INVITAE CORP – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations
should be read in conjunction with our condensed consolidated financial
statements and the related notes and other financial information included in
Part I, Item 1. of this Form 10-Q, and together with our audited consolidated
financial statements and the related notes and other information included in our
Annual Report on Form 10-K for the year ended December 31, 2021. Historic
results are not necessarily indicative of future results.

This report contains forward­looking 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 forward­looking statements.
Forward­looking statements include, but are not limited to, statements about:

•our views regarding the future of genetic testing and its role in mainstream
medical practice;

•the impact of the COVID-19 pandemic on our business and the actions we have
taken or may take in response thereto;

•our mission and strategy for our business, products and technology;

•the implementation of our business model and the success of our strategic
realignment efforts;

•the expected costs and benefits of our strategic realignment, and our ability
to achieve positive operating cash flow;

•the expected benefits from and our ability to integrate our acquisitions;

•our ability to obtain regulatory approvals for our tests;

•the rate and degree of market acceptance of our tests and genetic testing
generally;

•our ability to scale our infrastructure and operations in a cost­effective
manner;

•our expectations regarding our platform and future offerings;

•the timing and results of studies with respect to our tests;

•developments and expectations relating to our competitors and our industry;

•our competitive strengths;

•the degree to which individuals will share genetic information generally, as
well as share any related potential economic opportunities with us;

•our commercial plans;

•our ability to obtain and maintain adequate reimbursement for our tests;

•regulatory, political and other developments in the United States and foreign
countries;

•our ability to attract and retain key scientific, sales, engineering or
management personnel;

•our expectations regarding our ability to obtain and maintain intellectual
property protection and not infringe on the rights of others;

•the effects of litigation or investigations on our business;

•our ability to obtain funding for our operations and to service and repay our
debt;

•our future financial performance;

•our beliefs regarding our future growth and the drivers of such growth;

•our expectations regarding environmental, social and governance matters;

•the impact of accounting pronouncements and our critical accounting policies,
judgments, estimates and assumptions on our financial results;

•our expectations regarding our future revenue, cost of revenue, operating
expenses and capital expenditures, and our future capital requirements;

•the impact of macroeconomic conditions, including inflation and recession, on
our business; and

•the impact of tax laws on our business.

Forward­looking 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 Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form 10-Q.
Although we believe that the expectations and assumptions reflected in the
forward­looking statements are reasonable, we cannot guarantee future results,
level of activity, performance or achievements. Any forward­looking statements
in this report speak

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only as of the date of this report. We expressly disclaim any obligation or
undertaking to update any forward­looking statements.

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. AMP™,
LiquidPlex™, VariantPlex® and FusionPlex®, are the property of ArcherDX, LLC, a
wholly-owned subsidiary of Invitae Corporation. We also refer to trademarks of
other companies and organizations in this report.

Summary of risk factors

Our business is subject to numerous risks and uncertainties that could affect
our ability to successfully implement our business strategy and affect our
financial results. You should carefully consider all of the information in this
Quarterly Report and, in particular, the following principal risks and all of
the other specific factors described in Part II, Item 1A. "Risk Factors" in this
Quarterly Report on Form 10-Q before deciding whether to invest in our company.

•We expect to continue incurring significant losses, and we may not successfully
execute our plan to achieve or sustain profitability.

•We have a large amount of debt, servicing our debt requires a significant
amount of cash, we may not have sufficient cash flow from our business to
service our debt, and we may need to refinance all or a significant portion of
our debt.

•Our inability to raise additional capital on acceptable terms in the future may
limit our ability to develop and commercialize new tests and expand our
operations.

•Our strategic realignment and the associated headcount reduction have and are
expected to significantly change our business, result in significant expense,
may not result in anticipated savings, and will disrupt our business.

•We rely on highly skilled personnel in a broad array of disciplines and, if we
are unable to hire, retain or motivate these individuals, or maintain our
corporate culture, we may not be able to maintain the quality of our services or
grow effectively.

•We have acquired and may continue to acquire businesses or assets, form joint
ventures or make investments in other companies or technologies that could harm
our operating results, dilute our stockholders' ownership, or cause us to incur
debt or significant expense.

•We need to scale our infrastructure in advance of demand for our tests and
other products and services, and our failure to generate sufficient demand for
our products and services would have a negative impact on our business and our
ability to attain profitability.

•We face risks related to health epidemics, including the ongoing COVID-19
pandemic, and macroeconomic conditions, which could have a material adverse
effect on our business and results of operations.

•If third-party payers, including managed care organizations, private health
insurers and government health plans, do not provide adequate reimbursement for
our tests or we are unable to comply with their requirements for reimbursement,
our commercial success could be negatively affected.

•We face intense competition, which is likely to intensify further as existing
competitors devote additional resources to, and new participants enter, the
markets in which we operate. If we cannot compete successfully, we may be unable
to increase our revenue or achieve and sustain profitability.

•The market for patient data software is competitive, and our business will be
adversely affected if we are unable to successfully compete.

•Security breaches, privacy issues, loss of data and other incidents could
compromise sensitive or personal information related to our business or prevent
us from accessing critical information and expose us to liability, which could
adversely affect our business and our reputation.

•If we are not able to continue to generate substantial demand of our tests, our
commercial success will be negatively affected.

•Our success will depend on our ability to use rapidly changing genetic data to
interpret test results accurately and consistently, and our failure to do so
would have an adverse effect on our operating results and business, harm our
reputation and could result in substantial liabilities that exceed our
resources.

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•Impairment in the value of our goodwill or other intangible assets has and may
in the future have a material adverse effect on our operating results and
financial condition.

•If the FDA regulates the tests we currently offer as LDTs as medical devices,
we could incur substantial costs and our business, financial condition and
results of operations could be adversely affected.

•One of our competitors has alleged that our Anchored Multiplex PCR, or AMP,
chemistry and products using AMP are infringing on its intellectual property,
and we may be required to redesign the technology, obtain a license, cease using
the AMP chemistry altogether and/or pay significant damages, among other
consequences, any of which would have a material adverse effect on our business
as well as our financial condition and results of operations.

Mission and strategy

Invitae's mission is to bring comprehensive genetic information into mainstream
medical practice to improve the quality of healthcare for billions of people.
Our goal is to aggregate a majority of the world's genetic information into a
comprehensive network that enables sharing of data among network participants to
improve healthcare and clinical outcomes.

We were founded on four core principles:

•Patients should own and control their own genetic information;

•Healthcare professionals are fundamental in ordering and interpreting genetic
information;

•Driving down the price of genetic information will increase its clinical and
personal utility; and

•Genetic information is more valuable when shared.

