10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2015

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number:001-35092

EXACT SCIENCES CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE	02-0478229
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)
441 Charmany Drive, Madison WI	53719
(Address of principal executive offices)	(Zip Code)

(608) 284-5700 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☐
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  ☐No  ☒

As of July 29, 2015, the registrant had 96,087,664 shares of common stock outstanding.

EXACT SCIENCES CORPORATION

INDEX

		Page
		Number
	Part I - Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2015 and December 31, 2014	3
	Condensed Consolidated Statements of Operations (unaudited) for the Three and Six Months Ended June 30, 2015 and 2014	4
	Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the Three and Six Months Ended June 30, 2015 and 2014	5
	Condensed Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2015 and 2014	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
	Part II - Other Information
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	37
Item 5	Other Information	37
Item 6.	Exhibits	37
	Signatures	38
	Exhibit Index	39

2

PartI — Financial Information

EXACT SCIENCES CORPORATION

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share data - unaudited)

	June 30,		December 31,
	2015		2014
ASSETS
Current Assets:
Cash and cash equivalents	$	33,765	$	58,131
Marketable securities		177,053		224,625
Accounts receivable, net		2,151		1,376
Inventory, net		6,275		4,017
Prepaid expenses and other current assets		4,019		3,528
Total current assets		223,263		291,677
Property and Equipment, at cost:
Laboratory equipment		11,279		10,381
Assets under construction		7,664		1,552
Computer equipment and computer software		10,807		7,577
Leasehold improvements		6,446		5,937
Furniture and fixtures		933		939
		37,129		26,386
Less—Accumulated depreciation		(9,817)		(6,439)
Net property and equipment		27,312		19,947
Other long-term assets		2,442		1,200
Total assets	$	253,017	$	312,824
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	1,345	$	2,647
Accrued liabilities		16,306		13,960
Debt and capital lease obligation, current portion		345		360
Other short-term liabilities		734		554
Total current liabilities		18,730		17,521
Long-term debt		3,488		1,000
Long-term accrued interest		—		106
Other long-term liabilities		4,620		3,599
Lease incentive obligation, less current portion		1,338		1,614
Total liabilities		28,176		23,840
Commitments and contingencies
Stockholders’ Equity:
Preferred stock, $0.01 par value Authorized—5,000,000 shares Issued and outstanding—no shares at June 30, 2015 and December 31, 2014		—		—
Common stock, $0.01 par value Authorized—200,000,000 shares Issued and outstanding—89,061,044 and 88,626,042 shares at June 30, 2015 and December 31, 2014		891		887
Additional paid-in capital		719,635		709,019
Accumulated other comprehensive income (loss)		(11)		(115)
Accumulated deficit		(495,674)		(420,807)
Total stockholders’ equity		224,841		288,984
Total liabilities and stockholders’ equity	$	253,017	$	312,824

The accompanying notes are an integral part of these condensed consolidated financial statements.

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EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Operations

(Amounts in thousands, except per share data - unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Laboratory service revenue	$	8,119	$	—	$	12,385	$	—
License fees		—		—		—		294
Total revenue		8,119		—		12,385		294
Cost of sales		5,094		—		9,306		—
Gross margin		3,025		—		3,079		294
Operating expenses:
Research and development		8,115		7,174		14,686		14,604
General and administrative		13,683		6,230		26,654		10,816
Sales and marketing		20,593		6,166		37,117		10,622
Total operating expenses		42,391		19,570		78,457		36,042
Loss from operations		(39,366)		(19,570)		(75,378)		(35,748)
Other income (expense)
Investment income		193		146		415		232
Interest income (expense)		107		(13)		96		(28)
Total other income		300		133		511		204
Net loss	$	(39,066)	$	(19,437)	$	(74,867)	$	(35,544)
Net loss per share—basic and diluted	$	(0.44)	$	(0.24)	$	(0.84)	$	(0.46)
Weighted average common shares outstanding—basic and diluted		88,919		82,048		88,791		76,548

The accompanying notes are an integral part of these condensed consolidated financial statements.

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EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Comprehensive Loss

(Amounts in thousands - unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2014		2015		2014
Net loss	$	(39,066)	$	(19,437)	$	(74,867)	$	(35,544)
Other comprehensive loss, net of tax:
Unrealized (loss) gain on available-for-sale investments		(59)		(44)		136		(36)
Foreign currency translation loss		(22)		—		(32)		—
Comprehensive loss	$	(39,147)	$	(19,481)	$	(74,763)	$	(35,580)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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EXACT SCIENCES CORPORATION

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands, except share data - unaudited)

	Six Months Ended June 30,
	2015		2014
Cash flows from operating activities:
Net loss	$	(74,867)	$	(35,544)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of fixed assets		3,377		1,344
Stock-based compensation		8,168		4,478
Amortization of deferred license fees		—		(294)
Amortization of other liabilities		(241)		—
Forgiveness of long-term debt		(1,000)		—
Amortization of premium on short-term investments		702		370
Changes in assets and liabilities:
Prepaid expenses and other current assets		(291)		(1,788)
Accounts receivable		(775)		—
Inventory, net		(2,258)		—
Accounts payable		(1,302)		(404)
Accrued liabilities		3,181		3,210
Lease incentive obligation		(276)		(270)
Accrued interest		(106)		11
Net cash used in operating activities		(65,688)		(28,887)
Cash flows from investing activities:
Purchases of marketable securities		(19,318)		(138,855)
Maturities of marketable securities		66,324		44,768
Purchases of property and equipment		(10,742)		(7,196)
Net cash provided by (used in) investing activities		36,264		(101,283)
Cash flows from financing activities:
Proceeds from exercise of common stock options		859		193
Proceeds from sale of common stock, net of issuance costs		—		137,670
Payments on capital lease obligations		(183)		(173)
Proceeds from mortgage payable		3,656		—
Proceeds in connection with the Company's employee stock purchase plan		758		337
Net cash provided by financing activities		5,090		138,027
Effects of exchange rate on cash and cash equivalents		(32)		—
Net increase (decrease) in cash and cash equivalents		(24,366)		7,857
Cash and cash equivalents, beginning of period		58,131		12,851
Cash and cash equivalents, end of period	$	33,765	$	20,708
Supplemental disclosure of non-cash investing and financing activities:
Unrealized gain on available-for-sale investments	$	136	$	36
Issuance of 21,826 and 32,669 shares of common stock to fund the Company’s 401(k) matching contribution for 2014 and 2013, respectively	$	835	$	456

