EXACT SCIENCES CORP, 10-K filed on 2/28/2014
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2013
Feb. 26, 2014
Jun. 28, 2013
Document and Entity Information
 
 
 
Entity Registrant Name
EXACT SCIENCES CORP 
 
 
Entity Central Index Key
0001124140 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2013 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
$ 972,055,226 
Entity Common Stock, Shares Outstanding
 
71,201,095 
 
Document Fiscal Year Focus
2013 
 
 
Document Fiscal Period Focus
FY 
 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2013
Dec. 31, 2012
Current Assets:
 
 
Cash and cash equivalents
$ 12,851 
$ 13,345 
Marketable securities
120,408 
94,776 
Prepaid expenses and other current assets
2,199 
593 
Total current assets
135,458 
108,714 
Property and Equipment, at cost:
 
 
Laboratory equipment
5,087 
4,051 
Assets under construction
2,592 
 
Office and computer equipment
1,217 
824 
Leasehold improvements
5,043 
283 
Furniture and fixtures
268 
28 
Property and Equipment, gross
14,207 
5,186 
Less-Accumulated depreciation
(3,038)
(1,781)
Property and Equipment, net
11,169 
3,405 
TOTAL ASSETS
146,627 
112,119 
Current Liabilities:
 
 
Accounts payable
761 
3,652 
Accrued liabilities
5,806 
3,327 
Capital lease obligation, current portion
351 
333 
Lease incentive obligation, current portion
540 
 
Deferred license fees, current portion
294 
4,143 
Total current liabilities
7,752 
11,455 
Long-term debt
1,000 
1,000 
Long-term accrued interest
84 
63 
Capital lease obligation, less current portion
360 
711 
Lease incentive obligation, less current portion
2,115 
 
Deferred license fees, less current portion
 
295 
Commitments and contingencies
   
   
Stockholders' Equity:
 
 
Preferred stock, $0.01 par value Authorized-5,000,000 shares Issued and outstanding-no shares at December 31, 2013 and December 31, 2012
   
   
Common stock, $0.01 par value Authorized-100,000,000 shares Issued and outstanding-71,071,838 and 63,909,800 shares at December 31, 2013 and December 31, 2012
711 
639 
Additional paid-in capital
455,239 
372,123 
Accumulated other comprehensive income
125 
78 
Accumulated deficit
(320,759)
(274,245)
Total stockholders' equity
135,316 
98,595 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 146,627 
$ 112,119 
Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2013
Dec. 31, 2012
Consolidated Balance Sheets
 
 
Preferred stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Preferred stock, Authorized shares
5,000,000 
5,000,000 
Preferred stock, Issued shares
Preferred stock, outstanding shares
Common stock, par value (in dollars per share)
$ 0.01 
$ 0.01 
Common stock, Authorized shares
100,000,000 
100,000,000 
Common stock, Issued shares
71,071,838 
63,909,800 
Common stock, outstanding shares
71,071,838 
63,909,800 
Consolidated Statements of Operations (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Revenue:
 
 
 
Product royalty fees
 
 
$ 20 
License fees
4,144 
4,144 
4,143 
Total revenue
4,144 
4,144 
4,163 
Cost of revenue:
 
 
 
Product royalty fees
 
 
24 
Gross profit
4,144 
4,144 
4,139 
Operating expenses:
 
 
 
Research and development
27,678 
42,131 
21,968 
General and administrative
13,649 
9,900 
8,137 
Sales and marketing
9,578 
4,755 
2,857 
Total operating expenses
50,905 
56,786 
32,962 
Loss from operations
(46,761)
(52,642)
(28,823)
Investment income
316 
262 
169 
Interest expense
(69)
(41)
(21)
Net loss
$ (46,514)
$ (52,421)
$ (28,675)
Net loss per share-basic and diluted (in dollars per share)
$ (0.69)
$ (0.88)
$ (0.54)
Weighted average common shares outstanding-basic and diluted (in shares)
67,493 
59,481 
52,512 
Consolidated Statements of Comprehensive Loss (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Consolidated Statements of Comprehensive Loss
 
 
 
Net loss
$ (46,514)
$ (52,421)
$ (28,675)
Other comprehensive income (loss), net of tax:
 
 
 
Unrealized gain (loss) on available-for-sale investments
47 
92 
(15)
Comprehensive loss
$ (46,467)
$ (52,329)
$ (28,690)
Consolidated Statements of Stockholders' Equity (USD $)
In Thousands, except Share data, unless otherwise specified
Total
Common Stock
Additional Paid In Capital
Other Comprehensive Income (Loss)
Accumulated Deficit
Balance at Dec. 31, 2010
$ 79,745 
$ 522 
$ 272,380 
$ 1 
$ (193,149)
Balance (in shares) at Dec. 31, 2010
 
52,163,629 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
Issuance of common stock, net of issuance costs of $4.8, $3.9 and $1.5 million for 2013, 2012 and 2011, respectively
27,215 
36 
27,179 
 
 
Issuance of common stock, net of issuance costs (in shares)
 
3,593,750 
 
 
 
Exercise of common stock options and warrants
685 
678 
 
 
Exercise of common stock options and warrants (in shares)
 
708,590 
 
 
 
Issuance of common stock to fund the Company's 2012, 2011 and 2010 401(k) match
169 
 
169 
 
 
Issuance of common stock to fund the Company's 2012, 2011 and 2010 401(k) match (in shares)
 
27,872 
 
 
 
Compensation expense related to issuance of stock options and restricted stock awards
3,964 
3,963 
 
 
Compensation expense related to issuance of stock options and restricted stock awards (in shares)
 
79,065 
 
 
 
Purchase of employee stock purchase plan shares
291 
 
291 
 
 
Purchase of employee stock purchase plan shares (in shares)
 
51,857 
 
 
 
Expense related to warrants (Note 4)
107 
 
107 
 
 
Net loss
(28,675)
 
 
 
(28,675)
Accumulated other comprehensive (loss) income
(15)
 
 
(15)
 
Balance at Dec. 31, 2011
83,495 
566 
304,767 
(14)
(221,824)
Balance (in shares) at Dec. 31, 2011
 
56,624,763 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
Issuance of common stock related to the Mayo Transaction (Note 4)
1,000 
999 
 
 
Issuance of common stock related to the Mayo Transaction (Note 4) (in shares)
 
97,466 
 
 
 
Issuance of common stock, net of issuance costs of $4.8, $3.9 and $1.5 million for 2013, 2012 and 2011, respectively
57,755 
63 
57,692 
 
 
Issuance of common stock, net of issuance costs (in shares)
 
6,325,000 
 
 
 
Exercise of common stock options and warrants
2,388 
2,381 
 
 
Exercise of common stock options and warrants (in shares)
 
691,471 
 
 
 
Issuance of common stock to fund the Company's 2012, 2011 and 2010 401(k) match
274 
 
274 
 
 
Issuance of common stock to fund the Company's 2012, 2011 and 2010 401(k) match (in shares)
 
32,872 
 
 
 
Compensation expense related to issuance of stock options and restricted stock awards
5,493 
5,492 
 
 
Compensation expense related to issuance of stock options and restricted stock awards (in shares)
 
74,617 
 
 
 
Purchase of employee stock purchase plan shares
367 
366 
 
 
Purchase of employee stock purchase plan shares (in shares)
 
63,611 
 
 
 
Expense related to warrants (Note 4)
152 
 
152 
 
 
Net loss
(52,421)
 
 
 
(52,421)
Accumulated other comprehensive (loss) income
92 
 
 
92 
 
Balance at Dec. 31, 2012
98,595 
639 
372,123 
78 
(274,245)
Balance (in shares) at Dec. 31, 2012
63,909,800 
63,909,800 
 
 
 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
Issuance of common stock, net of issuance costs of $4.8, $3.9 and $1.5 million for 2013, 2012 and 2011, respectively
73,296 
63 
73,232 
 
 
Issuance of common stock, net of issuance costs (in shares)
 
6,325,000 
 
 
 
Exercise of common stock options and warrants
1,341 
1,337 
 
 
Exercise of common stock options and warrants (in shares)
 
418,146 
 
 
 
Issuance of common stock to fund the Company's 2012, 2011 and 2010 401(k) match
354 
354 
 
 
Issuance of common stock to fund the Company's 2012, 2011 and 2010 401(k) match (in shares)
 
30,538 
 
 
 
Compensation expense related to issuance of stock options and restricted stock awards
7,744 
7,741 
 
 
Compensation expense related to issuance of stock options and restricted stock awards (in shares)
 
328,422 
 
 
 
Purchase of employee stock purchase plan shares
453 
452 
 
 
Purchase of employee stock purchase plan shares (in shares)
 
59,932 
 
 
 
Net loss
(46,514)
 
 
 
(46,514)
Accumulated other comprehensive (loss) income
47 
 
 
47 
 
Balance at Dec. 31, 2013
$ 135,316 
$ 711 
$ 455,239 
$ 125 
$ (320,759)
Balance (in shares) at Dec. 31, 2013
71,071,838 
71,071,838 
 
 
 
Consolidated Statements of Stockholders' Equity (Parenthetical) (USD $)
In Millions, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Consolidated Statements of Stockholders' Equity
 
 
 
Issuance of common stock, issuance costs
$ 4.8 
$ 3.9 
$ 1.5 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Cash flows from operating activities:
 
 
 
Net loss
$ (46,514)
$ (52,421)
$ (28,675)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization of fixed assets
1,418 
985 
411 
Loss on disposal of property and equipment
100 
 
 
Stock-based compensation
7,744 
5,493 
3,964 
Amortization of deferred license fees
(4,144)
(4,144)
(4,143)
Warrant licensing expense
 
152 
107 
Restricted stock licensing expense
 
1,000 
 
Amortization of premium on short-term investments
636 
532 
360 
Changes in assets and liabilities:
 
 
 
Prepaid expenses and other current assets
(1,606)
441 
(788)
Accounts payable
(2,891)
2,887 
(263)
Accrued liabilities
3,286 
899 
1,542 
Lease incentive obligation
2,655 
 
 
Accrued interest
21 
21 
21 
Net cash used in operating activities
(39,295)
(44,155)
(27,464)
Cash flows from investing activities:
 
 
 
Purchases of marketable securities
(98,510)
(96,047)
(87,017)
Maturities of marketable securities
72,289 
58,411 
45,725 
Purchases of property and equipment
(9,282)
(681)
(2,115)
Net cash used in investing activities
(35,503)
(38,317)
(43,407)
Cash flows from financing activities:
 
 
 
Proceeds from sale of common stock, net of issuance costs
73,296 
57,755 
27,215 
Proceeds from exercise of common stock options
1,341 
2,388 
685 
Payments on capital lease obligations
(333)
(107)
 
Net cash provided by financing activities
74,304 
60,036 
27,900 
Net decrease in cash and cash equivalents
(494)
(22,436)
(42,971)
Cash and cash equivalents, beginning of period
13,345 
35,781 
78,752 
Cash and cash equivalents, end of period
12,851 
13,345 
35,781 
Supplemental disclosure of non-cash investing and financing activities:
 
 
 
Unrealized gain (loss) on available-for-sale investments
47 
92 
(15)
Issuance of 30,538, 32,872, and 27,872 shares of common stock to fund the Company's 401(k) matching contribution for 2012, 2011, and 2010, respectively
354 
274 
169 
Conversion of accrued expenses into 59,932, 63,611 and 51,857 shares of common stock in connection with the Company's ESPP for 2013, 2012 and 2011, respectively
453 
367 
291 
Laboratory equipment acquired with a capital lease
 
$ 1,151 
 
Consolidated Statements of Cash Flows (Parenthetical)
12 Months Ended
Dec. 31, 2013
Dec. 31, 2012
Dec. 31, 2011
Consolidated Statements of Cash Flows
 
 
 
Issuance of shares of common stock to fund the Company's 401(k) matching contribution
30,538 
32,872 
27,872 
Conversion of accrued expenses into shares of common stock
59,932 
63,611 
51,857 
ORGANIZATION
ORGANIZATION

(1) ORGANIZATION

        Exact Sciences Corporation ("Exact" or the "Company") was incorporated in February 1995. Exact is a molecular diagnostics company currently focused on the early detection and prevention of colorectal cancer. The Company's non-invasive stool-based DNA (sDNA) screening technology includes proprietary and patented methods that isolate and analyze human DNA present in stool to screen for the presence of colorectal pre-cancer and cancer.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

        The accompanying consolidated financial statements include the accounts of the Company's wholly-owned subsidiary, Exact Sciences Laboratories, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.