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:

                    [[Image Removed: nvta-20220930_g2.jpg]]

•Refocusing our content offering. We continue to prioritize our core genome
sequencing platform and streamline our product portfolio to focus on core
testing opportunities among hereditary cancer, precision oncology, women's
health, rare disease and pharmacogenomics, ultimately leading to affordable and
ongoing access to the molecular information that enables personalized medicine.
Sharpening our focus on our content offering is a core and central contribution
to an improved user experience and the potential for better health outcomes.

•Creating a unique user experience. We are committed to continue our expansion
and integration of key digital health-based technologies and services in order
to create a differentiated model in genetic health. A state-of-the-art
interactive platform will enhance our service offering, leverage the uniquely
empowering characteristics of online sharing of genetic information and, we
believe, enable a superior economic offering to clients. We intend to continue
to expend efforts developing and implementing technology-driven improvements to
our customers' experience. We believe that an enhanced user

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experience and the resulting benefits to our brand and reputation will help draw
customers to us over and above our direct efforts to do so.

•Increasing volume. We intend to increase our brand equity and visibility
through a commitment to precision testing results, excellent service and a
variety of marketing and promotional techniques, including scientific
publications and presentations, sales, marketing, public relations, social media
and web technology vehicles. Our ability to increase billable volume 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.

•Attracting partners. As we add more customers to our platform, we believe our
business becomes particularly attractive to potential partners that can help the
patients in our network further benefit from their genetic information or that
provide us access to new customers who may wish to join our network. We believe
the cumulative effect of the increased billable volume brought by these
strategic components will allow us to lower the cost of our service and expand
patient access globally.

•Achieving scale. Our goal is to provide customers with a broad menu of genetic
content at a reasonable price and rapid turn-around times in order to grow
billable volume and, in turn, achieve greater economies of scale. As our
customers and our business benefit from further cost savings, we expect that
those cost savings will further improve the customer experience, allowing us to
reap the cumulative benefits from all of the efforts outlined above.

Business overview

We are focused on making comprehensive, high-quality genetic information more
accessible and instrumental to the healthcare ecosystem and stakeholders,
including patients, providers and physicians, payers, pharmaceutical partners
and more. Our comprehensive and convenient physical and digital platform of risk
assessment and the resulting data that is actionable and guided is designed to
power healthcare decisions across our stakeholders, importantly providing
patients a lifetime partner in Invitae to best guide and manage their personal
and familial health decisions. We offer genetic testing across multiple clinical
areas, including hereditary cancer, precision oncology, women's health, rare
diseases and pharmacogenomics. Medical genetics is central to health outcomes
and we are bringing it to the mainstream by lowering the costs and removing
barriers to adoption, which is driven by our user-friendly and comprehensive
Invitae Digital Health Platform. Ultimately, the utility of the accumulated data
will compound, enabling improved individual and population health and advancing
the benefits of molecular medicine around the globe.

For the years ended December 31, 2021, 2020 and 2019, our revenue was $460.4
million, $279.6 million, and $216.8 million, respectively, and we incurred net
losses of $379.0 million, $602.2 million, and $242.0 million, respectively. For
the nine months ended September 30, 2022 and 2021, our revenue was $393.8
million and $334.3 million, respectively, and we recognized net losses of $3.0
billion and $173.9 million, respectively. At September 30, 2022, our accumulated
deficit was $4.7 billion.

In 2021, 2020 and 2019, we generated 1,169,000, 659,000 and 469,000 billable
units, respectively. In the nine months ended September 30, 2022, we generated
990,000 billable units compared to 842,000 billable units in the same period in
2021. We calculate volume using billable units, which are billable events that
include individual test reports released and individual reactions shipped. We
refer to the set of reagents needed to perform a next generation sequencing
("NGS") test as a "reaction." Approximately 55% of the billable volume generated
in the first nine months of 2022 were billable to patients, biopharmaceutical
partners and other business-to-business customers (e.g., hospitals, clinics,
medical centers), and the remainder were billable to government and private
insurance payers. Many of the gene tests on our assays are reimbursable by
health insurance companies. 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 contracted
rate for reimbursement, there is typically a greater payment requirement from
the patient that may result in further delay in payment for these tests.

We believe that the keys to long-term profitable growth will be to align our
cost structure with our streamlined product portfolio and implement operational
discipline, increase billable volume, achieve broad reimbursement coverage for
our tests from third-party payers and increase the amount we receive from other
types of payers, advance digital health solutions and data services, provide
affordable pricing for genetic analysis and interpretation, reduce the costs
associated with performing our genetic tests, optimize the amount of genetic
content we offer and

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is used by providers across the range of healthcare platforms, consistently
improve the client experience, drive physician and patient utilization of our
platform for ordering and delivery of results, and increase the number of
strategic partners working with us to add value for our clients. We also believe
that providing a unique genetic testing platform that is agnostic to stage of
life or disease category will deliver unique benefits to customers, payers and
other institutions that are seeking to make genetic information a standard
element of healthcare decisions in the future. The accumulation of genetic and
patient information will ultimately enable the healthcare ecosystem and
stakeholders, including patients, providers and physicians, payers,
pharmaceutical partners and more to achieve improved outcomes.

On July 18, 2022, we initiated a strategic realignment of our operations and
began implementing cost reduction programs in order to accelerate our path to
positive operating cash flow. We are in the process of implementing initiatives
to eliminate non-core operations while realigning and sharpening our focus on
the portfolio of businesses that we believe can generate sustainable margins and
deliver returns to fuel future investment. In the testing business, we are
shifting operational and commercial efforts to accelerate positive cash flow by
maintaining robust support of the higher-margin, higher-growth testing
opportunities among hereditary cancer, precision oncology, women's health, rare
disease and pharmacogenomics. We also plan to continue our expansion and
integration of key digital health-based technologies and services in order to
create a differentiated model in genetic health. Longer-term, we remain
committed to our genomic management business. We believe that we hold
significant growth potential and intend to continue to prioritize the tools,
partnerships and applications that support the development of genome management
as the catalyst for the future of healthcare.

The realignment plan includes a reduction in workforce of approximately 1,000
positions, lab and office space consolidation, portfolio optimization, decrease
in other operating expenses, as well as a reduced international footprint. Our
strategic realignment is anticipated to result in approximately $326 million in
annualized cash savings, which is expected to be fully realized by 2023. We
currently expect that the realignment plan will be completed within the next 12
months and estimate we will incur costs up to $170 million for associated
employee severance and benefits, losses on asset disposals, and other
restructuring costs related to the realignment plan. This reflects the best
estimate of the Company, which may be revised in subsequent periods as the
strategic realignment plan progresses.

