EXACT SCIENCES CORP, 10-Q filed on 11/4/2011
Quarterly Report
Condensed Balance Sheets (USD $)
In Thousands
Sep. 30, 2011
Dec. 31, 2010
Current Assets:
 
 
Cash and cash equivalents
$ 4,995 
$ 78,752 
Marketable securities
70,436 
16,663 
Prepaid expenses and other current assets
867 
246 
Total current assets
76,298 
95,661 
Property and Equipment, at cost:
 
 
Laboratory equipment
2,189 
943 
Office and computer equipment
528 
188 
Leasehold improvements
99 
89 
Furniture and fixtures
23 
20 
Property and Equipment, gross
2,839 
1,240 
Less-Accumulated depreciation
(648)
(386)
Property and Equipment, net
2,191 
854 
TOTAL ASSETS
78,489 
96,515 
Current Liabilities:
 
 
Accounts payable
977 
1,028 
Accrued expenses
2,266 
1,987 
Deferred license fees, current portion
4,143 
4,143 
Total current liabilities
7,386 
7,158 
Long-term debt
1,000 
1,000 
Long-term accrued interest
36 
21 
Deferred license fees, less current portion
5,475 
8,582 
Commitments and contingencies
 
 
Stockholders' Equity:
 
 
Preferred stock, $0.01 par value Authorized-5,000,000 shares Issued and outstanding-no shares at September 30, 2011 and December 31, 2010
 
 
Common stock, $0.01 par value Authorized-100,000,000 shares Issued and outstanding-52,910,773 and 52,163,629 shares at September 30, 2011 and December 31, 2010
529 
522 
Additional paid-in capital
276,033 
272,380 
Other comprehensive income (loss)
(50)
Accumulated deficit
(211,920)
(193,149)
Total stockholders' equity
64,592 
79,754 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 78,489 
$ 96,515 
Condensed Balance Sheets (Parenthetical) (USD $)
Sep. 30, 2011
Dec. 31, 2010
Condensed 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
52,910,773 
52,163,629 
Common stock, Outstanding shares
52,910,773 
52,163,629 
Condensed Statements of Operations (USD $)
In Thousands, except Per Share data
3 Months Ended
Sep. 30,
9 Months Ended
Sep. 30,
2011
2010
2011
2010
Revenue:
 
 
 
 
Product royalty fees
$ 4 
$ 5 
$ 14 
$ 24 
License fees
1,035 
1,351 
3,107 
3,945 
Total revenue
1,039 
1,356 
3,121 
3,969 
Cost of revenue:
 
 
 
 
Product royalty fees
18 
18 
Gross profit
1,033 
1,350 
3,103 
3,951 
Operating expenses:
 
 
 
 
Research and development
6,110 
2,635 
14,296 
6,553 
General and administrative
1,951 
1,796 
5,931 
4,647 
Sales and marketing
815 
315 
1,763 
754 
Total operating expenses
8,876 
4,746 
21,990 
11,954 
Loss from operations
(7,843)
(3,396)
(18,887)
(8,003)
Interest income
75 
19 
131 
35 
Interest expense
(5)
(5)
(15)
(15)
Net loss
$ (7,773)
$ (3,382)
$ (18,771)
$ (7,983)
Net loss per share-basic and diluted (in dollars per share)
$ (0.15)
$ (0.08)
$ (0.36)
$ (0.21)
Weighted average common shares outstanding-basic (in shares)
52,443 
40,155 
52,129 
38,293 
Weighted average common shares outstanding-diluted (in shares)
52,443 
40,155 
52,129 
38,293 
Condensed Statements of Cash Flows (USD $)
In Thousands
9 Months Ended
Sep. 30,
2011
2010
Cash flows from operating activities:
 
 
Net loss
$ (18,771)
$ (7,983)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
Depreciation of property and equipment
262 
167 
Stock-based compensation
2,855 
1,675 
Amortization of deferred license fees
(3,107)
(3,944)
Warrant licensing expense
80 
80 
Changes in assets and liabilities:
 
 
Prepaid expenses and other current assets
(621)
145 
Accounts payable
(51)
224 
Accrued expenses
448 
370 
Accrued interest
15 
15 
Net cash used in operating activities
(18,890)
(9,251)
Cash flows from investing activities:
 
