. The sale of the GPS test is further discussed in Note 16 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Investment income (loss), net. For the three months endedSeptember 30, 2022 , we had net investment loss of$8.6 million , compared to net investment loss of$4.1 million for the three months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2022 , we had net investment loss of$13.8 million , compared to net investment income of$30.5 million for the nine months endedSeptember 30, 2021 . The net investment loss for the three and nine months endedSeptember 30, 2022 was primarily due to losses recorded on our equity securities. Net investment income for the nine months endedSeptember 30, 2021 was primarily due to the realized gain of$30.5 million that was recorded on our preferred stock investment in Thrive at closing inJanuary 2021 , 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 19 of our 2021 Form 10-K. Interest expense. Interest expense increased to$5.2 million for the three months endedSeptember 30, 2022 compared to$4.7 million for the three months endedSeptember 30, 2021 . Interest expense recorded from our outstanding convertible notes totaled$4.0 million during each of the three months endedSeptember 30, 2022 and 2021. Interest expense increased to$14.2 million for the nine months endedSeptember 30, 2022 compared to$13.9 million for the nine months endedSeptember 30, 2021 . Interest expense recorded from our outstanding convertible notes totaled$12.1 million during each of the nine months endedSeptember 30, 2022 and 2021. The convertible notes are further described in Note 9 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Income tax benefit. Income tax benefit decreased to$3.1 million for the three months endedSeptember 30, 2022 compared to$3.9 million for the three months endedSeptember 30, 2021 . Income tax benefit decreased to$6.9 million for the nine months endedSeptember 30, 2022 compared to$242.6 million for the nine months endedSeptember 30, 2021 . This decrease in income tax benefit is primarily due to an income tax benefit of$239.2 million recorded during the nine months endedSeptember 30, 2021 as a result of the change in the deferred tax asset valuation allowance resulting from the acquisition of Thrive.
Liquidity and Capital Resources
Overview
We have incurred losses and negative cash flows from operations since our inception, and have historically financed our operations primarily through public offerings of our common stock and convertible debt and through revenue generated by the sale of our laboratory testing services. We expect our operating expenditures to continue to increase to support future growth of our laboratory testing services, as well as an increase in research and development and clinical trial costs to support the advancement of our pipeline products and bringing new tests to market. We expect that cash and cash equivalents and marketable securities on hand atSeptember 30, 2022 , along with cash flows generated through our operations, will be sufficient to fund our current operations for at least the next twelve months based on current operating plans. We have access to a revolving line-of-credit (the "Revolver") of up to$150.0 million , which had its maturity date extended toNovember 2025 through an amended agreement inOctober 2022 . The Revolver is collateralized by certain marketable securities which must continue to maintain a minimum market value of$150.0 million . During the fourth quarter of 2021,PNC Bank, National Association issued a letter of credit of$2.9 million , which reduced the amount available for cash advances under the line of credit to$147.1 million . As ofSeptember 30, 2022 , we had not drawn any funds under the Revolver. In addition to the Revolver, we have access to$150.0 million under an accounts receivable securitization facility (the "Securitization Facility"), which expires inJune 2024 . The amount that we may borrow is determined based on the amount of qualifying accounts receivable at a given point in time. The Securitization Facility is collateralized by our accounts receivables. As ofSeptember 30, 2022 , we had$50.0 million outstanding under the Securitization Facility, which is the minimum amount that we must borrow under the terms of the Securitization Facility. The Revolver and Securitization Facility are further described in Note 8 of our condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. 48
-------------------------------------------------------------------------------- Table of Contents We may raise additional capital to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons. If we are unable to obtain sufficient additional funds to enable us to fund our business plans and strategic investments, our results of operations and financial condition could be materially adversely affected, and we may be required to delay the implementation of our plans or otherwise scale back our operations. There can be no certainty that we will ever be successful in generating sufficient cash flow from operations to achieve and maintain profitability and meet all of our obligations as they come due.
Cash,
As of
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.
Cash Flows
Nine Months Ended September 30,
Amounts In millions 2022 2021
Net cash used in operating activities $ (275.6) $ (77.7)
Net cash provided by (used in) investing activities 132.2 (1,160.5)
Net cash provided by financing activities 66.4 20.7
Operating activities
The cash used in operating activities for the nine months ended September 30,
2022 was primarily to fund our net loss. The increase in our net loss was
primarily due to an increase in expenses incurred to process our tests and an
increase in operating expenses incurred to support the growth of our operations
as further discussed above. The increase in cash used was also due to timing of
payments on our accounts payable and accrued expenses, including payments made
during the nine months ended September 30, 2022 under our promotion agreement
with Pfizer and for certain personnel related liabilities that were accrued for
as of December 31, 2021 . This was partially offset by an increase in revenue,
which was driven by an increase in completed Cologuard and Oncotype tests.
Investing activities
Cash provided by investing activities for the nine months endedSeptember 30, 2022 , was primarily due to a net cash inflow from purchases, sales, maturities of marketable securities of$275.0 million and$25.0 million from the sale of our GPS test in the third quarter, which was partially offset by purchases of property and equipment of$141.6 million and investments in privately held companies of$26.8 million . Cash used in investing activities for the nine months endedSeptember 30, 2021 was primarily due to a net cash outflow from purchases, sales, and maturities of marketable securities of$596.7 million , our acquisition of Thrive of$343.2 million , our acquisition of Ashion of$72.3 million , our asset acquisition of PFS Genomics of$33.1 million , our TARDIS license asset acquisition of$25.0 million , purchases of property and equipment of$76.4 million , and investments in privately held companies of$13.6 million .
Financing activities
The cash provided by financing activities during the nine months endedSeptember 30, 2022 consisted of proceeds of$50.0 million from our accounts receivable securitization facility,$15.5 million in connection with our employee stock purchase plan, and$6.0 million from the exercise of stock options, which was partially offset by cash outflows of$5.1 million for other financing activities. The cash provided by financing activities for the nine months endedSeptember 30, 2021 consisted of proceeds of$13.4 million from the exercise of stock options and$12.0 million in connection with our employee stock purchase plan, which was partially offset by$4.7 million for other financing activities. 49 -------------------------------------------------------------------------------- Table of Contents Material Cash Requirements A discussion of our material cash requirements as ofDecember 31, 2021 was provided in the Management's Discussion and Analysis of Financial Condition and Results of Operation of our 2021 Form 10-K. Other than the Securitization Facility and Revolver maturity date extension described above, there were no material changes outside the ordinary course of our business in our specified material cash requirements during the nine months endedSeptember 30, 2022 .
As of
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in theU.S. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in our condensed consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates on historical experience and on various other factors that are believed to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. For a discussion of our critical accounting policies and estimates, refer to our Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Form 10-K. There have been no material changes to our critical accounting policies and estimates since our 2021 Form 10-K.
Recent Accounting Pronouncements
See Note 1 of our condensed consolidated financial statements for the discussion of Recent Accounting Pronouncements.
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