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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 we changed our name to Invitae Corporation in 2012. We offer high-quality, comprehensive, affordable genetic testing across multiple clinical areas, including hereditary cancer, precision oncology, women's health, rare diseases and pharmacogenomics. To augment our offering and realize our mission, we have previously acquired multiple assets and businesses that further expanded our test menu and suite of genome management offerings and accelerated our entry into key genomics markets. Invitae operates in one segment.

Strategic realignment

On July 18, 2022, the Company initiated a strategic realignment of our operations and began implementing cost reduction programs to prioritize its core genetic testing and genome management platforms, which was approved by the board of directors of the Company on July 16, 2022. The Company is in the process of implementing initiatives to streamline its product portfolio to focus on its core testing business and programs that drive near-term reductions in cost of revenue to accelerate the Company’s path to positive operating cash flow while completing its genome management platform. See Note 11, "Restructuring" for additional information regarding our strategic realignment.

Basis of presentation

Principles of consolidation

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.

Use of estimates

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.

Prior period reclassifications

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

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Concentrations of credit risk and other risks and uncertainties

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

Cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets are reconciled to the amounts reported in the condensed consolidated statements of cash flows as follows (in thousands):

			September 30, 2022						September 30, 2021
Cash and cash equivalents			$	217,029					$	921,634
Restricted cash			10,027						10,275
Total cash, cash equivalents and restricted cash			$	227,056					$	931,909

Restricted cash serves as the security deposits for the Company's leases.

Fair value of financial instruments

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 approximates their fair values. Liabilities associated with business combinations are recorded at their estimated fair value.

Restructuring resulting from strategic realignment

As a result of implementing our strategic realignment, we incurred restructuring charges comprised of employee separation costs, losses on asset disposals, and other costs. Employee separation costs are comprised of severance, other termination benefit costs, and stock-based compensation expense for the acceleration of stock awards related to workforce reductions. We recognize costs and liabilities associated with exit and disposal activities in accordance with Accounting Standards Codification ("ASC") 420, Exit and Disposal Cost Obligations, and other costs and liabilities associated with postemployment nonretirement benefits in accordance with ASC 712, Postemployment Nonretirement Benefits. Liabilities are based on the estimate of fair value in the period the liabilities are incurred, with subsequent changes to the liability recognized as adjustments in the period of change. We recognize losses on asset disposals in accordance with ASC 360, Impairment or Disposal of Long-Lived Assets. Restructuring charges are recognized as an operating expense within the condensed consolidated statements of operations and related liabilities are recorded within accrued liabilities in the condensed consolidated balance sheets.

Recent accounting pronouncements

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 in our condensed consolidated financial statements.

Recently issued accounting pronouncements not yet adopted

In October 2021, the FASB issued ASU 2021-08, Business Combinations ("Topic 805"): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments of this ASU require entities to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606, Revenue from Contracts with Customers. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and should be applied prospectively to all business combinations occurring after the date of adoption. Early adoption is permitted.

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We are currently evaluating the impact this guidance will have in our condensed consolidated financial statements and the timing of adoption.

Recently adopted accounting pronouncements

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity, which simplifies the accounting for certain convertible instruments, amends the guidance on derivative scope exceptions for contracts in an entity's own equity, and modifies the guidance on diluted earnings per share calculations as a result of these changes. This new standard is effective for our interim and annual periods beginning January 1, 2022, with early adoption permitted. We elected to adopt the amendments on a modified retrospective basis effective January 1, 2021, which required a cumulative-effect adjustment to retained earnings. The cumulative-effect adjustment resulted in a decrease in accumulated deficit of $17.0 million related to the reversal of the equity component and associated issuance costs as well as adjustment of the related amortization costs of our convertible senior notes due 2024. Reporting periods beginning on or after January 1, 2021 are presented under this new guidance while prior periods have not been adjusted and continue to be reported in accordance with our historic accounting under U.S. GAAP. See Note 8, "Commitments and contingencies" for additional information about our convertible senior notes.

Our revenue as disaggregated by payer category and revenue subtype is as follows (in thousands):

						Three Months Ended September 30, 2022
						Patient												Biopharma partner						Other business-to-business						Total
						Insurance						Direct
Test revenue:
Centralized						$	80,484					$	8,759					$	15,455					$	12,431					$	117,129
Decentralized						—						—						2,070						9,640						11,710
Total test revenue						80,484						8,759						17,525						22,071						128,839
Other revenue						—						—						3,202						1,495						4,697
Total revenue						$	80,484					$	8,759					$	20,727					$	23,566					$	133,536

						Three Months Ended September 30, 2021
						Patient												Biopharma partner						Other business-to-business						Total
						Insurance						Direct
Test revenue:
Centralized						$	69,009					$	10,999					$	10,390					$	12,591					$	102,989
Decentralized						—						—						374						8,313						8,687
Total test revenue						69,009						10,999						10,764						20,904						111,676
Other revenue						—						—						1,774						945						2,719
Total revenue						$	69,009					$	10,999					$	12,538					$	21,849					$	114,395

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						Nine Months Ended September 30, 2022
						Patient												Biopharma partner						Other business-to-business						Total
						Insurance						Direct
Test revenue:
Centralized						$	233,354					$	31,336					$	45,465					$	38,737					$	348,892
Decentralized						—						—						4,806						27,820						32,626
Total test revenue						233,354						31,336						50,271						66,557						381,518
Other revenue						—						—						8,395						3,936						12,331
Total revenue						$	233,354					$	31,336					$	58,666					$	70,493					$	393,849

						Nine Months Ended September 30, 2021
						Patient												Biopharma partner						Other business-to-business						Total
						Insurance						Direct
Test revenue:
Centralized						$	201,154					$	30,471					$	29,650					$	34,939					$	296,214
Decentralized						—						—						1,011						25,223						26,234
Total test revenue						201,154						30,471						30,661						60,162						322,448
Other revenue						—						—						8,394						3,486						11,880
Total revenue						$	201,154					$	30,471					$	39,055					$	63,648					$	334,328

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

						Three Months Ended September 30,												Nine Months Ended September 30,
						2022						2021						2022						2021
Revenue						$	1.1					$	4.0					$	3.5					$	12.0
Loss from operations						$	(1.1)					$	(4.0)					$	(3.5)					$	(12.0)
Net loss per share, basic and diluted						$	0.00					$	(0.02)					$	(0.02)					$	(0.06)

Impact of COVID-19

We expect the COVID-19 pandemic may continue to impact our business. We have reviewed and adjusted, when necessary, for the impact of COVID-19 on our estimates related to revenue recognition and expected credit losses.

Accounts receivable

The majority of our accounts receivable represents amounts billed to biopharmaceutical partners and other business-to-business customers for test and other revenue recognized, and estimated amounts to be collected from third-party insurance payers for genetic testing 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 also record unbilled revenue for revenue recognized but yet to be billed for services provided to biopharmaceutical companies related to companion diagnostic development. This contract receivable was $5.1 million and $4.3 million as of September 30, 2022 and December 31, 2021, respectively, and was included in prepaid expenses and other current assets in the condensed consolidated balance sheets.

Deferred revenue

We record a contract liability when cash payments are received or due in advance of our performance related to one or more performance obligations. The deferred revenue balance primarily consists of advanced billings for biopharmaceutical development services, including billings at the initiation of performance-based milestones, and recognized as revenue in the applicable future period when the revenue is earned. Also included

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are prepayments related to our consumer direct channel. During the three and nine months ended September 30, 2022, we recognized revenue of $3.3 million and $4.5 million, respectively, from deferred revenue recorded in prior periods. The current contract liability was $5.7 million and $9.4 million as of September 30, 2022 and December 31, 2021, respectively, and was included in accrued liabilities in the condensed consolidated balance sheets. The long-term contract liability was $0.1 million and $0.7 million as of September 30, 2022 and December 31, 2021, respectively, and was included in other long-term liabilities in the condensed consolidated balance sheets.