Concurrently, we also announced that Kenneth D. Knight, formerly our Chief
Operating Officer since 2020, was appointed as our Chief Executive Officer,
replacing Dr. Sean E. George. Dr. George, who co-founded our company and served
as our Chief Executive Officer since 2017, will support our company through a
transition period as a consultant and continue to serve as a member of the board
of directors until December 31, 2022. Additionally, Randy Scott, Ph.D.,
Invitae's co-founder, former CEO from 2012 to 2017, and former executive
chairman from 2017 to 2019, returned to the Company as chairman of the board.

We expect to incur operating losses for the near term as we implement the
strategic realignment of our operations. If we are unable to achieve these
objectives and successfully manage our costs, we may not be able to achieve
positive operating cash flow in the near term or at all.

Russia and Ukraine Conflict

During the first quarter of 2022, Russia commenced a military invasion of
Ukraine, and the ensuing conflict has created disruption in the region and
around the world. We have suspended operations in Russia, which has not had and
is not expected to have a material impact on our operating results. We serve
customers globally across a broad geographic base. Neither Russia nor Ukraine
has comprised or is expected to comprise a material portion of our total
revenue, net loss, or net assets. We continue to closely monitor the ongoing
conflict and related sanctions, which could impact our financial results in the
future. Other impacts due to this evolving situation are currently unknown and
could potentially subject our business to adverse consequences should the
situation escalate beyond its current scope. See Part II, Item 1A. "Risk
Factors" in this Quarterly Report on Form 10-Q for additional information about
the conflict between Russia and Ukraine and its potential effect on our business
and results of operations.

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.

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.

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Our production facilities currently remain fully operational. Substantially all
of the Company's offices have re-opened in a hybrid working model, subject to
operating restrictions which adhere to healthcare guidelines to protect public
health and the health and safety of employees. While we have not experienced
significant disruption in our supply chain, we have experienced supply delays
and higher logistics costs as a result of the COVID-19 pandemic and have also
had to obtain supplies from new suppliers.

As a result of government-imposed restrictions, many announced healthcare
guidelines resulted in a shift of regular physician visits and healthcare
delivery activities to remote/telehealth formats. This was particularly
important for patients who, despite the fall-out from COVID-19, continued to be
diagnosed with critical diseases, like cancer, and for women who are pregnant or
are trying to conceive. We believe our investments in new access platforms and
technologies has and will continue to position us well to provide a range of
testing to clinicians and patients using a "clinical care from afar" model. An
example is our rollout in April 2020 of our Gia telehealth platform, which
expands access to remote interaction between patients and clinicians as well as
direct ordering of genetic tests.

Although many government-imposed restrictions have been reduced or eliminated,
the future impact of the COVID-19 pandemic continues to be highly
uncertain. Given the unknown duration and extent of COVID-19's impact on our
business, and the healthcare system in general, we continue to monitor evolving
market conditions and have pivoted our focus and investments on the commercial
execution of workflows that support remote ordering, online support and
telehealth.

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES
Act") was signed into law as 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 January 2021 we received $2.3 million as part of this initiative.
This payment was recognized as other income, net in our condensed consolidated
statement of operations in the period received.

Adverse macroeconomic conditions

Adverse macroeconomic developments, including inflation, slowing growth, rising
interest rates, or recession, may adversely affect our business and financial
condition. These developments have caused, and could in the future cause,
disruptions and volatility in global financial markets and increased rates of
default and bankruptcy, and negatively affect business and consumer spending.
Adverse economic conditions may also increase the costs of operating our
business, including vendor, supplier and workforce expenses. Management
continues to evaluate the impact of macroeconomic events, including inflation,
on our business and our future plans and intends to take appropriate measures to
help alleviate their impact, but there can be no assurance that these efforts
will be successful.

Factors affecting our performance

Number of billable units

Our centralized test revenue is tied to the number of tests which we bill
third-party payers, biopharmaceutical partners, other business-to-business
customers (e.g., hospitals, clinics, medical centers), or patients. Our
decentralized product revenue is based upon the number of individual reactions
we ship biopharmaceutical partners and other business-to-business customers. We
refer to the set of reagents needed to perform an NGS test as a "reaction," and
we refer to billable events that include individual test reports released and
individual reactions shipped as billable units. We typically bill for our
services following delivery of the billable report derived from testing samples
and interpreting the results. For units manufactured for use by customers in
distributed facilities, we typically bill customers upon shipment of those
units. Test orders are placed under signed requisitions or contractual
agreements, as we often enter into contracts with biopharmaceutical partners,
other business-to-business customers and insurance companies. We incur the
expenses associated with a unit in the period in which the unit is processed
regardless of when payment is received with respect to that unit. We believe the
number of billable units in any period is an important indicator of the growth
in our testing business, and with time, this will translate into the number of
customers accessing our platform.

Number and size of research and commercial partnerships

Pharma development service revenue, which we recognize within other revenue in
our condensed consolidated statements of operations, is generated primarily from
services provided to biopharmaceutical companies and other partners and is
related to companion diagnostic development, clinical research, and clinical
trial services across the research, development and commercialization phases of
collaborations. The result of these

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relationships may include the development of new targeted companion diagnostics,
which underscore and expand the need for genetic testing and in some cases may
lead to intellectual property and/or revenue sharing opportunities with
third-party partners.

In addition to research partnerships, we also seek to grow the number of
biopharmaceutical partners and other business-to-business customers for whom we
provide testing technologies, analysis, supplies and expertise to institutions
that provide independent testing services to customers in their respective
regions.

Success obtaining and maintaining reimbursement

Our ability to increase volume and 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 331 million lives,
comprised of Medicare, all national commercial health plans, and Medicaid in
most states, including California (Medi-Cal), our home state.

Ability to lower the costs associated with performing our tests

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 materials, port some tests onto
a next generation sequencing platform and negotiate favorable terms for our
materials purchases. We also intend to continue to design and implement hardware
and software tools that are designed to reduce personnel-related costs for both
laboratory and clinical operations/medical interpretation by increasing
personnel efficiency and thus lowering labor costs per test.

Ability to optimize our genetic content in meeting market needs and create new
pathways to test

We intend to continue to reduce the average cost per test, optimize our test
menus and content, and offer the tests at affordable prices in order to meet
customer and patient needs. In addition, we have and intend to continue to
identify new ways to connect our testing services and information to patients.
These include direct patient outreach and ordering capacity, the use of
automated assistants for physician customers to improve the ease of ordering and
processing genetic tests and programs designed to reach underserved patient
populations with genetic testing. We also continue to collaborate with strategic
partners and identity new market and channel opportunities.