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

EXACT SCIENCES CORPORATION

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(1) ORGANIZATION AND BASIS OF PRESENTATION

Organization

Exact Sciences Corporation (together with its subsidiaries, “Exact”, “we”, “us” or the “Company”) was incorporated in February 1995. Exact is a molecular diagnostics company currently focused on the early detection and prevention of some of the deadliest forms of cancer. The Company has developed an accurate, non-invasive, patient-friendly screening test for the early detection of colorectal cancer and pre-cancer, and is currently working on the development of tests for lung cancer, pancreatic cancer and esophageal cancer.

Basis of Presentation

The accompanying condensed consolidated financial statements, which include the accounts of Exact Sciences Corporation and those of its wholly-owned subsidiaries, Exact Sciences Laboratories, LLC, Exact Sciences Finance Corporation, Exact Sciences Europe LTD, and variable interest entities are unaudited and have been prepared on a basis substantially consistent with the Company’s audited financial statements and notes as of and for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K (the “2014 Form 10-K”). These condensed financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the results of operations have been included. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year. The statements should be read in conjunction with the audited financial statements and related notes included in the 2014 Form 10-K.  Management has evaluated subsequent events for disclosure or recognition in the accompanying financial statements up to the filing of this report.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries, Exact Sciences Laboratories, LLC, Exact Sciences Finance Corporation, Exact Sciences Europe LTD, and variable interest entities. All significant intercompany transactions and balances have been eliminated in consolidation.

References to “Exact”, “we”, “us”, “our”, or the “Company” refer to Exact Sciences Corporation and its wholly owned subsidiaries.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers cash on hand, demand deposits in bank, money market funds, and all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents. The Company had no restricted cash at June 30, 2015 and December 31, 2014.

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Marketable Securities

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities carried at amortized cost are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Marketable equity securities and debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive loss. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity computed under the straight-line method, which approximates the effective interest method. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income.

At June 30, 2015 and December 31, 2014, the Company’s investments were comprised of fixed income investments and all were deemed available-for-sale. The objectives of the Company’s investment strategy are to provide liquidity and safety of principal while striving to achieve the highest rate of return consistent with these two objectives.  The Company’s investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer. Investments in which the Company has the ability and intent, if necessary, to liquidate in order to support its current operations (including those with a contractual term greater than one year from the date of purchase) are classified as current. All of the Company’s investments are considered current. There were no realized losses for the six months ended June 30, 2015 and 2014.  Realized gains were $4.8 thousand and $7.6 thousand for the six months ended June 30, 2015 and 2014, respectively.

We periodically review our investments in unrealized loss positions for other-than-temporary impairments. This evaluation includes, but is not limited to, significant quantitative and qualitative assessments and estimates regarding credit ratings, collateralized support, the length of time and significance of a security’s loss position, our intent not to sell the security, and whether it is more likely than not that we will have to sell the security before recovery of its cost basis. For the six months ended June 30, 2015, no investments were identified with other-than-temporary declines in value.

Available-for-sale securities at June 30, 2015 consisted of the following:

	June 30, 2015
			Gains in Accumulated		Losses in Accumulated
			Other Comprehensive		Other Comprehensive		Estimated Fair
(In thousands)	Amortized Cost		Income		Income		Value
Corporate bonds	$	120,096	$	28	$	(22)	$	120,102
U.S. government agency securities		4,249		—		(1)		4,248
Asset backed securities		48,687		26		(10)		48,703
Commercial paper		4,000		—		—		4,000
Total available-for-sale securities	$	177,032	$	54	$	(33)	$	177,053

Available-for-sale securities at December 31, 2014 consisted of the following:

	December 31, 2014
			Gains in Accumulated		Losses in Accumulated
			Other Comprehensive		Other Comprehensive		Estimated Fair
(In thousands)	Amortized Cost		Income		Income		Value
Corporate bonds	$	141,239	$	21	$	(136)	$	141,124
U.S. government agency securities		18,687		8		(7)		18,688
Certificates of deposit		60,821		17		(18)		60,820
Commercial paper		3,993		—		—		3,993
Total available-for-sale securities	$	224,740	$	46	$	(161)	$	224,625

8

Changes in Accumulated Other Comprehensive Income (Loss)

The amounts recognized in accumulated other comprehensive income (loss) (AOCI) for the six months ended June 30, 2015 were as follows (in thousands):

					Accumulated
	Cumulative		Unrealized		Other
	Translation		Gain (Loss)		Comprehensive
	Adjustment		on Securities		Income (Loss)
Balance at December 31, 2014	$	—	$	(115)	$	(115)
Other comprehensive (loss) income before reclassifications		(32)		142		110
Amounts reclassified from accumulated other comprehensive loss		—		(6)		(6)
Net current period change in accumulated other comprehensive income (loss)		(32)		136		104
Balance at June 30, 2015	$	(32)	$	21	$	(11)

The amounts recognized in AOCI for the six months ended June 30, 2014 were as follows (in thousands):