Performance obligations

ArcherDX

In October 2020, we acquired ArcherDX, Inc. ("ArcherDX"), a genomics analysis company democratizing precision oncology. Under the terms of the agreement, we acquired ArcherDX for upfront consideration consisting of 30.0 million shares of our common stock and $325.0 million in cash, plus up to an additional 27.0 million shares of our common stock payable in connection with the achievement of certain milestones. During the three months ended March 31, 2021, Invitae and the sellers of ArcherDX reached an agreement to reduce the purchase price by $1.2 million based on the final acquired net working capital. This adjustment was recorded during the three months ended March 31, 2021 and reduced the contingent consideration liability and goodwill by approximately $1.2 million.

We were required to pay contingent consideration based on achievement of post-closing development and revenue milestones. The material factors that may impact the fair value of the contingent consideration, and therefore the liability, are (i) the estimated number of shares to be issued, (ii) the volatility of our common stock, (iii) the probabilities of achievement of milestones within the timeframes prescribed in the acquisition agreement and (iv) discount rates, all of which are Level 3 inputs not supported by market activity with the exception of the volatility of our common stock. Significant changes in any of these inputs may result in a significant change in fair value, which is estimated at each reporting date. Of the five milestones, one milestone was achieved in November 2020, which resulted in the issuance of 5.0 million shares of our common stock and a cash payment of $1.9 million, and three milestones were achieved or deemed to be achieved during the three months ended June 30, 2021, which resulted in the issuance of 13.8 million shares of our common stock and a cash payment of $3.3 million in July 2021. The remaining milestone is based upon receiving U.S. Food and Drug Administration ("FDA") clearance or approval of a therapy selection in vitro diagnostic ("IVD") product, which per the terms of the acquisition agreement, must be completed by March 31, 2022, subject to certain extensions (the "ArcherDX Final Milestone"). With respect to the ArcherDX Final Milestone, the liability was reduced to nil as of June 30, 2021 from $262.5 million as of March 31, 2021 and $287.7 million as of December 31, 2020, with the offsetting change recorded as changes in fair value of contingent consideration in our condensed consolidated statements of operations. The removal of the liability balance and the associated change in fair value of contingent consideration was a result of our reassessment of the steps necessary to achieve clearance or approval based on FDA feedback received principally in the three months ended June 30, 2021. In April 2022, an agreement was entered into with the previous ArcherDX stockholders to extend the date for achievement of the ArcherDX Final Milestone to March 31, 2023. We currently do not believe that this milestone will be achieved within this timeframe. As such, no liability was recorded as of September 30, 2022.

In connection with the acquisition, we granted awards of common stock to new employees who joined Invitae in connection with our acquisition of ArcherDX that vested upon the achievement of the contingent consideration milestones discussed above and were subject to the employees' continued service with us, unless terminated without cause in which case vesting was only dependent on milestone achievement. As the number of shares that were expected to be issued are fixed, the awards are equity-classified. During the nine months ended September 30, 2022, we recorded stock-based compensation expense of nil related to the ArcherDX milestones. During the nine months ended September 30, 2021, we recorded a net $41.8 million in stock-based compensation expense related to the ArcherDX milestones, which includes $38.5 million related to milestones achieved in prior

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periods, $33.0 million due to an accounting modification of certain awards whereby the employee's continued substantive services were no longer required, offset by a reversal of $29.7 million recognized in prior periods related to the determination that the ArcherDX Final Milestone would not be achieved within the specified timeframe prescribed in the acquisition agreement.

One Codex

In February 2021, we acquired 100% of the interest of Reference Genomics d/b/a One Codex ("One Codex"), a company developing and commercializing products and services relating to microbiome sequencing, analysis and reporting, for upfront consideration consisting of $17.3 million in cash and 1.4 million shares of our common stock, of which approximately 0.2 million shares were subject to a hold-back to satisfy indemnification obligations that may have arisen following the closing. These shares subject to a hold-back were issued to a third-party at the closing date to hold in escrow until the escrow period is complete, and as such were classified as equity. In February 2022, the amounts held back to satisfy indemnification obligations were released in full to the former stockholders.

Disposition

In September 2022, we sold 100% of our interest in One Codex and certain related assets for an immaterial amount of cash proceeds, as part of our strategic realignment plan. The disposition of One Codex was considered to be an asset sale as substantially all of the fair value was concentrated in the developed technology and certain customer relationships. The carrying value of assets sold include developed technology of $19.4 million and customer relationships of $0.4 million. The sale resulted in a loss of approximately $19.8 million during the three and nine months ended September 30, 2022, and is included in restructuring expense in our condensed consolidated statement of operations. See Note 5, "Goodwill and intangible assets" and Note 11, "Restructuring" for additional information.

Concurrently, Invitae and the buyer entered into an agreement whereby we have the option to access the technology sold for at least one year in the form of a software-as-a-service ("SaaS") subscription.

Genosity

In April 2021, we acquired 100% of the fully diluted equity of Genosity Inc. ("Genosity"), a company providing genomic laboratory services, for approximately $196.0 million, consisting of approximately $120.0 million in cash and 1.9 million shares of our common stock. In connection with this transaction, we granted restricted stock units ("RSUs") having a value of up to $5.0 million to certain continuing employees and recognized $0.4 million and $1.3 million in stock-based compensation expense for the three and nine months ended September 30, 2022, respectively. We recognized $0.3 million and $0.5 million in stock-based compensation expense for the three and nine months ended September 30, 2021, respectively.

Pursuant to the terms of the acquisition, we agreed to provide additional shares in the event that our common stock share price decreased after the acquisition, but prior to filing a resale registration statement. At the time of the acquisition, we estimated this provision to be $7.0 million. On filing the resale registration statement during the period ended June 30, 2021, the fair value was $3.2 million and the difference of $3.8 million was recorded in general and administrative expense.

Ciitizen

In September 2021, we acquired 100% of the equity of Ciitizen Corporation ("Ciitizen"), a patient-centric health technology company, for approximately $308.3 million, consisting of approximately $87.4 million in cash and 6.3 million shares of our common stock, of which approximately $10.4 million in cash and 0.8 million shares are subject to a hold-back to satisfy indemnification obligations that may arise following the closing. As of September 30, 2022, the value of the stock payable liability was $0.5 million with the $9.6 million fair value change for the nine months ended September 30, 2022 recorded as income in other income, net. In September 2022, the amounts held back to satisfy indemnification obligations were partially released to the former stockholders. The remaining amounts held back to satisfy indemnification obligations are expected to be released in September 2023. In connection with this transaction, we granted RSUs having a value of up to $246.9 million to certain continuing employees. During the three and nine months ended September 30, 2022, we recorded stock-based compensation expense of $22.2 million and $72.2 million, respectively, primarily in research and development expense. Additionally, we recorded $23.7 million of stock-based compensation expense for both the three and nine months ended September 30, 2022 in restructuring expense related to the acceleration of RSUs for employees who were terminated as part of our strategic realignment. See Note 10, "Stock incentive plans" for additional information.