 
Purchases of marketable securities
(71,202)
(18,740)
Maturities of marketable securities
17,378 
7,098 
Purchases of property and equipment
(1,599)
(502)
Net cash used in investing activities
(55,423)
(12,144)
Cash flows from financing activities:
 
 
Proceeds from Genzyme Collaboration, License and Purchase Agreement
 
1,896 
Proceeds from sale of common stock, net of issuance costs
 
17,597 
Proceeds from exercise of common stock options and stock purchase plan
556 
293 
Decrease in restricted cash
 
500 
Net cash provided by financing activities
556 
20,286 
Net decrease in cash and cash equivalents
(73,757)
(1,109)
Cash and cash equivalents, beginning of period
78,752 
21,924 
Cash and cash equivalents, end of period
4,995 
20,815 
Supplemental disclosure of non-cash investing and financing activities:
 
 
Unrealized loss on available-for-sale investments
(51)
(20)
Issuance of 27,872 and 15,460 shares of common stock to fund the Company's 401(k) matching contribution for 2010 and 2009, respectively
$ 169 
$ 65 
Condensed Statements of Cash Flows (Parenthetical)
9 Months Ended
Sep. 30,
2011
2010
Condensed Statements of Cash Flows
 
 
Issuance of shares of common stock to fund the Company's 401(k) matching contribution (in shares)
27,872 
15,460 
ORGANIZATION AND BASIS OF PRESENTATION
ORGANIZATION AND BASIS OF PRESENTATION

(1) ORGANIZATION AND BASIS OF PRESENTATION

 

Organization

 

Exact Sciences Corporation (“Exact,” “we,” “us” or the “Company”) was incorporated in February 1995. Exact is a molecular diagnostics company 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.

 

Basis of Presentation

 

The accompanying condensed financial statements of the Company are unaudited and have been prepared on a basis substantially consistent with the Company’s audited financial statements and notes as of and for the year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K. These condensed financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the results of operations have been included. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year. The statements should be read in conjunction with the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 Form 10-K”).

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP 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.

 

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 interest income.

 

At September 30, 2011 the Company’s investments were comprised of fixed income investments and all were deemed available-for-sale. At December 31, 2010, the Company’s investments were comprised of fixed income investments and mutual funds 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. Realized losses for the nine months ended September 30, 2011 were $477. Realized losses for the nine months ended September 30, 2010 were $3,792.  There were no realized gains for the nine months ended September 30, 2011 or 2010. Unrealized gains or losses on investments are recorded in other comprehensive income.

 

Available-for-sale securities at September 30, 2011 consist of the following:

 

 

 

September 30, 2011

 

(In thousands)

 

Amortized
Cost

 

Gains in
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated
Fair Value

 

U.S. government agency securities

 

$

29,050

 

$

 

$

(17

)

$

29,033

 

Corporate bonds

 

27,674

 

 

 

(34

)

27,640

 

Certificates of deposit

 

12,363

 

1

 

 

 

12,364

 

Commercial paper

 

1,399

 

 

 

1,399

 

Total available-for-sale securities

 

$

70,486

 

$

1

 

$

(51

)

$

70,436

 

 

Available-for-sale securities at December 31, 2010 consist of the following:

 

 

 

December 31, 2010

 

(In thousands)

 

Amortized
Cost

 

Gains in 
Accumulated
Other
Comprehensive
Income

 

Losses in
Accumulated
Other
Comprehensive
Income

 

Estimated Fair
Value

 

Certificates of deposit

 

$

6,662

 

$

1

 

$

 

$

6,663

 

Mutual funds

 

10,000

 

 

 

10,000

 

Total available-for-sale securities

 

$

16,662

 

$

1

 

$

 

$

16,663

 

 

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:

 

 

 

September 30,

 

(In thousands)

 

2011

 

2010

 

Shares issuable upon exercise of stock options

 

6,678

 

6,241

 

Shares issuable upon exercise of outstanding warrants (1)

 

325

 

825

 

Shares of restricted stock awards outstanding

 

504

 

157

 

 

 

7,507

 

7,223

 

 

(1)       At September 30, 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.  At September 30, 2010, represents warrants to purchase 750,000 shares of common stock issued under a licensing agreement and warrants to purchase 75,000 shares of common stock issued under a consulting agreement.

