Invitae (NVTAQ) 10-Q2020 Q2 Quarterly report

 

Invitae Corporation ("Invitae," “the Company," "we," "us," and "our") was incorporated in the State of Delaware on January 13, 2010, as Locus Development, Inc. and changed its name to Invitae Corporation in 2012. We utilize 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 patients. Our main production facility is located in San Francisco, California. We currently have more than 20,000 genes in production and provide a variety of diagnostic tests that can be used in multiple indications. We offer genetic testing across multiple clinical areas, including hereditary cancer, cardiology, neurology, pediatrics, metabolic conditions and rare diseases. To augment our offering and realize our mission, we acquired multiple assets including 4 businesses in 2017, which expanded our suite of genome management offerings and expanded our offering in reproductive health. In the first quarter of 2019, we introduced our non-invasive prenatal screen ("NIPS"). In June 2019, we launched a direct channel to consumers to increase accessibility to our testing platform. To improve our technology stack and reduce costs associated with variant interpretation, we acquired Singular Bio, Inc. ("Singular Bio") in June 2019, Jungla Inc. ("Jungla") in July 2019, and Oracle BV operating under the name "Diploid" in March 2020. To further expand our ability to scale and improve customer experience with patient support telehealth solutions and the use of chatbots, we acquired Clear Genetics, Inc. ("Clear Genetics") in November 2019. In April 2020, we acquired YouScript Incorporated ("YouScript") and Genelex Solutions, LLC ("Genelex") to expand content and improve customer experience by bringing pharmacogenetic testing and integrated clinical decision support to Invitae. In order to expand content and increase access to personalized oncology, we entered into a definitive agreement to acquire ArcherDX, Inc. ("ArcherDX") in June 2020 which we expect to close in the next few months, with a view towards integrating Invitae's germline testing with ArcherDX's tumor profiling and liquid biopsy technology and services into a single platform to enable precision medicine approaches from diagnostic testing to therapy optimization and monitoring. Invitae operates in 1 segment.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019. The results for the three and six months ended June 30, 2020 are not necessarily indicative of the results expected for the full fiscal year or any other periods.   

Our unaudited condensed consolidated financial statements include our accounts and the accounts of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments, 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. We base these estimates on current facts, historical and anticipated results, trends and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. Actual results could differ materially from those judgments, estimates and assumptions. We evaluate our estimates on an ongoing basis.

Financial instruments that potentially subject us to a concentration of credit risk consist of cash, cash equivalents, marketable securities and accounts receivable. Our cash and cash equivalents are held by financial institutions in the United States. Such deposits may exceed federally insured limits.

Significant customers are those that represent 10% or more of our total revenue presented on the consolidated statements of operations. Our revenue from significant customers as a percentage of our total revenue was as follows:

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the statements of cash flows (in thousands):

Our financial instruments consist principally of cash and cash equivalents, marketable securities, accounts payable, accrued liabilities, finance leases and liabilities associated with business combinations. The carrying amounts of certain of these financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued and other current liabilities approximate their current fair value due to the relatively short-term nature of these accounts. Based on borrowing rates available to us, the carrying value of our finance leases approximate their fair values. Liabilities associated with business combinations are recorded at their estimated fair value.

We have reclassified certain amounts in prior periods to conform with current presentation.

We determined the historical classification of certain acquisition-related obligations as equity and the subsequent measurement of such obligations was inappropriate and instead should have been classified as liabilities and subsequently measured at fair value with changes recognized in other income (expense), net during the three months ended March 31, 2020. We determined that the impact of the error to previously issued financial statements was not material and have corrected the immaterial error in the three months ended March 31, 2020. The impact of this correction was an increase to other long-term liabilities of $10.1 million, a corresponding decrease to additional paid-in capital of $10.4 million and an increase to other income, net of $0.3 million.

We evaluate all Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board ("FASB") for consideration of their applicability. ASUs not included in the disclosures in this report were assessed and determined to be either not applicable or are not expected to have a material impact on our consolidated financial statements.

As part of our adoption of Topic 326, we assess our accounts receivables for expected credit losses at each reporting period by disaggregating by payer type and further by portfolios of customers with similar characteristics, such as customer type and geographic location. We then review each portfolio for expected credit losses based on historical payment trends as well as forward looking data and current economic trends. If a credit loss is determined, we record a reduction to our accounts receivable balance with a corresponding general and administrative expense.

In accordance with Topic 326, we no longer evaluate whether our available-for-sale debt securities in an unrealized loss position are other than temporarily impaired. Instead, we assess whether such unrealized loss positions are credit-related. Our expected loss allowance methodology for these securities is developed by reviewing the extent of the unrealized loss, the issuers’ credit ratings and any changes in those ratings, as well as reviewing current and future economic market conditions and the issuers’ current status and financial condition. The credit-related portion of unrealized losses, and any subsequent improvements, are recorded in interest income through an allowance account. Unrealized gains and losses that are not credit-related are included in accumulated other comprehensive income (loss).

The following table includes our revenues as disaggregated by payer category (in thousands):

We recognize revenue related to billings based on estimates of the amount that will ultimately be realized. Cash collections for certain diagnostic tests delivered may differ from rates originally estimated. As a result of new information, we updated our estimate of the amounts to be recognized for previously delivered tests which resulted in the following increases to revenue and decreases to our loss from operations and basic and diluted net loss per share (in millions, except per share amounts):

Our test volumes decreased significantly in the second half of March 2020 as compared to the first few months of 2020 as a result of COVID-19 and related limitations and priorities across the healthcare system. While it is too early to predict the full impact COVID-19 will have on our business, our test volumes have increased in April, May and June 2020 from the low in March 2020, although we are currently still experiencing reduced test volumes and changes in product mix due to the impact of COVID-19. We expect COVID-19 to have a material impact on our financial results for at least the next quarter and for the foreseeable future. We have reviewed and adjusted for the impact of COVID-19 on our estimates related to revenue recognition and expected credit losses.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law which was a stimulus bill intended to bolster the economy, among other things, and provide assistance to qualifying businesses and individuals. The CARES Act included an infusion of funds into the healthcare system, and in April 2020, we received $3.8 million as a part of this initiative. This payment was recognized as other income (expense), net in our consolidated statement of operations during the three months ended June 30, 2020. At this time, we are not certain of the availability, extent or impact of any future relief provided under the CARES Act.

The majority of our accounts receivable represents amounts billed to institutions (e.g., hospitals, clinics, partners) and estimated amounts to be collected from third-party insurance payers for diagnostic test revenue recognized. Also included are amounts due under the terms of collaboration and genome network agreements for diagnostic testing and data aggregation reporting services provided and proprietary platform access rights transferred.

We record deferred revenue when cash payments are received or due in advance of our performance related to one or more performance obligations. The amounts deferred to date primarily consist of prepayments related to our consumer direct channel as well as consideration received pertaining to the estimated exercise of certain re-requisition rights. In order to comply with loss contract rules, our re-requisition rights revenue deferral is no less than the estimated cost of fulfilling related obligations. We recognize revenue related to re-requisition rights as the rights are exercised or expire unexercised, which is generally within 90 days of initial deferral.