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Goodwill

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

Balance as of December 31, 2021						$	2,283,059
Impairment						(2,283,059)
Balance as of September 30, 2022						$	—

Intangible assets

The following table presents details of our acquired intangible assets as of September 30, 2022 (in thousands):

			September 30, 2022
			Cost						Accumulated Amortization						Asset Disposals						Net						Weighted-Average Useful Life (In Years)
Customer relationships			$	41,515					$	(16,543)					$	(359)					$	24,613					10.8
Developed technology			1,174,506						(156,068)						(19,426)						999,012						10.8
Non-compete agreement			286						(286)						—						—						0.0
Trade name			21,085						(3,525)						—						17,560						12.0
Patent assets and licenses			495						(156)						(339)						—						0.0
Right to develop new technology			19,359						(2,474)						(16,885)						—						0.0
			$	1,257,246					$	(179,052)					$	(37,009)					$	1,041,185					10.8

The following table presents details of our acquired intangible assets as of December 31, 2021 (in thousands):

			December 31, 2021
			Cost						Accumulated Amortization						Net						Weighted-Average Useful Life (In Years)
Customer relationships			$	41,515					$	(13,096)					$	28,419					10.8
Developed technology			662,106						(81,902)						580,204						10.2
Non-compete agreement			286						(286)						—						0.0
Trade name			21,085						(2,207)						18,878						12.0
Patent assets and licenses			495						(136)						359						15.0
Right to develop new technology			19,359						(1,613)						17,746						15.0
In-process research and development			542,388						—						542,388						n/a
			$	1,287,234					$	(99,240)					$	1,187,994					10.4

Acquisition-related intangibles included in the above tables are generally finite-lived, other than in-process research and development, which has an indefinite life, and are carried at cost less accumulated amortization. Customer relationships related to our 2017 business combinations are being amortized on an accelerated basis in proportion to estimated cash flows. All other finite-lived acquisition-related intangibles are being amortized on a straight-line basis over their estimated lives, which approximates the pattern in which the economic benefits of the intangible assets are expected to be realized. During the nine months ended September 30, 2022, the Company launched the ArcherDX STRATAFIDE and PCM products resulting in the reclassification of $512.4 million of the related in-process research and development (IPR&D) intangibles to developed technology intangibles, which are finite-lived and amortizable. Amortization expense was $29.6 million and $15.6 million for the three months ended September 30, 2022 and 2021, respectively, and $79.8 million and $41.2 million for the nine months ended September 30, 2022 and 2021, respectively. Amortization expense is recorded in cost of revenue, research and development, and selling and marketing expense.

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As part of the ArcherDX acquisition in October 2020, we acquired intangible assets including core developed technology and the right to develop new technology related to an existing agreement between ArcherDX and a vendor. The core developed technology has several applications, which we intend to continue to leverage in other areas of the business, including PCM. In conjunction with the strategic realignment plan, management decided to exit the IVD product offering in August 2022. During the three and nine months ended September 30, 2022, we wrote-off the remaining carrying value of the right to develop new technology intangible asset of $16.9 million, which is included in restructuring expense in the condensed consolidated statements of operations. See Note 11, "Restructuring" for additional information.

In conjunction with the strategic realignment plan, management also decided to exit the in-vitro fertilization ("IVF") product offering. As a result, we wrote-off a patent licensing agreement intangible asset with a carrying value of $0.3 million included in restructuring expense in the condensed consolidated statements of operations. See Note 11, "Restructuring" for additional information.

See Note 4, "Business combinations" for additional information on the sale of our interest in One Codex and the related disposition of developed technology and customer relationships during the three and nine months ended September 30, 2022.

The following table summarizes our estimated future amortization expense of intangible assets with finite lives as of September 30, 2022 (in thousands):

2022 (remainder of year)			$	28,636
2023			114,440
2024			114,162
2025			112,408
2026			112,374
Thereafter			559,165
Total estimated future amortization expense			$	1,041,185

In December 2021, we acquired 100% of the equity interest of Stratify Genomics Inc., a cancer risk stratification company, for $29.0 million consisting of 1.0 million shares of common stock, $4.2 million in assumed liabilities, and $8.0 million in cash. We accounted for this transaction as an asset acquisition, as substantially all of the fair value is concentrated in the developed technology acquired. As goodwill is not recorded under an asset acquisition, an $8.7 million deferred tax liability arising from book/tax basis differences increased the value of the assets acquired above the purchase price. As a result, the fair value of the developed technology is $37.5 million, which will be amortized over eight years to cost of revenue. The remaining purchase price of $0.2 million is the fair value of cash and cash equivalents.

In July 2021, we acquired 100% of the equity interest of Medneon LLC, a digital health artificial intelligence company, for $34.1 million consisting of 0.4 million shares of common stock, $4.9 million in assumed liabilities, and $12.9 million in cash. We accounted for this transaction as an asset acquisition, as substantially all of the fair value is concentrated in the developed technology acquired. The fair value of the developed technology is $33.9 million, which will be amortized over eight years to cost of revenue. The remaining purchase price of $0.2 million is the fair value of cash and cash equivalents.

Impairment assessment

Goodwill and indefinite-lived intangible assets are assessed for impairment on an annual basis and whenever events and circumstances indicate that these assets may be impaired. We evaluate the fair value of long-lived assets, which include property and equipment and finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amounts of the asset may not be fully recoverable. In testing for goodwill impairment, we have the option of first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If we elect to bypass the qualitative assessment, or if a qualitative assessment indicates it is more likely than not that the carrying value exceeds its fair value, we perform a quantitative goodwill impairment test to compare to the fair value of our reporting unit to its carrying value, including goodwill. If the carrying value, including goodwill, exceeds the reporting unit’s fair value, we will recognize an impairment loss for the amount by which the carrying amount exceeds the reporting unit’s fair value. Factors that may indicate potential impairment and trigger an impairment test include, but are not limited to, current economic, market and geopolitical conditions, including a significant, sustained decline in our stock price and market capitalization compared to the net book value, an adverse change in legal factors,

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business climate or operational performance of the business, or significant changes in the ability of a particular asset (or group of assets) to generate positive cash flows for our strategic business objectives.

During the three months ended June 30, 2022, as a result of the significant, sustained decline in our stock price and related market capitalization and lower than expected financial performance, we performed an impairment assessment of goodwill, IPR&D intangible assets, and long-lived assets, including definite-lived intangibles.

For our goodwill, we measured the fair value of the reporting unit utilizing the discounted cash flow method under the income approach. This approach relies on significant unobservable inputs including, but not limited to, management's forecasts of projected revenue associated with future cash flows, discount rates, and control premium. Based on this analysis, we recognized a non-cash, pre-tax goodwill impairment charge of $2.3 billion during the three months ended June 30, 2022, which was included in asset impairments in the condensed consolidated statements of operations. The goodwill was fully impaired as of June 30, 2022.

We also identified indicators of impairment related to the IPR&D intangible asset initially recognized as part of the acquisition of Singular Bio, Inc. ("Singular Bio") that it was more likely than not that the asset is impaired. The Company identified conditions during the period ended June 30, 2022 such as alternative technologies and uncertainties around the desired outcome of our in-development asset and other economic factors that raised issues with the realizability of our asset. As a result of our evaluation, we recognized a non-cash, pre-tax impairment charge of $30.0 million during the three months ended June 30, 2022 related to the IPR&D intangible asset. The indefinite-lived intangible asset was fully impaired as of June 30, 2022. Additionally, we recognized an impairment loss of $4.8 million during the three months ended June 30, 2022 related to specific equipment that is no longer being utilized on this project and has no alternative future use. The impairment charges are recorded in asset impairments in the condensed consolidated statements of operations.

