INVITAE CORP, 10-K filed on 3/10/2016
Annual Report
Document and Entity Information (USD $)
12 Months Ended
Dec. 31, 2015
Mar. 2, 2016
Jun. 30, 2015
Document and Entity Information
 
 
 
Entity Registrant Name
Invitae Corp 
 
 
Entity Central Index Key
0001501134 
 
 
Document Type
10-K 
 
 
Document Period End Date
Dec. 31, 2015 
 
 
Amendment Flag
false 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Accelerated Filer 
 
 
Entity Voluntary Filers
No 
 
 
Entity Well-known Seasoned Issuer
No 
 
 
Entity Common Stock, Shares Outstanding
 
31,976,501 
 
Entity Public Float
 
 
$ 180,700,000 
Document Fiscal Year Focus
2015 
 
 
Document Fiscal Period Focus
FY 
 
 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2015
Dec. 31, 2014
Current assets:
 
 
Cash and cash equivalents
$ 73,238 
$ 107,027 
Marketable securities
53,780 
 
Prepaid expenses and other current assets
4,292 
2,616 
Total current assets
131,310 
109,643 
Property and equipment, net
18,709 
15,672 
Restricted cash
4,831 
150 
Other assets
1,826 
3,313 
Total assets
156,676 
128,778 
Current liabilities:
 
 
Accounts payable
3,500 
2,862 
Accrued liabilities
4,253 
3,237 
Capital lease obligation, current portion
1,588 
1,524 
Debt, current portion
1,536 
 
Total current liabilities
10,877 
7,623 
Capital lease obligation, net of current portion
1,576 
2,011 
Debt, net of current portion
5,504 
 
Other long-term liabilities
343 
415 
Total liabilities
18,300 
10,049 
Commitments and contingencies (Note 5)
   
   
Convertible preferred stock, $0.0001 par value; 0 and 141,131,524 shares authorized, 0 and 141,131,524 shares issued and outstanding as of December 31, 2015 and December 31, 2014, respectively
 
202,305 
Stockholders' equity (deficit):
 
 
Preferred stock, $0.0001 par value; 20,000,000 and 0 shares authorized, no shares issued and outstanding as of December 31, 2015 and December 31, 2014
   
   
Common stock, $0.0001 par value; 400,000,000 and 160,131,524 shares authorized, 31,935,121 and 944,581 shares issued and outstanding as of December 31, 2015 and December 31, 2014, respectively
 
Accumulated other comprehensive gain (loss)
(15)
 
Additional paid-in capital
313,349 
1,604 
Accumulated deficit
(174,962)
(85,180)
Total Stockholders' equity (deficit)
138,376 
(83,576)
Total liabilities, convertible preferred stock, and stockholders' equity (deficit)
$ 156,676 
$ 128,778 
Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2015
Dec. 31, 2014
Consolidated Balance Sheets
 
 
Convertible preferred stock, par value (in dollars per share)
$ 0.0001 
$ 0.0001 
Convertible preferred stock, shares authorized
141,131,524 
Convertible preferred stock, shares issued
141,131,524 
Convertible preferred stock, shares outstanding
141,131,524 
Preferred stock, par value (in dollars per share)
$ 0.0001 
$ 0.0001 
Preferred stock, authorized shares
20,000,000 
Preferred stock, issued shares
Preferred stock, outstanding shares
Common stock, par value (in dollars per share)
$ 0.0001 
$ 0.0001 
Common stock, shares authorized
400,000,000 
160,131,524 
Common stock, shares issued
31,935,121 
944,581 
Common stock, shares outstanding
31,935,121 
944,581 
Consolidated Statements of Operations (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Consolidated Statements of Operations
 
 
 
Revenue
$ 8,378 
$ 1,604 
$ 148 
Costs and operating expenses:
 
 
 
Cost of revenue
16,523 
5,624 
667 
Research and development
42,806 
22,063 
16,039 
Selling and marketing
22,479 
8,669 
2,431 
General and administrative
16,047 
12,600 
5,764 
Total costs and operating expenses
97,855 
48,956 
24,901 
Loss from operations
(89,477)
(47,352)
(24,753)
Other income (expense), net
(94)
(79)
(26)
Interest expense
(211)
(61)
(59)
Net loss
(89,782)
(47,492)
(24,838)
Net loss attributable to common stockholders
$ (89,782)
$ (47,492)
$ (24,989)
Net loss per share attributable to common stockholders, basic and diluted
$ (3.18)
$ (56.14)
$ (36.13)
Shares used in computing net loss per share attributable to common stockholders, basic and diluted
28,213,324 
846,027 
691,731 
Consolidated Statements of Comprehensive Loss (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Consolidated Statements of Comprehensive Loss
 
 
 
Net loss
$ (89,782)
$ (47,492)
$ (24,838)
Other comprehensive loss:
 
 
 
Unrealized loss on available-for-sale marketable securities, net of tax
(15)
 
 
Comprehensive loss
$ (89,797)
$ (47,492)
$ (24,838)
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) (USD $)
In Thousands, except Share data, unless otherwise specified
Common stock
Additional paid-in capital
Accumulated Other Comprehensive Income (Loss)
Accumulated deficit
Total
Balance at the beginning of the period at Dec. 31, 2012
 
$ 91 
 
$ (12,850)
$ (12,759)
Balance at the beginning of the period (in shares) at Dec. 31, 2012
661,118 
 
 
 
 
Increase (Decrease) in Stockholders' Deficit
 
 
 
 
 
Common stock issued on exercise of stock options
 
39 
 
 
39 
Common stock issued on exercise of stock options (in shares)
31,666 
 
 
 
 
Vesting of common stock related to early exercise of options
 
18 
 
 
18 
Vesting of common stock related to early exercise of options (in shares)
39,886 
 
 
 
 
Stock-based compensation expense
 
260 
 
 
260 
Net loss
 
 
 
(24,838)
(24,838)
Balance at the end of the period at Dec. 31, 2013
 
408 
 
(37,688)
(37,280)
Balance at the end of the period (in shares) at Dec. 31, 2013
732,670 
 
 
 
 
Increase (Decrease) in Stockholders' Deficit
 
 
 
 
 
Common stock issued on exercise of stock options
 
209 
 
 
209 
Common stock issued on exercise of stock options (in shares)
168,867 
 
 
 
 
Vesting of common stock related to early exercise of options
 
16 
 
 
16 
Vesting of common stock related to early exercise of options (in shares)
43,044 
 
 
 
 
Stock-based compensation expense
 
971 
 
 
971 
Net loss
 
 
 
(47,492)
(47,492)
Balance at the end of the period at Dec. 31, 2014
 
1,604 
 
(85,180)
(83,576)
Balance at the end of the period (in shares) at Dec. 31, 2014
944,581 
 
 
 
944,581 
Increase (Decrease) in Stockholders' Deficit
 
 
 
 
 
Conversion of preferred stock into common stock upon initial public offering costs (in shares)
23,521,889 
 