					Accumulated
	Cumulative		Unrealized		Other
	Translation		Gain(Loss)		Comprehensive
	Adjustment		on Securities		Income (Loss)
Balance at December 31, 2013	$	—	$	125	$	125
Other comprehensive (loss) income before reclassifications		—		(24)		(24)
Amounts reclassified from accumulated other comprehensive loss		—		(12)		(12)
Net current period change in accumulated other comprehensive income (loss)		—		(36)		(36)
Balance at June 30, 2014	$	—	$	89	$	89

Amounts reclassified from accumulated other comprehensive income (loss) for the six months ended June 30, 2015 were as follows (in thousands):

	Affected Line Item in the	Six Months Ended June 30,
Details about AOCI  Components	Statement of Operations	2015		2014
Change in value of available-for-sale investments
Sales and maturities of available-for-sale investments	Investment income	$	(6)	$	(12)
Total reclassifications		$	(6)	$	(12)

Property and Equipment

Property and equipment are stated at cost and depreciated using the straight-line method over the assets’ estimated useful lives. Maintenance and repairs are expensed when incurred; additions and improvements are capitalized. The estimated useful lives of fixed assets are as follows:

	Estimated
Asset Classification	Useful Life
Laboratory equipment	3- 5years
Computer equipment and computer software	3years
Leasehold improvements	Lesser of the remaining lease term or useful life
Furniture and fixtures	3years

At June 30, 2015, the Company had $7.7 million of assets under construction which consisted of $4.8 million related to a new building purchase,$1.5 million of capitalized costs related to software projects, $0.8 million of costs related to machinery and equipment, and $0.6 million of costs related to leasehold improvement and building projects.

9

Depreciation will begin on these assets once they are placed into service. The Company expects to incur $2.4 million in costs to complete the building improvements of which $1.4 million will be financed.  The Company expects to incur minimal costs to complete the leasehold improvements, machinery and equipment, and the software projects, and these projects are expected to be completed in 2015.

Software Capitalization Policy

Software development costs related to internal use software are incurred in three stages of development: the preliminary project stage, the application development stage, and the post-implementation stage. Costs incurred during the preliminary project and post-implementation stages are expensed as incurred. Costs in the application development stage that meet the criteria for capitalization are capitalized and amortized using the straight-line basis over the estimated economic useful life of the software.

Net Loss Per Share

Basic net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average common shares outstanding during the period.  Basic and diluted net loss per share are the same because all outstanding common stock equivalents have been excluded, as they are anti-dilutive due to the Company’s losses.

The following potentially issuable common shares were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses for each period:

	June 30,
	2015	2014
Shares issuable upon exercise of stock options	5,144	6,221
Shares issuable upon exercise of outstanding warrants(1)	—	75
Shares issuable upon the release of restricted stock awards	2,277	1,546
Shares issuable upon the vesting of restricted stock awards related to licensing agreement	—	24
	7,421	7,866

(1) At June 30, 2014, represents warrants to purchase 75,000 shares of common stock issued under a consulting agreement.

Revenue Recognition

Laboratory Service Revenue. The Company’s revenues will be generated primarily by the Cologuard® test. Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable, and collectability is reasonably assured. The Company assesses whether the fee is fixed or determinable and if the collectability is reasonably assured based on the nature of the fee charged for the laboratory services delivered and whether there are existing contractual arrangements with customers, third-party commercial payors (insurance carriers and health plans) or coverage of the test by Centers for Medicare & Medicaid Services (CMS). In addition, when evaluating collectability, the Company considers factors such as collection experience for the healthcare industry, the financial standing of customers or third-party commercial payors, and whether it has sufficient collection history to reliably estimate a payor's individual payment patterns.

A portion of laboratory service revenues earned by the Company will be initially recognized on a cash basis because the above criteria will not have been met at the time the test results are delivered. The Company generally bills third-party payors upon generation and delivery of a test result to the ordering physician following completion of a test.  Patients may have out-of-pocket costs for amounts not covered by their insurance carrier and the Company bills the patient directly for these amounts in the form of co-pays and deductibles in accordance with their insurance carrier and health plans. Some third-party payors may not cover the Cologuard test under their reimbursement policies. Consequently, in such cases, the Company pursues reimbursement on a case-by-case basis directly from the patient.

10

For laboratory services performed, where the collectability is not reasonably assured, the Company will continue to recognize revenues upon cash collection until it can reliably estimate the amount that would be ultimately collected for the Cologuard test. In order to begin to record revenue on an accrual basis in these scenarios, the Company expects to use at least several months of payment history, review the number of tests paid against the number of tests billed, and consider the payor's outstanding balance for unpaid tests to determine whether payments are being made for a consistently high percentage of tests billed and at appropriate amounts given the contracted or historical payment amount.  With regard to Cologuard tests covered by Medicare, the national coverage determination for Cologuard was released by CMS on October 9, 2014 and for these tests, revenue is recognized on an accrual basis once the services have been performed as the price is fixed or determinable, and collectability is reasonably assured.

The Company recognized approximately $8.1 million and $12.4 million in laboratory service revenue for the three and six months ended June 30, 2015.

License fees.  License fees for the licensing of product rights are recorded as deferred revenue upon receipt of cash and recognized as revenue on a straight-line basis over the license period. As more fully described in the 2014 Form 10-K, in connection with the Company’s January 2009 strategic transaction with Genzyme Corporation, the Company deferred the initial $16.65 million in cash received at closing and amortized that up-front payment on a straight-line basis into revenue over the initial five-year collaboration period which ended in January 2014. In addition, in 2010 the Company received holdback amounts of $1.85 million, which were deferred at the time of receipt and were amortized on a straight-line basis into revenue over the then remaining term of the collaboration period.

In addition, the Company deferred $1.53 million premium related to common stock purchased by Genzyme and amortized that amount on a straight-line basis into revenue over the initial five-year collaboration period which ended in January 2014.