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss is recognized when the total estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount.

A recoverability test was performed for the long-lived assets, including definite-lived intangibles, using the undiscounted cash flows approach, which included significant unobservable inputs including management's forecasts of projected revenue associated with future cash flows, and residual value. The cash flow estimates reflected the Company’s assumptions about its use of the long-lived assets and eventual disposition of the asset group. We determined that our long-lived assets held and used, including intangible assets that are subject to amortization, did not have identifiable cash flows that are largely independent of the cash flows of other assets and liabilities and of other asset groups, because the assets are highly interrelated and interdependent. Therefore, the Company evaluated its long-lived assets for impairment on an entity-wide level. The long-lived assets passed the recoverability test as of June 30, 2022. As a result of the strategic realignment, we evaluated the recoverability of long-lived assets for impairment. We concluded that the fair value of long-lived assets was in excess of their carrying value at September 30, 2022 and no impairment was recorded except for operating lease impairments, which are discussed in the "Leases" section of Note 8 "Commitments and contingencies." We also recorded losses on disposal of assets pursuant to the strategic realignment, which are discussed in Note 11, "Restructuring."

Inventory

Inventory consisted of the following (in thousands):

			September 30, 2022						December 31, 2021
Raw materials			$	29,481					$	27,178
Work in progress			421						5,342
Finished goods			—						996
Total inventory			$	29,902					$	33,516

As part of the Company's strategic realignment, management decided to exit certain product offerings. During the three and nine months ended September 30, 2022, the Company wrote-off the remaining inventory related to these product offerings of $12.6 million to cost of revenue in the condensed consolidated statements of operations.

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Property and equipment, net

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

			September 30, 2022						December 31, 2021
Leasehold improvements			$	76,988					$	31,159
Laboratory equipment			68,633						61,317
Computer equipment			16,411						15,452
Furniture and fixtures			1,734						2,130
Construction-in-progress			21,892						52,039
Other			3,313						925
Total property and equipment, gross			188,971						163,022
Accumulated depreciation and amortization			(75,093)						(48,308)
Total property and equipment, net			$	113,878					$	114,714

Depreciation expense was $9.7 million and $5.1 million for the three months ended September 30, 2022 and 2021, respectively, and $21.1 million and $13.2 million for the nine months ended September 30, 2022 and 2021, respectively. Depreciation expense for the three and nine months ended September 30, 2022 includes accelerated depreciation of $3.4 million from a change in the estimated useful lives of property and equipment related to the exit of certain product offerings.

Due to the Company’s decision to exit certain business lines, consolidate lab and office space, and reduce our international footprint as part of our strategic realignment, we recognized a loss on disposal of property and equipment of $11.8 million, which is included in restructuring expense in our condensed consolidated statement of operations during the three and nine months ended September 30, 2022. See Note 11, "Restructuring" for additional information.

See Note 5, "Goodwill and intangible assets" for additional information on the impairment assessment including long-lived assets and the related impairment loss recognized during the three months ended June 30, 2022.

Accrued liabilities

Accrued liabilities consisted of the following (in thousands):

			September 30, 2022						December 31, 2021
Accrued compensation and related expenses			$	36,654					$	35,877
Accrued expenses			20,167						32,136
Compensation and other liabilities associated with business combinations			6,829						11,622
Deferred revenue			5,663						9,431
Accrued interest			583						6,646
Other accrued liabilities			13,220						10,741
Total accrued liabilities			$	83,116					$	106,453

Other long-term liabilities

Other long-term liabilities consisted of the following (in thousands):

			September 30, 2022						December 31, 2021
Compensation and other liabilities associated with business combinations, non-current			1,010						27,919
Deferred revenue, non-current			62						663
Other			11,595						9,215
Total other long-term liabilities			$	12,667					$	37,797

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Financial assets and liabilities are recorded at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The authoritative guidance establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity.

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

			September 30, 2022
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
																											Level 1						Level 2						Level 3
Financial assets:
Money market funds			$	184,898					$	—					$	—					$	184,898					$	184,898					$	—					$	—
U.S. Treasury notes			364,887						1						(895)						363,993						363,993						—						—
U.S. government agency securities			4,947						—						(4)						4,943						—						4,943						—
Total financial assets			$	554,732					$	1					$	(899)					$	553,834					$	548,891					$	4,943					$	—
Financial liabilities:
Stock payable liability																					$	985					$	—					$	—					$	985
Total financial liabilities																					$	985					$	—					$	—					$	985

			September 30, 2022
Reported as:
Cash equivalents			$	174,871
Restricted cash			10,027
Marketable securities			368,936
Total cash equivalents, restricted cash, and marketable securities			$	553,834
Other long-term liabilities			$	985

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			December 31, 2021
			Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Estimated Fair Value
																											Level 1						Level 2						Level 3
Financial assets:
Money market funds			$	913,990					$	—					$	—					$	913,990					$	913,990					$	—					$	—
U.S. Treasury notes			111,187						—						(6)						111,181						111,181						—						—
U.S. government agency securities			10,941						—						(1)						10,940						—						10,940						—
Total financial assets			$	1,036,118					$	—					$	(7)					$	1,036,111					$	1,025,171					$	10,940					$	—
Financial liabilities:
Stock payable liability																					$	20,925					$	—					$	—					$	20,925
Contingent consideration																					1,875						—						—						1,875
Total financial liabilities																					$	22,800					$	—					$	—					$	22,800

			December 31, 2021
Reported as:
Cash equivalents			$	903,715
Restricted cash			10,275
Marketable securities			122,121
Total cash equivalents, restricted cash, and marketable securities			$	1,036,111
Other long-term liabilities			$	22,800

There were no transfers between Level 1, Level 2 and Level 3 during the periods presented. Our debt securities of U.S. government agencies are classified as Level 2 as they are valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs obtained from various third-party data providers, including but not limited to benchmark yields, interest rate curves, reported trades, broker/dealer quotes and reference data. At September 30, 2022, the remaining contractual maturities of available-for-sale securities ranged from one to six months.

The total fair value of investments with unrealized losses at September 30, 2022 was $355.7 million. None of the available-for-sale securities held as of September 30, 2022 have been in an unrealized loss position for more than one year. The Company evaluates investments that are in an unrealized loss position for impairment as a result of credit loss. It was determined that no credit losses exist as of September 30, 2022, because the change in market value of those securities has resulted from fluctuations in market interest rates since the time of purchase, rather than a deterioration of the credit worthiness of the issuers. For marketable securities in an unrealized loss position, we assess our intent to sell, or whether it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. We intend to hold our marketable securities to maturity and it is unlikely that they would be sold before their cost bases are recovered. The cost of securities sold is based on the specific identification method.

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. The change in fair value related to stock payable liabilities recorded to other income, net was expense of $0.5 million and income of $3.4 million during the three months ended September 30, 2022 and 2021, respectively, and income of $15.7 million and $9.2 million during the nine months ended September 30, 2022 and 2021, respectively.

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Leases

The Company has entered into various non-cancellable operating lease agreements for office and laboratory space domestically and internationally. The Company's current leases have remaining terms ranging from approximately 1 to 13 years, some of which include options to extend the leases. The renewal options were not included in the calculation of the operating lease assets and the operating lease liabilities as they are not reasonably certain of being exercised. The security deposits for our operating leases are included in restricted cash in our condensed consolidated balance sheets.