In June 2019, we acquired 100% of the fully diluted equity of Singular Bio, a privately held company developing single molecule detection technology, for approximately $57.3 million, comprised of $53.9 million in the form of 2.5 million shares of our common stock and the remainder in cash.

We granted approximately $90.0 million of restricted stock units ("RSU") under our 2015 Stock Incentive Plan as inducement awards to new employees who joined Invitae in connection with our acquisition of Singular Bio. $45.0 million of the RSUs are time-based and vest in three equal installments in December 2019, June 2020, and December 2020, subject to the employee's continued service with us ("Time-based RSUs") and $45.0 million of the RSUs are performance-based RSUs ("PRSUs") that vest upon the achievement of certain performance conditions. Since the number of awards granted is based on a 30-day volume weighted-average share price with a fixed dollar value, these Time-based RSUs and PRSUs are liability-classified and the fair value is estimated at each reporting period based on the number of shares that are expected to be issued at each reporting date and our closing stock price, which combined are categorized as Level 3 inputs. Therefore, fair value of the RSUs and PRSUs and the number of shares to be issued will not be fixed until the awards vest.

During the three and six months ended June 30, 2020, we recorded research and development stock-based compensation expense of $10.9 million and $18.5 million, respectively, related to the Time-based RSUs, and $18.9 million and $30.1 million, respectively, related to the PRSUs based on our evaluations of the probability of achieving performance conditions. As of June 30, 2020, the Time-based RSUs and PRSUs had a total fair value of $48.6 million and $54.4 million, respectively, based on a total estimated issuance of 4.4 million shares and expectation of the achievement of the performance conditions. During the three and six months ended June 30, 2020, 0.9 million of the Time-based RSUs and 0.6 million of the PRSUs vested with a total fair value of $26.8 million which was recorded in common stock issued or issuable pursuant to business combinations in the consolidated statements of stockholders' equity.

In July 2019, we acquired 100% of the equity interest of Jungla, a privately held company developing a platform for molecular evidence testing in genes, for approximately $59.0 million, comprised of $44.9 million in the form of shares of our common stock and the remainder in cash. We agreed to pay a portion of the cash and issue approximately 0.2 million shares of our common stock after a 12-month period, subject to a hold back to satisfy indemnification obligations that may arise.

We may be required to pay contingent consideration based on achievement of post-closing development milestones. As of the acquisition date, the fair value of this contingent consideration was $10.7 million including cash and common stock. The milestones are expected to be completed within two years. The material factors that may impact the fair value of the contingent consideration, and therefore, this liability, are the probabilities and timing of achieving the related milestones and the discount rate we used to estimate the fair value. Significant changes in any of the probabilities of success would result in a significant change in the fair value, which will be estimated at each reporting date with changes reflected as a general and administrative expense.

As of June 30, 2020, we had a stock payable liability related to our acquisition of Jungla of $6.0 million which represents the hold-back obligation to issue 0.2 million shares subject to indemnification claims that may arise. This liability is adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input, with the change recorded in other income (expense), net. During July 2020, the hold-back shares were remitted in full to the former owners of Jungla.

In November 2019, we acquired 100% of the equity interest of Clear Genetics, a developer of software for providing genetic services at scale, for approximately $50.1 million. Of the cash and stock purchase price consideration issued, $0.2 million of cash and approximately 0.4 million shares of our common stock were subject to a 12-month hold back to satisfy indemnification obligations that may arise, 0.1 million of which were released during the three months ended June 30, 2020.

As of June 30, 2020, we had a stock payable liability related to our acquisition of Clear Genetics of $8.5 million which represents the hold-back obligation to issue 0.3 million shares subject to indemnification claims that may arise. This liability is adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input, with the change recorded in other income (expense), net.

In March 2020, we acquired 100% of the equity interest of Diploid, a developer of artificial intelligence software capable of diagnosing genetic disorders using sequencing data and patient information, for approximately $82.3 million in cash and shares of our common stock. Of the stock purchase price consideration issued, approximately 0.4 million shares are subject to a hold-back to satisfy indemnification obligations that may arise. We included the financial results of Diploid in our consolidated financial statements from the acquisition date, which were not material for the six months ended June 30, 2020.

The following table summarizes the purchase price recorded as a part of the acquisition of Diploid (in thousands):

Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by us. While we believe that our estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different valuations assigned to the individual assets acquired and liabilities assumed, and the resulting amount of goodwill. The following table summarizes the fair values of assets acquired and liabilities assumed through our acquisition of Diploid at the date of acquisition (in thousands):

Our purchase price allocation for the acquisition is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to our deferred tax liability assumed in connection with the acquisition. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.

We measured the identifiable assets and liabilities assumed at their acquisition date fair values separately from goodwill. The intangible asset acquired is developed technology related to Diploid's artificial intelligence technology platform. The fair value of the developed technology was estimated using an income approach with an estimated useful life of nine years. As of the acquisition date, we recorded a stock payable liability of $7.5 million to represent the hold-back obligation to issue 0.4 million shares subject to indemnification claims that may arise. This liability is adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input. As of June 30, 2020, the value of this liability was $12.8 million with the change recorded in other income (expense), net.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisition of Diploid resulted in the recognition of $50.7 million of goodwill which we believe relates primarily to expansion of the acquired technology to apply to new areas of genetic testing. Goodwill created as a result of the acquisition of Diploid is not deductible for tax purposes.

In June 2020, we granted 0.2 million RSUs with a fair value of $3.6 million under our 2015 Stock Incentive Plan as inducement awards in connection with our acquisition of Diploid. These RSUs vest in two equal installments, in April 2021 and April 2022. The value of the awards was recognized as research and development stock-based compensation upon grant in June 2020 as there were no ongoing obligations required by the award recipients.

In April 2020, we acquired 100% of the equity interest of Genelex and YouScript to bring pharmacogenetic testing and integrated clinical decision support to Invitae. We acquired Genelex for approximately $13.2 million, primarily in shares of our common stock. Of the stock purchase price consideration issued, approximately 0.1 million shares are subject to a hold-back to satisfy indemnification obligations that may arise. We acquired YouScript for approximately $52.7 million, including cash consideration of $24.5 million and the remaining in shares of our common stock. Of the purchase price consideration for YouScript, approximately $1.4 million and 0.5 million shares of our common stock are subject to a hold-back to satisfy indemnification obligations that may arise. We included the financial results of Genelex and YouScript in our consolidated financial statements from the acquisition date, which were not material for the six months ended June 30, 2020. We recorded $0.9 million of transaction costs related to the acquisition of Genelex and YouScript as general and administrative expense during the six months ended June 30, 2020.