 

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. On June 27, 2007, the Company entered into an amendment to its exclusive license agreement with LabCorp (the “Second Amendment”) that, among other modifications to the terms of the license, extended the exclusive license period from August 2008 to December 2010, subject to carve-outs for certain named organizations. Accordingly, the Company amortized the remaining deferred revenue balance resulting from its license agreement with LabCorp at the time of the Second Amendment ($4.7 million) on a straight-line basis over the remaining exclusive license period, which ended in December 2010.

 

As more fully described in the 2010 Form 10-K, in connection with our January 2009 strategic transaction with Genzyme Corporation, Genzyme agreed to pay us 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 paid $2.00 per share for the 3,000,000 shares of common stock purchased from the Company on January 27, 2009, 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 $1.0 million and $1.4 million in license fee revenue in connection with the amortization of the up-front payments from LabCorp and Genzyme during the three months ended September 30, 2011 and September 30, 2010, respectively.  The Company recognized approximately $3.1 million and $3.9 million in license fee revenue in connection with the amortization of up-front payments from LabCorp and Genzyme during the nine months ended September 30, 2011 and September 30, 2010, respectively.

 

Comprehensive Loss

 

Comprehensive loss consists of net loss and the change in unrealized gains and losses on marketable securities.  Comprehensive loss for the three and nine months ended September 30, 2011 and 2010 was as follows:

 

 

 

Three Months September 30,

 

Nine Months September 30,

 

(In thousands)

 

2011

 

2010

 

2011

 

2010

 

Net loss

 

$

(7,773

)

$

(3,382

)

$

(18,771

)

$

(7,983

)

Unrealized loss on marketable securities

 

(38

)

(18

)

(51

)

(20

)

Comprehensive loss

 

$

(7,811

)

$

(3,400

)

$

(18,822

)

$

(8,003

)

MAYO LICENSING AGREEMENT
MAYO LICENSING AGREEMENT

(3) MAYO LICENSING 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 licenses 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 agreement. In addition to the license to intellectual property owned by MAYO, the Company will receive product development and research and development efforts from MAYO personnel. The Company determined that the payments made for intellectual property should not be capitalized as the future economic benefit derived from the transactions is uncertain. The Company is also liable to make royalty payments to MAYO on potential future net sales of any products developed from the licensed technology.

 

Warrants

 

The warrants granted to MAYO were valued based on 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. The total value of the warrants was calculated to be $2.1 million and a non-cash charge of $1.7 million was recognized as research and development expense in the second quarter of 2009 and the remaining $0.4 million non-cash charge is being recognized straight-line over the four year vesting period.

 

In March of 2010, MAYO partially exercised its warrant covering 1,000,000 shares by utilizing the cashless exercise provision contained in the warrant.  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 respect to 86,596 shares leaving it with a net amount of 113,404 shares.

 

Following this exercise, the warrant covered 800,000 shares. In September of 2010, 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 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. Following this exercise, the warrant covered 500,000 shares.

 

In June of 2011, 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 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.

 

Following this exercise, the warrant covered 250,000 shares. In September 2011, 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 250,000 shares, in lieu of 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 was fully exercised.

 

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 MAYO agreement include an upfront payment of $80,000, 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, 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 of 2011 and the milestone payment of $250,000 was made in June of 2011.  It is uncertain as to when the FDA will approve the Company’s cancer screening test. Therefore, the $500,000 milestone payment has not been recorded as a liability. The Company periodically evaluates the status of the FDA trial.

 

In addition, the Company is making payments to MAYO for research and development efforts.  During the nine months ended September 2011, the Company made payments of $1.0 million and at September 30, 2011 the Company recorded an estimated liability in the amount of $0.3 million for research and development efforts.  During the nine months ended September 2010, the Company made payments of $0.9 million and at September 30, 2010 the Company recorded an estimated liability in the amount of $0.5 million for research and development efforts. During the three months ended September 30, 2011 and September 30, 2010 the Company made payments of $0.3 million and $0.2 million, respectively.

STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION

(4) STOCK-BASED COMPENSATION

 

Stock-Based Compensation Plans

 

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

 

Stock-Based Compensation Expense

 

The Company recorded $1.2 million and $2.7 million, respectively, in stock-based compensation expense during the three and nine months ended September 30, 2011 in connection with the amortization of restricted common stock awards, stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees, non-employee directors and non-employee consultants.  The Company recorded $0.6 million and $1.6 million, respectively, in stock-based compensation expense during the three and nine months ended September 30, 2010 in connection with the amortization of restricted common stock awards, stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees, non-employee directors and non-employee consultants.

 

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. The fair value of each restricted stock award is determined on the date of grant using the closing stock price on that day. The fair value of restricted stock awards is recognized to expense using the straight-line method over the vesting period.

 

Expected Term - The Company uses the simplified calculation of expected term as the Company does not currently have sufficient historical exercise data on which to base an estimate of expected term.  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 method 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.  Awards granted in the nine months ended September 30, 2011 are all expected to vest and no forfeiture rate was utilized.

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2011

 

2010

 

2011

 

2010

 

 

 

 

 

 

 

 

 

 

 

Option Plan Shares

 

 

 

 

 

 

 

 

 

Risk-free interest rates

 

1.12% - 1.52

%

1.6%-1.70

%

1.12% - 2.3

%

1.60%-2.69

%

Expected term (in years)

 

6

 

6

 

6

 

6

 

Expected volatility

 

91% - 92

%

92

%

91% - 92

%

91% - 92

%

Dividend yield

 

0

%

0

%

0

%

0

%

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

 

$

5.92

 

$

3.02

 

$

4.76

 

$

2.99

 

 

 

 

 

 

 

 

 

 

 

ESPP Shares

 

 

 

 

 

 

 

 

 

Risk-free interest rates

 

(1

)

(1

)

0.22% - 0.61

%

0.17%-0.38

%

Expected term (in years)

 

(1

)

(1

)

0.5 - 2

 

0.5-1

 

Expected volatility

 

(1

)

(1

)

48% - 63

%

53%-127

%

Dividend yield

 

(1

)

(1

)

0

%

0

%

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

 

(1

)

(1

)

$

2.88

 

$

1.07

 

 

(1)          The Company did not issue stock purchase rights under its 2000 Employee Stock Purchase Plan or its 2010 Employee Stock Purchase Plan during the period indicated.

 

Stock Option and Restricted Stock Activity

 

A summary of stock option activity under the Stock Plans during the nine months ended September 30, 2011 is as follows:

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

 

 

Exercise

 

Contractual

 

Intrinsic

 

Options

 

Shares

 

Price

 

Term (Years)

 

Value (1)

 

(Aggregate intrinsic value in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, January 1, 2011

 

6,217,199

 

$

1.93

 

7.9

 

 

 

Granted

 

797,424

 

$

6.22

 

 

 

 

 

Exercised

 

(265,443

)

$

2.09

 

 

 

 

 

Forfeited

 

(71,252

)

$

11.57

 

 

 

 

 

Outstanding, September 30, 2011

 

6,677,928

 

$

2.34

 

7.5

 

$

29,619

 

 

 

 

 

 

 

 

 

 

 

Exercisable, September 30, 2011

 

3,589,164

 

$

1.88

 

7.0

 

$

17,713

 

 

 

 

 

 

 

 

 

 

 

Vested and expected to vest, September 30, 2011

 

6,677,928

 

$

2.34

 

7.5

 

$

29,619

 

 

(1)The aggregate intrinsic value of options outstanding, exercisable and vested and expected to vest is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for options that had exercise prices that were lower than the $6.63 market price of the Company’s common stock at September 30, 2011.

 

As of September 30, 2011, there was $8.5 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all Stock 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 2.65 years.

 

A summary of restricted stock activity under the Stock Plans during the nine months ended September 30, 2011 is as follows:

 

 

 

 

 

Weighted

 

 

 

Restricted

 

Average Grant

 

 

 

Shares

 

Date Fair Value

 

Outstanding, January 1, 2011

 

263,630

 

$

6.20

 

Granted

 

335,716

 

$

6.06

 

Released

 

(92,508

)

$

5.15

 

Forfeited

 

(2,500

)

$

5.61

 

Outstanding, September 30, 2011

 

504,338

 

$

6.31

 

 

During the first quarter of 2011, the Company granted a total of 213,300 restricted stock units to certain executives that will vest based upon the satisfaction of certain service and performance conditions. The performance condition is based on the Company meeting certain performance targets in 2011. The Company performed an evaluation of internal and external factors, and determined that it is probable that the performance condition will be met and these shares will vest in full. Therefore, the Company is recording expense for the fair value of these awards ratably over the vesting period.

FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS

(5) 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.  This guidance was adopted in 2009 for non-financial assets and liabilities.  Under the standard, fair value measurements are separately disclosed by level within the fair value hierarchy.  The fair value hierarchy established 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 September 30, 2011 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 September 30, 2011 Using:

 

 

 

 

 

Quoted Prices in Active

 

Significant Other

 

Significant Unobservable

 

 

 

Fair Value at

 

Markets for Identical Assets

 

Observable Inputs

 

Inputs

 

Description

 

September 30, 2011

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Available-for-Sale

 

 

 

 

 

 

 

 

 

Marketable securities

 

 

 

 

 

 

 

 

 

U.S. governement agency securities

 

$

29,033

 

$

 

$

29,033

 

$

 

Certificates of deposit

 

12,364

 

 

12,364

 

 

Corporate bonds

 

27,640

 

 

27,640

 

 

Commercial paper

 

1,399

 

 

1,399

 

 

Total

 

$

70,436

 

$

 

$

70,436

 

$

 

 

The following table presents the Company’s fair value measurements as of December 31, 2010 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, 2010 Using:

 

 

 

 

 

Quoted Prices in Active

 

Significant Other

 

Significant Unobservable

 

 

 

Fair Value at

 

Markets for Identical Assets

 

Observable Inputs

 

Inputs

 

Description

 

December 31, 2010

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

 

 

Available-for-Sale

 

 

 

 

 

 

 

 

 

Marketable securities

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

6,663

 

 

6,663

 

 

Mutual Funds

 

10,000

 

10,000

 

 

 

Total

 

$

16,663

 

$

10,000

 

$

6,663

 

$

 

INCOME TAXES
INCOME TAXES

(6) 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.

 

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 full valuation allowance at September 30, 2011 is necessary to reduce the tax assets to the amount that is more likely than not to be realized. 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 Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.  At September 30, 2011 the Company had no unrecognized tax benefits, 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 September 30, 2011.

RECENT ACCOUNTING PRONOUNCEMENTS
RECENT ACCOUNTING PRONOUNCEMENTS

(7) RECENT ACCOUNTING PRONOUNCEMENTS

 

Presentation of Comprehensive Income

 

In June 2011, the FASB issued an accounting standard update which requires the presentation of components of other comprehensive income with the components of net income in either (1) a continuous statement of comprehensive income that contains two sections, net income and other comprehensive income, or (2) two separate but consecutive statements. This accounting standard update eliminates the option to present components of other comprehensive income as part of the statement of stockholders’ equity, and is effective for interim and annual periods beginning after December 15, 2011, and shall be applied retrospectively. Other than a change in presentation, the implementation of this accounting pronouncement is not expected to have a material impact on our financial statements.

 

Amendments to Fair Value Measurements

 

In May 2011, the FASB issued an accounting standard update that amends the accounting standard on fair value measurements. The accounting standard update provides for a consistent definition and measurement of fair value, as well as similar disclosure requirements between GAAP and International Financial Reporting Standards (IFRS). The accounting standard update changes fair value measurement principles, clarifies the application of existing fair value measurement, and expands the fair value disclosure requirements, particularly for Level 3 fair value measurements. The amendments in this accounting standard update are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2011. We do not expect the adoption of this accounting standard update will have a material effect on our financial statements, but it may require certain additional disclosures.

Document and Entity Information
9 Months Ended
Sep. 30, 2011
Nov. 4, 2011
Document and Entity Information
 
 
Entity Registrant Name
EXACT SCIENCES CORP 
 
Entity Central Index Key
0001124140 
 
Document Type
10-Q 
 
Document Period End Date
Sep. 30, 2011 
 
Amendment Flag
FALSE 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
52,929,772 
Document Fiscal Year Focus
2011 
 
Document Fiscal Period Focus
Q3