        References to "Exact", "we", "us", "our", or the "Company" refer to Exact Sciences Corporation and its subsidiary, Exact Sciences Laboratories, LLC.

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

        The Company considers cash on hand, demand deposits in bank, money market funds, and all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents. The Company had no restricted cash at December 31, 2013 and 2012.

Marketable Securities

        Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities carried at amortized cost are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Marketable equity securities and debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive income. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity computed under the straight-line method. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income.

        At December 31, 2013 and December 31, 2012 the Company's investments were comprised of fixed income investments and all were deemed available-for-sale. The objectives of the Company's investment strategy are to provide liquidity and safety of principal while striving to achieve the highest rate of return consistent with these two objectives. The Company's 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. Investments in which the Company has the ability and intent, if necessary, to liquidate in order to support its current operations (including those with a contractual term greater than one year from the date of purchase) are classified as current. All of the Company's investments are considered current. Realized gains were $9,639, $6,231, and $419 for the years ended December 31, 2013, 2012, and 2011, respectively. Unrealized gains on investments recorded in other comprehensive income were $125,473 and $77,808 for the years ended December 31, 2013 and 2012. Unrealized losses on investments recorded in other comprehensive income were $13,784 for the year ended December 31, 2011.

        The amounts reclassified from accumulated other comprehensive income to investment income during 2013, 2012 and 2011 related to the unrealized change in the value of marketable securities, were not significant.

        Available-for-sale securities at December 31, 2013 consist of the following:

 
  December 31, 2013  
(In thousands)
  Amortized Cost   Gains in Accumulated
Other Comprehensive
Income
  Losses in Accumulated
Other Comprehensive
Income
  Estimated Fair
Value
 

Corporate bonds

  $ 77,935   $ 75   $   $ 78,010  

U.S. government agency securities

    34,291     47         34,338  

Certificates of deposit

    6,558     3         6,561  

Commercial paper

    1,499             1,499  
                   

Total available-for-sale securities

  $ 120,283   $ 125   $   $ 120,408  
                   
                   

        Available-for-sale securities at December 31, 2012 consist of the following:

 
  December 31, 2012  
(In thousands)
  Amortized Cost   Gains in Accumulated
Other Comprehensive
Income
  Losses in Accumulated
Other Comprehensive
Income
  Estimated Fair
Value
 

U.S. government agency securities

  $ 44,270   $ 38   $   $ 44,308  

Corporate bonds

    43,303     27         43,330  

Certificates of deposit

    5,926     13         5,939  

Commercial paper

    1,199             1,199  
                   

Total available-for-sale securities

  $ 94,698   $ 78   $   $ 94,776  
                   
                   

Property and Equipment

        Property and equipment are stated at cost and depreciated using the straight-line method over the assets' estimated useful lives. Maintenance and repairs are expensed when incurred; additions and improvements are capitalized. The estimated useful lives of fixed assets are as follows:

Asset Classification
  Estimated Useful Life
Laboratory equipment   3 - 5 years
Office and computer equipment   3 years
Leasehold improvements   Lesser of the remaining lease term or useful life
Furniture and fixtures   3 years

        Depreciation expense for the years ended December 31, 2013, 2012, and 2011 was $1.4 million, $1.0 million, and $0.4 million, respectively.

        At December 31, 2013, the Company had $2.6 million of assets under construction which consisted of $1.7 million of capitalized costs related to software projects and $0.9 million of costs related to an equipment project. Depreciation will begin on these assets once they are placed into service. We expect that it will cost $0.5 million to complete the equipment project and $1.0 million to complete the software projects, and these projects are expected to be completed in 2014.

Software Capitalization Policy

        Software development costs related to internal use software are incurred in three stages of development: the preliminary project stage, the application development stage, and the post-implementation stage. Costs incurred during the preliminary project and post-implementation stages are expensed as incurred. Costs in the application development stage that meet the criteria for capitalization are capitalized and amortized using the straight-line basis over the estimated economic useful life of the software.

Patent Costs

        Patent costs, which have historically consisted of related legal fees, are capitalized as incurred, only if the Company determines that there is some probable future economic benefit derived from the transaction. The capitalized patents are amortized beginning when patents are approved over an estimated useful life of five years. Capitalized patent costs are expensed upon disapproval, upon a decision by the Company to no longer pursue the patent or when the related intellectual property is either sold or deemed to be no longer of value to the Company. The Company determined that all patent costs incurred during the year ended December 31, 2013, 2012 and 2011 should be expensed and not capitalized as the future economic benefit derived from the transactions cannot be determined.

  • Clinical Trial Accrual

        Accruals are recorded for clinical trial patient site costs when the liability is probable and reasonably estimable. For our pivotal FDA clinical trial and other sample procurement studies we undertake periodically, an accrual is made for a patient site cost once the patient has progressed past certain steps in the patient assessment and sample processing procedure. The accrual is estimated based on historical average patient reimbursement fees. Management has not recorded an accrual for clinical trial costs at December 31, 2013 as our clinical trial is complete. Management recorded an accrual of $0.4 million at December 31, 2012 and 2011, respectively, for clinical trial costs related to site payments.

Net Loss Per Share

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

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

 
  2013   2012   2011  

Shares issuable upon exercise of stock options

    6,063     6,182     6,454  

Shares issuable upon exercise of outstanding warrants(1)

    155     325     325  

Shares issuable upon the release of restricted stock awards

    1,151     814     401  

Shares issuable upon exercise of restricted stock awards related to licensing agreement

    49     73      
               

 

    7,418     7,394     7,180  
               
               

(1)
At December 31, 2013, represents warrants to purchase 80,000 shares of common stock issued under a license agreement and warrants to purchase 75,000 shares of common stock issued under a consulting agreement. At December 31, 2012 and December 31, 2011, represents warrants to purchase 250,000 shares of common stock issued under a licensing agreement and warrants to purchase 75,000 shares of common stock issued under a consulting agreement.

Accounting for Stock-Based Compensation

        The Company requires all share-based payments to employees, including grants of employee stock options, restricted stock, restricted stock units and shares purchased under an ESPP (if certain parameters are not met), to be recognized in the financial statements based on their fair values.

Revenue Recognition

        License fees.    License fees for the licensing of product rights are recorded as deferred revenue upon receipt of cash and recognized as revenue on a straight-line basis over the license period.

        As more fully described in Note 3 below, in connection with the Company's transaction with Genzyme Corporation, Genzyme agreed to pay the Company a total of $18.5 million, of which $16.65 million was paid on January 27, 2009 and $1.85 million was subject to a holdback by Genzyme to satisfy certain potential indemnification obligations in exchange for the assignment and licensing of certain intellectual property to Genzyme. The Company's on-going performance obligations to Genzyme under the Collaboration, License and Purchase Agreement (the "CLP Agreement"), as described below, including its obligation to deliver through licenses certain intellectual property improvements to Genzyme, if improvements are made during the initial five-year collaboration period, were deemed to be undelivered elements of the CLP Agreement on the date of closing. Accordingly, the Company deferred the initial $16.65 million in cash received at closing and is amortizing that up-front payment on a straight line basis into revenue over the initial five-year collaboration period ending in January 2014. The Company received the first holdback amount of $962,000, which included accrued interest, due from Genzyme during the first quarter of 2010. The Company received the second holdback amount of $934,250 which included accrued interest due, from Genzyme during the third quarter of 2010. The amounts were deferred and are being amortized on a straight-line basis into revenue over the remaining term of the collaboration at the time of receipt.

        In addition, Genzyme purchased 3,000,000 shares of common stock purchased from the Company on January 27, 2009 for $2.00 per share, representing a premium of $0.51 per share above the closing price of the Company's common stock on that date of $1.49 per share. The aggregate premium paid by Genzyme over the closing price of the Company's common stock on the date of the transaction of $1.53 million is deemed to be a part of the total consideration for the CLP Agreement. Accordingly, the Company deferred the aggregate $1.53 million premium and is amortizing that amount on a straight line basis into revenue over the initial five-year collaboration period ending in January 2014.

        The Company recognized approximately $4.1 million in license fee revenue in connection with the amortization of the up-front payments from Genzyme during the years ended December 31, 2013, 2012, and 2011.

        Product royalty fees.    The Company has licensed certain of its technologies, including improvements to such technologies, on an exclusive basis to LabCorp. LabCorp developed and commercially offered a non-invasive stool-based DNA colorectal cancer screening service for the average-risk population based on the Company's technology. The Company is entitled to certain royalties on any sales of this product. Accordingly, the Company records product royalty fees based on the specified contractual percentage of LabCorp's net revenues from its sales of such colorectal cancer screening tests, as reported to the Company each month by LabCorp. The current royalty rate is subject to an increase in the event that LabCorp achieves a specified significant threshold of annual net revenues from the sales of such colorectal cancer screening tests. No sales of this product were reported to the Company during the year ended December 31, 2013 and December 31, 2012 and no product royalty fees were recorded. Product royalty fees were $20,000 for the year ended December 31, 2011.

Advertising Costs

        The Company expenses the costs of media advertising at the time the advertising takes place. The Company expensed approximately $97.7 thousand, $57.4 thousand and $110.0 thousand of media advertising during the years ended December 31, 2013, 2012, and 2011, respectively.

Fair Value Measurements

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

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

Level 1

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

Level 2

 

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

Level 3

 

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

        Fixed-income securities and mutual funds are valued using a third party pricing agency. The valuation is based on observable inputs including pricing for similar assets and other observable market factors. There has been no material change from period to period.

        The following table presents the Company's fair value measurements as of December 31, 2013 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall. Amounts in the table are in thousands.

 
   
  Fair Value Measurement at December 31, 2013 Using:  
Description
  Fair Value at
December 31, 2013
  Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  Significant Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Cash and cash equivalents

                         

Cash and money market

  $ 12,851   $ 12,851   $   $  

Available-for-Sale

                         

Marketable securities

                         

Corporate bonds

    78,010         78,010      

U.S. government agency securities

    34,338         34,338      

Certificates of deposit

    6,561         6,561      

Commercial paper

    1,499         1,499      
                   

Total

  $ 133,259   $ 12,851   $ 120,408   $  
                   
                   

        The following table presents the Company's fair value measurements as of December 31, 2012 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall. Amounts in the table are in thousands.