 
 
 
Conversion of preferred stock into common stock upon initial public offering costs
202,302 
 
 
202,305 
Issuance of common stock in connection with initial public offering, net of offering costs (in shares)
7,302,500 
 
 
 
 
Issuance of common stock in connection with initial public offering, net of offering costs
105,667 
 
 
105,668 
Common stock issued on exercise of stock options
 
288 
 
 
288 
Common stock issued on exercise of stock options (in shares)
148,870 
 
 
 
 
Vesting of common stock related to early exercise of options
 
11 
 
 
11 
Vesting of common stock related to early exercise of options (in shares)
17,281 
 
 
 
 
Stock-based compensation expense
 
3,477 
 
 
3,477 
Unrealized loss on investments
 
 
(15)
 
(15)
Net loss
 
 
 
(89,782)
(89,782)
Balance at the end of the period at Dec. 31, 2015
$ 4 
$ 313,349 
$ (15)
$ (174,962)
$ 138,376 
Balance at the end of the period (in shares) at Dec. 31, 2015
31,935,121 
 
 
 
31,935,121 
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity 2 (Deficit) (USD $)
In Thousands, except Share data, unless otherwise specified
Convertible preferred stock
Series D convertible preferred stock
Series E convertible preferred stock
Series F convertible preferred stock
Total
Balance at the beginning of the period at Dec. 31, 2012
$ 36,755 
 
 
 
 
Balance at the beginning of the period (in shares) at Dec. 31, 2012
46,987,747 
 
 
 
 
Increase (Decrease) in Convertible Preferred Stock
 
 
 
 
 
Issuance of convertible preferred stock, net of issuance costs (in shares)
 
8,000,000 
26,143,777 
 
 
Issuance of convertible preferred stock, net of issuance costs
 
9,933 
39,886 
 
 
Balance at the end of the period at Dec. 31, 2013
86,574 
 
 
 
 
Balance at the end of the period (in shares) at Dec. 31, 2013
81,131,524 
 
 
 
 
Increase (Decrease) in Convertible Preferred Stock
 
 
 
 
 
Issuance of convertible preferred stock, net of issuance costs (in shares)
 
8,000,000 
26,143,777 
60,000,000 
141,131,524 
Issuance of convertible preferred stock, net of issuance costs
 
 
 
115,731 
 
Balance at the end of the period (in shares) at Dec. 31, 2014
141,131,524 
8,000,000 
26,143,777 
60,000,000 
141,131,524 
Balance at the beginning of the period at Dec. 31, 2014
202,305 
 
 
 
202,305 
Increase (Decrease) in Convertible Preferred Stock
 
 
 
 
 
Issuance of convertible preferred stock, net of issuance costs (in shares)
 
 
 
 
Conversion of preferred stock into common stock upon initial public offering costs (in shares)
(141,131,524)
 
 
 
 
Conversion of preferred stock into common stock upon initial public offering costs
$ (202,305)
 
 
 
$ 202,305 
Balance at the end of the period (in shares) at Dec. 31, 2015
 
 
 
 
Consolidated Statements of Convertible Preferred Stock and Stockholders' Equity (Deficit) (Parenthetical) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2013
Series D convertible preferred stock
Dec. 31, 2013
Series E convertible preferred stock
Dec. 31, 2014
Series F convertible preferred stock
Sale price on common stock (in dollars per share)
$ 1.25 
$ 1.53 
$ 2.00 
Issuance costs
$ 67 
$ 114 
$ 4,268 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2013
Cash flows from operating activities
 
 
 
Net loss
$ (89,782)
$ (47,492)
$ (24,838)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Depreciation and amortization
5,321 
2,315 
928 
Stock-based compensation
3,477 
971 
260 
Amortization of premium on marketable securities
632 
 
 
Loss on disposal of assets
23 
37 
 
Changes in operating assets and liabilities
 
 
 
Prepaid expenses and other current assets
(1,676)
(1,880)
(363)
Other assets
36 
(849)
(4)
Accounts payable
508 
2,072 
220 
Accrued expenses and other liabilities
806 
2,386 
767 
Net cash used in operating activities
(80,655)
(42,440)
(23,030)
Cash flows from investing activities
 
 
 
Purchase of marketable securities
(216,994)
 
 
Proceeds from sales and maturities of marketable securities
162,567 
 
 
Purchases of property and equipment
(6,464)
(6,686)
(4,520)
Change in restricted cash
(4,681)
(30)
(60)
Net cash used in investing activities
(65,572)
(6,716)
(4,580)
Cash flows from financing activities
 
 
 
Proceeds from issuance of convertible preferred stock, net of issuance costs
 
115,731 
49,819 
Proceeds from issuance of common stock upon initial public offering, net of issuance costs
107,120 
 
 
Proceeds from exercise of stock options
288 
209 
67 
Proceeds from loan agreement, net of financing costs
7,453 
 
 
Loan payments
(413)
 
 
Capital lease principal payment
(2,010)
(1,376)
(1,007)
Payments for deferred offering costs
 
(1,451)
 
Net cash provided by financing activities
112,438 
113,113 
48,879 
Net increase (decrease) in cash and cash equivalents
(33,789)
63,957 
21,269 
Cash and cash equivalents at beginning of period
107,027 
43,070 
21,801 
Cash and cash equivalents at end of period
73,238 
107,027 
43,070 
Supplemental cash flow information
 
 
 
Interest paid
211 
61 
56 
Supplemental cash flow information of non-cash investing and financing activities:
 
 
 
Equipment acquired through capital leases
1,639 
2,850 
1,793 
Conversion of preferred stock into common stock upon initial public offering costs
202,305 
 
 
Change in purchases of property and equipment in accounts payable and accrued liabilities
603 
325 
49 
Deferred offering costs included in accounts payable and accrued liabilities
 
$ 450 
 
Organization and description of business
Organization and description of business

1. Organization and description of business

        Invitae Corporation (the "Company") was incorporated in the state of Delaware on January 13, 2010, as Locus Development, Inc. and changed its name to Invitae Corporation in 2012. The Company utilizes an integrated portfolio of laboratory processes, software tools and informatics capabilities to process DNA-containing samples, analyze information about patient-specific genetic variation and generate test reports for clinicians and their patients. The Company's laboratory is located in San Francisco, California. The Company's current product is an assay of over 600 genes that can be used for multiple indications. The test includes multiple genes associated with hereditary cancer, neurological disorders, cardiovascular disorders and other hereditary conditions. The Company operates in one segment.

Initial Public Offering

        In February 2015, the Company completed an initial public offering ("IPO") of its common stock. In connection with its IPO, the Company sold 7,302,500 shares of common stock at $16.00 per share for aggregate net proceeds of $105.7 million after underwriting discounts and commissions and offering expenses payable by the Company. This includes the exercise in full by the underwriters of their option to purchase up to 952,500 additional shares of common stock at the same price to cover over-allotments. Upon the closing of the IPO, all shares of convertible preferred stock then outstanding converted into 23,521,889 shares of common stock.