The Company did not recognize revenue in connection with the amortization of the up-front payments from Genzyme during the three and six months ended June 30, 2015. The Company recognized approximately $0.3 million in license fee revenue in connection with the amortization of the up-front payments from Genzyme during the six months ended June 30, 2014. There was no license fee revenue recognized during the three months ended June 30, 2014.

Inventory

Inventory is stated at the lower of cost or market value (net realizable value). The Company determines the cost of inventory using the first-in, first out method (FIFO). The Company estimates the recoverability of inventory by reference to internal estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory levels to identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value, and records a charge to cost of sales for such inventory as appropriate. In addition, the Company's products are subject to strict quality control and monitoring which the Company performs throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, the Company records a charge to cost of sales to write down such unmarketable inventory to its estimated realizable value.

Direct and indirect manufacturing costs incurred during process validation and for other research and development activities, which are not permitted to be sold, have been expensed to research and development.  Raw material inventory that was purchased in prior periods, and expensed to research and development, may still be on hand and used toward the production of commercial Cologuard, provided it has an appropriate remaining shelf life.  This inventory is expected to provide a gross margin benefit to the Company in future periods of $0.3 million if the entirety of those balances are allocated to inventory produced for resale and not allocated to research and development activities.

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Inventory consist of the following (amount in thousands):

	June 30,		December 31,
	2015		2014
Raw Materials	$	1,072	$	1,019
Semi-finished and finished goods		5,203		2,998
Total inventory	$	6,275	$	4,017

Foreign Currency Translation

For the Company’s international subsidiary, formed in 2014, the local currency is the functional currency. Assets and liabilities of this subsidiary are translated into United States dollars at the period-end exchange rate or historical rates as appropriate. Consolidated statements of earnings amounts are translated at average exchange rates for the period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheet as a component of accumulated other comprehensive income in total Exact Sciences Corporation’s shareholders’ equity. Transaction gains and losses are included in the consolidated statement of operations in 2015.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation in the consolidated financial statements and accompanying notes to the consolidated financial statements.

(3) MAYO LICENSE AGREEMENT

Overview

As more fully described in the 2014 Form 10-K, in June 2009 the Company entered into a license agreement (the “MAYO Agreement”) with MAYO Foundation for Medical Education and Research (“MAYO”). Pursuant to the MAYO Agreement, the Company granted MAYO two common stock purchase warrants with an exercise price of $1.90 per share covering 1,000,000 and 250,000 shares of common stock, respectively. The MAYO Agreement required the Company to make payments to MAYO for up-front fees, fees upon the achievement of certain milestones, and certain other payments. In addition to the license to intellectual property owned by MAYO, MAYO agreed to make available personnel to provide the Company product development and research and development assistance. The Company agreed to make royalty payments to MAYO on potential future net sales of any products developed from the licensed technology. The Company sought rights to the MAYO intellectual property for the specific purpose of developing a non-invasive, stool-based DNA screening test for colorectal cancer.  At the time the MAYO Agreement was executed, the Company’s sole focus was the development of such a test.  Accordingly, the Company recognized the initial payments and expenses related to the warrants at the time of the transaction and the amounts were expensed to research and development as there were no anticipated alternative future uses associated with the intellectual property.

Warrants

The warrants granted to MAYO were valued based on a Black-Scholes pricing model at the date of the grant. The warrants were granted with an exercise price of $1.90 per share of common stock. The grant to purchase 1,000,000 shares was immediately exercisable and the grant to purchase 250,000 shares vested and became exercisable over a four year period.

MAYO exercised the warrant to purchase 1,000,000 shares through several partial exercises. As of September 2011, the warrant covering 1,000,000 shares was fully exercised.

MAYO exercised the warrant to purchase 250,000 shares through partial exercises, the last of which occurred in June 2014. In June 2014, MAYO exercised the remaining shares of this warrant by utilizing the cashless exercise provision contained in the warrant. As a result of this exercise for a gross amount of 80,000 shares, in lieu of paying a

12

cash exercise price, MAYO forfeited its right with respect to 10,587 shares leaving it with a net amount of 69,413 shares. Following this exercise, all of MAYO’s warrants to purchase the Company’s common stock were fully exercised.

Royalty Payments

Under the MAYO Agreement, the Company agreed to make royalty payments to MAYO based on a percentage of net sales of products developed from the licensed technology starting in the third year of the agreement.  In 2012, minimum royalty payments were $10,000. For each year from 2015 through 2033 (the year the last patent expires), the minimum royalty payments are $25,000 per year.

Other Payments

Other payments under the MAYO Agreement include an upfront payment of $80,000, a milestone payment of $250,000 on the commencement of patient enrollment in a human cancer screening clinical trial, and a $500,000 payment upon FDA approval of the Company’s Cologuard test.  The upfront payment of $80,000 was made in the third quarter of 2009 and expensed to research and development in the second quarter of 2009. The Company began enrollment in human cancer screening clinical trial in June 2011 and the milestone payment of $250,000 was made and expensed to research and development in June 2011.  The Company received FDA approval for its Cologuard test in August 2014, and the milestone payment of $500,000 was made and expensed to research and development in August 2014.

In addition, the Company pays MAYO for research and development efforts.  During the three and six months ended June 30, 2015, the Company made payments of $0.4 million and $1.6 million, respectively. At June 30, 2015 the Company recorded an estimated liability in the amount of $0.7 million for MAYO’s research and development efforts.  During the three and six months ended June 30, 2014, the Company made research and development payments to MAYO of $0.2 million and $0.7 million, respectively. At June 30, 2014 the Company recorded an estimated liability in the amount of $1.0 million for research and development efforts.

May 2012 Amendment

In May 2012 the Company expanded the relationship with MAYO through an amendment to the MAYO Agreement. As part of the amendment, MAYO expanded the Company’s license to include all gastrointestinal cancers and diseases, and new cancer screening applications of stool- and blood-based testing.