 
   
  Fair Value Measurement at December 31, 2012 Using:  
Description
  Fair Value at
December 31, 2012
  Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  Significant Other
Observable Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Cash and cash equivalents

                         

Cash and money market

  $ 13,095   $ 13,095   $   $  

Corporate bonds

    250         250      

Available-for-Sale

                         

Marketable securities

                         

U.S. government agency securities

    44,308         44,308      

Certificates of deposit

    5,939         5,939      

Corporate bonds

    43,330         43,330      

Commercial paper

    1,199         1,199      
                   

Total

  $ 108,121   $ 13,095   $ 95,026   $  
                   
                   

        As of December 31, 2013 and 2012 there were available for sale securities in a continuous unrealized loss position for less than twelve months where the total unrealized losses were $7.2 thousand and $4.8 thousand respectively. At December 31, 2013 and 2012 there were no available for sale securities in a continuous unrealized loss position for greater than twelve months.

        The following summarizes contractual underlying maturities of the Company's available-for-sale investments at December 31, 2013 (in thousands):

 
  Cost   Fair Value  

Due in one year or less

  $ 53,843   $ 53,871  

Due after one year through two years

    66,440     66,537  
           

 

  $ 120,283   $ 120,408  
           
           

Concentration of Credit Risk

        In accordance with GAAP, the Company is required to disclose any significant off-balance-sheet risk and credit risk concentration. The Company has no significant off-balance-sheet risk, such as foreign exchange contracts or other hedging arrangements. Financial instruments that subject the Company to credit risk consist of cash, cash equivalents and marketable securities. As of December 31, 2013, the Company had cash and cash equivalents deposited in financial institutions in which the balances exceed the federal government agency insured limit of $250,000 by approximately $12.1 million. The Company has not experienced any losses in such accounts and management believes it is not exposed to any significant credit risk.

Subsequent Events

        The Company evaluates events that occur through the filing date and discloses those events or transactions that provide additional evidence with respect to conditions that existed at the date of the balance sheet. In addition, the financial statements are adjusted for any changes in estimates resulting from the use of such evidence.

Recent Accounting Pronouncements

        In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210)—Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross and net information about these instruments. ASU 2011-11 was effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU did not have a material impact on our consolidated financial statements.

Reclassifications

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

GENZYME STRATEGIC TRANSACTION
GENZYME STRATEGIC TRANSACTION

(3) GENZYME STRATEGIC TRANSACTION

Transaction summary

        On January 27, 2009, the Company entered into a Collaboration, License and Purchase Agreement (the "CLP Agreement") with Genzyme Corporation ("Genzyme"). Pursuant to the CLP Agreement, the Company (i) assigned to Genzyme all of its intellectual property applicable to the fields of prenatal and reproductive health (the "Transferred Intellectual Property"), (ii) granted Genzyme an irrevocable, perpetual, exclusive, worldwide, fully-paid, royalty-free license to use and sublicense all of the Company's remaining intellectual property (the "Retained Intellectual Property") in the fields of prenatal and reproductive health (the "Genzyme Core Field"), and (iii) granted Genzyme an irrevocable, perpetual, non-exclusive, worldwide, fully-paid, royalty-free license to use and sublicense the Retained Intellectual Property in all fields other than the Genzyme Core Field and other than colorectal cancer detection and stool-based disease detection (the "Company Field"). Following the transaction, the Company retained rights in its intellectual property to pursue only the fields of colorectal cancer detection and stool-based detection of any disease or condition

        Pursuant to the Genzyme Strategic Transaction, Genzyme agreed to pay an aggregate of $18.5 million to the Company, of which $16.65 million was paid at closing and $1.85 million (the "Holdback Amount") was subject to a holdback by Genzyme to satisfy certain potential indemnification obligations of the Company. Genzyme also agreed to pay a double-digit royalty to the Company on income received by Genzyme as a result of any licenses or sublicenses to third parties of the Transferred Intellectual Property or the Retained Intellectual Property in any field other than the Genzyme Core Field or the Company Field.

        The Company's on-going performance obligations to Genzyme under the CLP, including the obligation to deliver certain intellectual property improvements to Genzyme, if improvements are made during the initial five year collaboration period, were deemed to be undelivered elements of the CLP Agreement on the date of closing. Accordingly, the Company deferred the initial $16.65 million in cash received at closing and is amortizing that up-front payment on a straight line basis into the License Fee Revenue line item in its statements of operations over the initial five year collaboration period. The Company received the first holdback amount of $962,000, which included accrued interest, due from Genzyme during the first quarter of 2010. The Company received the second holdback amount of $934,250 which included accrued interest due, from Genzyme during the third quarter of 2010. The amounts were deferred and are being amortized on a straight-line basis into revenue over the remaining term of the collaboration through January 2014.

        In addition, the Company entered into a Common Stock Subscription Agreement with Genzyme on January 27, 2009, which provided for the private issuance and sale to Genzyme of 3,000,000 shares (the "Shares") of the Company's common stock, $0.01 par value per share, at a per share price of $2.00, for an aggregate purchase price of $6.0 million. The price paid by Genzyme for the Shares represented a premium of $0.51 per share above the closing price of the Company's common stock on that date of $1.49 per share. The aggregate premium paid by Genzyme over the closing price of the Company's common stock on the date of the transaction of $1.53 million is included as a part of the total consideration for the CLP. Accordingly, the Company deferred the aggregate $1.53 million premium and is amortizing that amount on a straight line basis into the License fees line item in the Company's statements of operations over the initial five-year collaboration period.

        The Company recognized approximately $4.1 million in license fee revenue in connection with the amortization of the up-front payments and holdback amounts from Genzyme during each of the years ended December 31, 2013, 2012, and 2011.

MAYO LICENSE AGREEMENT
MAYO LICENSE AGREEMENT

(4) MAYO LICENSE AGREEMENT

Overview

        On June 11, 2009, the Company entered into a license agreement (the "License Agreement") with MAYO Foundation for Medical Education and Research ("MAYO"). Under the License Agreement, MAYO granted the Company an exclusive, worldwide license within the field (the "Field") of stool or blood based cancer diagnostics and screening (excluding a specified proteomic target)with regard to certain MAYO patents, and a non-exclusive worldwide license within the Field with regard to certain MAYO know-how. The licensed patents cover advances in sample processing, analytical testing and data analysis associated with non-invasive, stool-based DNA screening for colorectal cancer. Under the License Agreement, the Company assumes the obligation and expense of prosecuting and maintaining the licensed patents and is obligated to make commercially reasonable efforts to bring products covered by the license to market. Pursuant to the License Agreement, the Company granted MAYO two common stock purchase warrants with an exercise price of $1.90 per share covering 1,000,000 and 250,000 shares of common stock, respectively. The Company is also required to make payments to MAYO for up-front fees, fees once certain milestones are reached by the Company, and other payments as outlined in the License Agreement. In addition to the license to intellectual property owned by MAYO, the Company receives product development and research and development efforts from MAYO personnel. The Company is also obligated to make royalty payments to MAYO on potential future net sales of any products developed from the licensed technology. The Company sought rights to the MAYO intellectual property for the specific purpose of developing a non-invasive, stool-based DNA screening test for colorectal cancer. At the time the license agreement was executed, the sole focus of the Company was the development of such a test. Accordingly, the Company recognized the initial payments and expense related to the warrants at the time of the transaction and the amounts were expensed to research and development as there were no anticipated alternative future uses associated with the intellectual property.

Warrants

        The warrants granted to MAYO were valued using a Black-Scholes pricing model at the date of the grant. The warrants were granted with an exercise price of $1.90 per share of common stock. The grant to purchase 1,000,000 shares was immediately exercisable and the grant to purchase 250,000 shares vests and becomes exercisable over a four year period.

        In March of 2010, MAYO partially exercised its warrant covering 1,000,000 shares by utilizing the cashless exercise provision contained in the agreement. As a result of this exercise for a gross amount of 200,000 shares, in lieu of paying a cash exercise price, MAYO forfeited its rights with respects to 86,596 shares leaving it with a net amount of 113,404 shares.

        In September of 2010, MAYO partially exercised its warrant covering the remaining 800,000 shares by utilizing the cashless exercise provision contained in the agreement. As a result of this exercise for a gross amount of 300,000 shares, in lieu of paying a cash exercise price, MAYO forfeited its rights with respect to 97,853 shares leaving it with a net amount of 202,147 shares.

        In June of 2011, MAYO partially exercised its warrant covering the remaining 500,000 shares by utilizing the cashless exercise provision contained in the warrant. As a result of this exercise for a gross amount of 250,000 shares, in lieu of paying a cash exercise price, MAYO forfeited its rights with respect to 60,246 shares leaving it with a net amount of 189,754 shares.

        In September of 2011, MAYO partially exercised its warrant covering the remaining 250,000 shares by utilizing the cashless exercise provision contained in the warrant. As a result of this exercise for a gross amount of 250,000 shares, in lieu or paying a cash exercise price, MAYO forfeited its right with respect to 56,641 shares leaving it with a net amount of 193,359 shares. Following this exercise, the warrant covering 1,000,000 shares was fully exercised.

        In January of 2013, MAYO partially exercised its warrant covering 250,000 shares by utilizing the cashless exercise provision contained in the warrant. As a result of this exercise for a gross amount of 85,000 shares, in lieu of paying a cash exercise price, MAYO forfeited its right with respect to 14,008 shares leaving it with a net amount of 70,992 shares.

        In June of 2013, MAYO partially exercised this warrant by utilizing the cashless exercise provision contained in the warrant. As a result of this exercise for a gross amount of 85,000 shares, in lieu of paying a cash exercise price, MAYO forfeited its right with respect to 12,765 shares leaving it with a net amount of 72,235 shares. Following this exercise, the warrant originally covering 250,000 covered a total of 80,000 shares at December 31, 2013.

Royalty Payments

        The Company will make royalty payments to MAYO based on a percentage of net sales of products developed from the licensed technology starting in the third year of the agreement. Minimum royalty payments will be $10,000 in 2012 and $25,000 per year thereafter through 2029, the year the last patent expires.

Other Payments

        Other payments under the License Agreement include an upfront payment of $80,000, a milestone payment of $250,000 on the commencement of patient enrollment in a human cancer screening clinical, and a $500,000 payment upon FDA approval of the Company's Cologuard test. The upfront payment of $80,000 was made in the third quarter of 2009 and expensed to research and development in the second quarter of 2009. The Company began enrollment in its FDA trial in June 2011 and the milestone payment of $250,000 was made and expensed to research and development in June 2011. It is uncertain as to when or if the FDA will approve the Company's Cologuard test; therefore the $500,000 milestone payment has not been recorded as a liability. The Company evaluates the status of the timing of FDA approval at each reporting date to determine if a liability should be recorded for the milestone payment.

        In addition, the Company is paying MAYO for research and development efforts. As part of the Company's research collaboration with MAYO, the Company has incurred charges of $1.7 million and has made payments of $1.0 million for the year ended December 31, 2013. The Company has recorded an estimated liability in the amount of $0.7 million for research and development efforts as of December 31, 2013. The Company incurred $1.2 million and made payments of $1.1 million for the year ended December 31, 2012. The Company recorded an estimated liability in the amount of $0.1 million for research and development efforts at December 31, 2012.