We may be required to pay contingent consideration in the form of additional shares of our common stock in connection with the acquisition of Genelex if, within a specified period following the closing, we achieve a certain product milestone, in which case we would issue shares of our common stock with a value equal to a portion of the gross revenues actually received by us for a pharmacogenetic product reimbursed through certain payers during an earn out period of up to four years. As of the acquisition date, the fair value of this contingent consideration was $2.0 million in the form of shares of our common stock. The material factors that may impact the fair value of the contingent consideration, and therefore, this liability, are the probabilities and timing of achieving the related milestone, the estimated revenues achieved for a pharmacogenetic product and the discount rate we used to estimate the fair value. Significant changes in any of the probabilities of success would result in a significant change in the fair value, which is estimated at each reporting date with changes reflected as general and administrative expense. As of June 30, 2020, the fair value of the contingent consideration was $2.6 million.

The following table summarizes the purchase prices recorded as a part of the acquisition of Genelex and YouScript (in thousands):

Assets acquired and liabilities assumed are recorded based on valuations derived from estimated fair value assessments and assumptions used by us. While we believe that our estimates and assumptions underlying the valuations are reasonable, different estimates and assumptions could result in different valuations assigned to the individual assets acquired and liabilities assumed, and the resulting amount of goodwill. The following table summarizes the fair values of assets acquired and liabilities assumed through our acquisitions of Genelex and YouScript at the date of acquisition (in thousands):

Our purchase price allocation for the acquisitions is preliminary and subject to revision as additional information about fair value of assets and liabilities becomes available, primarily related to our deferred tax liability assumed. Additional information that existed as of the acquisition date but at the time was unknown to us may become known to us during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.

We measured the identifiable assets and liabilities assumed at their acquisition date fair values separately from goodwill. The intangible assets acquired are the developed technologies related to Genelex's and YouScript's technology platforms. The fair value of the developed technologies were estimated using an income approach with an estimated useful life of eight years. As of the acquisition date, we recorded stock payable liabilities of $6.2 million to represent the hold-back obligation to issue shares subject to indemnification claims that may arise. These liabilities are adjusted at each reporting period based on the fair value of our common stock, which is a Level 3 input. As of June 30, 2020, the value of this liability was $16.0 million with the change recorded in other income (expense), net.

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The acquisitions of Genelex and YouScript resulted in the recognition of $33.8 million of goodwill which we believe relates primarily to future functionality and expansion of the acquired technologies. Of the goodwill recognized, $29.7 million related to the YouScript acquisition is not deductible for tax purposes.

The changes in the carrying amounts of goodwill were as follows (in thousands):

The following table presents details of our intangible assets (in thousands):

The following table summarizes our estimated future amortization expense of intangible assets with finite lives as of June 30, 2020 (in thousands):

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

Accrued liabilities consisted of the following (in thousands):

The three-level hierarchy for the inputs to valuation techniques is 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 our consolidated financial instruments that were measured at fair value on a recurring basis (in thousands):

Stock payable liabilities relate to certain indemnification hold-backs resulting from business combinations that are settled in shares of our common stock. We elected to account for these liabilities using the fair value option due to the inherent nature of the liabilities and the changes in value of the underlying shares that will ultimately be issued to settle the liabilities. The estimated fair value of these liabilities is classified as Level 3 and determined based upon the number of shares that are issuable to the sellers and the quoted closing price of our common stock as of the reporting date. The number of shares that will ultimately be issued is subject to adjustment for indemnified claims that existed as of the closing date for each acquisition. Changes in the number of shares issued and share price can significantly affect the estimated fair value of the liabilities. During the three and six months ended June 30, 2020, the change in fair value related to stock payable liabilities recorded to other income (expense), net was expense of $25.4 million and $21.7 million, respectively.

As of June 30, 2020, we had contingent obligations of $15.4 million of our common stock to the former owners of Jungla in connection with our acquisition of Jungla in July 2019. The amount of the contingent obligation is dependent upon achievement of certain post-close development milestones. We estimated the fair value of the contingent consideration as $10.7 million at the acquisition date in July 2019 using a discounted cash flow technique based on estimated achievement of the post-close milestones and discount rates which were Level 3 inputs not supported by market activity. These inputs can significantly affect the estimated fair value of the

As of June 30, 2020, we had contingent obligations of $2.6 million of our common stock to the former owners of Genelex in connection with our acquisition of Genelex in April 2020. The amount of the contingent obligation is dependent upon achievement of a certain post-close milestone and the gross revenues actually received by us for a pharmacogenetic product reimbursed through certain payers during an earn out period of up to four years. We estimated the fair value of the contingent consideration as $2.0 million at the acquisition date in April 2020 using a discounted cash flow technique based on estimated achievement of the post-close milestone, our estimate of amounts to ultimately be paid, and discount rates which were Level 3 inputs not supported by market activity. These inputs can significantly affect the estimated fair value of the contingent consideration. The value of the liability is subsequently remeasured to fair value at each reporting date with changes recorded as general and administrative expense.

In 2015, we entered into a lease agreement for our headquarters and main production facility in San Francisco, California which commenced in 2016. This lease expires in 2026 and we may renew the lease for an additional ten years. This optional period was not considered reasonably certain to be exercised and therefore we determined the lease term to be a ten-year period expiring in 2026. In connection with the execution of the lease, we provided a security deposit of approximately $4.6 million which is included in restricted cash in our consolidated balance sheets. We also have other operating leases for office and laboratory space in California, Massachusetts, New York and Washington. We expect to enter into new leases and modifying existing leases as we support continued growth of our operations.

As of June 30, 2020, the weighted-average remaining lease term for our operating leases was 5.9 years and the weighted-average discount rate used to determine our operating lease liability was 11.5%. Cash payments included in the measurement of our operating lease liabilities were $2.7 million and $2.5 million for the three months ended June 30, 2020 and 2019, respectively, and $5.4 million and $4.9 million for the six months ended June 30, 2020 and 2019, respectively.

The components of lease costs, which were included in cost of revenue, research and development, selling and marketing and general and administrative expenses on our consolidated statements of operations were as follows (in thousands):

Future minimum payments under non-cancelable operating leases as of June 30, 2020 are as follows (in thousands):

We have entered into various finance lease agreements to obtain laboratory equipment. The terms of our finance leases are generally three years with a weighted-average remaining lease term of 2.0 years as of June 30, 2020 and are typically secured by the underlying equipment. The weighted-average discount rate used to determine our finance lease liability was 5.6%. The portion of the future payments designated as principal repayment was classified as a finance lease obligation on our consolidated balance sheets. Finance lease assets are recorded within other assets on our consolidated balance sheet and were $4.7 million and $5.6 million as of June 30, 2020 and December 31, 2019, respectively. Cash payments included in the measurement of our finance lease liabilities were $0.6 million for each of the three months periods ended June 30, 2020 and 2019, and $1.3 million and $1.1 million for the six months ended June 30, 2020 and 2019, respectively.