In 2015, we entered into a non-cancelable operating lease agreement for our headquarters and main production facility in San Francisco, California, which commenced in 2016 with an initial lease term extending through 2026. In 2020, we entered into a non-cancelable operating lease agreement for additional office and laboratory space in San Francisco, California, which commenced in 2021 and has an initial lease term extending through 2031. In 2021, we entered into a non-cancelable operating lease agreement for a new laboratory and production facility in Morrisville, North Carolina, which commenced in the same year with an initial lease term extending through 2035.

We have entered into various finance lease agreements to obtain laboratory equipment. The terms of our finance leases are generally three years and are typically secured by the underlying equipment. The portion of the future payments designated as principal repayment and related interest was classified as a finance lease obligation in our condensed consolidated balance sheets. Finance lease assets are recorded within other assets in our condensed consolidated balance sheets.

As part of the strategic realignment plan, we began cost reduction initiatives including lab and office space consolidation and a reduction in our international footprint. Under this plan, we decided to cease use of certain leased premises and actively began looking to sublease certain facilities, including the related leasehold improvements. We determined that the changes in the intended use of these locations represented an indicator of impairment and performed a test of recoverability. For operating leases where the carrying values of right-of-use assets were lower than the undiscounted cash flows expected through sublease, we impaired the right-of-use assets to their fair value. The fair value was determined by utilizing the discounted cash flow method under the income approach. The key inputs to this valuation were expected sublease rental income ranging from $0.1 million to $2.8 million and discount rates ranging from 5.00% to 8.50%. During the three and nine months ended September 30, 2022, we recognized an impairment charge of $4.4 million related to the right-of-use assets and $2.3 million for the related leasehold improvements, which are included in asset impairments in our condensed consolidated statement of operations.

Debt financing

In October 2020, we entered into a credit agreement with a financial institution under which we borrowed $135.0 million (the "2020 Term Loan") concurrent with the closing of the ArcherDX acquisition. The 2020 Term Loan is secured by a first priority lien on all of our and our subsidiaries' assets, and is guaranteed by us and our subsidiaries. The 2020 Term Loan bears interest at an annual rate equal to three-month LIBOR, subject to a 2.00% LIBOR floor, plus a margin of 8.75%. If three-month LIBOR can no longer be determined or if the applicable governmental authority ceases to supervise or sanction such rates, then we will endeavor to agree with the administrative agent, an alternate rate of interest that gives due consideration to the then prevailing market convention for determining interest for comparable loans in the United States, provided that until such alternative rate of interest is agreed, the 2020 Term Loan shall bear interest at the Wall Street Journal Prime Rate. The three-month LIBOR is expected to be available and representative through June 30, 2023. The 2020 Term Loan will mature on (i) June 1, 2024, if at such time our 2024 Notes (defined below) are outstanding and are due to mature on September 1, 2024 (provided that if, prior to such date, the maturity date of at least 80% of the 2024 Notes is extended to a date that is prior to September 1, 2025, the maturity date for the 2020 Term Loan will be automatically extended to a date that is 90 days prior to such 2024 Notes maturity date as extended), or (ii) otherwise, on June 1, 2025. The full amount of the 2020 Term Loan is due upon maturity. If the 2020 Term Loan is prepaid (whether such prepayment is optional or mandatory), we must pay a prepayment fee of 6% if the prepayment occurs prior to the third anniversary of the closing date or 4% if the prepayment occurs after the third anniversary of the closing date and we must also pay a make-whole fee if the prepayment occurs prior to the second anniversary of the closing date.

The credit agreement contains customary events of default and covenants, including among others, covenants limiting our ability to incur debt, incur liens, undergo a change in control, merge with or acquire other

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entities, make investments, pay dividends or other distributions to holders of our equity securities, repurchase stock, and dispose of assets, in each case subject to certain customary exceptions. In addition, the credit agreement contains financial covenants that require us to maintain a minimum cash balance and minimum quarterly revenue levels.

Debt discounts, including debt issuance costs, related to the 2020 Term Loan of $32.8 million were recorded as a direct deduction from the debt liability and are being amortized to interest expense over the term of the 2020 Term Loan. Interest expense related to our debt financings, excluding the impact of our convertible senior notes (defined below), was $6.0 million and $5.9 million for the three months ended September 30, 2022 and 2021, respectively, and $17.8 million and $17.7 million for the nine months ended September 30, 2022 and 2021, respectively.

Convertible senior notes

Convertible senior notes due 2024

In September 2019, we issued, at par value, $350.0 million aggregate principal amount of 2.00% convertible senior notes due 2024 (the "2024 Notes") in a private offering. The 2024 Notes are our senior unsecured obligations and will mature on September 1, 2024, unless earlier converted, redeemed or repurchased. The 2024 Notes bear cash interest at a rate of 2.0% per year, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on March 1, 2020.

Upon conversion, the 2024 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. The initial conversion rate for the 2024 Notes is 33.6293 shares of our common stock per $1,000 principal amount of the 2024 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 2024 Notes), the holders of the 2024 Notes may require us to repurchase all or any portion of their 2024 Notes for cash at a repurchase price equal to 100% of the principal amount of the 2024 Notes to be repurchased plus accrued and unpaid interest to, but excluding, the redemption date.

The 2024 Notes will be convertible at the option of the holders at any time prior to the close of business on the business day immediately preceding March 1, 2024, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on December 31, 2019 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price for the 2024 Notes on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of 2024 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (3) if we call any or all of the 2024 Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events. On or after March 1, 2024 until the close of business on the business day immediately preceding the maturity date, holders may convert their 2024 Notes at any time, regardless of the foregoing circumstances. Since issuance, these notes were convertible at the option of the holders during the quarters beginning on January 1, 2021 and April 1, 2021 due to the sale price of our common stock during the quarters ended December 31, 2020 and March 31, 2021, respectively. The notes were not convertible during the nine months ended September 30, 2022 and there have been no significant conversions in the periods in which they were convertible.

We may redeem for cash all or any portion of the 2024 Notes, at our option, on or after September 6, 2022 and on or before the 30th scheduled trading day immediately before the maturity date if the last reported sale price of the common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

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Convertible senior notes due 2028

In April 2021, we issued, at 99% of par value, $1,150.0 million aggregate principal amount of 1.5% convertible senior notes due 2028 (the "2028 Notes") in a private offering. The 2028 Notes are our senior unsecured obligations and will mature on April 1, 2028, unless earlier converted, redeemed or repurchased. The 2028 Notes bear cash interest at a rate of 1.5% per year, payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2021. Upon conversion, the 2028 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.

The 2028 Notes will be convertible at the option of the holder at any time until the second scheduled trading day prior to the maturity date, including in connection with a redemption by us. The 2028 Notes will be convertible into shares of our common stock based on an initial conversion rate of 23.1589 shares of common stock per $1,000 principal amount of the 2028 Notes (which is equal to an initial conversion price of $43.18 per share), in each case subject to customary anti-dilution and other adjustments as a result of certain extraordinary transactions. None of the 2028 Notes have been converted to date.

We may not redeem the 2028 Notes prior to April 6, 2025. On or after April 6, 2025, the 2028 Notes will be redeemable by us in the event that the closing sale price of our common stock has been at least 150% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which we provide the redemption notice at a redemption price of 100% of the principal amount of such 2028 Notes, plus accrued and unpaid interest to, but excluding, the redemption date.

With certain exceptions, upon a change of control of the Company or the failure of our common stock to be listed on certain stock exchanges, the holders of the 2028 Notes may require that we repurchase all or part of the principal amount of the Notes at a repurchase price of 100% of the principal amount of the 2028 Notes to be repurchased, plus unpaid interest to, but excluding, the maturity date.