As part of the amendment, the Company agreed to make restricted stock grants to MAYO upon the achievement of certain milestones with respect to commercial launch of the Company’s second and third licensed products. Additionally, the Company agreed to make milestone payments once certain sales levels are reached on licensed products. It is uncertain as to when or if these milestones will be met; therefore, the milestone payments have not been recorded as a liability. The Company evaluates the status of the milestone payments at each reporting date to determine if a liability should be recorded for the milestone payment.

February 2015 Amendment

In February 2015 the Company amended and restated the MAYO Agreement to extend the Company’s arrangement with MAYO for an additional five years and to broaden the Company’s and MAYO’s collaboration efforts to develop screening, surveillance and diagnostic tests and tools for use in connection with gastrointestinal cancers, precancers, diseases and conditions.  Under the amended and restated agreement (the “Restated MAYO Agreement”), MAYO agreed to continue to make personnel available during the additional five year period to provide the Company product development and research and development assistance. The Restated MAYO Agreement defines “gastrointestinal” to include certain airway organs (including the pharynx, larynx, trachea, bronchi and lungs) and certain head and neck organs (including nasal passages, mouth and throat).  The Restated MAYO Agreement also reflects an expanded list of patent rights that MAYO licenses to the Company.

Pursuant to the Restated MAYO Agreement, the Company agreed to pay MAYO an additional $5.0 million, payable in five annual $1.0 million installments, the first of which was due February 10, 2015. The first $1.0 million

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payment was made to MAYO in February 2015 and was capitalized to pre-paid assets and will be amortized to research and development expenses straight-line over the initial 12 month research period.  Additionally, the Company will make milestone payments once certain sales levels are reached on licensed products. It is uncertain as to when or if these milestones will be met; therefore, the milestone payments have not been recorded as a liability. The Company evaluates the status of the milestone payments at each reporting date to determine if a liability should be recorded for the milestone payment.

(4) MD ANDERSON LICENSE AGREEMENT

Overview

On April 10, 2015, the Company entered into a Joint Development and License Agreement (“MD Anderson Agreement”) with the University of Texas M.D. Anderson Cancer Center (“MD Anderson”) to jointly develop, clinically validate and obtain FDA approval and CMS coverage and reimbursement for in-vitro diagnostic and screening tools for the early detection of lung cancer (the “IVD Assays”). Under the MD Anderson Agreement, MD Anderson granted the Company an exclusive license which provides the Company with the intellectual property rights for the purpose of developing, manufacturing and marketing IVD Assays. In addition to granting the Company a license to the covered MD Anderson intellectual property, MD Anderson agreed to make personnel available to provide the Company product development and research and development assistance. Pursuant to the MD Anderson Agreement, the Company is obligated to reimburse IVD Assay development expenses incurred by the staff at MD Anderson, up to a maximum of $1.0 million per year for the first two years of the MD Anderson Agreement. At June 30, 2015 the Company recorded an estimated liability in the amount of $0.3 million for IVD Assay development efforts. As of June 30, 2015 the Company has not made payments for IVD Assay development costs. Beginning on April 30, 2015 and continuing through December 31, 2016, the Company is required to pay a quarterly fee of $0.3 million for the use of samples already collected prior to the effective date of the agreement which will be utilized in the continued research and development of IVD Assays. As of June 30, 2015 the Company recorded an estimated liability in the amount of $0.5 million for the use of samples provided by MD Anderson. Further, the Company has agreed to pay MD Anderson a low single digit royalty on the Company’s net sales of products using the licensed MD Anderson intellectual property. As of June 30, 2015 there have been no commercial sales of such product.

(5) STOCK-BASED COMPENSATION

Stock-Based Compensation Plans

The Company’s stock-based compensation plans include the 2010 Omnibus Long-Term Incentive Plan (As Amended and Restated Effective April 28, 2015), the 2010 Employee Stock Purchase Plan, the 2015 Inducement Grant Plan and the 2000 Stock Option and Incentive Plan (collectively, the “Stock Plans”).

Stock-Based Compensation Expense

The Company recorded $4.6 million and $8.2 million in stock-based compensation expense during the three and six months ended June 30, 2015 in connection with the amortization of restricted stock and restricted stock unit awards, stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees, non-employee consultants and non-employee directors.   The Company recorded $2.5 million and $4.5 million in stock-based compensation expense during the three and six months ended June 30, 2014 in connection with the amortization of restricted stock and restricted stock unit awards, stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees and non-employee directors.

Determining Fair Value

Valuation and Recognition – The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions in the table below. The estimated fair value of employee stock options is recognized to expense using the straight-line method over the vesting period.

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Expected Term – Expected term is based on the Company’s historical life data and is determined using the average of the vesting period and the contractual life of the stock options granted.

Expected Volatility - Expected volatility is based on the Company’s historical stock volatility data over the expected term of the awards.

Risk-Free Interest Rate - The Company bases the risk-free interest rate used in the Black-Scholes valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent expected term.

Forfeitures - The Company records stock-based compensation expense only for those awards that are expected to vest.  A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates.  The Company’s forfeiture rate used in the six months ended June 30, 2015 and 2014 was 4.99%.  

The fair value of each restricted stock and restricted stock unit award is determined on the date of grant using the closing stock price on that day.

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2015	2014	2015	2014
Option Plan Shares
Risk-free interest rates	(1)	(1)	1.5%  -  1.92%	1.96%
Expected term (in years)	(1)	(1)	6.25	6.25
Expected volatility	(1)	(1)	67.1%  -  73.2%	80.8%
Dividend yield	(1)	(1)	0 %	0%
Weighted average fair value per share of options granted during the period	(1)	(1)	$  15.81	$  9.86
ESPP Shares
Risk-free interest rates	0.25%  -  0.6%	0.1%  - 0.41%	0.25%  -  0.6%	0.1%  - 0.41%
Expected term (in years)	0.5  -  2	0.5  - 2	0.5  -  2	0.5  - 2
Expected volatility	51.2%  -  57.4%	42.5%  - 49.5%	51.2%  -  57.4%	42.5%  - 49.5%
Dividend yield	0 %	0%	0 %	0%
Weighted average fair value per share of stock purchase rights granted during the period	$ 7.48	$ 3.76	$ 7.48	$ 3.76

(1) The Company did not grant options under its 2010 Option Plan during the period indicated.