Future payments under finance leases at June 30, 2020 are as follows (in thousands):

In November 2018, we entered into a Note Purchase Agreement (the "2018 Note Purchase Agreement") pursuant to which we were eligible to borrow an aggregate principal amount up to $200.0 million over a seven year maturity term which included an initial borrowing of $75.0 million in November 2018. We received net proceeds of $10.3 million after terminating and repaying the balance of our obligations of approximately $64.7 million with our previous lender.

Upon conversion, the Convertible Senior Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election. Our current intent is to settle the principal amount of the Convertible Senior Notes in cash upon conversion, with any remaining conversion value being delivered in shares of our common stock. The initial conversion rate for the Convertible Senior Notes is 33.6293 shares of our common stock per $1,000 principal amount of the Convertible Senior Notes (equivalent to an initial conversion price of approximately $29.74 per share of common stock).

If we undergo a fundamental change (as defined in the indenture governing the Convertible Senior Notes), the holders of the Convertible Senior Notes may require us to repurchase all or any portion of their Convertible Senior Notes for cash at a repurchase price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased plus accrued and unpaid interest to, but excluding, the redemption date.

The Convertible Senior Notes as of June 30, 2020 consisted of the following (in thousands):

In the normal course of business, we enter into various purchase commitments primarily related to service agreements and laboratory supplies. At June 30, 2020, our total future payments under noncancelable unconditional purchase commitments having a remaining term of over one year were $6.0 million.

As permitted under Delaware law and in accordance with our bylaws, we indemnify our directors and officers 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, we maintain director and officer liability insurance. This insurance allows the transfer of the risk associated with our exposure and may enable us to recover a portion of any future amounts paid. We believe the fair value of these indemnification agreements is minimal. Accordingly, we did not record any liabilities associated with these indemnification agreements at June 30, 2020 or December 31, 2019.

We were not a party to any material legal proceedings at June 30, 2020, or at the date of this report. We are and may from time to time become involved in various legal proceedings and claims arising in the ordinary course of business. While we believe any such claims are unsubstantiated, and we believe we are in compliance with applicable laws and regulations applicable to our business, the resolution of any such claims could be material.

In April 2020, we sold, in an underwritten public offering, an aggregate of 20.4 million shares of our common stock at a price of $9.00 per share, for gross proceeds of $184.0 million and net proceeds of $173.0 million after deducting underwriting discounts and commissions and offering expenses.

In 2010, we 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 our Board of Directors. Under the terms of the 2010 Plan, options may be granted at an exercise price not less than the fair market value of our common stock. 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 our common stock on the grant date, as determined by our Board of Directors. The terms of options granted under the 2010 Plan may not exceed ten years.

In January 2015, we adopted the 2015 Stock Incentive Plan (the “2015 Plan”), which became effective upon the closing of our initial public offering (“IPO”). Shares outstanding under the 2010 Plan 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. We amended and restated the 2015 Plan to create a pool of shares to be awarded solely as a material inducement to employees.

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 award vests upon the first anniversary of the employee’s date of hire, with the remainder of the award 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.

RSUs generally vest over a period of three years. Typically, the vesting schedule for RSUs provides that 1/3 of the award vests upon each anniversary of the grant date, with certain awards that include a portion that vests immediately upon grant. In June 2019, we granted Time-based RSUs in connection with the acquisition of Singular Bio which vest in three equal installments over a period of 18 months and PRSUs that vest based on the achievement of performance conditions; see further details in Note 4, "Business combinations."

Under our management incentive compensation plan, in July 2019 we granted PRSUs to our executive officers as well as other specified senior level employees based on the level of achievement of a specified 2019 revenue goal. One-third of the 0.8 million shares that were ultimately awarded under this plan vested during the six months ended June 30, 2020 and the remaining awards will continue to vest over a period of two years. In June 2020, we granted 0.3 million PRSUs under this plan which are based on the level of achievement of a specified 2020 cash burn goal. These PRSUs will vest beginning in 2021 over a period of one year and may range from 0% to 100% of the target amount of shares, depending on eligibility and performance. As of June 30, 2020, these PRSUs had a fair value of $3.6 million based on an estimated issuance of 0.2 million shares and expectation of the performance condition.

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

The weighted-average fair value per share of options to purchase common stock granted was $10.10 and $14.52 in the six months ended June 30, 2020 and 2019, respectively. The total grant-date fair value of options to purchase common stock vested was $1.8 million and $2.5 million in the six months ended June 30, 2020 and 2019, respectively. The intrinsic value of options to purchase common stock exercised was $3.7 million and $4.5 million in the six months ended June 30, 2020 and 2019, respectively.

The following table summarizes RSU activity, which includes the changes in Time-based RSUs and PRSUs granted in connection with our acquisition of Singular Bio (in thousands, except per share data):

In January 2015, we adopted the 2015 Employee Stock Purchase Plan (the “ESPP”), which became effective upon the closing of the IPO. Employees participating in the ESPP 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. At June 30, 2020, cash received from payroll deductions pursuant to the ESPP was $1.0 million. At June 30, 2020, a total of 1.2 million shares of common stock were reserved for issuance under the ESPP.

The following table summarizes stock-based compensation expense included in the consolidated statements of operations (in thousands): 

The following table presents the calculation of basic and diluted net loss per share (in thousands, except per share amounts):

Revenue by country is determined based on the billing address of the customer. The following presents revenue by country (in thousands):

This report contains forward‑looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements in this report other than statements of historical fact, including statements identified by words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions, are forward‑looking statements. Forward‑looking statements include, but are not limited to, statements about:

Forward‑looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expected. These risks and uncertainties include, but are not limited to, those risks discussed in Item 1A of Part II of this report. Although we believe that the expectations and assumptions reflected in the forward‑looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. In addition, neither we nor any other person assumes responsibility for the accuracy

This report contains statistical data and estimates that we obtained from industry publications and reports. These publications typically indicate that they have obtained their information from sources they believe to be reliable, but do not guarantee the accuracy and completeness of their information. Some data contained in this report is also based on our internal estimates. Although we have not independently verified the third‑party data, we believe it to be reasonable.

In this report, all references to “Invitae,” “we,” “us,” “our,” or “the Company” mean Invitae Corporation.

Invitae and the Invitae logo are trademarks of Invitae Corporation. We also refer to trademarks of other companies and organizations in this report.

Our mission is to bring comprehensive genetic information into mainstream medical practice, improving the quality of healthcare for billions of people. Our business model is to aggregate the world’s genetic tests into a single platform, consolidate and grow the genetic testing market, and on that foundation, build a new industry in which a network of customers and partners can work together to continue improving healthcare for every individual in the modernized healthcare system around the world.

Our strategy for long-term growth centers on five key drivers of our business, which we believe work in conjunction to create a flywheel effect extending our leadership position in the new market we are building:

We are certain that focusing on customers as our top priority rather than short-term financial goals is the best way to build and operate an organization for maximum long-term value creation.