Realignment of our business and timing of expenses

As part of the strategic business realignment of our operations announced in
July 2022, we initiated a comprehensive plan focused on supporting business
lines and geographies that we believe can generate sustainable margins, provide
the best return to fuel future investment and accelerate the company's path to
positive cash flow. We believe the plan further helps ensure we remain at the
forefront of innovation and advancements in genomics by allocating resources
towards our core genetic testing and genome management platforms that have the
potential to improve healthcare outcomes.

We have conducted an assessment of our product portfolio as well as the
associated research and development and commercial spending. Our new plan shifts
the focus to programs relevant to the core testing business to drive near-term
cost of revenue reductions. We have also performed an extensive review of
internal and external costs and how those expenses align with the new business
structure. Additional savings are expected to be generated through the ongoing
digitization of workflows, elimination of duplication and streamlined processes
across the core platforms and rationalization of technology and external
services.

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As we refocus our operations on our core genomic testing platform, we also plan
to continue to invest in our genetic testing and information management business
to drive long-term profitable growth. We deploy state-of-the-art technologies in
our genetic testing services, and we intend to continue to scale our
infrastructure, including our testing capacity and capabilities as well as our
information systems. We also expect to incur software development costs as we
seek to further digitize and 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 continue to 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. In addition, we will 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 different aspects of our
business.

How we recognize revenue

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, or
upon shipment of our precision oncology products. 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
payments, the existence of secondary payers and claim denials. Some test orders
are placed under signed requisitions or contractual agreements, and we often
enter into contracts with biopharmaceutical partners, other business-to-business
customers and insurance companies that include pricing provisions under which
such tests are billed.

Pharma development service revenue is generated primarily from custom assay
design services, sample processing activities and consultative inputs, which is
separate from revenue generated by any related or unrelated product component.
Revenue is recognized as samples are processed or scope of work is completed
based on contracted agreements with those biopharmaceutical customer companies.

Under these collaborations, we also generate revenue from achievement of
milestones, provision of on-going support, and related pass-through costs and
fees. We generally have distinct performance obligations for development
milestones related to our development of a companion diagnostic device. We use a
cost plus a margin approach to estimate the standalone value of our companion
diagnostic development service performance obligations. Revenue is recognized
over time using input or output methods based on our assessments of performance
completed to date toward each milestone.

Financial overview

Revenue

We primarily generate revenue from testing services and sales of distributed
precision oncology products. Customers are typically billed upon delivery of
test results or shipment of products. We also generate revenue from development
agreements, access to data, data analytics and other related services provided
for biopharmaceutical partners and other parties. Our ability to increase our
revenue will depend on our ability to increase our market penetration, obtain
contracted reimbursement coverage from third-party payers, and grow our
relationships with biopharmaceutical customers.

Cost of revenue

Cost of revenue reflects the aggregate costs incurred in delivering our products
and services and includes expenses for materials and supplies, personnel-related
costs, freight, costs for lab services, genetic interpretation and clinical
trial support, equipment and infrastructure expenses and allocated overhead
including rent, information technology, equipment depreciation, amortization of
acquired intangibles, and utilities. We expect cost of revenue to generally
increase in line with the increase in billable volume, however, we expect a
future increase in amortization of acquired intangible assets that is not
dependent on billed volume. We anticipate our cost per unit for existing tests
will generally decrease over time due to the efficiencies we expect to gain as
volume increases and from automation and other cost reductions. These reductions
in cost per unit will likely be offset by new offerings, which often have a
higher costs per unit during the introductory phases before we are able to gain
efficiencies. The cost per unit may fluctuate significantly from quarter to
quarter.

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Operating expenses

Our operating expenses are classified into three categories related to our
operational activities: research and development, selling and marketing, and
general and administrative. For each category, the largest component is
generally personnel-related costs, which include salaries, employee benefit
costs, bonuses, commissions, as applicable, and stock-based compensation
expense. Operating expense categories also include asset impairments, change in
fair value of contingent consideration, and restructuring, which are discussed
further below.

Research and development

Research and development expenses represent costs incurred to develop our
technology and future offerings. These costs are principally for process
development associated with our efforts to expand the number of genes we can
evaluate, our efforts to lower the costs per unit and our development of new
products to expand our platform. We have and may continue to partner with other
companies to develop new technologies and capabilities we expect to invest
capital and incur significant operating costs to support these development
efforts. In addition, we incur process development costs to further develop the
software we use to operate our laboratories, analyze generated data, process
customer orders, validate clinical activities, 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, amortization of acquired intangible assets, and allocated overhead
including rent, information technology, equipment depreciation and utilities.

We expense all research and development costs in the periods in which they are
incurred. We expect our research and development expenses to decrease as a
percentage of revenue as we streamline our product portfolio, shift investments,
including exiting certain business lines and commercial geographies, and reduce
labor costs through a reduction in workforce. We expect to make investments to
reduce costs and streamline our technology to provide patients access to testing
aligned to scale with our long-term profitable growth targets.

Selling and marketing

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 expect our
selling and marketing expenses to decrease as a percentage of revenue as a
result of a reduction in workforce, targeted sales force expansion and lower
marketing spending as we implement a more efficient sales and marketing approach
to support our core genetic testing platform.

General and administrative

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; and post-combination
expenses incurred in relation to companies we acquire. We expect our general and
administrative expenses to decrease as a percentage of revenue as a result of
our cost reduction plan including a reduction in workforce, consolidation of
underutilized facilities, digitization of workflows, elimination of duplication
and streamlined processes, and rationalization of technology and external
services spending.

Asset impairments

Asset impairments includes the impairment loss recognized on goodwill, the IPR&D
indefinite-lived intangible asset initially recognized as part of the
acquisition of Singular Bio and specific equipment that is no longer being
utilized on this project and has no alternative future use. 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 compare 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. Asset
impairments also includes the impairment of right-of-use assets and related
leasehold improvements associated with our decision to cease use of certain
facilities as part of our strategic realignment to consolidate lab and office
space and reduce our international footprint.

                                       36

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Change in fair value of contingent consideration

Changes in fair value of contingent consideration are adjustments related to
contingent consideration related to business combinations. We expect these
expenses to fluctuate significantly period to period due to fair value
adjustments that are dependent on many factors, including the value of our
common stock and our assessment of the probability of meeting certain
acquisition-related milestones within the terms of the respective acquisition
agreements, including certain prescribed deadlines for achievement.

With respect to the ArcherDX Final Milestone, the liability was reduced to nil
as of June 30, 2021, 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 previous ArcherDX stockholders to extend the date of
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.