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Stock Option and Restricted Stock Activity

A summary of stock option activity under the Stock Plans during the six months ended June 30, 2015 is as follows:

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
Options	Shares	Price		Term (Years)	Value(1)
(Aggregate intrinsic value in thousands)
Outstanding, December 31, 2014	4,934,317	$	3.63	5.2
Granted	340,978		23.51
Exercised	(96,573)		8.08
Forfeited	(35,025)		16.55
Outstanding, June 30, 2015	5,143,697	$	4.77	5.0	$	128,421
Exercisable, June 30, 2015	4,367,935	$	2.61	4.3	$	118,496
Vested and expected to vest, June 30, 2015	5,104,986	$	4.68	5.2	$	127,926

(1) The aggregate intrinsic value of options outstanding, exercisable and vested and expected to vest is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for options that had exercise prices that were lower than the $29.74 market price of the Company’s common stock at June 30, 2015.  The total intrinsic value of options exercised during the six months ended June 30, 2015 and 2014 was $1.8 million and $0.7 million, respectively.

As of June 30, 2015, there was $38.2 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all Stock Plans.  Total unrecognized compensation cost will be adjusted for future changes in forfeitures.  The Company expects to recognize that cost over a weighted average period of 3.1 years.

A summary of restricted stock activity under the Stock Plans during the six months ended June 30, 2015 is as follows:

		Weighted
	Restricted	Average Grant
	Shares	Date Fair Value
Outstanding, January 1, 2015	1,541,114	$	13.86
Granted	1,104,074		23.62
Released	(262,656)		11.84
Forfeited	(105,825)		14.79
Outstanding, June 30, 2015	2,276,707	$	18.78

(6) FAIR VALUE MEASUREMENTS

The FASB has issued authoritative guidance which requires that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.  Under the standard, fair value measurements are separately disclosed by level within the fair value hierarchy.  The fair value hierarchy establishes and prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs.  Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company.  Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

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The three levels of the fair value hierarchy established are as follows:

Level 1	Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date.  Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2	Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3	Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.

Fixed-income securities and mutual funds are valued using a third party pricing agency. The valuation is based on observable inputs including pricing for similar assets and other observable market factors. There has been no material change from period to period.  The estimated fair value of the Company’s long-term debt based on a market approach was approximately $3.5 million and $1.0 million as of June 30, 2015 and December 31, 2014, respectively, and represent Level 2 measurements.  When determining the estimated fair value of the Company’s long-term debt, the Company used market-based risk measurements, such as credit risk.

The following table presents the Company’s fair value measurements as of June 30, 2015 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall.  Amounts in the table are in thousands.

			Fair Value Measurement at June 30, 2015 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Fair Value at		Identical Assets		Inputs		Inputs
Description	June 30, 2015		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents
Cash and money market	$	33,765	$	33,765	$	—	$	—
Available-for-Sale
Marketable securities
Corporate bonds		120,101		—		120,101		—
U.S. government agency securities		4,249		—		4,249		—
Asset backed securities		48,703		—		48,703		—
Commercial paper		4,000		—		4,000		—
Total	$	210,818	$	33,765	$	177,053	$	—

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The following table presents the Company’s fair value measurements as of December 31, 2014 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall.  Amounts in the table are in thousands.

			Fair Value Measurement at December 31, 2014 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Fair Value at		Identical Assets		Inputs		Inputs
Description	December 31, 2014		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents
Cash and money market	$	53,569	$	53,569	$	—	$	—
Corporate bonds		4,562		—		4,562		—
Available-for-Sale
Marketable securities
Corporate bonds		141,124		—		141,124		—
U.S. government agency securities		18,688		—		18,688		—
Asset backed securities		60,820		—		60,820		—
Commercial paper		3,993		—		3,993		—
Total	$	282,756	$	53,569	$	229,187	$	—

The following table summarizes gross unrealized losses and fair values of our investments in an unrealized loss position as of June 30, 2015, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

		June 30, 2015
		Less than 12 months			12 months or greater				Total
(In thousands)		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Marketable Securities
Corporate bonds	$	65,965	$	(21)	$	—	$	—	$	65,965	$	(21)
U.S. government agency securities		2,498		(1)		—		—		2,498		(1)
Asset backed securities		21,863		(10)		1,432		(1)		23,295		(11)
Total	$	90,326	$	(32)	$	1,432	$	(1)	$	91,758	$	(33)

The following summarizes contractual underlying maturities of the Company’s available-for-sale investments in debt securities at June 30, 2015 (in thousands):

		Due one year or less			Due after one year through two years
Description		Cost		Fair Value		Cost		Fair Value
Marketable Securities
U.S. government agency securities	$	4,249	$	4,249	$	—	$	—
Corporate bonds		112,370		112,367		7,725		7,734
Commercial paper		4,000		4,000		—		—
Asset backed securities		—		—		48,687		48,703
Total	$	120,619	$	120,616	$	56,412	$	56,437