We offer high-quality, comprehensive, affordable genetic testing across multiple clinical areas, including hereditary cancer, reproductive health, cardiology, neurology, pediatrics, metabolic conditions and rare diseases. In addition to our own research and development expertise, we have established a track record of building for the near- and long-term with our M&A strategy. We acquired multiple assets including four businesses in 2017, which expanded our suite of genome management offerings and strengthened our offering in reproductive health. In the first quarter of 2019, we expanded our reproductive offering by introducing our non-invasive prenatal screen ("NIPS"). In June 2019, we launched a direct channel to consumers to increase accessibility to our testing platform. To improve our technology stack and reduce costs associated with variant interpretation, we acquired Singular Bio, Inc. ("Singular Bio") in June 2019, Jungla Inc. ("Jungla") in July 2019, and Oracle BV operating under the name "Diploid" in March 2020. To further expand our ability to scale and improve customer experience with patient support telehealth solutions and the use of intuitive chatbots, we acquired Clear Genetics, Inc. ("Clear Genetics") in November 2019. In April 2020, we acquired YouScript Incorporated ("YouScript") and Genelex Solutions, LLC ("Genelex") to expand content and improve customer experience by bringing pharmacogenetic testing and integrated clinical decision support to Invitae. In order to expand content and increase access to personalized oncology, we entered into a definitive agreement to acquire ArcherDX, Inc. ("ArcherDX") in June 2020 which we expect to close in the next few months, with a view towards integrating Invitae's germline testing with ArcherDX's tumor profiling and liquid biopsy technology and services into a single platform to enable precision medicine approaches from diagnostic testing to therapy optimization and monitoring.

We have experienced rapid growth. For the years ended December 31, 2019, 2018 and 2017, our revenue was $216.8 million, $147.7 million, and $68.2 million, respectively, and we incurred net losses of $242.0 million, $129.4 million and $123.4 million, respectively. For the six months ended June 30, 2020 and 2019, our revenue was $110.4 million and $94.0 million, respectively, and we incurred net losses of $264.9 million and $86.4 million, respectively. At June 30, 2020, our accumulated deficit was $1.0 billion. To meet the demands of scaling our business, we increased our number of employees to approximately 1,500 at June 30, 2020 from approximately 1,000 on June 30, 2019. Our sales force grew to approximately 270 at June 30, 2020 from approximately 190 at June 30, 2019.

Sales of our tests have grown significantly. In 2019, 2018 and 2017, we accessioned 482,000, 303,000, and 150,000 samples, respectively, and generated 469,000, 292,000, and 145,000 billable tests, respectively. In the six months ended June 30, 2020, we accessioned 274,000 samples and generated 264,000 billable tests compared to approximately 205,000 accessioned samples and 198,000 billable tests in the same period in 2019. Approximately 40% of the billable tests we performed in the first six months of 2020 were billable to institutions and patients, and the remainder were billable to third-party payers. Many of the gene tests on our assays are tests for which insurers reimburse. However, when we do not have reimbursement policies or contracts with private insurers, our claims for reimbursement may be denied upon submission, and we must appeal the claims. The appeals process is time consuming and expensive, and may not result in payment. Even if we are successful in achieving reimbursement, we may be paid at lower rates than if we were under contract with the third-party payer. When there is not a

We expect to incur operating losses for the near-term and may need to raise additional capital in order to fund our operations. If we are unable to achieve our revenue growth objectives and successfully manage our costs, we may not be able to achieve profitability.

We believe that the keys to our future growth will be to increase billable test volumes, achieve broad reimbursement coverage for our tests from third-party payers, drive down the price for genetic analysis and interpretation, steadily increase the amount of genetic content we offer, consistently improve the client experience, drive physician and patient utilization of our website for ordering and delivery of results and increase the number of strategic partners working with us to add value for our clients.

On June 21, 2020, we, Apollo Merger Sub A Inc., a Delaware corporation and a wholly-owned subsidiary of Invitae ("Merger Sub A"), Apollo Merger Sub B LLC, a Delaware limited liability company and a wholly-owned subsidiary of Invitae ("Merger Sub B"), ArcherDX, and Kyle Lefkoff, solely in his capacity as holders’ representative, entered into an Agreement and Plan of Merger and Plan of Reorganization that provides for the acquisition of ArcherDX by Invitae. Subject to approval of Invitae’s stockholders and the satisfaction or (to the extent permitted by law) waiver of certain other closing conditions, Invitae will acquire ArcherDX through a two-step merger. Merger Sub A will merge with and into ArcherDX, with ArcherDX surviving the merger and becoming a wholly owned subsidiary of Invitae, referred to as the first merger. Promptly following the first merger, ArcherDX will merge with and into Merger Sub B, with Merger Sub B surviving as a wholly owned subsidiary of Invitae, referred to as the second merger. Such first merger and second merger are referred to collectively as the merger or the transaction.

Under the terms of the agreement, we will acquire ArcherDX for upfront consideration consisting of 30.0 million shares of Invitae common stock and $325.0 million in cash, plus up to an additional 27.0 million shares of Invitae common stock payable in connection with the achievement of certain milestones. The transaction is expected to close in several months from the signing of the definitive agreement, subject to customary closing conditions including approval by our stockholders. In connection with the proposed transaction with ArcherDX, we entered into a definitive agreement to sell $275.0 million in common stock in a private placement at a price of $16.85 per share. The private placement is expected to close concurrently with the proposed merger, subject to the satisfaction of customary closing conditions. The proceeds from the private placement are expected to be used to fund a portion of the cash consideration payable in the proposed merger with ArcherDX. In addition, we have entered into a debt commitment letter for up to a $200.0 million senior secured term loan facility, subject to completion of certain customary closing conditions. In connection with the credit facility, we will issue warrants to purchase 1.0 million shares of our common stock with an exercise price of $16.85 per share subject to the funding of the term loan facility. The term loan facility is available (i) to finance, in whole or in part, the proposed merger, (ii) to pay fees, costs and expenses related to the proposed merger, the debt financing and the other transactions related to the proposed merger and (iii) for other general working capital purposes. The closing of the private placement and the funding of the senior secured credit facility are expected to occur concurrently with the closing of the proposed merger.

Our test volumes decreased significantly in the second half of March 2020 as compared to the first few months of 2020 as a result of COVID-19 and related limitations and priorities across the healthcare system. While it is too early to predict the full impact COVID-19 will have on our business, our test volumes have increased in April, May and June 2020 from the low in March 2020, although we are currently still experiencing reduced test volumes and changes in product mix due to the impact of COVID-19. We expect COVID-19 to have a material impact on our financial results for at least the next quarter and for the foreseeable future. We have reviewed and adjusted for the impact of COVID-19 on our estimates related to revenue recognition and expected credit losses. In response to the pandemic we have implemented measures to protect the health of all of our employees during this time with additional measures in place to better protect our on-site lab production and support teams. Our production facilities currently remain fully operational. While we have not experienced significant disruption in our supply chain and we do not yet know the full impact COVID-19 will have on our supply chain, we have increased our inventory on hand to respond to potential future disruptions that may occur.