  • May 2012 Amendment

        In May 2012 the Company expanded the relationship with MAYO through an amendment to the License Agreement. As part of the amendment, MAYO expanded the Company's license to include all gastrointestinal cancers and diseases, and new cancer screening applications of stool- and blood-based testing. As consideration for the expanded license, the Company granted MAYO 97,466 shares of restricted stock, one quarter of which vested immediately, with the remainder to vest in three equal annual installments. The Company recognized $1.0 million in research and development licensing expense during the twelve months ended December 31, 2012 in connection with the restricted stock grant. The Company sought rights to the Mayo intellectual property for the specific purpose of developing future non-invasive, stool-based DNA screening tests for gastrointestinal diseases other than colorectal cancer. The Company does not believe there are alternative future uses for the intellectual property. In addition, at the time the restricted stock grant expense was recorded for the intellectual property license, the Company believed it was unlikely they would proceed with the tests for other gastrointestinal diseases unless the significant risks related to the colorectal cancer screening test receiving FDA approval were mitigated. Because of the significant uncertainty of receiving FDA approval for the colorectal cancer diagnostic, coupled with the uncertainty associated with funding future development of tests for other gastrointestinal diseases, the Company could not conclude that commencement of any future projects related to the acquired intellectual property was reasonably expected at the time of this license agreement amendment.

        As part of the amendment, the Company will also be responsible for making additional restricted stock grants to MAYO as certain milestones are met with respect to commercial launch of the Company's second and third licensed products. Additionally, the Company will make milestone payments once certain sales levels are reached on the second and third licensed products. It is uncertain as to when or if these milestones will be met; therefore, the milestone payments have not been recorded as a liability. The Company evaluates the status of the milestone payments at each reporting date to determine if a liability should be recorded for the milestone payment.

ISSUANCES OF EQUITY
ISSUANCES OF EQUITY

(5) ISSUANCES OF EQUITY

Underwritten Public Offerings

        On December 6, 2011, the Company completed an underwritten public offering of 3.6 million shares of common stock at a price of $8.00 per share to the public. The Company received approximately $27.2 million of net proceeds from the offering, after deducting $1.5 million for the underwriting discount and other stock issuance costs paid by the Company.

        On August 13, 2012, the Company completed an underwritten public offering of 6.3 million shares of common stock at a price of $9.75 per share to the public. The Company received approximately $57.8 million of net proceeds from the offering, after deducting $3.9 million for the underwriting discount and other stock issuance costs paid by the Company.

        On June 21, 2013, the Company completed an underwritten public offering of 6.3 million shares of common stock at a price of $12.35 per share to the public. The Company received approximately $73.3 million of net proceeds from the offering, after deducting $4.8 million for the underwriting discount and other stock issuance costs paid by the Company.

Rights Agreement

        In February 2011, the Company adopted a rights agreement and subsequently distributed to the Company's stockholders preferred stock purchase rights. Under certain circumstances, each right can be exercised for one one-thousandth of a share of Series A Junior Participating Preferred Stock. In general, the rights will become exercisable in the event of an announcement of an acquisition of 15% or more of the Company's outstanding common stock or the commencement or announcement of an intention to make a tender offer or exchange offer for 15% or more of the Company's outstanding common stock. If any person or group acquires 15% or more of the Company's common stock, the Company's stockholders, other than the acquiror, will have the right to purchase additional shares of the Company's common stock (in lieu of the Series A Junior Participating Preferred Stock) at a substantial discount to the then prevailing market price. The rights agreement could significantly dilute such acquiror's ownership position in the Company's shares, thereby making a takeover prohibitively expensive and encouraging such acquiror to negotiate with the Company's board of directors. The ability to exercise these rights is contingent on events that the Company has determined to be unlikely at this time, and therefore this provision has not been considered in the computation of equity or earnings per share.

STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION

(6) STOCK-BASED COMPENSATION

Stock-Based Compensation Plans

        The Company maintains the 2010 Omnibus Long-Term Incentive Plan, the 2010 Employee Stock Purchase Plan and the 2000 Stock Option and Incentive Plan(collectively, the "Stock Plans").

        2000 Stock Option and Incentive Plan    The Company adopted the 2000 Option and Incentive Plan (the "2000 Option Plan") on October 17, 2000. The 2000 Option Plan expired October 17, 2010 and after such date no further awards could be granted under the plan. Under the terms of the 2000 Option Plan, the Company was authorized to grant incentive stock options, as defined under the Internal Revenue Code, non-qualified options, restricted stock awards and other stock awards to employees, officers, directors, consultants and advisors. Options granted under the 2000 Option Plan expire ten years from the date of grant. Grants made from the 2000 Option Plan generally vest over a period of three to four years.

        The 2000 Option Plan was administered by the compensation committee of the Company's board of directors, which selected the individuals to whom equity-based awards would be granted and determined the option exercise price and other terms of each award, subject to the provisions of the 2000 Option Plan. The 2000 Option Plan provides that upon an acquisition of the Company, all options to purchase common stock will accelerate by a period of one year. In addition, upon the termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all options then outstanding under the 2000 Option Plan held by that employee will immediately become exercisable. At December 31, 2013, options to purchase 4,582,064 shares and 27,000 shares of restricted stock were outstanding under the 2000 Option Plan.

        2010 Omnibus Long-Term Incentive Plan    The Company adopted the 2010 Omnibus Long-Term Incentive Plan (the "2010 Stock Plan") on July 16, 2010. The 2010 Stock Plan will expire on July 16, 2020 and after such date no further awards may be granted under the plan. Under the terms of the 2010 Stock Plan, the Company is authorized to grant incentive stock options, as defined under the Internal Revenue Code, non-qualified options, restricted stock awards and other stock awards to employees, officers, directors, consultants and advisors. Options granted under the 2010 Stock Plan expire ten years from the date of grant. Grants made from the 2010 Stock Plan generally vest over a period of three to four years.

        The 2010 Stock Plan is administered by the compensation committee of the Company's board of directors, which selects the individuals to whom equity-based awards will be granted and determines the option exercise price and other terms of each award, subject to the provisions of the 2010 Stock Plan. The 2010 Stock Plan provides that upon an acquisition of the Company, all equity will accelerate by a period of one year. In addition, upon the termination of an employee without cause or for good reason prior to the first anniversary of the completion of the acquisition, all equity awards then outstanding under the 2010 Stock Plan held by that employee will immediately vest. At December 31, 2013, options to purchase 1,480,523 shares were outstanding under the 2010 Stock Plan and 1,123,694 shares of restricted stock and restricted stock units were outstanding. On July 25, 2013 the stockholders of Exact Sciences Corporation approved an amendment to the 2010 Stock Plan to increase the number of shares reserved for issuance thereunder by 2,800,000 shares. At December 31, 2013, there were 2,852,078 shares available for future grant under the 2010 Stock Plan.

        2010 Employee Stock Purchase Plan    The 2010 Employee Stock Purchase Plan (the "2010 Purchase Plan") was adopted by the Company on July 16, 2010. The 2010 Purchase Plan provides participating employees the right to purchase common stock at a discount through a series of offering periods. The 2010 Purchase Plan will expire on October 31, 2020. At December 31, 2013, there were 128,343 shares of common stock available for purchase by participating employees under the 2010 Purchase Plan.

        The compensation committee of the Company's board of directors administers the 2010 Purchase Plan. Generally, all employees whose customary employment is more than 20 hours per week and more than five months in any calendar year are eligible to participate in the 2010 Purchase Plan. Participating employees authorize an amount, between 1% and 15% of the employee's compensation, to be deducted from the employee's pay during the offering period. On the last day of the offering period, the employee is deemed to have exercised the employee's option to purchase shares of Company common stock, at the option exercise price, to the extent of accumulated payroll deductions. Under the terms of the 2010 Purchase Plan, the option exercise price is an amount equal to 85% of the fair market value, as defined under the 2010 Purchase Plan and no employee can purchase more than $25,000 of Company common stock under the 2010 Purchase Plan in any calendar year. Rights granted under the 2010 Purchase Plan terminate upon an employee's voluntary withdrawal from the 2010 Purchase Plan at any time or upon termination of employment. At December 31, 2013, there were 171,657 cumulative shares issued under the 2010 Purchase Plan, and 59,932 shares were issued in the year ended December 31, 2013, as follows:

Offering period ended
  Number of Shares   Weighted Average
price per Share
 

April 30, 2013

    33,338   $ 7.56  

October 31, 2013

    26,594   $ 7.55  

Stock-Based Compensation Expense

        The Company recorded approximately $7.7 million in stock-based compensation expense during the year ended December 31, 2013, in connection with the amortization of restricted stock and restricted stock unit awards, stock purchase rights granted under the Company's employee stock purchase plan and stock options granted to employees, non-employee consultants and non-employee directors. The Company recorded $5.5 million in stock-based compensation expense during the year ended December 31, 2012 in connection with the amortization of restricted stock and restricted stock unit awards, stock purchase rights granted under the Company's employee stock purchase plan and stock options granted to employees and non-employee directors. The Company recorded approximately $4.0 million in stock-based compensation expense during the year ended December 31, 2011 in connection with the amortization of awards of common stock, restricted common stock and stock options granted to employees, non-employee directors and non-employee consultants. Non-cash stock-based compensation expense by department for the years ended December 31, 2013, 2012, and 2011 are as follows, and amounts included in the table are in thousands:

 
  December 31,  
 
  2013   2012   2011  

Research and development

  $ 2,817   $ 2,396   $ 1,685  

General and administrative

    3,054     2,579     1,622  

Sales and marketing

    1,873     518     657  

        In connection with the December 31, 2011 resignation of the Company's Senior Vice President of Sales and Marketing, the Company accelerated the vesting of 131,250 shares under his previously unvested stock options. This acceleration was done in accordance with his employment agreement. He had a two year period from December 31, 2011 to exercise these options. The remaining 168,750 stock options from his initial grant were forfeited. As a result of this accelerated vesting, the Company recorded additional stock compensation expense in 2011 to ensure that the total grant date fair value of the actual vested awards was amortized to expense.

        In connection with the June 7, 2013 resignation of the Company's former Chief Commercial Officer, the Company modified the vesting of 100,000 shares of her previously unvested restricted stock units of which 41,250 of the restricted stock units vested upon the execution of the separation agreement, 10,000 will vest in March 2014, and the remaining 48,750 will vest in twenty-four equal monthly installments beginning in April 2014, subject to her continuing compliance with the terms of the separation agreement. She forfeited all other unvested restricted stock units and stock option awards. It was determined that the continuing compliance and service to be provided to the Company under the separation agreement was not substantive and, as a result, the Company recorded the full value of the modified restricted stock units as additional stock-based compensation expense in the second quarter of 2013.

Determining Fair Value

        Valuation and Recognition—The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model based on the assumptions in the table below. The estimated fair value of employee stock options is recognized to expense using the straight-line method over the vesting period.

        Expected Term—The Company uses the simplified calculation of expected life, described in the SEC's Staff Accounting Bulletins 107 and 110, as the Company does not currently have sufficient historical exercise data on which to base an estimate of expected life. Using this method, the expected term is determined using the average of the vesting period and the contractual life of the stock options granted.

        Expected Volatility—Expected volatility is based on the Company's historical stock volatility data over the expected term of the awards.