Summary of convertible senior notes

We adopted the provisions of ASU 2020-06 on January 1, 2021. See Note 2, "Summary of significant accounting policies" for additional information. Our 2024 Notes and 2028 Notes (collectively, our "Convertible Senior Notes") consisted of the following (in thousands):

			September 30, 2022						December 31, 2021
Outstanding principal			$	1,499,996					$	1,499,996
Unamortized debt discount and issuance costs			(30,888)						(35,858)
Net carrying amount, liability component			$	1,469,108					$	1,464,138

As of September 30, 2022, the fair value of the 2024 Notes and 2028 Notes was $274.8 million and $556.3 million, respectively. The estimated fair value of the 2024 Notes and 2028 Notes, which use Level 2 fair value inputs, was determined based on the estimated or actual bid prices in an over-the-counter market and/or market conditions including the price and volatility of our common stock and comparable company information. We recognized $7.7 million of interest expense related to our convertible senior notes during both the three months ended September 30, 2022 and 2021, and $23.1 million and $17.2 million of interest expense related to our convertible senior notes during the nine months ended September 30, 2022 and 2021, respectively. Of the interest expense recognized, $1.7 million and $1.6 million during the three months ended September 30, 2022 and 2021, respectively, and $5.0 million and $3.6 million during the nine months ended September 30, 2022 and 2021, respectively, was related to amortization of issuance costs and the remainder was related to contractual interest incurred.

Other commitments

In the normal course of business, we enter into various purchase commitments primarily related to service agreements and laboratory supplies. At September 30, 2022, our total future payments under noncancelable unconditional purchase commitments having a remaining term of over one year were $49.4 million.

Guarantees and indemnification

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.

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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 September 30, 2022 or December 31, 2021.

Contingencies

We are and may from time to time be involved in various legal proceedings and claims arising in the ordinary course of business. Legal proceedings, including litigation, government investigations and enforcement actions could result in material costs, occupy significant management resources and entail civil and criminal penalties, even if we ultimately prevail. If an investigation results in a proceeding against us, an adverse outcome could include us being required to pay treble damages, and incur attorneys’ fees, civil or criminal penalties and other adverse actions that could materially and adversely affect our business, financial condition and results of operations. 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.

We were not a party to any material legal proceedings at September 30, 2022, or at the date of this report except for matters listed below. We cannot currently predict the outcome of these actions.

Natera, Inc.

On January 27, 2020, Natera filed a lawsuit against ArcherDX (a subsidiary of Invitae effective October 2, 2020) in the United States District Court for the District of Delaware, alleging that ArcherDX’s products using Anchored Multiplex PCR ("AMP") chemistry, and the manufacture, use, sale, and offer for sale of such products, infringe U.S. Patent No. 10,538,814. On March 25, 2020, ArcherDX filed an answer denying Natera’s allegations and asserting certain affirmative defenses and counterclaims, including that U.S. Patent No. 10,538,814 is invalid and not infringed. On April 15, 2020, Natera filed an answer denying ArcherDX’s counterclaims and filed an amended complaint alleging that ArcherDX’s products using AMP chemistry, including STRATAFIDE, PCM, LiquidPlex, ArcherMET, FusionPlex, and VariantPlex, and the manufacture, use, sale, and offer for sale of such products, infringe U.S. Patent No. 10,538,814, U.S. Patent No. 10,557,172, U.S. Patent No. 10,590,482, and U.S. Patent No. 10,597,708, each of which are held by Natera. Natera seeks, among other things, damages and other monetary relief, costs and attorneys’ fees, and an order enjoining ArcherDX from further infringement of such patents. On May 13, 2020, ArcherDX filed an answer to Natera’s amended complaint denying Natera’s allegations and asserting certain affirmative defenses and counterclaims, including that the asserted patents are invalid and not infringed. On June 3, 2020, Natera filed an answer denying ArcherDX’s counterclaims. On June 4, 2020, ArcherDX filed a motion seeking dismissal of Natera’s infringement claims against STRATAFIDE, PCM, and ArcherMET, and for a judgment that U.S. Patent No. 10,538,814, U.S. Patent No. 10,557,172, and U.S. Patent No. 10,590,482 are invalid. On August 6, 2020, Natera filed another complaint against ArcherDX in the United States District Court for the District of Delaware alleging that ArcherDX’s products using AMP chemistry, including STRATAFIDE, PCM, LiquidPlex, ArcherMET, and VariantPlex, and the manufacture, use, sale, and offer for sale of such products, infringe U.S. Patent No. 10,731,220. Natera seeks, among other things, damages and other monetary relief, costs and attorneys’ fees, and an order enjoining ArcherDX from further infringement of the patent. On October 13, 2020, the court issued an order denying ArcherDX's motion for dismissal of Natera’s infringement claims against STRATAFIDE, PCM, and ArcherMET, and declined to enter judgment that U.S. Patent No. 10,538,814, U.S. Patent No. 10,557,172, and U.S. Patent No. 10,590,482 are invalid. On January 12, 2021, the court issued an order granting Natera leave to amend its complaint to add Invitae as a co-defendant and plead allegations that ArcherDX and Invitae induce end-users to infringe the patents-in-suit. Natera filed its second amended complaint (“Second Amended Complaint”) on the same day, with service completed on January 15, 2021. ArcherDX and Invitae filed answers to the Second Amended Complaint on January 26, 2021 and February 5, 2021, respectively, denying Natera's allegations and restating certain affirmative defenses and counterclaims of non-infringement and invalidity. The litigations have now been consolidated for all purposes. A claim construction order was issued on June 28, 2021. On October 27, 2021, Natera filed its third amended complaint (“Third Amended Complaint”) to add a Certificate of Correction to U.S. Patent No. 10,590,482. On November 3, 2021, ArcherDX filed its answer and counterclaims to Natera's Third Amended Complaint, adding an inequitable conduct defense and declaratory judgment counterclaims. Discovery concluded in December 2021. On January 21, 2022, Natera, ArcherDX and Invitae moved for summary judgment, wherein Natera seeks a determination on certain legal and equitable defenses and ArcherDX and Invitae seek a determination of non-infringement and invalidity of the asserted patents. A hearing on the parties' pending motions for summary judgement is scheduled for January 24, 2023, and trial is set for May 8, 2023.

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In addition, on October 6, 2020, Natera filed a complaint against Genosity in the United States District Court for the District of Delaware, alleging that Genosity's use of its AsTra products, and the manufacture, use, sale, and offer for sale of such products, infringes U.S. Patent No. 10,731,220. Natera's complaint further alleges that Genosity's accused products use ArcherDX's ctDNA and region-specific primers. Genosity filed an answer to the complaint on February 15, 2021, denying Natera's allegations and setting forth affirmative defenses and counterclaims of non-infringement, invalidity and unenforceability due to inequitable conduct. On March 8, 2021, Natera filed a motion to dismiss and strike certain affirmative defenses and counterclaims brought by Genosity relating to inequitable conduct. The court denied that motion on March 14, 2022. The court granted an order granting the parties' stipulated request to stay the case on April 1, 2022.