The growth in our test revenue is tied to the number of tests for which we bill third-party payers, institutions, partners or patients, which we refer to as billable tests. We typically bill for our services following delivery of the billable test report derived from testing samples and interpreting the results. We incur the expenses associated with a test in the period in which the test is processed regardless of when payment is received with respect to that test. We believe the number of billable tests in any period is the most important indicator of the growth in our test revenue, and with time, this will translate into the number of customers we add to our platform.

Our ability to increase the number of billable tests and our revenue will depend in part on our success achieving broad reimbursement coverage and laboratory service contracts for our tests from third-party payers and agreements with institutions and partners. Reimbursement may depend on a number of factors, including a payer’s determination that a test is appropriate, medically necessary and cost-effective, as well as whether we are in contract, where we get paid more consistently and at higher rates. Because each payer makes its own decision as to whether to establish a policy or enter into a contract to reimburse for our testing services and specific tests, seeking these approvals is a time-consuming and costly process. In addition, clinicians and patients may decide not to order our tests if the cost of the test is not covered by insurance. Because we require an ordering physician to requisition a test, our revenue growth also depends on our ability to successfully promote the adoption of our testing services and expand our base of ordering clinicians. We believe that establishing coverage and obtaining contracts from third-party payers is an important factor in gaining adoption by ordering clinicians. Our arrangements for laboratory services with payers cover approximately 295 million lives, comprised of Medicare, all national commercial health plans, and Medicaid in most states, including California (Medi-Cal), our home state.

In cases where we have established reimbursement rates with third-party payers, we face additional challenges in complying with their procedural requirements for reimbursement. These requirements may vary from payer to payer, and it may be time-consuming and require substantial resources to meet these requirements. We may also experience delays in or denials of coverage if we do not adequately comply with these requirements. In addition, we have experienced, and may continue to experience, delays in reimbursement when we transition to being an in-network provider with a payer.

We expect to continue to focus our resources on increasing adoption of, and expanding coverage and reimbursement for, our current tests, tests provided by companies we acquire and any future tests we may develop. However, if we are not able to continue to obtain and maintain adequate reimbursement from third-party payers, institutions and partners for our testing services and expand the base of clinicians and patients ordering our tests, we may not be able to effectively increase the number of billable tests or our revenue.

Reducing the costs associated with performing our genetic tests is both a focus and a strategic objective of ours. Over the long term, we will need to reduce the cost of raw materials by improving the output efficiency of our assays and laboratory processes, modifying our platform-agnostic assays and laboratory processes to use materials and technologies that provide equal or greater quality at lower cost, improve how we manage our

Our focus on reducing the average cost per test will have a countervailing force — increasing the number of tests we offer and the content of each test. We intend to continue to expand our test menus by steadily releasing additional genetic content for the same or lower prices per test, ultimately leading to affordable whole genome services. The breadth and flexibility of our offering will be a critical factor in our ability to address new markets, including internationally, for genetic testing services. Both of these, in conjunction with our continued focus on strategic partnerships, will be important to our ability to continue to grow the volume of billable tests we deliver.

We plan to continue to invest in our genetic testing and information management business. We deploy state-of-the-art and costly technologies in our genetic testing services, and we intend to continue to scale our infrastructure, including our testing capacity and information systems. We also expect to incur software development costs as we seek to further automate our laboratory processes and our genetic interpretation and report sign-out procedures, scale our customer service capabilities to improve our customers' experience, and expand the functionality of our website. We will incur costs related to marketing and branding as we spread our initiatives beyond our current customer base and focus on providing access to customers through our website. We have hired additional personnel as necessary to support anticipated growth, including software engineers, sales and marketing personnel, billing personnel, research and development personnel, medical specialists, biostatisticians and geneticists. We will also incur additional costs related to the expansion of our production facilities in San Francisco and Irvine to accommodate growth and as we expand internationally. In addition, we expect to incur ongoing expenses as a result of operating as a public company. The expenses we incur may vary significantly by quarter as we focus on building out different aspects of our business.

We generally recognize revenue on an accrual basis, which is when a customer obtains control of the promised goods or services, typically a test report. Accrual amounts recognized are based on estimates of the consideration that we expect to receive and such estimates are adjusted and subsequently recorded until fully settled. Changes to such estimates may increase or decrease revenue recognized in future periods. Revenue from our tests may not be equal to billed amounts due to a number of factors, including differences in reimbursement rates, the amounts of patient copayments, the existence of secondary payers and claim denials.

We primarily generate revenue from the sale of our tests, which provide the analysis and associated interpretation of the sequencing of parts of the genome. Clients are billed upon delivery of test results. Our ability to increase our revenue will depend on our ability to increase our market penetration, obtain contracted reimbursement coverage from third-party payers, sign contracts with institutions and partners, and increase the rate at which we are paid for tests performed.

Cost of revenue reflects the aggregate costs incurred in delivering test results to clinicians and patients and includes expenses for materials and supplies, personnel-related costs, equipment and infrastructure expenses associated with testing and allocated overhead including rent, equipment depreciation, amortization of acquired intangibles and utilities. Costs associated with performing our tests are recorded as the patient’s sample is processed. We expect cost of revenue to generally increase in line with the increase in the number of tests we perform, however we expect future increases in amortization of acquired intangible assets which is not dependent on sample volume. We anticipate our cost per test will generally decrease over time due to the efficiencies we

Our operating expenses are classified into three categories: research and development, selling and marketing, and general and administrative. For each category, the largest component is personnel-related costs, which include salaries, employee benefit costs, bonuses, commissions, as applicable, and stock-based compensation expense.

Research and development expenses represent costs incurred to develop our technology and future tests. These costs are principally for process development associated with our efforts to expand the number of genes we can evaluate in our tests and with our efforts to lower the cost of performing our tests. In addition, we incur process development costs to further develop the software we use to operate our laboratory, analyze the data it generates, process customer orders, enable ease of customer ordering, deliver reports and automate our business processes. These costs consist of personnel-related costs, laboratory supplies and equipment expenses, consulting costs and allocated overhead including rent, information technology, equipment depreciation, amortization of intangible assets and utilities.

We expense all research and development costs in the periods in which they are incurred. Our research and development expenses have increased as we continued our efforts to develop additional tests, made investments to reduce testing costs, streamlined our technology to provide patients access to testing, scaled our business domestically and internationally and acquired and integrated new technologies. In the near term, we expect these expenses to moderate as we continue to monitor spending in response to reduced test volume related to COVID-19, although costs could fluctuate significantly from quarter to quarter, specifically related to our stock-based compensation.