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(7) NEW MARKET TAX CREDIT

During the fourth quarter of 2014, the Company received approximately $2.4 million in net proceeds from financing agreements related to working capital and capital improvements at one of its Madison, Wisconsin facilities.  This financing arrangement was structured with an unrelated third party financial institution (the “Investor”), an investment fund, and its majority owned community development entity in connection with the Company’s participation in transactions qualified under the federal New Markets Tax Credit (“NMTC”) program, pursuant to Section 45D of the Internal Revenue Code of 1986, as amended. Through its participation in this program, the Company has secured low interest financing and the potential for future debt forgiveness related to the Madison, Wisconsin facility.  Upon closing of this transaction, the Company provided an aggregate of approximately $5.1 million to the Investor, in the form of a loan receivable, with a term of seven years, bearing an interest rate of 2.74% per annum. This $5.1 million in proceeds plus capital from the Investor was used to make an aggregate $7.5 million loan to a subsidiary of the Company. This financing arrangement is not secured by any assets of the Company. On December 1, 2021, the Company would receive a repayment of its approximately $5.1 million loan. The $5.1 million is eliminated in the consolidation of the financial statements. This transaction also includes a put/call feature that becomes enforceable at the end of the seven-year compliance period. The Investor may exercise its put option or the Company can exercise the call, both of which will serve to trigger forgiveness of the net debt. The value attributable to the put/call is nominal. The $2.4 million is recorded in Other Long-Term Liabilities on the consolidated balance sheets. The benefit of this net $2.4 million contribution will be recognized as a decrease in expenses, included in cost of sales, as the Company amortizes the contribution liability over the seven-year compliance period as it is being earned through our on-going compliance with the conditions of the NMTC program. The Company has recorded $0.1 million and $0.2 million as a decrease of expenses for the three and six months ended June 30, 2015. At June 30, 2015, the remaining balance is $2.2 million. The Company incurred approximately $0.2 million of debt issuance costs related to the above transactions, which are being amortized over the life of the agreements.

The Investor is subject to 100% recapture of the NMTC it receives for a period of seven years as provided in the Internal Revenue Code and applicable U.S. Treasury regulations.  The Company is required to be in compliance with various regulations and contractual provisions that apply to the NMTC arrangement.  Noncompliance with applicable requirements could result in the Investor’s projected tax benefits not being realized and, therefore, require the Company to indemnify the Investor for any loss or recapture of NMTC related to the financing until such time as the recapture provisions have expired under the applicable statute of limitations.  The Company does not anticipate any credit recapture will be required in connection with this financing arrangement. 

The Investor and its majority owned community development entity are considered Variable Interest Entities (VIEs) and the Company is the primary beneficiary of the VIEs.  This conclusion was reached based on the following:

· The ongoing activities of the VIEs—collecting and remitting interest and fees and NMTC compliance—were all considered in the initial design and are not expected to significantly affect performance throughout the life of the VIE;

· Contractual arrangements obligate the Company to comply with NMTC rules and regulations and provide various other guarantees to the Investor and community development entity;

· The Investor lacks a material interest in the underling economics of the project; and

· The Company is obligated to absorb losses of the VIEs.

Because the Company is the primary beneficiary of the VIEs, they have been included in the consolidated financial statements. There are no other assets, liabilities or transactions in these VIEs outside of the financing transactions executed as part of the NMTC arrangement. The $5.1 million is eliminated in consolidation of the financial statements.

Also in December 2014, in connection with the NMTC transaction, the Company entered into a land purchase option agreement with the owner of certain real property (land) adjacent to certain of the Company’s current Madison, Wisconsin facilities. The option is renewable annually in exchange for a fee. If the Company exercises its land purchase option, it will pay a fixed amount for the land.  That fixed amount approximates the current fair value of the land.  If the Company decides not to exercise its option, then on December 31, 2021 (which is after the seven year compliance period of the NMTC program) the Company must pay $1.2 million to the community development entity. As discussed below, the community development entity is a variable interest entity consolidated into the Company.  The community

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development entity would then distribute this money to its members.  The majority member of the community development entity is also the owner of the land subject to the land purchase option.  The Company has recorded the obligation and the land purchase option asset for $1.2 million to reflect the Company’s assessment that it is probable that at least $1.2 million will be paid in the future based on resolution of the land purchase option. The asset is included in Other Long-Term Assets and the liability is included in Other Long-Term Liabilities on the consolidated balance sheet.

(8)  LONG-TERM DEBT

Building Purchase Mortgage

During June 2015, the Company entered into a debt agreement with an unrelated third party financial institution to finance the purchase of the facility and contemplated improvements located at 501 Charmany Drive in Madison, WI for $5.1 million. Of the $5.1 million in funds available pursuant to the credit agreement, $3.7 million was directly applied towards the purchase price of the building in June 2015 and the remaining $1.4 million is a construction loan available to finance future improvements. The debt agreement is secured by the acquired building.

Borrowings under the debt agreement bear interest at 4.15% per annum which is calculated on the outstanding principal balance. The Company is required to make interest only payments on the outstanding principal balance from July 12, 2015 through September 12, 2015 which is the period the Company anticipates completing all building related improvements.  Beginning on October 12, 2015 and continuing through the maturity date, May 12, 2019, the Company is required to make monthly principal and interest payments of $31.2 thousand. The final principal and interest payment due on June 12, 2019 is $4.4 million.

As of June 30, 2015 no draws have been made on the $1.4 million portion of the debt agreement related to construction of future improvements. There is an outstanding principal balance of $3.7 million, and the current portion is$0.2 million. Additionally, the Company has recorded $26.1 thousand in deferred financing costs which are being amortized through June 12, 2019.

Wisconsin Department of Commerce Loan

During November 2009, the Company entered into a loan agreement with the Wisconsin Department of Commerce pursuant to which the Wisconsin Department of Commerce agreed to lend up to $1.0 million to the Company subject to the Company’s satisfaction of certain conditions. The Company received the $1.0 million in December 2009. The terms of the loan are such that portions of the loan become forgivable if the Company meets certain job creation requirements at a specified wage rate. After the Company creates 100 full time positions, the principal shall be reduced at the rate of $5,405 for each new position created thereafter during the measurement period. The loan’s terms also contain a milestone that if the Company has created 185 new full‑time positions as of June 30, 2015, the full amount of principal shall be forgiven. The loan bears an interest rate of 2%, which is subject to an increase to 4% if the Company does not meet certain job creation requirements. Both principal and interest payments under the loan agreement are deferred for five years.