QIAGEN Sciences

On July 10, 2018, ArcherDX and the General Hospital Corporation d/b/a Massachusetts General Hospital, which we refer to as MGH, filed a lawsuit in the United States District Court for the District of Delaware against QIAGEN Sciences, LLC, QIAGEN LLC, QIAGEN Beverly, Inc., QIAGEN Gaithersburg, Inc., QIAGEN GmbH and QIAGEN N.V., which is collectively referred to herein as QIAGEN, and a named QIAGEN executive who was a former member of ArcherDX’s board of directors, alleging several causes of action, including infringement of the ’810 Patent, trade secret misappropriation, breach of fiduciary duty, false advertising, tortious interference and deceptive trade practices. The ’810 Patent relates to methods for preparing a nucleic acid for sequencing and aspects of ArcherDX’s AMP technology. On October 30, 2019, with the permission of the Court, ArcherDX amended ArcherDX’s complaint to add a claim for infringement of the ’597 Patent. The ’597 Patent relates to methods of preparing and analyzing nucleic acids, such as by enriching target sequences prior to sequencing, and aspects of ArcherDX’s AMP technology. The QIAGEN products that ArcherDX alleges infringe the ’810 Patent and the ’597 Patent include, but are not limited to, QIAseq Targeted DNA Panels, QIAseq Targeted RNAscan Panels, QIAseq Index Kits and QIAseq Immune Repertoire RNA Library Kits. ArcherDX is seeking, among other things, damages for ArcherDX’s lost profits due to QIAGEN’s infringement and a permanent injunction enjoining QIAGEN from marketing and selling the infringing products and from using ArcherDX’s trade secrets. On December 5, 2019, QIAGEN and the named QIAGEN executive submitted their answer denying the allegations in ArcherDX’s complaint and asserting affirmative defenses that, among other things, the ’810 Patent and ’597 Patent are not infringed by QIAGEN’s products, that both patents are invalid, and that the complaint fails to state any claim for which relief may be granted. On March 1, 2021, each of ArcherDX and QIAGEN moved for summary judgment on issues relating to infringement and validity of ArcherDX's patents, breach of fiduciary duty and trade secret misappropriation. On June 18, 2021, ArcherDX informed the court that it would not assert the following claims to streamline the issues for trial: trade secret misappropriation, false advertising, deceptive trade practices, and tortious interference. The court denied QIAGEN's motion for summary judgment on trade secret misappropriation as moot on June 21, 2021, denied QIAGEN's motion for summary judgment on breach of fiduciary duty on July 26, 2021, and granted QIAGEN's motion for summary judgment of no literal infringement of the '810 Patent on August 21, 2021. Trial proceeded on August 23 through August 27, 2021, resulting in a unanimous jury verdict, which found that: (i) all asserted claims of the '810 and '597 Patents are valid, (ii) QIAGEN willfully infringed the asserted claims of the '810 patent (under the doctrine of equivalents) and the '597 patent (literal infringement), and (iii) ArcherDX and MGH are entitled to recover approximately $4.7 million in damages. On September 30, 2022, the court issued an order denying QIAGEN's post-trial motion for a new trial or altered verdict, granting ArcherDX's post-trial motion for ongoing royalty at a rate of 7% along with supplemental damages and interest, and denying ArcherDX's motion for an injunction with leave to renew after an evidentiary hearing. No date has been set for the hearing on ArcherDX's request for an injunction.

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Shares outstanding

Shares of convertible preferred and common stock were as follows (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Convertible preferred stock:
Shares outstanding, beginning of period			—						125						—						125
Conversion into common stock			—						(125)						—						(125)
Shares outstanding, end of period			—						—						—						—
Common stock:
Shares outstanding, beginning of period			234,767						203,018						228,116						185,886
Common stock issued in connection with public offering			2,429						—						2,429						8,932
Common stock issued on exercise of stock options, net			17						1,361						150						1,940
Common stock issued pursuant to vesting of RSUs			4,645						718						9,401						4,101
Common stock issued pursuant to exercises of warrants			—						—						—						208
Common stock issued pursuant to employee stock purchase plan			—						—						1,535						271
Common stock issued pursuant to acquisitions			972						21,005						1,199						24,764
Common stock issued upon conversion of preferred stock			—						125						—						125
Shares outstanding, end of period			242,830						226,227						242,830						226,227

Common Stock

As of September 30, 2022, we had 600 million shares of common stock authorized with a par value of $0.0001. The number of authorized shares increased from 400 million to 600 million during the nine months ended September 30, 2022.

Convertible preferred stock

In August 2017, in a private placement to certain accredited investors, we issued shares of our Series A convertible preferred stock which are convertible into common stock on a one-for-one basis, subject to adjustment for events such as stock splits, combinations and the like. The Series A convertible preferred stock is a non-voting common stock equivalent with a par value of $0.0001 and has the right to receive dividends first or simultaneously with payment of dividends on common stock. In the event of any liquidation or dissolution of the Company, the Series A preferred stock is entitled to receive $0.001 per share prior to the payment of any amount to any holders of capital stock ranking junior to the Series A preferred stock and thereafter shall participate pari passu with the holders of our common stock (on an as-if-converted-to-common-stock basis). During the year ended December 31, 2021, 124,913 shares of Series A convertible preferred stock were converted into 124,913 shares of common stock. As of September 30, 2022, there were no shares of Series A convertible preferred stock outstanding.

Sales Agreement

In May 2021, we entered into a sales agreement (the "2021 Sales Agreement") with Cowen and Company, LLC (“Cowen”) under which we may offer and sell from time to time at our sole discretion shares of our common stock through Cowen as our sales agent, in an aggregate amount not to exceed $400.0 million. Per the terms of the agreement, Cowen will receive a commission of up to 3% of the gross proceeds of the sales price of all shares sold through it as sales agent under the 2021 Sales Agreement.

During the three and nine months ended September 30, 2022, we sold a total of 2.4 million shares of common stock under the 2021 Sales Agreement at an average price of $3.99 per share, for gross proceeds of $10.0 million and net proceeds of $9.7 million.

Public offering

In January 2021, we sold, in an underwritten public offering, an aggregate of 8.9 million shares of our common stock at a price of $51.50 per share, for gross proceeds of $460.0 million and net proceeds of approximately $434.3 million after deducting underwriting discounts and commissions and offering expenses.

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Stock incentive plans

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 value 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. 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.

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. Upon the acquisition of ArcherDX in October 2020, any option that was outstanding was converted into a fully vested option to purchase a share of our common stock, which resulted in the issuance of options to purchase 3.7 million shares of our common stock.

RSUs generally vest ratably in annual installments over a period of three years, commencing on the first anniversary of the grant date, with certain awards that include a portion that vests immediately upon grant. The vesting schedule for the 2022 grants approved in April 2022 provides that the awards vest ratably in quarterly installments over a period of two years, with certain awards that include a portion that vests immediately upon grant. We have also granted certain awards in connection with our management incentive plan that vest over a period of two years. 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 performance-based RSUs ("PRSUs") that vest based on the achievement of performance conditions. In December 2020, we granted RSUs in connection with an asset acquisition which vest in two equal installments in December 2021 and December 2022, subject to the employees' continued service with us.