Selling and marketing expenses consist of personnel-related costs, including commissions, client service expenses, advertising and marketing expenses, educational and promotional expenses, market research and analysis, and allocated overhead including rent, information technology, equipment depreciation, amortization of acquired intangibles, and utilities. We will continue to moderate our marketing and advertising spending in response to COVID-19.

General and administrative expenses include executive, finance and accounting, billing and collections, legal and human resources functions as well as other administrative costs. These expenses include personnel-related costs; audit, accounting and legal expenses; consulting costs; allocated overhead including rent, information technology, equipment depreciation, and utilities; costs incurred in relation to our co-development agreements; changes in the fair value of contingent consideration; and post-combination expenses incurred in relation to companies we acquire. We will continue to prudently manage our general and administrative expenses in the second half of 2020 in our response to COVID-19.

Other income (expense), net, primarily consists of adjustments to the fair value of our stock payable liabilities arising from business combinations and we expect it to fluctuate significantly from period to period due to the volatility of our common stock. Other income (expense), net also includes income generated from our cash equivalents and marketable securities and amounts received under the CARES Act.

Interest expense is attributable to debt financing, including convertible senior notes issued in September 2019 ("Convertible Senior Notes"), and finance leases. See Note 8, “Commitments and contingencies” in the Notes to Condensed Consolidated Financial Statements included elsewhere in this report.

The income tax benefit is comprised of changes in our deferred income taxes and associated valuation allowances resulting from business combinations.

Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP. The preparation of these financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. We evaluate our estimates on an ongoing basis. Our estimates are based on current facts, our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

The increase in the cost of revenue of $14.9 million for the three months ended June 30, 2020 compared to the same period in 2019 was primarily due to increased costs per sample as well as increased test volume, partially offset by the effect of cost efficiencies. For the three months ended June 30, 2020, the number of samples accessioned increased to 120,000 from 111,000 for the same period in 2019. Cost per sample accessioned was $358 in the three months ended June 30, 2020 compared to $252 for the same period in 2019. The cost per sample accessioned increased primarily due to an increase in amortization of acquired intangible assets of $4.1 million as well as changes in product mix. These increases were partially offset by production improvements which resulted in material efficiencies and automation and software improvements which reduced the medical interpretation time per report.

The increase in research and development expense of $49.7 million for the three months ended June 30, 2020 compared to the same period in 2019 was due to the growth of the business as well as for costs related to our acquisition of Singular Bio, Inc. in June 2019 and Diploid in March 2020. The increase primarily consisted of the following elements as we invest in research and development initiatives as we grow: personnel-related costs increased by $47.7 million, principally reflecting increased headcount as well as $33.4 million of stock-based compensation related to equity awards granted to new employees who joined Invitae in connection with our acquisitions of Singular Bio and Diploid as compared to $2.6 million in the prior year period, an increase in technology costs of $1.3 million, and an increase in professional fees of $1.3 million. These increases were offset by an increase of $2.3 million in allocations of resources from research and development to cost of revenue to support the increase in production volumes as compared to the prior year period.

The increase in selling and marketing expense of $8.7 million for the three months ended June 30, 2020 compared to the same period in 2019 was due primarily to the growth of the business and increased spending on marketing initiatives and principally consisted of the following elements: personnel-related costs increased by $7.8 million primarily reflecting increased headcount and includes an increase in sales commissions of $2.2 million, $1.6 million due to increases in marketing costs principally for branding initiatives and advertising and allocated technology and facilities-related expenses increased by $1.2 million. These increases were offset by decreases in travel-related costs due to COVID-19 of $2.1 million.

The increase in general and administrative expense of $9.6 million for the three months ended June 30, 2020 compared to the same period in 2019 was due primarily to the growth of the business and the effect of our business acquisitions and principally consisted of the following elements: personnel-related costs increased by $5.1 million; a $4.8 million increase in fair value adjustments to our contingent consideration obligations; a $2.7 million increase in legal and accounting services which was primarily due to increased acquisition-related transaction costs incurred in 2020 related to our proposed transaction with ArcherDX; a $0.9 million increase in professional fees; and a $0.8 million increase in information technology expenses for software licenses and related expenses.

These cost increases were partially offset by a decrease in post-combination expense related to our acquisitions of $2.7 million, an increase of $1.7 million in allocations of technology and facilities-related expenses to other functional areas, as well as a $0.6 million decrease in costs related to our co-development agreements.

The increase in other expense, net of $22.8 million for the three months ended June 30, 2020 compared to the same period in 2019 was due principally to fair value adjustments related to our stock payable liabilities of $25.4 million due to the increase in the price of our common stock during the period. The increase was partially offset by increases in interest income generated on our cash equivalents and marketable securities and $3.8 million received under the CARES Act.

The increase in interest expense of $3.4 million for the three months ended June 30, 2020 compared to the same period in 2019 was due to increased debt outstanding compared to the prior year period.

The decrease in income tax benefit of $1.4 million was due to the net deferred tax liabilities assumed in connection with our acquisition of YouScript of $2.6 million recognized during the three months ended June 30, 2020 as compared to $4.0 million assumed in our acquisition of Singular Bio in June 2019.

The increase in total revenue of $16.4 million for the six months ended June 30, 2020 compared to the same period in 2019 was due primarily to increased test volume offset by changes in product mix. Billable test volumes increased to approximately 264,000 in the six months ended June 30, 2020 compared to 198,000 in the same period of 2019, an increase of 33 percent, primarily due to growth in the first quarter of 2020 as compared to the prior year period. While our test volumes increased during the six months ended June 30, 2020 as compared to the prior year period, we began to see a significant decrease in the second half of March 2020 as a result of COVID-19 and our test volumes continued to be impacted through the second quarter. Average revenue per test decreased to $410 per test in the six months ended June 30, 2020 compared to $464 per test in the comparable prior period primarily due to changes in payer and product mix, as well as reductions in pricing for some payers as we focus on providing cost effective genetic testing.

The increase in the cost of revenue of $34.1 million for the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to costs associated with increased test volume and increased cost per

Research and development

The increase in research and development expense of $87.3 million for the six months ended June 30, 2020 compared to the same period in 2019 was due to the growth of the business as well as to costs related to our acquisitions of Singular Bio in June 2019 and Diploid in March 2020. The increase principally consisted of the following elements as we invest in research and development initiatives as we grow: personnel-related costs increased by $82.8 million, primarily reflecting increased headcount as well as $52.2 million of stock-based compensation related to equity awards granted to new employees who joined Invitae in connection with our acquisitions of Singular Bio and Diploid as compared to $2.6 million in the prior year period; technology expense increased by $2.8 million primarily reflecting increased headcount; professional fees increased by $2.5 million, general lab expenses increased by $1.3 million and occupancy expenses increased by $0.9 million.

These cost increases were partially offset by allocations of resources from research and development to cost of revenue, resulting from increased test volumes, and allocations from other functional areas which reduced research and development expense by $3.4 million.