        Upon the effectiveness of the Amended and Restated Certificate of Incorporation of the Company on February 12, 2015, the number of shares of capital stock the Company is authorized to issue was increased to 420,000,000 shares, of which 400,000,000 shares are common stock and 20,000,000 shares are preferred stock. Both the common stock and preferred stock have a par value of $0.0001 per share. There are no shares of preferred stock outstanding at December 31, 2015.

Summary of significant accounting policies
Summary of significant accounting policies

2. Summary of significant accounting policies

Principles of consolidation

        The Company's consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of estimates

        The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. The Company believes judgment is involved in determining revenue recognition; the recoverability of long-lived assets; the fair value of the Company's common stock prior to the IPO; stock-based compensation expense; and income tax uncertainties. The Company bases these estimates on historical and anticipated results, trends, and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. Actual results could differ materially from those estimates and assumptions.

Concentrations of credit risk and other risks and uncertainties

        Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. The Company's cash and cash equivalents are held by financial institutions in the United States and Chile. Such deposits may exceed federally insured limits.

        As of December 31, 2015, substantially all of the Company's revenue has been derived from sales of its assays. Significant customers are those which represent 10% or more of the Company's total revenue for each year presented on the statements of operations and comprehensive loss. For each significant customer, revenue as a percentage of total revenue are as follows:

                                                                                                                                                                                    

 

 

December 31,

 

Customers

 

2015

 

2014

 

2013

 

Customer A

 

 

*

 

 

*

 

 

44 

%

Customer B

 

 

*

 

 

15 

%

 

 

Customer C

 

 

13 

%

 

*

 

 

*

 


 

 

*          

Less than 10% of total revenue

Cash equivalents

        The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash equivalents consist primarily of amounts invested in money market funds and U.S government agency securities.

Marketable securities

        All marketable securities have been classified as "available-for-sale" and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its marketable securities in debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Short-term marketable securities have maturities less than 365 days as of the balance sheet date. Unrealized gains and losses are excluded from earnings and are reported as a component of other comprehensive income (loss). Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in interest and other income (expense), net. The cost of securities sold is based on the specific-identification method. Interest on marketable securities is included in interest and other income (expense), net.

Restricted cash

        Restricted cash consists of money market funds that serve as: collateral for a security deposit for the Company's lease agreement for a laboratory and headquarters entered into in September 2015; collateral for a credit card agreement at one of the Company's financial institutions; and for securing a letter of credit as collateral for the Company's Cambridge Massachusetts facility sublease agreement.

Internal-use software

        The Company capitalizes third-party costs incurred in the application development stage to design and implement internal-use software. Maintenance and training costs relating to internal-use software are expensed as incurred. Capitalized internal-use software costs are recorded as property and equipment and are amortized over estimated useful lives of up to three years on a straight line basis. Amortization of capitalized internal-use software costs is recorded as sales and marketing expense.

        During the years ended December 31, 2015, 2014 and 2013, the Company capitalized $1.5 million, $550,000 and $250,000, respectively, of internal-use software development costs. Internal-use software amortization was $718,000, $152,000, and zero, in 2015, 2014 and 2013, respectively. The carrying value of capitalized internal-use software at December 31, 2015 and 2014 was $1.4 million and $648,000, respectively. The weighted average useful life of capitalized internal-use software at December 31, 2015 was 13 months.

Deferred offering costs

        Deferred offering costs, which primarily consist of direct incremental legal, accounting and other fees relating to the IPO, were initially capitalized. As of December 31, 2014, the Company capitalized $1.9 million of deferred offering costs in other assets on the consolidated balance sheets. The deferred offering costs were subsequently offset against IPO proceeds upon the closing of the IPO in February 2015.

Leases

        The Company rents its facilities under operating lease agreements and recognizes related rent expense on a straight-line basis over the term of the lease. Some of the lease agreements contain rent holidays, scheduled rent increases, lease incentives, and renewal options. Rent holidays and scheduled rent increases are included in the determination of rent expense to be recorded over the lease term. Lease incentives are recognized as a reduction of rent expense on a straight-line basis over the term of the lease. Renewals are not assumed in the determination of the lease term unless they are deemed to be reasonably assured at the inception of the lease. The Company recognizes rent expense beginning on the date it obtains the legal right to use and control the leased space.

Property and equipment

        Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally between three and seven years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the term of the lease. Amortization expense of assets acquired through capital leases is included in depreciation and amortization expense in the consolidated statements of operations and comprehensive loss. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in the statements of operations and comprehensive loss in the period realized.

        The useful lives of the property and equipment are as follows:

                                                                                                                                                                                    

Furniture and fixtures

 

7 years

Automobiles

 

7 years

Laboratory equipment

 

5 years

Computer equipment

 

3 years

Software

 

3 years

Leasehold improvements

 

Shorter of lease term or estimated useful life

Long-lived assets

        The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss is recognized when the total estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, would be assessed using discounted cash flows or other appropriate measures of fair value. The Company has not recorded an impairment of any long-lived assets during any of the periods presented.

Fair value of financial instruments

        The Company's financial instruments consist principally of cash and cash equivalents, marketable securities, accounts payable, capital leases and debt relating to equipment financing. The carrying amounts of certain of these financial instruments, including cash and cash equivalents, and accounts payable, approximate fair value due to their short maturities. Based on borrowing rates available to us, the carrying value of capital leases approximates fair value.

        See Note 4, "Fair value measurements" for further information on the fair value of the Company's financial instruments.

Revenue recognition

        Revenue is generated from the sale of tests that provide analysis and associated interpretation of the sequencing of parts of the genome. Revenue associated with subsequent re-requisition services was de minimis for all periods presented.

        Revenue is recognized when persuasive evidence of an arrangement exists; delivery has occurred or services have been rendered; the fee is fixed or determinable; and collectability is reasonably assured. The criterion for whether the fee is fixed or determinable and whether collectability is reasonably assured are based on management's judgments. When evaluating collectability, in situations where contracted reimbursement coverage does not exist, the Company considers whether the Company has sufficient history to reliably estimate a payer's individual payment patterns. The Company reviews the number of tests paid against the number of tests billed over at least several months of payment history and the payer's outstanding balance for unpaid tests to determine whether payments are being made at a consistently high percentage of tests billed and at appropriate amounts given the amount billed. For most payers, the Company has not been able to demonstrate a predictable pattern of collectability, and therefore recognizes revenue when payment is received. For payers who have demonstrated a consistent pattern of payment of tests billed at appropriate amounts, the Company recognizes revenue, at estimated realizable amounts, upon delivery of test results.

Cost of revenue

        Cost of revenue reflects the aggregate costs incurred in delivering the genetic testing results to clinicians and includes expenses for personnel costs including stock-based compensation, materials and supplies, equipment and infrastructure expenses associated with testing and allocated overhead including rent, equipment depreciation and utilities. Costs associated with performing the Company's test are recorded as the test is processed regardless of whether and when revenue is recognized with respect to that test.