        Risk-Free Interest Rate—The Company bases the risk-free interest rate used in the Black-Scholes valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent expected term.

        Forfeitures—The Company records stock-based compensation expense only for those awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. The Company's forfeiture used in the twelve months ended December 31, 2013 was 2.76%. The Company's forfeiture rate used in the twelve months ended December 31, 2012 was 1.38%.

        The fair value of each restricted stock and restricted stock unit award is determined on the date of grant using the closing stock price on that day. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions in the following table:

 
  December 31,
 
  2013   2012   2011

Option Plan Shares

           

Risk-free interest rates

  0.94% - 1.73%   0.81% - 1.00%   0.88% - 2.3%

Expected term (in years)

  6   6   6

Expected volatility

  82.9% - 84.0%   85% - 92%   92%

Dividend yield

  0%   0%   0%

Weighted average fair value per share of options granted during the period

  $8.12   $6.90   $4.78

ESPP Shares

 

 

 

 

 

 

Risk-free interest rates

  0.10% - 0.33%   0.18% - 0.30%   0.13% - 0.61%

Expected term (in years)

  0.5 - 2   0.5 - 2   0.5 - 2

Expected volatility

  39.1% - 45.6%   34.0% - 54.9%   48% - 63%

Dividend yield

  0%   0%   0%

Weighted average fair value per share of stock purchase rights granted during the period

  $3.13   $2.84   $2.83

Stock Option, Restricted Stock, and Restricted Stock Unit Activity

        A summary of stock option activity under the Stock Plans during the years ended 2013, 2012 and 2011 is as follows:

Options
  Shares   Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Term (Years)
  Aggregate
Intrinsic
Value(1)
 

(Aggregate intrinsic value in thousands)

                         

Outstanding, January 1, 2011

    6,217,139   $ 1.93              

Granted

    814,424     6.26              

Exercised

    (325,477 )   2.11              

Forfeited

    (252,502 )   7.15              
                       

Outstanding, December 31, 2011

    6,453,584   $ 2.27              

Granted

    499,198     9.18              

Exercised

    (691,471 )   3.45              

Forfeited

    (79,375 )   7.60              
                       

Outstanding, December 31, 2012

    6,181,936   $ 2.62     6.6        
                       
                       

Granted

    290,570     11.36              

Exercised

    (274,919 )   5.17              

Forfeited

    (135,000 )   10.08              
                       

Outstanding, December 31, 2013

    6,062,587   $ 2.78     5.9   $ 54,537  
                   
                   

Exercisable, December 31, 2013

    5,209,057   $ 1.79     5.5   $ 51,879  
                   
                   

Vested and expected to vest, December 31, 2013

    6,039,030   $ 2.79     5.9   $ 54,333  
                   
                   

(1)
The aggregate intrinsic value of options outstanding at December 31, 2013 is calculated as the difference between the exercise price of the underlying options and the market price of the Company's common stock for the 6,012,587 options that had exercise prices that were lower than the $11.75 market price of our common stock at December 31, 2013. The aggregate intrinsic value of options exercisable at December 31, 2013 is calculated as the difference between the exercise price of the underlying options and the market price of the Company's common stock for the 5,209,057 options that had exercise prices that were lower than the $11.75 market price of our common stock at December 31, 2013. The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $1.9 million, $4.5 million, $1.9 million, respectively, determined as of the date of exercise.

        Warrants to purchase 75,000 shares of common stock were issued in connection with a consulting agreement in 2009. The warrants contain a performance condition and vest if the Company successfully receives FDA approval for Cologuard. The Company is uncertain if the performance condition will be attained, and therefore no expense has been recorded on this warrant as of December 31, 2013. The exercise price of the warrant is $0.01.

        A summary of restricted stock and restricted stock unit activity under the Stock Plans during the years ended December 31, 2013, 2012 and 2011 is as follows:

 
  Restricted
Shares
  Weighted
Average Grant
Date Fair Value
 

Outstanding, January 1, 2011

    263,630   $ 6.20  

Granted

    335,716     6.06  

Released

    (192,856 )   5.89  

Forfeited

    (5,000 )   5.61  
           

Outstanding, December 31, 2011

    401,490   $ 6.24  

Granted

    602,268     9.47  

Released

    (185,116 )   5.67  

Forfeited

    (4,687 )   7.69  
           

Outstanding, December 31, 2012

    813,955   $ 8.51  
           
           

Granted

    1,147,553     11.76  

Released

    (344,611 )   8.56  

Forfeited

    (466,203 )   9.73  
           

Outstanding, December 31, 2013

    1,150,694   $ 11.23  
           
           

        As of December 31, 2013, there was approximately $13.5 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation cost will be adjusted for future changes in forfeitures. The Company expects to recognize that cost over a weighted average period of 2.6 years.

        The Company received approximately $1.3 million, $2.4 million and $0.7 million from stock option exercises during the years ended December 31, 2013, 2012 and 2011, respectively. During the years ended December 31, 2013, 2012 and 2011, 56,189, 63,611 and 51,857 shares of common stock, respectively, were issued under the Company's 2010 Purchase Plan resulting in proceeds to the company of $0.5 million, $0.4 million and $0.3 million, respectively.

        The following table summarizes information relating to currently outstanding and exercisable stock options as of December 31, 2013:

 
  Outstanding   Exercisable  
Exercise Price
  Number of
Options
  Weighted
Average
Remaining
Contractual
Life (Years)
  Weighted
Average
Exercise
Price
  Number of
Options
  Weighted
Average
Exercise
Price
 

$— - $1.00

    3,765,000     5.2   $ 0.83     3,765,000   $ 0.83  

$1.01 - $2.00

    72,000     5.3     1.42     72,000     1.42  

$2.01 - $3.00

    697,000     5.5     2.83     697,000     2.83  

$3.01 - $4.00

    124,506     6.5     3.51     119,256     3.49  

$4.01 - $5.00

    256,814     6.5     4.17     190,064     4.17  

$5.01 - $7.00

    241,825     7.2     5.88     108,950     5.95  

$7.01 - $9.00

    181,424     7.5     8.22     122,126     8.30  

$9.01- $14.00

    724,018     8.6     9.96     134,661     9.33  
                       

 

    6,062,587     5.9   $ 2.78     5,209,057   $ 1.79  
                       
                       

        During the first quarter of 2012, the Company granted a total of 262,500 restricted stock units to certain executives that would have vested based upon the satisfaction of certain service and performance conditions. The Company performed an evaluation of internal and external factors, and determined the number of shares that were most likely to vest based on the probability of what performance conditions were met. The expense for the fair value of the awards that were expected to vest of $0.6 million was recognized during the year ended December 31, 2012. The service and performance conditions were not met and the expense of $0.6 million was reversed in the first quarter of the year ended December 31, 2013.

        During the first quarter of 2013, the Company granted a total of 180,750 restricted stock units to certain executives that vest based upon the satisfaction of certain 2013 performance conditions. Based on the conditions that were met 100,800 shares were earned. The shares vest equally over three years with the first vesting date at December 31, 2013. The company recognized $0.4 million during the year ended December 31, 2013 related to this restricted stock unit grant.

Shares Reserved for Issuance

        The Company has reserved shares of its authorized common stock for issuance pursuant to its employee stock purchase and stock option plans, including all outstanding stock option grants noted above at December 31, 2013, as follows:

Shares reserved for issuance
   
 

2010 Option Plan

    2,852,078  

2010 Purchase Plan

    128,343  
       

 

    2,980,421  
       
       
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES

(7) COMMITMENTS AND CONTINGENCIES

Operating Leases

        During November 2009, the Company entered into a five year lease for a 17,500 square feet laboratory office facility in Madison, Wisconsin. This lease contains periodic rent escalation adjustments. During November 2010, the Company entered into an amended lease agreement to lease an additional 7,072 square feet of laboratory and office space for a total of 24,572 square feet The amended agreement covers the same term as the original term and is also subject to periodic rent escalation adjustments. During March 2012, the Company entered into an amended lease agreement to lease an additional 10,428 square feet of laboratory and office space for a total of 35,000 square feet. The amended agreement covers the same term as the original term and is also subject to periodic rent escalation adjustments.

        During the second quarter of 2013, the Company entered into a five year lease for a 29,000 square foot facility in Madison, Wisconsin that is to house its commercial lab operations. This lease contains periodic rent escalation adjustments and includes provisions for tenant improvements. The Company has two options to extend the term of the lease for five years each.

        As part of the lease agreement, the landlord has agreed to pay for a portion of leasehold improvements constructed. These payments are recorded as a lease incentive obligation and will be amortized over the five year term of the lease as a reduction of rent expense. As of December 31, 2013, the lease incentive obligation was $2.7 million. Construction of the laboratory facility was substantially complete at December 31, 2013 and the laboratory was placed into service. The amortization of the lease incentive obligation began in December of 2013.

        Future minimum payments under operating leases as of December 31, 2013 are as follows. Amounts included in the table are in thousands.

Year Ending December 31,

       

2014

  $ 1,124  

2015

    680  

2016

    684  

2017

    689  

2018

    577  

Thereafter

     
       

Total lease obligations

  $ 3,754  
       
       

        Rent expense included in the accompanying consolidated statements of operations was approximately $0.7 million, $0.4 million, and $0.3 million for the years ended December 31, 2013, 2012 and 2011, respectively.

        During the fourth quarter of 2009, the Company entered into a sublease agreement (the "2009 Sublease Agreement") with an unrelated party to sublease approximately 5,086 square feet of rentable area in the Company's Madison facility. The term of the 2009 Sublease Agreement, which commenced on November 1, 2009, was 36 months. The Company has received approximately $0.2 million in sublease payments over the life of the 2009 Sublease Agreement. Pursuant to the Sublease Agreement, the unrelated party has no rights to renew or extend the 2009 Sublease Agreement. The Company did not receive sublease payments in 2013. The Company received $66,800 and $78,500 in sublease payments in 2012 and 2011, respectively. The 2009 Sublease Agreement expired on November 1, 2012.

License Agreements

        The Company licenses, on a non-exclusive basis, certain technologies that are, or may be, incorporated into its technology under several license agreements. Generally, the license agreements require the Company to pay royalties based on net revenues received using the technologies, and may require minimum royalty amounts or maintenance fees.

MAYO

        On June 11, 2009, the Company entered into a patent licensing agreement with MAYO. Under the license agreement, MAYO granted the Company an exclusive, worldwide license within the field of stool or blood based cancer diagnostics and screening (excluding a specified proteomic target) with regard to certain MAYO patents and patent applications, as well as a non-exclusive, worldwide license within such field with regard to certain MAYO know-how. The licensed MAYO patents and patent applications contain both method and composition-of-matter claims that relate to sample processing, analytical testing and data analysis associated with nucleic screening for cancers and other diseases. The jurisdictions covered by these patents and patent applications include the U.S., Canada, the European Union and Japan. In addition to granting the Company a license to the covered MAYO intellectual property, MAYO agreed to make available personnel to provide the Company product development and research and development assistance.