The increase in selling and marketing expense of $26.7 million for the six months ended June 30, 2020 compared to the same period in 2019 was due primarily to the growth of the business and our increased spending on marketing initiatives prior to our cut backs in the second quarter of 2020 as a response to COVID-19. The increase in selling and marketing expenses principally consisted of the following elements: personnel-related costs increased by $18.7 million reflecting increased headcount and included an increase in sales commissions of $5.2 million; a $4.9 million increase in marketing costs principally for branding initiatives and advertising; and allocated technology and facilities-related expenses increased by $2.4 million.

The increase in general and administrative expense of $20.1 million for the six months ended June 30, 2020 compared to the same period in 2019 was due primarily to the growth of the business and the effect of our business acquisitions and principally consisted of the following elements: personnel-related costs increased by $11.9 million principally due to increased headcount; legal and accounting services increased by $6.0 million which was primarily due to increased acquisition-related transaction costs incurred in 2020 related to Diploid, Genelex, YouScript and ArcherDX; a $4.7 million increase in fair value adjustments to our contingent consideration obligations; professional fees increased by $1.4 million; information technology costs increased by $1.2 million due to software licenses and related expenses; and an increase in occupancy costs of $0.8 million

These cost increases were partially offset by an increase of $4.6 million in allocations of technology and facilities-related expenses to other functional areas, a decrease in post-combination expense related to our acquisitions of $2.7 million, as well as a decrease of $0.9 million in costs related to our co-development agreements.

The increase in other expense, net of $18.7 million for the six months ended June 30, 2020 compared to other income, net in the same period in 2019 was due principally to fair value adjustments related to our stock payable liabilities of $21.7 million due to the increase in the price of our common stock during the period partially offset by $3.8 million received under the CARES Act.

The increase in interest expense of $6.7 million for the six months ended June 30, 2020 compared to the same period in 2019 was due principally to increased debt outstanding as compared to the prior year period.

The decrease in income tax benefit of $1.4 million was due to the net deferred tax liabilities assumed in connection with our acquisition of YouScript of $2.6 million as compared to $4.0 million assumed in our acquisition of Singular Bio in June 2019.

We have incurred net losses since our inception. For the six months ended June 30, 2020 and 2019, we had net losses of $264.9 million and $86.4 million, respectively, and we expect to incur additional losses in the near-term future. At June 30, 2020, we had an accumulated deficit of $1.0 billion. While our revenue has increased over time, we may never achieve revenue sufficient to offset our expenses.

In March 2019, we issued, in an underwritten public offering, an aggregate of 10.4 million shares of our common stock at a price of $19.00 per share, for gross proceeds of $196.7 million and net proceeds of $184.5 million. During 2019, we issued 0.8 million shares of common stock at an average price of $25.71 per share in "at the market" offerings for aggregate proceeds of $20.2 million and net proceeds of $19.5 million. In April 2020, we issued, in an underwritten public offering, an aggregate of 20.4 million shares of our common stock at a price of $9.00 per share, for gross proceeds of $184.0 million and net proceeds of approximately $173.0 million after deducting underwriting discounts and commissions and offering expenses. In June 2020, we issued approximately 2.6 million shares of common stock at an average price of $17.59 per share in an "at the market" offering for aggregate proceeds of $46.0 million and net proceeds of $44.5 million.

In September 2019, we issued $350.0 of aggregate principal amount of Convertible Senior Notes which bear cash interest at a rate of 2.0% per year. Also in September 2019, we used the funds received through the issuance of our Convertible Senior Notes to settle our Note Purchase Agreement we entered into in November 2018.

At June 30, 2020 and December 31, 2019, we had $428.5 million and $398.0 million, respectively, of cash, cash equivalents, restricted cash and marketable securities.

Our primary uses of cash are to fund our operations as we continue to grow our business, enter into partnerships and potentially to acquire businesses and technologies. Cash used to fund operating expenses is affected by the timing of when we pay expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

We have incurred substantial losses since our inception, and we expect to continue to incur losses in the near term. We believe our existing cash, cash equivalents and marketable securities as of June 30, 2020 and fees collected from the sale of our tests will be sufficient to meet our anticipated cash requirements for the foreseeable future.

We may need additional funding to finance operations prior to achieving profitability or should we make additional acquisitions. We regularly consider fundraising opportunities and will determine the timing, nature and size of future financings based upon various factors, including market conditions and our operating plans. We may in the future elect to finance operations by selling equity or debt securities or borrowing money. We also may elect to finance future acquisitions. In addition, the COVID-19 pandemic has caused disruption in the capital markets and could make financing more difficult and/or expensive and we may not be able to obtain such financing on terms acceptable to us or at all. If we issue equity securities, dilution to stockholders may result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of our common stock. If we raise funds by issuing additional debt securities, these debt securities would have rights, preferences and privileges senior to those of holders of our common stock. In addition, the terms of additional debt securities or borrowings

The following table summarizes our cash flows (in thousands):

For the six months ended June 30, 2020, cash used in operating activities of $122.8 million principally resulted from our net loss of $264.9 million and a $2.6 million income tax benefit generated from our acquisition of YouScript, partially offset by non-cash charges of $81.1 million for stock-based compensation, remeasurements of liabilities in connection with business combinations of $26.7 million, $14.5 million for depreciation and amortization and $7.3 million for amortization of debt discount and issuance costs related to our Convertible Senior Notes. The net effect on cash of changes in net operating assets was an increase of cash of $15.6 million.

For the six months ended June 30, 2019, cash used in operating activities of $61.1 million principally resulted from our net loss of $86.4 million, partially offset by non-cash charges of $19.5 million for stock-based compensation, $6.7 million for depreciation and amortization, and $4.0 million related to our income tax benefit. The net effect on cash of changes in net operating assets was an increase of cash of $2.1 million.

For the six months ended June 30, 2020, cash used in investing activities of $82.6 million was due to net sales and maturities of marketable securities of $12.9 million partially offset by net cash used to acquire Diploid, Genelex and YouScript of $57.6 million and by cash used for purchases of property and equipment of $10.9 million.

For the six months ended June 30, 2019, cash provided by investing activities of $7.6 million was due to net maturities of marketable securities of $13.2 million and net cash acquired from the purchase of Singular Bio of $3.2 million, partially offset by cash used for purchases of property and equipment of $8.8 million.

For the six months ended June 30, 2020, cash provided by financing activities of $222.3 million consisted of net proceeds from the public offerings of common stock of $217.5 million, cash received from issuances of common stock of $6.8 million, partially offset by finance lease principal payments of $1.2 million.

For the six months ended June 30, 2019, cash provided by financing activities of $188.6 million consisted of net proceeds from the public offering of common stock of $184.5 million and cash received from issuances of common stock totaling $5.1 million, including cash received from employee stock plan purchases of $2.6 million and exercises of stock options of $2.4 million. These cash inflows were partially offset by finance lease payments of $1.0 million.

The following table summarizes our contractual obligations, including interest, as of June 30, 2020 (in thousands):