Research and development

        Research and development costs are charged to operations as incurred. Research and development costs include, but are not limited to, payroll and personnel- related expenses, stock-based compensation expense, reagents and laboratory supplies, consulting costs, and allocated overhead including rent, information technology, equipment depreciation and utilities.

Income taxes

        The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Stock-based compensation

        The Company measures its stock-based payment awards made to employees and directors based on the estimated fair values of the awards and recognizes the compensation expense over the requisite service period. The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock-based awards. Stock-based compensation expense is recognized using the straight-line method. Stock-based compensation expense is based on the value of the portion of stock-based payment awards that is ultimately expected to vest. As such, the Company's stock-based compensation is reduced for the estimated forfeitures at the date of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

        The Company accounts for compensation expense related to stock options granted to non-employees based on the fair values estimated using the Black-Scholes model. Stock options granted to non-employees are remeasured at each reporting date until the award is vested.

Foreign currency transactions

        The Company uses the U.S. dollar as its functional currency for its subsidiary in Chile. Foreign currency assets and liabilities are remeasured into U.S. dollars using the end of period exchange rates except for nonmonetary assets and liabilities, which are remeasured using historical exchange rates. Expenses are remeasured using an average exchange rate for the respective period. Gains or losses from foreign currency transactions are included in other income (expense), net, on the consolidated statements of operations. Foreign currency transaction gains and losses have not been significant to the consolidated financial statements for all periods presented.

Comprehensive loss

        Comprehensive loss is composed of two components: net loss and other comprehensive loss. Other comprehensive loss refers to gains and losses that under U.S. GAAP are recorded as an element of stockholders' equity(deficit), but are excluded from net loss. The Company's other comprehensive loss consists of unrealized gains and losses on investments in available-for-sale securities.

Net loss per share attributable to common stockholders

        Basic net loss per share attributable to common stockholders is calculated by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury stock method. Potentially dilutive securities consisting of convertible preferred stock, options to purchase common stock and restricted stock units are considered to be common stock equivalents and were excluded from the calculation of diluted net loss per share attributable to common stockholders because their effect would be antidilutive for all periods presented. Common shares subject to repurchase are excluded from weighted-average shares. For the years ended December 31, 2015, 2014 and 2013; 4,659, 23,903 and 54,407 shares subject to repurchase, respectively, are excluded from the basic loss per share calculation.

Recent accounting pronouncements

        In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases (with the exception of short-term leases) at the commencement date. Lessor accounting under ASU 2016-02 is largely unchanged. ASU 2016-02 is effective for annual and interim periods beginning on or after December 15, 2018 and early adoption is permitted. Under ASU 2016-02, lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Lessees and lessors may not apply a full retrospective transition approach. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected an implementation date nor has it determined the effect of the standard on its ongoing financial reporting.

        In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes to simplify the presentation of deferred income taxes. The amendments in this update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The Company has elected to early adopt ASU 2015-17 as of December 31, 2015. Because the net deferred tax assets have been offset by a valuation allowance and the deferred tax liabilities were not material no deferred tax assets or liabilities were disclosed in prior years in the classified balance sheet and therefore this early adoption has no impact on the Company's consolidated financial statements for the periods presented.

        In April, 2015, the FASB issued ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 simplifies the presentation of debt issuance costs and requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the debt liability instead of as an asset. ASU 2015-03 is effective for annual and interim periods beginning on or after December 15, 2015 and early adoption is permitted. The Company early adopted ASU 2015-03 in the second quarter of 2015 and the adoption of this standard did not have an impact on the Company's consolidated financial statements.

        In May, 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In August, 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). ASU 2015-14 defers the effective date of ASU 2014-09 for public business entities by one year to annual reporting periods beginning after December 15, 2017. Therefore, the new standard will become effective for the Company on January 1, 2018 and early application is permitted for periods beginning on or after January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company has not yet selected an implementation date or a transition method nor has it determined the effect of the standard on its ongoing financial reporting.

        In August 2014, the FASB issued ASU No. 2014-15 (Subtopic 205- 40), Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern ("ASU 2014-15"), which provides guidance about management's responsibility to evaluate whether there is substantial doubt about the Company's ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 will be effective in the fourth quarter of 2016. Early application is permitted. The adoption of this standard is not expected to have an effect on the Company's consolidated financial statements.

Balance sheet components
Balance sheet components

3. Balance sheet components

Cash equivalents and marketable securities

        The following is a summary of cash equivalents and marketable securities (in thousands).

                                                                                                                                                                                    

 

 

December 31, 2015

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair Value

 

Money market funds

 

$

39,998

 

$

 

$

 

$

39,998

 

U.S. treasury notes

 

 

4,006

 

 

 

 

 

 

4,006

 

U.S. government agency securities

 

 

65,586

 

 

1

 

 

(16

)

 

65,571

 

​  

​  

​  

​  

​  

​  

​  

​  

 

 

$

109,590

 

$

1

 

$

(16

)

$

109,575

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Reported as:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

$

50,964

 

Restricted cash

 

 

 

 

 

 

 

 

 

 

 

4,831

 

Marketable securities

 

 

 

 

 

 

 

 

 

 

 

53,780

 

​  

​  

Total cash equivalents, restricted cash and marketable securities

 

 

 

 

 

 

 

 

 

 

$

109,575

 

​  

​  

​  

​  

 

                                                                                                                                                                                    

 

 

December 31, 2014

 

 

 

Amortized
Cost

 

Gross
Unrealized
Gains

 

Gross
Unrealized
Losses

 

Estimated
Fair Value

 

Money market funds

 

$

15,167 

 

$

 

$

 

$

15,167 

 

​  

​  

​  

​  

​  

​  

​  

​  

 

 

$

15,167 

 

$

 

$

 

$

15,167 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

Reported as:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

$

15,017 

 

Restricted cash

 

 

 

 

 

 

 

 

 

 

 

150 

 

​  

​  

Total cash equivalents, and restricted cash

 

 

 

 

 

 

 

 

 

 

$

15,167 

 

​  

​  

​  

​  

        The following table summarizes the available-for-sale securities that were in an unrealized loss position as of December 31, 2015, having been in such a position for less than 12 months, and none having been deemed to be other-than-temporarily impaired (in thousands):

                                                                                                                                                                                    

 

 

Gross
Unrealized
Losses

 

Estimated
Fair Value

 

U.S. government agency securities

 

$

16 

 

$

42,034 

 

        None of the available-for-sale securities held as of December 31, 2015 has been in a continuous unrealized loss position for more than one year. As of December 31, 2015, unrealized losses on available-for-sale investments are not attributed to credit risk and are considered to be temporary. The Company believes that it is more-likely-than-not that investments in an unrealized loss position will be held until maturity or the recovery of the cost basis of the investment. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.