Restructuring

Restructuring includes 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 RSUs related to workforce reductions. Employee separation costs
include one-time termination benefits that are recognized as a liability at
estimated fair value, at the time of communication to employees, unless future
service is required, in which case the costs are recognized ratably over the
future service period. Ongoing termination benefits are recognized as a
liability at estimated fair value when the amount of such benefits are probable
and reasonably estimable. 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. 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.

Other income, net

Other income, 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, net also includes income generated from our cash
equivalents and marketable securities and amounts received under the CARES Act.

Interest expense

Interest expense is primarily attributable to interest incurred related to our
debt and finance leases. See Note 8, "Commitments and contingencies" in Notes to
Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on
Form 10-Q for additional information.

Income tax benefit

Since we generally establish a full valuation allowance against our deferred tax
assets, our income tax benefit primarily consists of changes in our deferred tax
realization assessments as a result of taxable temporary differences assumed in
connection with our acquisitions and changes in the expected timing of the
reversal of taxable temporary differences.

Critical accounting policies and estimates

Management's discussion and analysis of our financial condition and results of
operations is based on our condensed 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

                                       37

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under different assumptions or conditions and any such differences may be
material. We believe that our 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.

The following updates our discussion of impairment testing as of June 30, 2022,
and should be read in conjunction with our critical accounting policies and
estimates disclosed in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2021. Except as presented below, there have been no material
changes from the critical accounting policies and estimates described in our
Annual Report on Form 10-K. See Note 2, "Summary of significant accounting
policies" in the Notes to Condensed Consolidated Financial Statements in Part I,
Item 1. of this Quarterly Report on Form 10-Q for information regarding recent
accounting pronouncements.

Goodwill and indefinite-lived intangibles

In accordance with ASC 350, Intangibles - Goodwill and Other we do not amortize
goodwill or other intangible assets with indefinite lives, including IPR&D, but
rather test them for impairment. ASC 350 requires us to perform an impairment
review of our goodwill and indefinite-lived intangible balances at least
annually, which we do in the fourth quarter of each year for our single
consolidated reporting unit, and whenever events or changes in circumstances
indicate that the carrying amount of these assets may not be recoverable.

Factors that may indicate potential impairment and trigger an interim 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, 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 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
intangibles, and long-lived assets, including definite-lived intangibles.

During the three months ended June 30, 2022, the Company completed a
quantitative impairment test for goodwill. In performing the goodwill impairment
test, we estimated the fair value of the reporting unit by utilizing the
discounted cash flow method under the income approach. The determination of the
fair value of the reporting unit requires significant estimates and assumptions,
including significant unobservable inputs. The key inputs to this valuation
approach include, but were not limited to, management's forecast of projected
revenues associated with future cash flows, discount rates, and control
premiums.

When performing our income approach for the reporting unit, we incorporate the
use of projected financial information and a discount rate that is developed
using market participant-based assumptions. The cash flow projections are based
on an 11 year financial forecast developed by management that includes
projections of billable units, revenue by test type and mix, rate changes,
capital spending trends, investments in working capital to support future
revenue and projected cash flow sources and needs, among others. The selected
discount rate then considers the risk and nature of the reporting unit's cash
flows and rates of return market participants would require to invest capital in
the reporting unit.

Based on this analysis, we recognized a 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 that is 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
also recognized a non-cash, pre-tax impairment loss of $30.0 million during the
three months ended June 30, 2022. 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 also no longer being utilized on this project and has
no alternative future use. The impairment is recorded in asset impairments in
the condensed consolidated statements of operations. During the three months
ended September 30, 2022, we did not record any further impairments of
intangible assets.

Impairment assessment of long-lived assets

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

                                       38

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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 the
carrying amount 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" in the Notes to Condensed Consolidated Financial Statements
in Part I, Item 1. of this Quarterly Report on Form 10-Q. We also recorded
losses on disposal of assets pursuant to the strategic realignment, which are
discussed in Note 11, "Restructuring" in the Notes to Condensed Consolidated
Financial Statements in Part I, Item 1. of this Quarterly Report on Form 10-Q.

Results of operations

Three Months Ended September 30, 2022 and 2021

The following sets forth our condensed consolidated statements of operations
data for each of the periods indicated (in thousands, except percentage
changes). Our historical results are not necessarily indicative of our results
of operations to be expected for any future period.

                                                   Three Months Ended September 30,               Dollar                 %
                                                       2022                    2021               Change              Change
Revenue:
Test revenue                                   $         128,839          $   111,676          $   17,163               15%
Other revenue                                              4,697                2,719               1,978               73%
Total revenue                                            133,536              114,395              19,141               17%

Cost of revenue                                          116,956               87,741              29,215               33%
Research and development                                  87,177               97,511             (10,334)             (11)%
Selling and marketing                                     49,193               55,501              (6,308)             (11)%
General and administrative                                44,939               86,820             (41,881)             (48)%
Asset impairments                                          6,708                    -               6,708              100%
Change in fair value of contingent
consideration                                                  -              (19,866)             19,866              100%
Restructuring                                            118,514                    -             118,514              100%
Total cost and operating expenses                        423,487              307,707             115,780               38%
Loss from operations                                    (289,951)            (193,312)            (96,639)             (50)%
Other income, net                                          1,872                3,357              (1,485)             (44)%
Interest expense                                         (14,145)             (14,069)                (76)             (1)%
Net loss before taxes                                   (302,224)            (204,024)            (98,200)             (48)%
Income tax benefit                                        (1,068)              (5,848)              4,780               82%
Net loss                                       $        (301,156)         $  (198,176)         $ (102,980)             (52)%


NM - Not Meaningful

Revenue

The increase in total revenue of $19.1 million for the three months ended
September 30, 2022 compared to the same period in 2021 was primarily due to an
increase in billable volume due to growth in our business and higher average
revenue per billable unit. Billable volume increased to approximately 324,000 in
the three months ended September 30, 2022 compared to 296,000 in the same period
of 2021, an increase of 9 percent. Average revenue per billable unit was $398
per unit in the three months ended September 30, 2022 compared to $377 per unit
in the comparable prior period primarily due to changes in payer and product
mix.

Cost of revenue

The increase in the cost of revenue of $29.2 million for the three months ended
September 30, 2022 compared to the same period in 2021 was primarily due to an
increase in billable volume and a higher cost per

                                       39

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billable unit. Cost per unit was $361 in the three months ended September 30,
2022 compared to $296 for the same period in 2021. The cost per unit increased
primarily due to the write down of inventory and prepaid items of $16.4 million
related to the exit of certain product offerings, and amortization of acquired
intangible assets of $14.3 million. These increases were partially offset by a
decrease in lab materials of $2.5 million.