        Under the license agreement, the Company assumed the obligation and expense of prosecuting and maintaining the licensed MAYO patents and is obligated to make commercially reasonable efforts to bring to market products using the licensed MAYO intellectual property. Pursuant to the license agreement, the Company granted MAYO two common stock purchase warrants with an exercise price of $1.90 per share covering 1,000,000 and 250,000 shares of common stock. The Company agreed to pay MAYO a low single digit royalty on the Company's net sales of products using the licensed MAYO intellectual property. The Company is also required to pay minimum annual royalty fees of $10,000 on June 12, 2012 and $25,000 on June 12, 2013 and each year thereafter through 2029. The MAYO license agreement required various other payments, including an upfront payment of $80,000, which the Company paid in the third quarter of 2009, and a milestone payment of $250,000 on the commencement of patient enrollment in FDA trials for the Company's Cologuard pre-cancer and cancer screening test, which the Company paid in June 2011. The Company will be required to pay MAYO $500,000 upon FDA approval of the Company's Cologuard test.

        In May 2012 the Company expanded its relationship with MAYO through an amendment to the license agreement. As part of the amendment, MAYO expanded the license to include all gastrointestinal cancers and diseases, and new cancer screening applications of stool- and blood-based testing. As consideration for the expanded license, the Company granted MAYO 97,466 shares of its common stock, one quarter of which vested immediately, with the remainder to vest in three equal annual installments. The Company sought rights to the MAYO intellectual property for the specific purpose of developing future non-invasive, stool-based DNA screening tests for gastrointestinal diseases other than colorectal cancer. In addition, the Company agreed to issue MAYO shares of the Company's common stock with a value of $200,000 upon commercial launch of the Company's second and third products that use the licensed MAYO intellectual property. Additionally, the Company agreed in the amendment to pay MAYO, for each of the Company's products that use licensed MAYO intellectual property, $200,000 cash upon such product reaching $5 million in cumulative net sales, $750,000 cash upon such product reaching $20 million in cumulative net sales, and $2 million cash upon such product reaching $50 million in cumulative net sales.

        See Note 4 for additional information related to the MAYO license agreement.

Hologic

        On October 14, 2009, the Company entered into a technology license agreement with Hologic, Inc. ("Hologic"). Under the license agreement, Hologic granted the Company an exclusive, worldwide license within the field of human stool based colorectal cancer and pre-cancer detection or identification with regard to certain Hologic patents, patent applications and improvements, including Hologic's Invader detection chemistry (the "Covered Hologic IP"). The licensed patents and patent applications contain both method and composition-of-matter claims. The jurisdictions covered by these patents and patent applications include the U.S., Canada, the European Union, Australia and Japan. The license agreement also provided the Company with non-exclusive, worldwide licenses to the Covered Hologic IP within the field of clinical diagnostic purposes relating to colorectal cancer (including cancer diagnosis, treatment, monitoring or staging) and the field of detection or identification of colorectal cancer and pre-cancers through means other than human stool samples. In December 2012 the Company entered into an amendment to this license agreement with Hologic pursuant to which Hologic granted the Company a non-exclusive worldwide license to the Covered Hologic IP within the field of any disease or condition within, related to or affecting the gastrointestinal tract and/or appended mucosal surfaces.

        The Company paid Hologic $50,000 upon executing the license agreement in 2009 and $100,000 when the Company began enrollment in its FDA trial in June 2011. The Company is required to pay Hologic a low single digit royalty on the Company's net sales of products using the Covered Hologic IP, and to make a $100,000 milestone payment upon FDA approval of the Company's Cologuard test.

        It is uncertain as to when the FDA will approve the Company's Cologuard test. Therefore, the $100,000 milestone payment has not been recorded as a liability. The Company evaluates the status of the FDA trial at each reporting date to determine if a liability should be recorded for the milestone payment.

MDx Health

        On July 26, 2010, the Company entered into a technology license and royalty agreement with MDx Health (formerly Oncomethylome Sciences, S.A.). Under the license agreement, MDx Health granted the Company a royalty bearing exclusive, worldwide license to certain patents. Under the licensing agreement, the Company is obligated to make commercially reasonable efforts to bring products covered by the license agreement to market. The Company is required to pay MDx Health a minimum royalty fee of $100,000 on each anniversary of the agreement for the life of the contract. The Company also agreed to pay $100,000 upon the first commercial sale of a licensed product after the receipt of FDA approval and $150,000 after the Company has reached net sales of $10 million of a licensed product after receipt of FDA approval, $750,000 after the Company has reached net sales of $50 million, and $1 million after the Company has reached net sales of $50 million in a single calendar year. The Company is also required to pay MDx Health a royalty fee based on a certain percentage of the Company's net sales of the licensed products.

        The Company has recorded research and development expense associated with license agreements of $1.8 million, $1.4 million, and $0.8 million, respectively, for the years ended December 31, 2013, 2012 and 2011. Future minimum payments due under the Company's technology licenses as of December 31, 2013 are as follows. Amounts included in the table are in thousands.

Year ending December 31,

       

2014

  $ 596  

2015

    296  

2016

    256  

2017

    256  

2018

    256  

Thereafter

    2,031  
       

 

  $ 3,691  
       
       

Research collaborations

        The Company has also entered into several clinical research agreements, under which it is obligated to fund certain research activities for purposes of technology development. As of December 31, 2013, 2012 and 2011, the Company had no outstanding sample collection commitments. The Company has recorded research and development expense associated with clinical research agreements of approximately $1.7 million, $1.2 million, and $1.0 million, respectively, for the years ended December 31, 2013, 2012 and 2011. As of December 31, 2013, the Company did not have any remaining obligation under these agreements.

Capital Lease

        In 2012 the Company entered into a lease agreement which is accounted for as a capital lease. The leased equipment is recorded at $1.2 million and is included in the balance sheet as laboratory equipment at December 31, 2013. The cost of the leased equipment is depreciated over the three year lease term, and the expense is recorded as depreciation expense. Accumulated depreciation of the leased equipment at December 31, 2013 was approximately $511.6 thousand. The Company is required to make principal and interest payments of approximately $32,000 per month over the three year term of the lease agreement.

        The future minimum lease payments required under the capital lease and the present value of the net minimum lease payments as of December 31, 2013 are as follows (in thousands):

Year Ending December 31,

       

2014

  $ 381  

2015

    369  
       

Total lease obligations

  $ 750  

Less imputed interest

    (39 )

Present value of minimum lease payments

    711  
       

Less current maturities of capital lease obligations

    (351 )
       

Long term capital lease obligations

  $ 360  
       
       
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS

(8) RELATED PARTY TRANSACTIONS

        In August 2013, the Company renewed a one year consulting agreement with a non-employee director for an additional year. In accordance with the agreement, the Company granted a restricted stock award for 4,277 shares of common stock that vests over one year, and will make cash payments totaling $60,000 over the one year term of the agreement. The Company recorded expense related to this consulting agreement of $25,000 in 2013.

        In August 2012, the Company entered into a one year consulting agreement with a non-employee director under which the director agreed to provide advisory services in support of the Company's commercialization activities. In accordance with the agreement, the Company granted a restricted stock award for 4,873 shares of common stock that vested over one year, and made cash payments totaling $60,000 over the initial one year term of the agreement. The Company recorded expense related to this consulting agreement of $35,000 in 2013 and $25,000 in 2012.

ACCRUED LIABILITIES
ACCRUED LIABILITIES

(9) ACCRUED LIABILITIES

        Accrued liabilities at December 31, 2013 and 2012 consisted of the following. Amounts included in the table are in thousands.

 
  December 31,  
 
  2013   2012  

Compensation

  $ 2,838   $ 1,985  

Professional fees

    826     351  

Research and trial related expenses

    801     576  

Assets under construction

    649      

Licenses

    539     373  

Other

    82     19  

Occupancy costs

    71     23  
           

 

  $ 5,806   $ 3,327  
           
           
LONG TERM DEBT
LONG TERM DEBT

(10) LONG TERM DEBT

        During November 2009, the Company entered into a loan agreement with the Wisconsin Department of Commerce pursuant to which the Wisconsin Department of Commerce agreed to lend up to $1 million to the Company subject to the Company's satisfaction of certain conditions. The Company received the $1 million in December 2009. The terms of the loan are such that portions of the loan become forgivable if the Company meets certain job creation requirements. After the Company creates 100 full time positions, the principal shall be reduced at the rate of $5,405 for each new position created thereafter during the measurement period. If the Company has created 185 new full-time positions as of June 30, 2015, the full amount of principal shall be forgiven. The loan bears an interest rate of 2%, which is subject to an increase to 4% if the Company does not meet certain job creation requirements. Both principal and interest payments under the loan agreement are deferred for five years. Based on the Company's estimation of the loan obligation, the table below represents the future principal obligations as of December 31, 2013:

Year ending December 31,

       

2014

  $  

2015

    145  

2016

    217  

2017

    221  

2018

    225  

Thereafter

    192  
       

 

  $ 1,000  
       
       
EMPLOYEE BENEFIT PLAN
EMPLOYEE BENEFIT PLAN

(11) EMPLOYEE BENEFIT PLAN

        The Company maintains a qualified 401(k) retirement savings plan (the "401(k) Plan") covering all employees. Under the terms of the 401(k) Plan, participants may elect to defer a portion of their compensation into the 401(k) Plan, subject to certain limitations. Company matching contributions may be made at the discretion of the Board of Directors.

        The Company's Board of Directors approved 401(k) Plan matching contributions for the years ended December 31, 2013, 2012 and 2011 in the form of Company common stock equal to 100% up to 6% of the participant's salary for that year. The Company recorded compensation expense of approximately $0.5 million, $0.4 million, and $0.3 million, respectively, in the statements of operations for the years ended December 31, 2013, 2012 and 2011 in connection with 401(k) Plan matching contributions.

INCOME TAXES
INCOME TAXES

(12) INCOME TAXES

        The Company is subject to taxation in the U.S. and various state jurisdictions. All of the Company's tax years are subject to examination by the U.S. and state tax authorities due to the carryforward of unutilized net operating losses.

        Under financial accounting standards, deferred tax assets or liabilities are computed based on the differences between the financial statement and income tax bases of assets and liabilities using the enacted tax rates. Deferred income tax expense or benefit represents the change in the deferred tax assets or liabilities from period to period. At December 31, 2013, the Company had federal net operating loss and state net operating loss carryforward of approximately $300.1 million and $115.4 million, respectively for financial reporting purposes, which may be used to offset future taxable income. The Company also had federal and state research tax credit carryforwards of $5.6 million and $18.7 million, respectively which may be used to offset future income tax liability. The federal and state carryforwards expire beginning 2013 through 2032 and are subject to review and possible adjustment by the Internal Revenue Service. In the event of a change of ownership, the federal and state net operating loss and research and development tax credit carryforwards may be subject to annual limitations provided by the Internal Revenue Code and similar state provisions.

        As of December 31, 2013 and 2012, the Company had $16.5 million and $14.2 million respectively in excess tax benefit stock option deductions. The excess tax benefit arising from these deductions is credited to additional paid in capital as the benefit is realized.

        The components of the net deferred tax asset with the approximate income tax effect of each type of carryforward, credit and temporary differences are as follows. Amounts included in the table are in thousands.

 
  December 31,  
 
  2013   2012  

Deferred tax assets:

             

Operating loss carryforwards

  $ 101,942   $ 88,532  

Tax credit carryforwards

    18,061     10,184  

Deferred revenue

    117     1,758  

Other temporary differences

    4,429     3,445  
           

Tax assets before valuation allowance

    124,549     103,919  

Less—Valuation allowance

    (124,549 )   (103,919 )
           

Net deferred taxes

  $   $  
           
           

        A valuation allowance to reduce the deferred tax assets is reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has incurred significant losses since its inception and due to the uncertainty of the amount and timing of future taxable income, management has determined that a $124.5 million and $103.9 million valuation allowance at December 31, 2013 and 2012 is necessary to reduce the tax assets to the amount that is more likely than not to be realized. The change in valuation allowance for the current year is $20.6 million. Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact the Company's effective tax rate.