        At December 31, 2015, the remaining contractual maturities of available-for-sale securities were less than one year. For the year ended December 31, 2015, realized gains or losses on available-for-sale securities were de minimis. There were no available-for-sale marketable securities held by the Company at December 31, 2014.

Property and equipment, net

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

                                                                                                                                                                                    

 

 

December 31,

 

 

 

2015

 

2014

 

Leasehold improvements

 

$

2,548

 

$

1,914

 

Laboratory equipment

 

 

10,461

 

 

6,528

 

Equipment under capital lease

 

 

8,224

 

 

3,735

 

Computer equipment

 

 

2,397

 

 

1,156

 

Software

 

 

2,368

 

 

831

 

Furniture and fixtures

 

 

210

 

 

158

 

Automobiles

 

 

20

 

 

 

Construction-in-progress

 

 

1,202

 

 

4,853

 

​  

​  

​  

​  

Total property and equipment, gross

 

 

27,430

 

 

19,175

 

Accumulated depreciation and amortization

 

 

(8,721

)

 

(3,503

)

​  

​  

​  

​  

Total property and equipment, net

 

$

18,709

 

$

15,672

 

​  

​  

​  

​  

​  

​  

​  

​  

        Included in the construction-in-progress balance as of December 31, 2014 was $2.9 million of capital lease equipment that had not been placed in service. Depreciation and amortization expense was $5.3 million, $2.3 million and $0.9 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Accrued liabilities

        Accrued liabilities consisted of the following (in thousands):

                                                                                                                                                                                    

 

 

Year ended
December 31,

 

 

 

2015

 

2014

 

Accrued compensation and related expenses

 

$

2,307 

 

$

1,439 

 

Accrued laboratory materials purchases

 

 

426 

 

 

 

Accrued professional services

 

 

272 

 

 

1,030 

 

Accrued costs for construction-in-progress

 

 

 

 

32 

 

Other

 

 

1,248 

 

 

736 

 

​  

​  

​  

​  

Total accrued liabilities

 

$

4,253 

 

$

3,237 

 

​  

​  

​  

​  

​  

​  

​  

​  

 

Fair value measurements
Fair value measurements

4. Fair value measurements

        Financial assets and liabilities are recorded at fair value. The carrying amounts of certain of the Company's financial instruments, including cash equivalents, and accounts payable, are valued at cost, which approximates fair value due to their short maturities. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The authoritative guidance establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity.

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

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

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

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

        The following tables set forth the fair value of the Company's consolidated financial instruments that were measured at fair value on a recurring basis as of December 31, 2015 and 2014 (in thousands):

                                                                                                                                                                                    

 

 

December 31, 2015

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

39,998 

 

$

 

$

 

$

39,998 

 

U.S. treasury notes

 

 

4,006 

 

 

 

 

 

 

4,006 

 

U.S. government agency securities

 

 

 

 

65,571 

 

 

 

 

65,571 

 

​  

​  

​  

​  

​  

​  

​  

​  

Total financial assets

 

$

44,004 

 

$

65,571 

 

$

 

$

109,575 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

 

                                                                                                                                                                                    

 

 

December 31, 2014

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

15,167 

 

$

 

$

 

$

15,167 

 

​  

​  

​  

​  

​  

​  

​  

​  

Total financial assets

 

$

15,167 

 

$

 

$

 

$

15,167 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        The Company's debt securities of U.S. government agency entities are classified as Level 2 as they are valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third party data providers, including but not limited to, benchmark yields, interest rate curves, reported trades, broker/dealer quotes and reference data.

        There were no transfers between Level 1 and Level 2 during the periods presented.

        The fair value of the Company's outstanding debt is estimated using the net present value of the payments, discounted at an interest rate that is consistent with market interest rates, which is a Level 2 input. The carrying amount and the estimated fair value of the Company's outstanding debt at December 31, 2015, and 2014, are as follows (in thousands):

                                                                                                                                                                                    

 

 

December 31, 2015

 

December 31, 2014

 

 

 

Carrying
Amount

 

Fair
Value

 

Carrying
Amount

 

Fair
Value

 

Debt

 

$

7,040 

 

$

6,952 

 

$

 

$

 

 

Commitments and contingencies
Commitments and contingencies

5. Commitments and contingencies

Operating Leases

        Through December 31, 2014,the Company had entered into various non-cancelable operating lease agreements for office and laboratory facilities located in California with lease periods expiring between 2016 and 2020 and for laboratory space in Santiago, Chile with a lease term expiring in 2017. In March 2015, the Company leased additional space in San Francisco and Oakland, California. The leases expire in April and June 2017, respectively. In April 2015 the Company leased additional space in Cambridge, Massachusetts; this lease expires in January 2018. Some of the lease agreements include scheduled rent increases over the terms of the leases. Rent increases, including the impact of rent holidays and leasehold improvement allowances from landlords, are recognized as deferred rent and are amortized on a straight-line basis over the term of the original lease.

        In September 2015, the Company entered into a lease agreement for a laboratory and headquarters in San Francisco, California. This lease expires in July 2026 and the Company may renew the lease for an additional ten years. The Company has determined the lease term to be a ten-year period expiring in 2026. The lease term commenced when the Company took occupancy of the facility in the first quarter of 2016. In connection with the execution of the lease, the Company provided a security deposit of approximately $4.6 million which is included in restricted cash in the Company's consolidated balance sheets. Minimum annual rent under the lease is subject to increases based on stated rental adjustment terms. In addition, per the terms of the lease, the Company will receive a $5.2 million lease incentive in the form of reimbursement from the landlord for a portion of the costs of leasehold improvements the Company makes to the facility. The assets purchased with the lease incentive will be included in property and equipment, net in the Company's consolidated balance sheets and the lease incentive will be recognized as a reduction of rental expense on a straight-line basis over the term of the lease. At December 31, 2015, none of the incentive had been utilized by the Company. At December 31, 2015, aggregate future minimum lease payments for the new facility are approximately $72.0 million.

        In addition to the security deposit of approximately $4.6 million for the new laboratory and headquarters facility, the Company has provided security deposits of $1.5 million and $1.4 million as of December 31, 2015 and 2014, respectively, as collateral for other leases, which are included in other assets in the Company's balance sheets.