Research and development

The decrease in research and development expense of $10.3 million for the three
months ended September 30, 2022 compared to the same period in 2021 was
primarily due to a decreases in outside labor of $6.2 million, lab-related
expenses for supplies and materials of $6.1 million and other expenses of $1.3
million. These decreases were partially offset by higher depreciation and
amortization of $3.3 million due to accelerated depreciation for lab equipment
related to the exit of certain product offerings.

Selling and marketing

The decrease in selling and marketing expense of $6.3 million for the three
months ended September 30, 2022 compared to the same period in 2021 was
primarily due to a decrease in marketing costs of $4.9 million due to lower
spending on brand initiatives, and a decrease in information technology costs
and other corporate expenses of $1.4 million.

General and administrative

The decrease in general and administrative expense of $41.9 million for the
three months ended September 30, 2022 compared to the same period in 2021 was
primarily due to a decrease in acquisition-related stock-based compensation
expense of $31.7 million, a decrease in legal fees of $6.1 million for
litigation-related expenses included in the prior period, a decrease in
professional and outside services of $4.8 million, and a decrease in
personnel-related expenses of $4.0 million due to lower headcount as a result of
the reduction in workforce. These decreases were offset by increases in other
corporate expenses of $4.7 million.

Asset impairments

Under our strategic realignment plan, we decided to cease use of certain
facilities and actively began looking to sublease the locations, including the
related leasehold improvements. During the three months ended September 30,
2022, we recognized an impairment charge of $4.4 million related to right-of-use
assets and $2.3 million for the related leasehold improvements.

Change in fair value of contingent consideration

The change in fair value of contingent consideration decreased $19.9 million for
the three months ended September 30, 2022 compared to the same period in 2021.
The prior year period includes fair value adjustments to reduce our contingent
consideration liability primarily related to our acquisition of ArcherDX and the
remaining development milestones resulting from a decrease in the value of our
common stock and the removal of our contingent consideration liability relating
to the outstanding milestone for FDA clearance or approval of a therapy
selection IVD. The prior year adjustments to decrease our contingent
consideration were due to our determination that this milestone will not be
achieved in the timeframe prescribed in the acquisition agreement.

Restructuring

In July 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.

During the three months ended September 30, 2022, we incurred restructuring
expenses of $118.5 million. Restructuring expense was comprised of $57.9 million
in employee severance and benefits, $48.8 million in losses on asset disposals,
and $11.8 million in other restructuring expenses. We did not have similar
expenses for the three months ended September 30, 2021.

Other income, net

The decrease in other income, net of $1.5 million for the three months ended
September 30, 2022 compared to the same period in 2021 was primarily due to a
decrease in fair value adjustments of $3.9 million related to our

                                       40

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stock payable liabilities. In September 2022, the amounts held back to satisfy
indemnification obligations for an acquisition were partially released to the
former stockholders. This was partially offset by an increase in interest income
of $2.4 million associated with marketable securities investments in the current
year.

Interest expense

The increase in interest expense of $0.1 million for the three months ended
September 30, 2022 compared to the same period in 2021 was due to increased debt
outstanding as compared to the prior year period.

Income tax benefit

The decrease in income tax benefit of $4.8 million for the three months ended
September 30, 2022 compared to the same period in 2021 was primarily due to a
$6.0 million reduction in the valuation allowance on our legacy deferred tax
assets primarily as a result of net deferred tax liabilities of $6.9 million
assumed in connection with an acquisition in September 2021. There was no
similar income tax benefit in the current period for the three months ended
September 30, 2022.

Nine Months Ended September 30, 2022 and 2021

The following sets forth our condensed consolidated statements of operations
data for each of the periods indicated (in thousands, except percentage
changes). Our historical results are not necessarily indicative of our results
of operations to be expected for any future period.

                                                    Nine Months Ended September 30,                 Dollar                  %
                                                       2022                     2021                Change               Change
Revenue:
Test revenue                                   $          381,518          $   322,448          $     59,070               18%
Other revenue                                              12,331               11,880                   451               4%
Total revenue                                             393,849              334,328                59,521               18%

Cost of revenue                                           324,412              252,563                71,849               28%
Research and development                                  330,559              284,323                46,236               16%
Selling and marketing                                     172,086              163,705                 8,381               5%
General and administrative                                149,071              197,640               (48,569)             (25)%
Asset impairments                                       2,324,572                    -             2,324,572              100%
Change in fair value of contingent
consideration                                              (1,850)            (386,836)              384,986              100%
Restructuring                                             118,514                    -               118,514              100%
Total cost and operating expenses                       3,417,364              511,395             2,905,969               NM
Loss from operations                                   (3,023,515)            (177,067)           (2,846,448)              NM
Other income, net                                          19,637                9,846                 9,791               99%
Interest expense                                          (42,149)             (35,869)               (6,280)             (18)%
Net loss before taxes                                  (3,046,027)         

  (203,090)           (2,842,937)              NM
Income tax benefit                                        (39,551)             (29,208)              (10,343)             (35)%
Net loss                                       $       (3,006,476)         $  (173,882)         $ (2,832,594)              NM


NM - Not Meaningful

Revenue

The increase in total revenue of $59.5 million for the nine months ended
September 30, 2022 compared to the same period in 2021 was due primarily to
increased billable volume and slightly higher average revenue per billable unit.
Billable volume increased to 990,000 in the nine months ended September 30, 2022
compared to 842,000 in the same period of 2021, an increase of 18 percent, due
to growth in the business. Average revenue per billable unit increased to $385
per unit in the nine months ended September 30, 2022 compared to $383 per unit
in the comparable prior period primarily due to changes in payer and product
mix.

                                       41

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Cost of revenue

The increase in the cost of revenue of $71.8 million for the nine months ended
September 30, 2022 compared to the same period in 2021 was primarily due to
increased billable volume and higher cost per billable unit. Cost per billable
unit was $328 in the nine months ended September 30, 2022 compared to $300 for
the same period in 2021. The increase in cost per unit in the nine months ended
September 30, 2022 was primarily attributable to an increase in amortization of
acquired intangible assets of $39.0 million, an increase in write downs of
inventory and prepaid items of $19.6 million related to the exit of certain
product offerings, an increase in shipping costs of $6.5 million, higher sales
and use taxes of $4.0 million due to an increase in inventory purchases, and an
increase in other costs of $2.7 million, as well as changes in product mix.