        The effective tax rate differs from the statutory tax rate due to the following:

 
  December 31,  
 
  2013   2012   2011  

U.S. Federal statutory rate

    34.0 %   34.0 %   34.0 %

State taxes

    4.8     1.7     5.6  

Research and development tax credit

    16.9     5.1     1.7  

Stock-based compensation expense

    (1.1 )   (0.6 )   (2.4 )

Other adjustments

    (0.3 )   (0.1 )   0.1  

Valuation allowance

    (54.3 )   (40.1 )   (39.0 )
               

Effective tax rate

    0.0 %   0.0 %   0.0 %
               
               

        There are no unrecognized tax benefits as of December 31, 2013, 2012 and 2011, nor are there any tax positions where it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the 12 months following December 31, 2013.

        As of December 31, 2013, due to the carryforward of unutilized net operating losses and research and development credits, the Company is subject to U.S. Federal income tax examinations for the tax years 1995 through 2013, and to state income tax examinations for the tax years 1995 through 2013. There were no interest or penalties related to income taxes that have been accrued or recognized as of and for the years ended December 31, 2013, 2012 and 2011.

QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

(13) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

        The following table sets forth unaudited quarterly statement of operations data for each of the eight quarters ended December 31, 2013. In the opinion of management, this information has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this Form 10-K, and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly the unaudited quarterly results of operations. The quarterly data should be read in conjunction with our audited consolidated financial statements and the notes to the consolidated financial statements appearing elsewhere in this Form 10-K.

 
  Quarter Ended  
 
  March 31,   June 30,   September 30,   December 31,  
 
  (Amounts in thousands, except per share data)
 

2013

                         

Revenue

  $ 1,036   $ 1,036   $ 1,036   $ 1,036  

Cost of revenue

                 
                   

Gross profit

    1,036     1,036     1,036     1,036  

Research and development

    7,526     6,457     6,982     6,713  

General and administrative

    2,648     3,628     3,686     3,687  

Sales and marketing

    1,759     3,302     1,615     2,902  
                   

Loss from operations

    (10,897 )   (12,351 )   (11,247 )   (12,266 )

Investment income

    62     55     103     96  

Interest expense

    (19 )   (18 )   (16 )   (16 )
                   

Net loss

  $ (10,854 ) $ (12,314 ) $ (11,160 ) $ (12,186 )
                   
                   

Net loss per share—basic and diluted

  $ (0.17 ) $ (0.19 ) $ (0.16 ) $ (0.17 )
                   
                   

Weighted average common shares outstanding—basic and diluted

    63,836     64,699     70,559     70,757  
                   
                   

2012

                         

Revenue

  $ 1,036   $ 1,036   $ 1,036   $ 1,036  

Cost of revenue

                 
                   

Gross profit

    1,036     1,036     1,036     1,036  

Research and development

    8,999     12,202     10,491     10,439  

General and administrative

    2,145     2,393     2,547     2,815  

Sales and marketing

    594     1,331     1,006     1,824  
                   

Loss from operations

    (10,702 )   (14,890 )   (13,008 )   (14,042 )

Investment income

    62     59     67     74  

Interest expense

    (5 )   (5 )   (11 )   (20 )
                   

Net loss

  $ (10,645 ) $ (14,836 ) $ (12,952 ) $ (13,988 )
                   
                   

Net loss per share—basic and diluted

  $ (0.19 ) $ (0.26 ) $ (0.21 ) $ (0.22 )
                   
                   

Weighted average common shares outstanding—basic and diluted

    56,718     57,037     60,531     63,582  
                   
                   
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

Principles of Consolidation

        The accompanying consolidated financial statements include the accounts of the Company's wholly-owned subsidiary, Exact Sciences Laboratories, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.

        References to "Exact", "we", "us", "our", or the "Company" refer to Exact Sciences Corporation and its subsidiary, Exact Sciences Laboratories, LLC.

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

        The Company considers cash on hand, demand deposits in bank, money market funds, and all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents. The Company had no restricted cash at December 31, 2013 and 2012.

Marketable Securities

        Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities carried at amortized cost are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Marketable equity securities and debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive income. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity computed under the straight-line method. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income.

        At December 31, 2013 and December 31, 2012 the Company's investments were comprised of fixed income investments and all were deemed available-for-sale. The objectives of the Company's investment strategy are to provide liquidity and safety of principal while striving to achieve the highest rate of return consistent with these two objectives. The Company's 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. Investments in which the Company has the ability and intent, if necessary, to liquidate in order to support its current operations (including those with a contractual term greater than one year from the date of purchase) are classified as current. All of the Company's investments are considered current. Realized gains were $9,639, $6,231, and $419 for the years ended December 31, 2013, 2012, and 2011, respectively. Unrealized gains on investments recorded in other comprehensive income were $125,473 and $77,808 for the years ended December 31, 2013 and 2012. Unrealized losses on investments recorded in other comprehensive income were $13,784 for the year ended December 31, 2011.

        The amounts reclassified from accumulated other comprehensive income to investment income during 2013, 2012 and 2011 related to the unrealized change in the value of marketable securities, were not significant.

        Available-for-sale securities at December 31, 2013 consist of the following:

 
  December 31, 2013  
(In thousands)
  Amortized Cost   Gains in Accumulated
Other Comprehensive
Income
  Losses in Accumulated
Other Comprehensive
Income
  Estimated Fair
Value
 

Corporate bonds

  $ 77,935   $ 75   $   $ 78,010  

U.S. government agency securities

    34,291     47         34,338  

Certificates of deposit

    6,558     3         6,561  

Commercial paper

    1,499             1,499  
                   

Total available-for-sale securities

  $ 120,283   $ 125   $   $ 120,408  
                   
                   

        Available-for-sale securities at December 31, 2012 consist of the following:

 
  December 31, 2012  
(In thousands)
  Amortized Cost   Gains in Accumulated
Other Comprehensive
Income
  Losses in Accumulated
Other Comprehensive
Income
  Estimated Fair
Value
 

U.S. government agency securities

  $ 44,270   $ 38   $   $ 44,308  

Corporate bonds

    43,303     27         43,330  

Certificates of deposit

    5,926     13         5,939  

Commercial paper

    1,199             1,199  
                   

Total available-for-sale securities

  $ 94,698   $ 78   $   $ 94,776  
                   
                   

Property and Equipment

        Property and equipment are stated at cost and depreciated using the straight-line method over the assets' estimated useful lives. Maintenance and repairs are expensed when incurred; additions and improvements are capitalized. The estimated useful lives of fixed assets are as follows:

Asset Classification
  Estimated Useful Life
Laboratory equipment   3 - 5 years
Office and computer equipment   3 years
Leasehold improvements   Lesser of the remaining lease term or useful life
Furniture and fixtures   3 years

        Depreciation expense for the years ended December 31, 2013, 2012, and 2011 was $1.4 million, $1.0 million, and $0.4 million, respectively.

        At December 31, 2013, the Company had $2.6 million of assets under construction which consisted of $1.7 million of capitalized costs related to software projects and $0.9 million of costs related to an equipment project. Depreciation will begin on these assets once they are placed into service. We expect that it will cost $0.5 million to complete the equipment project and $1.0 million to complete the software projects, and these projects are expected to be completed in 2014.

Software Capitalization Policy

        Software development costs related to internal use software are incurred in three stages of development: the preliminary project stage, the application development stage, and the post-implementation stage. Costs incurred during the preliminary project and post-implementation stages are expensed as incurred. Costs in the application development stage that meet the criteria for capitalization are capitalized and amortized using the straight-line basis over the estimated economic useful life of the software.

Patent Costs

        Patent costs, which have historically consisted of related legal fees, are capitalized as incurred, only if the Company determines that there is some probable future economic benefit derived from the transaction. The capitalized patents are amortized beginning when patents are approved over an estimated useful life of five years. Capitalized patent costs are expensed upon disapproval, upon a decision by the Company to no longer pursue the patent or when the related intellectual property is either sold or deemed to be no longer of value to the Company. The Company determined that all patent costs incurred during the year ended December 31, 2013, 2012 and 2011 should be expensed and not capitalized as the future economic benefit derived from the transactions cannot be determined.

  • Clinical Trial Accrual

        Accruals are recorded for clinical trial patient site costs when the liability is probable and reasonably estimable. For our pivotal FDA clinical trial and other sample procurement studies we undertake periodically, an accrual is made for a patient site cost once the patient has progressed past certain steps in the patient assessment and sample processing procedure. The accrual is estimated based on historical average patient reimbursement fees. Management has not recorded an accrual for clinical trial costs at December 31, 2013 as our clinical trial is complete. Management recorded an accrual of $0.4 million at December 31, 2012 and 2011, respectively, for clinical trial costs related to site payments.

Net Loss Per Share

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

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

 
  2013   2012   2011  

Shares issuable upon exercise of stock options

    6,063     6,182     6,454  

Shares issuable upon exercise of outstanding warrants(1)

    155     325     325  

Shares issuable upon the release of restricted stock awards

    1,151     814     401  

Shares issuable upon exercise of restricted stock awards related to licensing agreement

    49     73      
               

 

    7,418     7,394     7,180  
               
               

(1)
At December 31, 2013, represents warrants to purchase 80,000 shares of common stock issued under a license agreement and warrants to purchase 75,000 shares of common stock issued under a consulting agreement. At December 31, 2012 and December 31, 2011, represents warrants to purchase 250,000 shares of common stock issued under a licensing agreement and warrants to purchase 75,000 shares of common stock issued under a consulting agreement.

Accounting for Stock-Based Compensation

        The Company requires all share-based payments to employees, including grants of employee stock options, restricted stock, restricted stock units and shares purchased under an ESPP (if certain parameters are not met), to be recognized in the financial statements based on their fair values.

Revenue Recognition

        License fees.    License fees for the licensing of product rights are recorded as deferred revenue upon receipt of cash and recognized as revenue on a straight-line basis over the license period.

        As more fully described in Note 3 below, in connection with the Company's transaction with Genzyme Corporation, Genzyme agreed to pay the Company a total of $18.5 million, of which $16.65 million was paid on January 27, 2009 and $1.85 million was subject to a holdback by Genzyme to satisfy certain potential indemnification obligations in exchange for the assignment and licensing of certain intellectual property to Genzyme. The Company's on-going performance obligations to Genzyme under the Collaboration, License and Purchase Agreement (the "CLP Agreement"), as described below, including its obligation to deliver through licenses certain intellectual property improvements to Genzyme, if improvements are made during the initial five-year collaboration period, were deemed to be undelivered elements of the CLP Agreement on the date of closing. Accordingly, the Company deferred the initial $16.65 million in cash received at closing and is amortizing that up-front payment on a straight line basis into revenue over the initial five-year collaboration period ending in January 2014. The Company received the first holdback amount of $962,000, which included accrued interest, due from Genzyme during the first quarter of 2010. The Company received the second holdback amount of $934,250 which included accrued interest due, from Genzyme during the third quarter of 2010. The amounts were deferred and are being amortized on a straight-line basis into revenue over the remaining term of the collaboration at the time of receipt.