        Future minimum payments under non-cancelable operating leases as of December 31, 2015 are as follows (in thousands):

                                                                                                                                                                                    

Year ending December 31,

 

Amounts

 

2016

 

$

6,224 

 

2017

 

 

7,366 

 

2018

 

 

7,269 

 

2019

 

 

7,463 

 

2020

 

 

7,068 

 

Thereafter

 

 

44,374 

 

​  

​  

Total minimum lease payments

 

$

79,764 

 

​  

​  

​  

​  

        Rent expense was $3.7 million, $1.4 million and $0.8 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Equipment Financing

        In July 2015, the Company entered into a Loan and Security Agreement (the "Loan Agreement") with a bank under which term loans for purchases of equipment up to an aggregate of $15.0 million are available in tranches not to exceed $2.0 million, other than the initial $2.5 million tranche on the date of the Loan Agreement. The Company may request additional tranches to finance the purchase of equipment through December 31, 2016, subject to certain restrictions. The term loans under the Loan Agreement bear interest at a floating rate equal to 0.25% below the prime rate as published in the Wall Street Journal effective on the date the change in the prime rate becomes effective. The Company is required to repay the outstanding principal and accrued but unpaid interest on each tranche in equal monthly installments beginning one month after each advance and ending on July 17, 2020 (the "Term Date"). Any then-unpaid principal and interest on advances under the Loan Agreement are payable on the Term Date. The Company may, at its option, prepay the borrowings by paying the lender a prepayment premium.

        The Company's obligations under the Loan Agreement are subject to covenants, including covenants to maintain a minimum liquidity level with the bank, and additional covenants limiting the Company's ability to dispose of assets, undergo a change in control, merge with or acquire other entities, incur debt, incur liens, pay dividends or other distributions to holders of its capital stock, repurchase stock and make investments, in each case subject to certain exceptions. As of December 31, 2015, the Company was in compliance with all covenants under the Loan Agreement. The Company's obligations under the Loan Agreement are secured by a security interest on substantially all of its assets, excluding its intellectual property and certain other assets.

        At December 31, 2015, obligations under the Loan Agreement were $7.0 million. Debt issuance costs related to the Loan Agreement of $47,000 were recorded as a direct deduction from the debt liability and are amortized to interest expense over the term of the Loan Agreement in accordance with ASU 2015-03. Future payments under the Loan Agreement as of December 31, 2015 are as follows (in thousands):

                                                                                                                                                                                    

Year ending December 31,

 

Amounts

 

2016

 

$

1,741

 

2017

 

 

1,697

 

2018

 

 

1,649

 

2019

 

 

1,600

 

2020

 

 

911

 

Thereafter

 

 

 

​  

​  

Total remaining debt payments

 

 

7,598

 

Less: amount representing debt discount

 

 

(44

)

Less: amount representing interest

 

 

(514

)

​  

​  

Present value of remaining debt payments

 

 

7,040

 

Less: current portion

 

 

(1,536

)

​  

​  

Total noncurrent debt obligation

 

$

5,504

 

​  

​  

​  

​  

Capital leases

        The Company has entered into various capital lease agreements to obtain lab equipment. The terms of the capital leases is typically three years with interest rates ranging from 3.8% to 4.3%. The leases are secured by the underlying equipment. The portion of the future payments designated as principal repayment was classified as a capital lease obligation on the consolidated balance sheets. Future payments under the capital lease as of December 31, 2015 are as follows (in thousands):

                                                                                                                                                                                    

Year ending December 31,

 

Amounts

 

2016

 

$

1,692

 

2017

 

 

1,350

 

2018

 

 

269

 

​  

​  

Total capital lease obligations

 

 

3,311

 

Less: amount representing interest

 

 

(147

)

​  

​  

Present value of net minimum capital lease payments

 

 

3,164

 

Less: current portion

 

 

(1,588

)

​  

​  

Total noncurrent capital lease obligations

 

$

1,576

 

​  

​  

​  

​  

        Interest expense related to capital leases was $141,000, $61,000 and $59,000 for the years ended December 31, 2015, 2014 and 2013, respectively.

        Property and equipment under capital leases was $8.2 million and $6.6 million as of December 31, 2015 and 2014, respectively, including $2.9 million of capital lease equipment that had not been placed in service as of December 31, 2014. Accumulated depreciation and amortization, collectively, on these assets was $2.8 million and $1.4 million as of December 31, 2015 and 2014, respectively.

Guarantees and indemnifications

        As permitted under Delaware law and in accordance with the Company's bylaws, the Company indemnifies its officers and directors for certain events or occurrences while the officer or director is or was serving in such capacity. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds director and officer liability insurance. This insurance allows the transfer of the risk associated with the Company's exposure and may enable it to recover a portion of any future amounts paid. The Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities associated with these indemnification agreements as of December 31, 2015 or 2014.

Contingencies

        On September 16, 2015, GeneDx, Inc. and Bio-Reference Laboratories, Inc. filed an action against the Company in the U.S. District Court for the District of New Jersey. The Complaint alleges that the Company wrongfully solicited and hired employees away from the plaintiffs in order to acquire access to trade secrets and other confidential business information belonging to the plaintiffs. The Complaint alleges claims for relief based on legal theories of unfair competition, tortious interference with prospective economic advantage, tortious interference with contract, and trade secret misappropriation, and seeks injunctive relief; damages, including punitive damages; and attorneys' fees and costs. On October 22, 2015, the Company filed a motion to dismiss the action for lack of personal jurisdiction and, in the alternative, to transfer the action to the U.S. District Court for the Northern District of California. On November 13, 2015, the plaintiffs filed their First Amended Complaint. On December 14, 2015, the Company responded by again filing a motion to dismiss the action for lack of personal jurisdiction and, in the alternative, to transfer the action to the U.S. District Court for the Northern District of California. The parties are negotiating the exchange of information regarding the issue of personal jurisdiction, and have extended the plaintiffs' deadline to respond to the motion pending the outcome of that negotiation. The current due date for the plaintiffs' response is March 21, 2016. The Company believes the action is without merit and intends to defend itself vigorously.

        The Company was not a party to any other material legal proceedings at December 31, 2015, or at the date of this report. The Company may from time to time become involved in various legal proceedings arising in the ordinary course of business, and the resolution of any such claims could be material.

Convertible preferred stock
Convertible preferred stock

6. Convertible preferred stock

        Convertible preferred stock as of December 31, 2014 consisted of the following (in thousands, except share and per share data):

                                                                                                                                                                                    

 

 

Shares
authorized

 

Original
issue price

 

Shares
issued and
outstanding

 

Aggregate
liquidation
amount

 

Proceeds,
net of
issuance
costs

 

Series A

 

 

11,693,179 

 

$

0.44 

 

 

11,693,179 

 

$

5,145 

 

$

5,109 

 

Series B

 

 

4,181,818 

 

 

0.55 

 

 

4,181,818 

 

 

2,300 

 

 

2,253 

 

Series C

 

 

31,112,750 

 

 

0.95 

 

 

31,112,750 

 

 

29,557 

 

 

29,393 

 

Series D

 

 

8,000,000 

 

 

1.25 

 

 

8,000,000 

 

 

10,000 

 

 

9,933 

 

Series E

 

 

26,143,777 

 

 

1.53 

 

 

26,143,777 

 

 

40,000 

 

 

39,886 

 

Series F

 

 

60,000,000 

 

 

2.00 

 

 

60,000,000 

 

 

120,000 

 

 

115,731 

 

​  

​  

​  

​  

​  

​  

​  

​  

Balance at December 31, 2014

 

 

141,131,524 

 

 

 

 

 

141,131,524 

 

$

207,002 

 

$

202,305 

 

​  

​  

​  

​  

​  

​  

​  

​  

        Upon the closing of the IPO in February 2015, the 141,131,524 shares of convertible preferred stock then outstanding converted into 23,521,889 shares of common stock.