Research and development

The increase in research and development expense of $46.2 million for the nine
months ended September 30, 2022 compared to the same period in 2021 principally
consisted of the following elements: personnel-related costs increased $57.6
million primarily driven by acquisition-related stock-based compensation
expenses related to an acquisition in September 2021; professional fees
increased $7.6 million due to higher contract labor; depreciation and
amortization increased $3.3 million due to accelerated depreciation for lab
equipment related to the exit of certain product offerings; and other expenses
increased $1.3 million. These increases were partially offset by decreases in
lab-related expenses of $23.6 million primarily due lower costs related to
external development projects and lab supplies and services.

Selling and marketing

The increase in selling and marketing expense of $8.4 million for the nine
months ended September 30, 2022 compared to the same period in 2021 principally
consisted of the following elements: personnel-related costs increased by $12.7
million; travel-related expenses increased $3.0 million resulting from more
in-person travel due to reduced COVID-19 restrictions; and information
technology costs increased $1.3 million due to higher spending on software
licenses. These increases were offset by decreases in brand initiatives and
advertising costs of $6.2 million and professional and other expenses of $2.4
million.

General and administrative

The decrease in general and administrative expense of $48.6 million for the nine
months ended September 30, 2022 compared to the same period in 2021 was
primarily due to decreases in acquisition-related stock-based compensation
expense of $35.5 million, personnel-related costs of $15.2 million due to lower
stock-based compensation partially offset by higher employee-related costs, and
a decrease in legal fees of $9.3 million for litigation-related expenses
included in the prior period. These decreases were offset by increases in other
corporate expenses of $5.6 million, facilities-related expenses of $4.3 million
due to lease expenses and higher security and building support costs, and
information technology costs increased $1.5 million due to higher spending on
software licenses.

Asset impairments

Under our strategic realignment plan, we decided to cease use of certain
facilities and actively began looking to sublease the locations, including the
related leasehold improvements. During the three and nine months ended
September 30, 2022, we recognized an impairment charge of $4.4 million related
to right-of-use assets and $2.3 million for the related leasehold improvements.

We completed an interim impairment test for goodwill and the IPR&D
indefinite-lived intangible asset as of June 30, 2022, and as a result recorded
a non-cash impairment charge of $2.3 billion. Additionally, we recognized an
impairment loss of $4.8 million related to specific equipment that is no longer
being utilized on this project. See Critical accounting policies and estimates
above and Note 5, "Goodwill and intangible assets" in Notes to the Condensed
Consolidated Financial Statements in "Part 1, Item 1. Condensed Consolidated
Financial Statements" of this Quarterly Report on Form 10-Q for further
information.

Change in fair value of contingent consideration

The change in fair value of contingent consideration represented income of $1.9
million and $386.8 million for the nine months ended September 30, 2022 and
2021, respectively. The prior year period includes fair value adjustments to
reduce our contingent consideration liability primarily related to our
acquisition of ArcherDX and the remaining development milestones resulting from
a decrease in the value of our common stock and the removal of

                                       42

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our contingent consideration liability relating to the outstanding milestone for
FDA clearance or approval of a therapy selection IVD. The prior year adjustments
to decrease our contingent consideration were due to our determination that this
milestone will not be achieved in the timeframe prescribed in the acquisition
agreement.

Restructuring

During the nine months ended September 30, 2022, we incurred restructuring
expenses of $118.5 million. Restructuring expense was comprised of $57.9 million
in employee severance and benefits, $48.8 million in losses on asset disposals,
and $11.8 million in other restructuring expenses. We did not have similar
expenses for the nine months ended September 30, 2021.

Other income, net

The increase in other income, net of $9.8 million for the nine months ended
September 30, 2022 compared to the same period in 2021 was primarily due to
increases in fair value adjustments of $6.5 million related to our stock payable
liabilities due to the decrease in the price of our common stock as well as
higher interest income associated with marketable securities investments in the
current year.

Interest expense

The increase in interest expense of $6.3 million for the nine months ended
September 30, 2022 compared to the same period in 2021 was due to increased debt
outstanding as compared to the prior year period.

Income tax benefit

The increase in income tax benefit of $10.3 million for the nine months ended
September 30, 2022 was primarily due 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 existing
finite-lived deferred tax assets for which a valuation allowance had previously
been established. There was no similar income tax benefit in the prior year
period. The income tax benefit of $29.2 million for the nine months ended
September 30, 2021 was primarily due to a reduction in the valuation allowance
on our legacy deferred tax assets as a result of net deferred tax liabilities
assumed in connection with acquisitions in 2021.

Liquidity and capital resources

Liquidity and capital expenditures

We have generally incurred net losses since our inception. For the nine months
ended September 30, 2022 and 2021, we had net losses of $3.0 billion and $173.9
million, respectively, and we expect to incur additional losses in the future.
At September 30, 2022, we had an accumulated deficit of $4.7 billion. While our
revenue has increased over time, we may never achieve revenue sufficient to
offset our expenses.

Since inception, our operations have been financed primarily by fees collected
from our customers, net proceeds from sales of our capital stock as well as
borrowing from debt facilities and the issuance of convertible senior notes.

In January 2021, we issued, 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 $434.3 million.

In September 2019, we issued $350.0 million of aggregate principal amount of
convertible senior notes due 2024, 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 due 2024 to settle our Note Purchase
Agreement we entered into in November 2018. In April 2021, we issued
$1,150.0 million of aggregate principal amount of convertible senior notes due
2028, which bear cash interest at a rate of 1.5% per year. Our ability to make
scheduled payments of the principal of, to pay interest on or to refinance our
indebtedness depends on our future performance, which is subject to economic,
financial, competitive and other factors beyond our control. Our business may
not generate cash flow from operations in the future sufficient to service our
debt, including paying off the principal when due, and make necessary capital
expenditures. Holders of our convertible senior notes have the right to require
us to repurchase all or any portion of their notes upon the occurrence of a
fundamental change at a fundamental change repurchase price equal to 100% of the
principal amount of the notes to be repurchased, plus accrued and unpaid
interest, if any. In addition, upon conversion of the notes, unless we elect to
deliver solely shares of our common stock to settle

                                       43

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such conversion (other than paying cash in lieu of delivering any fractional
share), we will be required to make cash payments, which could adversely affect
our liquidity. However, we only have limited ability to make those cash payments
under our credit agreement and, even if the credit agreement limitations are no
longer in effect, we may not have enough available cash or be able to obtain
financing at the time we are required to make repurchases of notes surrendered
or notes being converted.

In October 2020, in connection with our acquisition of ArcherDX, we entered into
a credit facility to borrow $135.0 million which closed concurrently with the
merger. The terms of this credit facility restrict our ability to incur certain
indebtedness, pay dividends, make acquisitions and take other actions.