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

			Shares Available For Grant						Stock Options Outstanding						Weighted-Average Exercise Price Per Share						Weighted-Average Remaining Contractual Life (Years)						Aggregate Intrinsic Value
Balances at December 31, 2021			10,242						3,034						$	11.98					5.5						$	16,431
Additional shares reserved			9,125						—
Options granted			(1,121)						1,121						3.03
Options cancelled			290						(290)						14.80
Options exercised			—						(150)						4.21
RSUs and PRSUs granted			(11,452)						—
RSUs and PRSUs cancelled			4,160						—
Balances at September 30, 2022			11,244						3,715						$	9.37					4.8						$	43
Options exercisable at September 30, 2022									2,497						$	11.21					2.5						$	43
Options vested and expected to vest at September 30, 2022									3,532						$	9.69					4.6						$	43

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

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The following table summarizes RSU, including PRSU, activity (in thousands, except per share data):

			Number of Shares						Weighted- Average Grant Date Fair Value Per Share
Balance at December 31, 2021			16,247						$	26.21
RSUs granted			11,452						$	5.63
RSUs vested			(9,401)						$	21.86
RSUs cancelled			(4,160)						$	16.92
Balance at September 30, 2022			14,138						$	15.17

Stock-based compensation

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

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Cost of revenue			$	1,203					$	2,010					$	5,702					$	9,668
Research and development			24,301						12,104						94,661						58,441
Selling and marketing			2,625						2,457						10,498						12,797
General and administrative			7,477						8,875						28,646						50,876
Restructuring			24,807						—						24,807						—
Total stock-based compensation expense			$	60,413					$	25,446					$	164,314					$	131,782

Stock-based compensation expense included in restructuring expense was related to the accelerated vesting of RSUs held by certain employees whose employment was terminated as part of the strategic realignment. Pursuant to the terms and conditions of the Ciitizen transaction, employees were deemed vested in any unvested RSUs at the time of their termination. See Note 11, "Restructuring" for additional information.

On July 18, 2022, we began implementing a strategic realignment of our operations to reduce operating costs and drive future growth aligned with our core genetic testing and genome management platforms. The realignment plan includes a reduction in workforce, lab and office space consolidation, portfolio optimization, decrease in other operating expenses, as well as a reduced international footprint. Under this strategic realignment, we reduced our workforce by approximately 1,000 employees with a majority of these employees separating from the Company by September 30, 2022 and the remaining affected employees transitioning over varying periods of time up to 12 months. Employees who were impacted by the restructuring were eligible to receive severance benefits contingent upon an impacted employee’s execution (and non-revocation, where applicable) of a separation agreement, which included a general release of claims against us.

Employee severance and benefits are comprised of severance, other termination benefit costs, and stock-based compensation expense for the acceleration of RSUs related to workforce reductions. See Note 10, "Stock incentive plans" for additional information about the accelerated vesting of RSUs. Losses on asset disposals include losses on disposals of property and equipment, leasehold improvements, and other asset write-downs associated with exiting lines of business, consolidating lab and office space, and reducing our international footprint. See Note 5, "Goodwill and intangible assets" for additional information about the write-off of intangible assets and Note 6, "Balance sheet components" for additional information about losses on disposal of property and equipment. Other restructuring costs include the write-off of prepaid assets related to the exit of certain product offerings, legal and professional fees, and contract exit costs.

The Company recognized restructuring expenses of approximately $118.5 million during the three and nine months ended September 30, 2022. We expect to incur additional employee severance and benefits expenses up to $12 million, and additional other restructuring costs primarily related to third party costs up to $5 million. This reflects the best estimate of the Company, which may be revised in subsequent periods as the strategic realignment plan progresses.

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The following table summarizes the expenses related to our strategic realignment recognized in restructuring expense in our condensed consolidated statement of operations (in thousands):

			Three and Nine Months Ended September 30,
			2022
Employee severance and benefits			$	57,903
Losses on asset disposals			48,792
Other restructuring costs			11,819
Total restructuring			$	118,514

The following table summarizes the changes in liabilities associated with our strategic realignment initiatives, including restructuring expenses incurred and cash payments as of September 30, 2022 (in thousands):

			Employee severance and benefits						Other restructuring costs						Total
Beginning balance			$	—					$	—					$	—
Accruals			33,095						5,185						38,280
Payments			(26,440)						(2,642)						(29,082)
Balance at September 30, 2022			$	6,655					$	2,543					$	9,198

The restructuring liabilities are included in accrued liabilities in the condensed consolidated balance sheets. We expect that substantially all of the remaining accrued restructuring liabilities will be paid in cash over the next 12 months. The charges recognized in the roll forward of our accrued restructuring liabilities do not include items charged directly to expense for losses on asset disposals, accelerated vesting of RSUs, and other periodic exit costs, as those items are not reflected in our restructuring liabilities in our condensed consolidated balance sheets.

During the three and nine ended September 30, 2022, we recorded an income tax benefit of $1.1 million and $39.6 million, respectively. The income tax benefit for the three months ended September 30, 2022 is primarily related to a $1.4 million release of federal and state valuation allowances as a result of various restructuring related asset write-downs and Internal Revenue Code Section 174 research and experimental expense capitalization’s impact on our deferred taxes. The income tax benefit for the nine months ended September 30, 2022 is primarily related to a $34.6 million release of federal and state valuation allowances as a result of the reclassification of ArcherDX's STRATAFIDE and PCM in-process research and development intangibles from indefinite-lived intangibles to developed technology, which enabled the associated deferred tax liability to serve as a source of income to support the realization of existing finite-lived deferred tax assets for which a valuation allowance had previously been established.

As of September 30, 2022, we maintained $49.1 million of unrecognized tax benefits, of which $4.3 million, if recognized, would affect the Company’s effective tax rate. The remainder has been recorded as a reduction to the Company’s deferred tax assets and, if recognized, would not have an impact on the effective tax rate due to existing valuation allowance against such deferred tax assets. It is possible that the Company’s unrecognized tax benefits could change within the next twelve months due to activities of tax authorities, including possible settlement of audits, should any arise, or through normal expiration of statutes of limitations.

The Company’s policy is to include penalties and interest expense related to income taxes as a component of tax expense. As of September 30, 2022, there were no accrued interest and penalties related to the unrecognized tax benefits.

Effective for tax years beginning on or after January 1, 2022, pursuant to the Tax Cuts and Jobs Act of 2017, companies are required to capitalize and amortize Internal Revenue Code Section 174 research and experimental expenses paid or incurred over five years for research and development performed in the United States and 15 years for research and development performed outside of the United States. As a result of the Internal Revenue Code Section 174 research and experimental expense capitalization, the Company recognized a deferred tax asset for the future tax benefit of the amortization deductions with offsetting increase in the valuation allowance on deferred tax assets.

The Inflation Reduction Act of 2022 ("IRA") was signed into law on August 16, 2022. The bill was meant to address the high inflation rate in the U.S. through various climate, energy, healthcare and other incentives. These

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

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Net loss			$	(301,156)					$	(198,176)					$	(3,006,476)					$	(173,882)
Shares used in computing net loss per share, basic and diluted			237,974						218,384						232,889						205,587
Net loss per share, basic and diluted			$	(1.27)					$	(0.91)					$	(12.91)					$	(0.85)

The following common stock equivalents have been excluded from diluted net loss per share because their inclusion would be anti-dilutive (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
Shares of common stock subject to outstanding options			3,621						3,884						3,174						4,371
Shares of common stock subject to outstanding warrants			—						—						—						36
Shares of common stock subject to outstanding RSUs and PRSUs			18,660						8,769						18,587						7,730
Shares of common stock pursuant to ESPP			1,600						368						2,292						304
Shares of common stock underlying Series A convertible preferred stock			—						125						—						125
Shares of common stock subject to convertible senior notes conversion			38,403						38,403						38,403						38,403
Total shares of common stock equivalents			62,284						51,549						62,456						50,969

Revenue by country is determined based on the billing address of the customer and is summarized as follows (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2022						2021						2022						2021
United States			$	117,316					$	100,957					$	345,721					$	293,868
United Kingdom			3,004						263						7,872						3,598
Canada			2,099						1,942						6,567						5,391
Germany			1,544						1,707						5,338						6,216
Rest of world			9,573						9,526						28,351						25,255
Total revenue			$	133,536					$	114,395					$	393,849					$	334,328

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ATTACHMENTS / EXHIBITS

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