Stockholders' equity (deficit)
Stockholders' deficit

7. Stockholders' equity (deficit)

Common stock

        The holders of each share of common stock have one vote for each share of stock. The common stockholders are also entitled to receive dividends whenever funds and assets are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all series of convertible preferred stock outstanding.

        As of December 31, 2015 and 2014, the Company had reserved shares of common stock, on an as-if converted basis, for issuance as follows:

                                                                                                                                                                                    

 

 

As of December 31,

 

 

 

2015

 

2014

 

Conversion of convertible preferred stock

 

 

 

 

23,521,889 

 

Options issued and outstanding

 

 

3,659,713 

 

 

1,923,332 

 

Options available for grant under stock option plan

 

 

2,268,938 

 

 

276,805 

 

Shares reserved for issuance under the 2015 Employee Stock Purchase Plan

 

 

325,000 

 

 

 

​  

​  

​  

​  

Total

 

 

6,253,651 

 

 

25,722,026 

 

​  

​  

​  

​  

​  

​  

​  

​  

 

Stock plans
Stock incentive plan

8. Stock plans

Stock incentive plans

        In 2010, the Company adopted the 2010 Incentive Plan (the "2010 Plan"). The 2010 Plan provides for the granting of stock-based awards to employees, directors, and consultants under terms and provisions established by the Board of Directors. Under the terms of the 2010 Plan, options may be granted at an exercise price not less than fair market value. For employees holding more than 10% of the voting rights of all classes of stock, the exercise prices for incentive and nonstatutory stock options must be at least 110% of fair market of the common stock on the grant date, as determined by the Board of Directors. The terms of options granted under the 2010 Plan may not exceed ten years.

        In January 2015, the Company adopted the 2015 Stock Incentive Plan, (the "2015 Plan"), which became effective upon the closing of the IPO. The 2015 Plan had 4,370,452 shares of common stock reserved for future issuance at the time of its effectiveness, which included 120,452 shares under the 2010 Plan which were transferred to the 2015 Plan upon effectiveness of the 2015 Plan. The 2015 Plan provides for automatic annual increases in shares available for grant, beginning on January 1, 2016 through January 1, 2025. In addition, shares subject to awards under the 2010 Plan that are forfeited or terminated will be added to the 2015 Plan. The 2015 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, stock units, stock appreciation rights and other forms of equity compensation, all of which may be granted to employees, including officers, non-employee directors and consultants. Additionally, the 2015 Plan provides for the grant of cash-based awards.

        Options granted generally vest over a period of four years. Typically, the vesting schedule for options granted to newly hired employees provides that 1/4 of the grant vests upon the first anniversary of the employee's date of hire, with the remainder of the shares vesting monthly thereafter at a rate of 1/48 of the total shares subject to the option. All other options typically vest in equal monthly installments over the four-year vesting schedule.

        Restricted stock units generally vest over a period of three years. Typically, the vesting schedule for restricted stock units provides that one third of the grant vests upon each anniversary of the grant date.

2015 employee stock purchase plan

        In January 2015, the Company adopted the 2015 Employee Stock Purchase Plan (the "ESPP"), which became effective upon the closing of the IPO. A total of 325,000 shares of common stock are reserved for issuance under the ESPP. Eligible employees may purchase common stock at 85% of the lesser of the fair market value of common stock on the purchase date or last trading day preceding the offering date. The ESPP provides for automatic annual increases in shares available for grant, beginning on January 1, 2016 through January 1, 2025. The initial ESPP purchase period commenced in the fourth quarter of 2015.

        Activity under the 2010 Plan and the 2015 Plan is set forth below (in thousands, except share and per share amounts and years):

                                                                                                                                                                                    

 

 

Shares
available
for grant

 

Stock
options
outstanding

 

Weighted-
average
exercise
price

 

Weighted-
average
remaining
contractual
life (years)

 

Aggregate
intrinsic
value

 

Balances at December 31, 2013

 

 

873,233

 

 

1,173,019

 

$

1.40

 

 

9.00

 

$

2,155

 

Additional shares reserved

 

 

333,333

 

 

 

 

 

 

 

 

 

 

 

Repurchase of unvested early exercise shares

 

 

1,959

 

 

 

 

 

 

 

 

 

 

 

Options granted

 

 

(1,164,990

)

 

1,164,990

 

 

6.21

 

 

 

 

 

 

 

Options cancelled

 

 

233,270

 

 

(233,270

)

 

2.07

 

 

 

 

 

 

 

Options exercised

 

 

 

 

(181,407

)

 

1.15

 

 

 

 

 

 

 

​  

​  

​  

​  

​  

​  

Balances at December 31, 2014

 

 

276,805

 

 

1,923,332

 

$

4.37

 

 

8.90

 

$

15,946

 

​  

​  

​  

​  

​  

​  

Additional shares reserved

 

 

4,370,452

 

 

 

 

 

 

 

 

 

 

 

 

Options granted

 

 

(2,103,304

)

 

2,103,304

 

 

9.78

 

 

 

 

 

 

 

Options cancelled

 

 

218,053

 

 

(218,053

)

 

7.73

 

 

 

 

 

 

 

Options exercised

 

 

 

 

(148,870

)

 

1.98

 

 

 

 

 

 

 

Restricted stock units granted

 

 

(493,068

)

 

 

 

 

 

 

 

 

 

 

 

​  

​  

​  

​  

Balances at December 31, 2015

 

 

2,268,938

 

 

3,659,713

 

$

7.38

 

 

8.89

 

$

7,099

 

​  

​  

​  

​  

Options exercisable at December 31, 2015

 

 

 

 

 

833,787

 

$

3.54

 

 

7.57

 

$

4,054

 

Options vested and expected to vest at December 31, 2015

 

 

 

 

 

3,553,680

 

$

7.33

 

 

8.87

 

$

7,017

 

        The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company's common stock for stock options that were in-the-money.

        The weighted-average fair value of options to purchase common stock granted was $6.26, $4.68 and $1.83 per share in the years ended December 31, 2015, 2014 and 2013, respectively. The weighted-average fair value of restricted stock units granted was $10.72 , $0.00, and $0.00 in the years ended December 31, 2015, 2014 and 2013, respectively.

        The fair value of options to purchase common stock vested was $2,128,000, $494,000 and $204,000 in the years ended December 31, 2015, 2014 and 2013, respectively.

        The intrinsic value of options to purchase common stock exercised was $1,285,000, $644,000 and $60,000 in the years ended December 31, 2015, 2014 and 2013, respectively.