        In addition, Genzyme purchased 3,000,000 shares of common stock purchased from the Company on January 27, 2009 for $2.00 per share, representing a premium of $0.51 per share above the closing price of the Company's common stock on that date of $1.49 per share. The aggregate premium paid by Genzyme over the closing price of the Company's common stock on the date of the transaction of $1.53 million is deemed to be a part of the total consideration for the CLP Agreement. Accordingly, the Company deferred the aggregate $1.53 million premium and is amortizing that amount on a straight line basis into revenue over the initial five-year collaboration period ending in January 2014.

        The Company recognized approximately $4.1 million in license fee revenue in connection with the amortization of the up-front payments from Genzyme during the years ended December 31, 2013, 2012, and 2011.

        Product royalty fees.    The Company has licensed certain of its technologies, including improvements to such technologies, on an exclusive basis to LabCorp. LabCorp developed and commercially offered a non-invasive stool-based DNA colorectal cancer screening service for the average-risk population based on the Company's technology. The Company is entitled to certain royalties on any sales of this product. Accordingly, the Company records product royalty fees based on the specified contractual percentage of LabCorp's net revenues from its sales of such colorectal cancer screening tests, as reported to the Company each month by LabCorp. The current royalty rate is subject to an increase in the event that LabCorp achieves a specified significant threshold of annual net revenues from the sales of such colorectal cancer screening tests. No sales of this product were reported to the Company during the year ended December 31, 2013 and December 31, 2012 and no product royalty fees were recorded. Product royalty fees were $20,000 for the year ended December 31, 2011.

Advertising Costs

        The Company expenses the costs of media advertising at the time the advertising takes place. The Company expensed approximately $97.7 thousand, $57.4 thousand and $110.0 thousand of media advertising during the years ended December 31, 2013, 2012, and 2011, respectively.

Fair Value Measurements

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

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

Level 1

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

Level 2

 

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

Level 3

 

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

        Fixed-income securities and mutual funds are valued using a third party pricing agency. The valuation is based on observable inputs including pricing for similar assets and other observable market factors. There has been no material change from period to period.

        The following table presents the Company's fair value measurements as of December 31, 2013 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall. Amounts in the table are in thousands.

 
   
  Fair Value Measurement at December 31, 2013 Using:  
Description
  Fair Value at
December 31, 2013
  Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  Significant Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Cash and cash equivalents

                         

Cash and money market

  $ 12,851   $ 12,851   $   $  

Available-for-Sale

                         

Marketable securities

                         

Corporate bonds

    78,010         78,010      

U.S. government agency securities

    34,338         34,338      

Certificates of deposit

    6,561         6,561      

Commercial paper

    1,499         1,499      
                   

Total

  $ 133,259   $ 12,851   $ 120,408   $  
                   
                   

        The following table presents the Company's fair value measurements as of December 31, 2012 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall. Amounts in the table are in thousands.

 
   
  Fair Value Measurement at December 31, 2012 Using:  
Description
  Fair Value at
December 31, 2012
  Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  Significant Other
Observable Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Cash and cash equivalents

                         

Cash and money market

  $ 13,095   $ 13,095   $   $  

Corporate bonds

    250         250      

Available-for-Sale

                         

Marketable securities

                         

U.S. government agency securities

    44,308         44,308      

Certificates of deposit

    5,939         5,939      

Corporate bonds

    43,330         43,330      

Commercial paper

    1,199         1,199      
                   

Total

  $ 108,121   $ 13,095   $ 95,026   $  
                   
                   

        As of December 31, 2013 and 2012 there were available for sale securities in a continuous unrealized loss position for less than twelve months where the total unrealized losses were $7.2 thousand and $4.8 thousand respectively. At December 31, 2013 and 2012 there were no available for sale securities in a continuous unrealized loss position for greater than twelve months.

        The following summarizes contractual underlying maturities of the Company's available-for-sale investments at December 31, 2013 (in thousands):

 
  Cost   Fair Value  

Due in one year or less

  $ 53,843   $ 53,871  

Due after one year through two years

    66,440     66,537  
           

 

  $ 120,283   $ 120,408  
           
           

Concentration of Credit Risk

        In accordance with GAAP, the Company is required to disclose any significant off-balance-sheet risk and credit risk concentration. The Company has no significant off-balance-sheet risk, such as foreign exchange contracts or other hedging arrangements. Financial instruments that subject the Company to credit risk consist of cash, cash equivalents and marketable securities. As of December 31, 2013, the Company had cash and cash equivalents deposited in financial institutions in which the balances exceed the federal government agency insured limit of $250,000 by approximately $12.1 million. The Company has not experienced any losses in such accounts and management believes it is not exposed to any significant credit risk.

Subsequent Events

        The Company evaluates events that occur through the filing date and discloses those events or transactions that provide additional evidence with respect to conditions that existed at the date of the balance sheet. In addition, the financial statements are adjusted for any changes in estimates resulting from the use of such evidence.

Recent Accounting Pronouncements

        In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210)—Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. Entities are required to disclose both gross and net information about these instruments. ASU 2011-11 was effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The adoption of this ASU did not have a material impact on our consolidated financial statements.

Reclassifications

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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

 

     

 
  December 31, 2013  
(In thousands)
  Amortized Cost   Gains in Accumulated
Other Comprehensive
Income
  Losses in Accumulated
Other Comprehensive
Income
  Estimated Fair
Value
 

Corporate bonds

  $ 77,935   $ 75   $   $ 78,010  

U.S. government agency securities

    34,291     47         34,338  

Certificates of deposit

    6,558     3         6,561  

Commercial paper

    1,499             1,499  
                   

Total available-for-sale securities

  $ 120,283   $ 125   $   $ 120,408  
                   
                   

 

 

 
  December 31, 2012  
(In thousands)
  Amortized Cost   Gains in Accumulated
Other Comprehensive
Income
  Losses in Accumulated
Other Comprehensive
Income
  Estimated Fair
Value
 

U.S. government agency securities

  $ 44,270   $ 38   $   $ 44,308  

Corporate bonds

    43,303     27         43,330  

Certificates of deposit

    5,926     13         5,939  

Commercial paper

    1,199             1,199  
                   

Total available-for-sale securities

  $ 94,698   $ 78   $   $ 94,776  
                   
                   

 

 

Asset Classification
  Estimated Useful Life
Laboratory equipment   3 - 5 years
Office and computer equipment   3 years
Leasehold improvements   Lesser of the remaining lease term or useful life
Furniture and fixtures   3 years

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

 
  2013   2012   2011  

Shares issuable upon exercise of stock options

    6,063     6,182     6,454  

Shares issuable upon exercise of outstanding warrants(1)

    155     325     325  

Shares issuable upon the release of restricted stock awards

    1,151     814     401  

Shares issuable upon exercise of restricted stock awards related to licensing agreement

    49     73      
               

 

    7,418     7,394     7,180  
               
               

(1)
At December 31, 2013, represents warrants to purchase 80,000 shares of common stock issued under a license agreement and warrants to purchase 75,000 shares of common stock issued under a consulting agreement. At December 31, 2012 and December 31, 2011, represents warrants to purchase 250,000 shares of common stock issued under a licensing agreement and warrants to purchase 75,000 shares of common stock issued under a consulting agreement.

The following table presents the Company's fair value measurements as of December 31, 2013 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall. Amounts in the table are in thousands.

 
   
  Fair Value Measurement at December 31, 2013 Using:  
Description
  Fair Value at
December 31, 2013
  Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  Significant Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Cash and cash equivalents

                         

Cash and money market

  $ 12,851   $ 12,851   $   $  

Available-for-Sale

                         

Marketable securities

                         

Corporate bonds

    78,010         78,010      

U.S. government agency securities

    34,338         34,338      

Certificates of deposit

    6,561         6,561      

Commercial paper

    1,499         1,499      
                   

Total

  $ 133,259   $ 12,851   $ 120,408   $  
                   
                   

        The following table presents the Company's fair value measurements as of December 31, 2012 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall. Amounts in the table are in thousands.

 
   
  Fair Value Measurement at December 31, 2012 Using:  
Description
  Fair Value at
December 31, 2012
  Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
  Significant Other
Observable Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
 

Cash and cash equivalents

                         

Cash and money market

  $ 13,095   $ 13,095   $   $  

Corporate bonds

    250         250      

Available-for-Sale

                         

Marketable securities

                         

U.S. government agency securities

    44,308         44,308      

Certificates of deposit

    5,939         5,939      

Corporate bonds

    43,330         43,330      

Commercial paper

    1,199         1,199      
                   

Total

  $ 108,121   $ 13,095   $ 95,026   $  
                   
                   

The following summarizes contractual underlying maturities of the Company's available-for-sale investments at December 31, 2013 (in thousands):

 
  Cost   Fair Value  

Due in one year or less

  $ 53,843   $ 53,871  

Due after one year through two years

    66,440     66,537  
           

 

  $ 120,283   $ 120,408  
           
           
STOCK-BASED COMPENSATION (Tables)

Non-cash stock-based compensation expense by department for the years ended December 31, 2013, 2012, and 2011 are as follows, and amounts included in the table are in thousands:

 
  December 31,  
 
  2013   2012   2011  

Research and development

  $ 2,817   $ 2,396   $ 1,685  

General and administrative

    3,054     2,579     1,622  

Sales and marketing

    1,873     518     657  

 

 
  December 31,
 
  2013   2012   2011

Option Plan Shares

           

Risk-free interest rates

  0.94% - 1.73%   0.81% - 1.00%   0.88% - 2.3%

Expected term (in years)

  6   6   6

Expected volatility

  82.9% - 84.0%   85% - 92%   92%

Dividend yield

  0%   0%   0%

Weighted average fair value per share of options granted during the period

  $8.12   $6.90   $4.78

ESPP Shares

 

 

 

 

 

 

Risk-free interest rates

  0.10% - 0.33%   0.18% - 0.30%   0.13% - 0.61%

Expected term (in years)

  0.5 - 2   0.5 - 2   0.5 - 2

Expected volatility

  39.1% - 45.6%   34.0% - 54.9%   48% - 63%

Dividend yield

  0%   0%   0%

Weighted average fair value per share of stock purchase rights granted during the period

  $3.13   $2.84   $2.83

 

Options
  Shares   Weighted
Average
Exercise
Price
  Weighted
Average
Remaining
Contractual
Term (Years)
  Aggregate
Intrinsic
Value(1)
 

(Aggregate intrinsic value in thousands)

                         

Outstanding, January 1, 2011

    6,217,139   $ 1.93              

Granted

    814,424     6.26              

Exercised

    (325,477 )   2.11              

Forfeited

    (252,502 )   7.15              
                       

Outstanding, December 31, 2011

    6,453,584   $ 2.27              

Granted

    499,198     9.18              

Exercised

    (691,471 )   3.45              

Forfeited

    (79,375 )   7.60              
                       

Outstanding, December 31, 2012

    6,181,936   $ 2.62     6.6        
                       
                       

Granted

    290,570     11.36              

Exercised

    (274,919 )   5.17              

Forfeited

    (135,000 )   10.08              
                       

Outstanding, December 31, 2013

    6,062,587   $ 2.78     5.9   $ 54,537  
                   
                   

Exercisable, December 31, 2013

    5,209,057