At September 30, 2022 and December 31, 2021, we had $596.0 million and $1.1
billion, respectively, of cash, cash equivalents, restricted cash and marketable
securities.

Our primary use of cash is to fund our operations. 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 inception, and we expect to continue
to incur losses in the near future. We believe our existing cash, cash
equivalents and marketable securities as of September 30, 2022 and fees
collected from the sale of our products and services will be sufficient to meet
our anticipated cash requirements for at least the next 12 months.

We may need or choose to raise additional funding to finance operations and
service debt obligations prior to achieving profitability or should we make
additional acquisitions. We regularly consider fundraising opportunities and
expect to determine the timing, nature and size of future financings based upon
various factors, including market conditions, debt maturities and our operating
plans. We may in the future elect to finance operations by selling equity or
debt securities or borrowing money. 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 could impose significant restrictions on our
operations. If additional funding is required, there can be no assurance that
additional funds will be available to us on acceptable terms on a timely basis,
if at all. If we are unable to obtain additional funding when needed, we may
need to curtail planned activities to reduce costs. Doing so will likely have an
unfavorable effect on our ability to execute on our business plan and have an
adverse effect on our business, results of operations and future prospects.

On July 18, 2022, we initiated a strategic realignment of our operations and
began implementing cost reduction programs in order to accelerate our path to
positive operating cash flow. We are in the process of implementing initiatives
to eliminate non-core operations while realigning and sharpening our focus on
the portfolio of businesses that we believe can generate sustainable margins and
deliver returns to fuel future investment. In the testing business, we are
shifting operational and commercial efforts to accelerate positive cash flow by
maintaining robust support of the higher-margin, higher-growth testing
opportunities among hereditary cancer, precision oncology, women's health, rare
disease and pharmacogenomics. The realignment plan also includes a shift in
investments as we exit certain business lines and commercial geographies,
portfolio optimization, reduction in workforce, lab and office space
consolidation, decrease in other operating expenses including lower sales and
marketing spending as we implement a more efficient go-to market strategy, and
optimize and reassess external spending on professional services and technology.
We anticipate the cost savings associated with the realignment plan will extend
our cash runway. We expect to incur total restructuring expenses up to
$170 million over the next 12 months. This reflects the best estimate of the
Company, which may be revised in subsequent periods as the strategic realignment
plan progresses.

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

                                                                     Nine 

Months Ended September 30,

                                                                        2022                    2021
Net cash used in operating activities                            $       (410,934)         $  (383,897)
Net cash used in investing activities                                    (296,694)            (374,583)
Net cash provided by financing activities                                   1,159            1,558,909
Net (decrease) increase in cash, cash equivalents and restricted
cash                                                             $       (706,469)         $   800,429


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Cash flows from operating activities

For the nine months ended September 30, 2022, cash used in operating activities
of $410.9 million principally resulted from our net loss of $3.0 billion, a
$39.6 million income tax benefit, and non-cash charges for remeasurements of
liabilities in connection with business combinations of $17.5 million. These
were partially offset by non-cash charges of $2.3 billion for asset impairments,
$164.3 million for stock-based compensation, $104.7 million for depreciation and
amortization, $48.8 million related to losses on asset disposals, $11.7 million
for amortization of debt discount and issuance costs related to our outstanding
debt, $6.8 million of non-cash lease expense, and $5.0 million of
post-combination share-based compensation expense. The net effect on cash for
changes in net operating assets was a decrease of cash of $14.4 million.

For the nine months ended September 30, 2021, cash used in operating activities
of $383.9 million principally resulted from our net loss of $173.9 million,
non-cash charges of remeasurements of liabilities in connection with business
combinations of $396.0 million, primarily relating to development milestones and
a $29.2 million income tax benefit primarily generated from acquisitions. These
were partially offset by non-cash charges of $131.8 million for stock-based
compensation, $56.8 million for depreciation and amortization, $10.4 million for
amortization of debt discount and issuance costs related to our outstanding debt
and $7.9 million of post-combination expense primarily comprised of holdback
cash consideration and the acceleration of unvested equity from acquisitions.
The net effect on cash of changes in net operating assets was an increase of
cash of $1.0 million.

Cash flows from investing activities

For the nine months ended September 30, 2022, cash used in investing activities
of $296.7 million was primarily due to net purchases and maturities of
marketable securities of $248.3 million and cash used for purchases of property
and equipment of $48.4 million.

For the nine months ended September 30, 2021, cash used in investing activities
of $374.6 million was due primarily to net cash used to acquire three companies
of $239.8 million, net purchases of marketable securities of $97.9 million and
cash used for purchases of property and equipment of $35.5 million.

Cash flows from financing activities

For the nine months ended September 30, 2022, cash provided by financing
activities of $1.2 million primarily consisted of cash received from net
proceeds from the sale of common stock of $9.7 million and issuances of common
stock of $6.3 million. These were partially offset by cash to settle acquisition
obligations of $10.6 million and finance lease principal payments of $4.2
million.

For the nine months ended September 30, 2021, cash provided by financing
activities of $1.6 billion primarily consisted of net proceeds from the issuance
of our 2028 Notes of $1.1 billion and the sale of common stock of $434.3 million
as well as cash received from issuances of common stock of $15.8 million.

Contractual obligations

The following table summarizes our contractual obligations, including interest,
as of September 30, 2022 (in thousands):

                                              Remainder of
Contractual obligations:                          2022              2023 and 2024           2025 and 2026           2027 and beyond             Total
Operating leases                             $     5,205          $       52,450          $       33,789          $           114,993       $   206,437
Finance leases                                     1,570                   8,939                     495                            -            11,004
Convertible senior notes                               -                 349,996                       -                    1,150,000         1,499,996
2020 Term Loan                                         -                 135,000                       -                            -           135,000
Purchase commitments                              10,022                  36,785                   2,594                            -            49,401
Total                                        $    16,797          $      583,170          $       36,878          $         1,264,993       $ 1,901,838


See Note 8, "Commitments and contingencies" in the Notes to Condensed
Consolidated Financial Statements in Part I, Item 1. of this Quarterly Report on
Form 10-Q for additional details regarding our leases, convertible senior notes,
2020 Term Loan and purchase commitments.

Off-balance sheet arrangements

We have not entered into any off-balance sheet arrangements.

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Recent accounting pronouncements

See "Recent accounting pronouncements" in Note 2, "Summary of significant
accounting policies" in the Notes to Condensed Consolidated Financial Statements
in Part I, Item 1. of this Quarterly Report on Form 10-Q for a discussion of
recently adopted accounting pronouncements and accounting pronouncements not yet
adopted, and their expected effect on our financial position and results of
operations.