        The following table summarizes RSU activity for the year ended December 31, 2015:

                                                                                                                                                                                    

 

 

Number of
Shares

 

Weighted-
Average
Grant Date
Fair Value

 

Balance at December 31, 2014

 

 

 

$

 

RSUs granted

 

 

493,068

 

 

10.72

 

RSUs vested

 

 

 

 

 

RSUs cancelled

 

 

(10,250

)

 

10.94

 

​  

​  

​  

​  

Balance at December 31, 2015

 

 

482,818

 

$

10.71

 

​  

​  

​  

​  

Stock-based compensation

        The Company uses the grant date fair value of its common stock to value both employee and non-employee options when granted. The Company revalues non-employee options each reporting period using the fair market value of the Company's common stock as of the last day of each reporting period.

        In determining the fair value of the stock-based awards, the Company uses the Black-Scholes option-pricing model and assumptions discussed below. Each of these inputs is subjective and its determination generally requires significant judgment.

        Expected term—The expected term represents the period that the Company's stock-based awards are expected to be outstanding and is determined using the simplified method (based on the midpoint between the vesting date and the end of the contractual term).

        Expected volatility—Because the Company was privately held and did not have any trading history for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded biopharmaceutical companies over a period equal to the expected term of the stock option grants. When selecting comparable publicly traded companies in a similar industry on which it has based its expected stock price volatility, the Company selected companies with comparable characteristics to it, including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected life of the stock-based awards. The historical volatility data was computed using the daily closing prices for the selected companies' common stock during the equivalent period of the calculated expected term of the stock-based awards. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

        Risk-free interest rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.

        Dividend yield—The Company has never paid dividends on its common stock and has no plans to pay dividends on its common stock. Therefore, the Company used an expected dividend yield of zero.

        The fair value of share-based payments for option granted to employees and directors was estimated on the date of grant using the Black-Scholes option- pricing valuation model based on the following assumptions:

                                                                                                                                                                                    

 

 

Year ended December 31,

 

 

2015

 

2014

 

2013

Expected term (in years)

 

6.03

 

6.03

 

6.03

Expected volatility

 

68.2 - 79.7%

 

83.8 - 86.6%

 

88.5 - 94.5%

Risk-free interest rate

 

1.28 - 1.86%

 

1.53 - 1.91%

 

0.99 - 1.97%

Dividend yield

 

 

 

        The fair value of the ESPP is estimated using the Black-Scholes option pricing model. For the year ended December 31, 2015, the weighted average grant date fair value per share for the ESPP was $2.17. Stock-based compensation expense for the ESPP was $102,000 for the year ended December 31, 2015.

        For the year ended December 31, 2015, the fair value of ESPP was estimated using the following assumptions:

                                                                                                                                                                                    

 

 

Year ended
December 31,
2015

 

Expected term (in years)

 

 

0.50 

 

Expected volatility

 

 

74.13 

%

Risk-free interest rate

 

 

0.33 

%

Dividend yield

 

 

 

        The ESPP commenced in November 2015. No shares of common stock were purchased pursuant to the ESPP in 2015. Cash received from payroll deductions pursuant to the ESPP in 2015 was $259,000.

        Stock-based compensation related to stock options granted to non-employees is recognized as the stock options are earned. The fair value of the stock options granted is calculated at each reporting date using the Black-Scholes option pricing model based on the following assumptions:

                                                                                                                                                                                    

 

 

Year ended December 31,

 

 

2015

 

2014

 

2013

Expected term (in years)

 

7.25 - 9.82

 

9.37 - 9.40

 

9.25 - 9.60

Expected volatility

 

69.9 - 78.7%

 

83.8%

 

88.5%

Risk-free interest rate

 

1.86 - 2.25%

 

1.99 - 2.41%

 

2.85 - 2.94%

Dividend yield

 

 

 

        The following table summarizes stock-based compensation expense for the years ended December 31, 2015, 2014 and 2013 included in the statements of operations and comprehensive loss as follows (in thousands):

                                                                                                                                                                                    

 

 

Year ended December 31,

 

 

 

2015

 

2014

 

2013

 

Cost of revenue

 

$

368 

 

$

102 

 

$

11 

 

Research and development

 

 

1,545 

 

 

382 

 

 

165 

 

Selling and marketing

 

 

688 

 

 

216 

 

 

42 

 

General and administrative

 

 

876 

 

 

271 

 

 

42 

 

​  

​  

​  

​  

​  

​  

Total stock-based compensation expense

 

$

3,477 

 

$

971 

 

$

260 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        As of December 31, 2015, unrecognized compensation expense related to unvested options, net of estimated forfeitures, was $14.6 million, which the Company expects to recognize on a straight-line basis over a weighted- average period of 3.3 years. Unrecognized compensation expense related to restricted stock units at December 31, 2015 was $4.6 million which the Company expects to recognize on a straight-line basis over a weighted- average period of 2.7 years. There was no capitalized stock-based employee compensation as of December 31, 2015.

Income taxes
Income taxes

9. Income taxes

        The Company did not record a provision or benefit for income taxes during the years ended December 31, 2015, 2014 and 2013. The components of loss before income taxes by U.S. and foreign jurisdictions are as follows (in thousands):

                                                                                                                                                                                    

 

 

Year ended December 31,

 

 

 

2015

 

2014

 

2013

 

United States

 

$

88,112 

 

$

46,328 

 

$

23,522 

 

Foreign

 

 

1,670 

 

 

1,164 

 

 

1,316 

 

​  

​  

​  

​  

​  

​  

Total

 

$

89,782 

 

$

47,492 

 

$

24,838 

 

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

​  

        The following table presents a reconciliation of the tax expense computed at the statutory federal rate and the Company's tax expense for the periods presented:

                                                                                                                                                                                    

 

 

Year ended
December 31,

 

 

 

2015

 

2014

 

2013

 

U.S. federal taxes at statutory rate

 

 

34.0

%

 

34.0

%

 

34.0

%

State taxes (net of federal benefit)

 

 

0.8

 

 

0.7

 

 

0.9

 

Non-deductible expenses

 

 

(0.8

)

 

(0.7

)

 

(0.4

)

Foreign tax differential

 

 

(0.2

)

 

(0.8

)

 

(1.8

)

Change in valuation allowance

 

 

(33.8

)

 

(33.2

)

 

(32.7

)

​  

​  

​  

​  

​  

​  

Total

 

 

0.0

%

 

0.0

%

 

0.0

%

        The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets are as follows (in thousands):

                                                                                                                                                                                    

 

 

As of December 31,

 

 

 

2015

 

2014

 

Deferred tax assets:

 

 

 

 

 

 

 

Net operating loss carryforwards

 

$

53,123

 

$

28,022

 

Tax credits

 

 

13

 

 

13

 

Accruals and other

 

 

7,612

 

 

1,914

 

​  

​  

​  

​  

Gross deferred tax assets

 

 

60,748

 

 

29,949

 

Valuation allowance

 

 

(60,304

)

 

(29,498

)

​  

​  

​  

​  

Net deferred tax assets