As of June 30, 2015, and during the term of the loan agreement, the Company has created 185 new, full-time Wisconsin-based jobs at the specified wage rate. The $1.0 million benefit associated with the expected loan forgiveness has been recorded as an offset to the operating expenses during the period ended June 30, 2015.

(9)  WISCONSIN ECONOMIC DEVELOPMENT TAX CREDITS

During the first quarter of 2015, the Company entered into an agreement with the Wisconsin Economic Development Corporation (“WEDC”) to earn $9.0 million in refundable tax credits if the Company expends $26.3 million in capital investments and establishes and maintains758 full-time positions in the state of Wisconsin over a seven year period.  The tax credits earned should first be applied against the tax liability otherwise due and if there is no such liability present, the claim for tax credits will be reimbursed in cash to the Company.  The maximum amount of the refundable tax credit to be earned for each year is fixed, and the Company earns the credits by meeting certain capital investment and job creation thresholds over the seven year period. Should the Company earn and receive the job creation

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tax credits but not maintain those full-time positions through the end of the agreement, the Company may be required to pay those credits back to WEDC. 

The Company will record the earned tax credits as job creation and capital investments occur. The amount of tax credits earned will be recorded as a liability and amortized as a reduction of operating expenses over the expected period of benefit. The tax credits earned from capital investmentwill be recognized as on offset to depreciation expense over the expected life of the acquired capital assets. The tax credits earned related to job creation will be recognized as an offset to operational expenses over the life of the agreement as the Company is required to maintain the minimum level of full-time positions through the seven year period.

As of June 30, 2015 the Company has earned $1.4 million of tax credits.  $0.2 million is a current asset and $1.2 million is a long term asset, reflecting when collection of the refundable tax credits is expected to occur. 

During the three and six month periods ending June 30, 2015, the Company has amortized $40.5 thousand of the credits earned as a reduction of operating expenses.  At June 30, 2015, the Company also has a $0.2 million current liability and a $1.2 million long term liability, reflecting when the expected benefit of the tax credit amortization will reduce future operating expenses.

(10)  SUBSEQUENT EVENTS

On July 24, 2015 the Company completed an underwritten public offering of 7.0 million shares of common stock at a price of $25.50 per share to the public. The Company received approximately $174.0 million of net proceeds from the offering, after deducting $4.5 million for the underwriting discounts and commissions and other stock issuance costs paid by the Company.

(11) RECENT ACCOUNTING PRONOUNCEMENTS

In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The standard is effective for the Company’s financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 may be applied using either a full retrospective or a modified retrospective approach and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company would be permitted to early adopt ASU 2014-09 for the fiscal year beginning after December 15, 2016, and interim periods therein. The Company is currently evaluating the impact of this amendment on its financial position and results of operations.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of Exact Sciences Corporation (together with its subsidiaries, “Exact,” “we,” “us”, “our” or the “Company”)  should be read in conjunction with the condensed financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2014, which has been filed with the SEC (the “2014 Form 10-K”).

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, that are intended to be covered by the “safe harbor” created by those sections.  Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies and expectations, can generally be identified by the use of forward-looking terms such as “believe,” “expect,” “may,” “will,” “should,” “could,” “seek,” “intend,” “plan,” “estimate,” “anticipate” or other comparable terms.  All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q regarding our strategies, prospects, financial condition, operations, costs, plans and objectives are forward-looking statements. Examples of forward-looking statements include, among others, statements we make regarding expected future operating results, anticipated results of our sales and marketing efforts, expectations concerning payor reimbursement and the anticipated results of our product development efforts.  Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: our ability to successfully and profitably market our products; the acceptance of our products by patients and health care providers;the willingness of health insurance companies and other payors to reimburse us for our performance of the Cologuard test; the amount and nature of competition from other cancer screening products and procedures; our ability to maintain regulatory approvals and comply with applicable regulations; our success establishing and maintaining collaborative and licensing arrangements; our ability to successfully develop new products; and the other risks and uncertainties described in the Risk Factors and in Management's Discussion and Analysis of Financial Condition and Results of Operations sections of our most recent Annual Report on Form 10‑K and our subsequently filed Quarterly Reports on Form 10-Q. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

Overview

We are a molecular diagnostics company currently focused on the early detection and prevention of some of the deadliest forms of cancer. Exact has developed an accurate, non-invasive, patient-friendly screening test, Cologuard®, for the early detection of colorectal cancer and pre-cancer, and is currently working on the development of tests for lung cancer, pancreatic cancer and esophageal cancer.

Our Cologuard test is a non-invasive stool-based DNA (sDNA) screening test designed to detect DNA markers, which in published studies have been shown to be associated with colorectal cancer. In addition to DNA markers, our test includes a protein marker to detect blood in the stool, utilizing an antibody-based fecal immunochemical test (FIT).

On August 11, 2014 the U.S. Food and Drug Administration (FDA) approved Cologuard for use as the first and only sDNA non-invasive colorectal cancer screening test. In addition, on October 9, 2014 the Centers for Medicare and Medicaid Services (CMS) issued a final National Coverage Determination (NCD) extending coverage for Cologuard as a colorectal cancer screening test for asymptomatic, average risk Medicare beneficiaries, aged 50 to 85 years. CMS has

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established reimbursement for Cologuard (HCPCS Code G0464) at $492.72 in the CMS 2015 Clinical Lab Fee Schedule. Payments from CMS are subject to sequestration.

Colorectal cancer is the second leading cause of cancer deaths in the United States and the leading cause of cancer deaths among non-smokers. Each year there are:

· 137,000 new cases in the U.S.

· 50,000 deaths in the U.S.

· 1,200,000 new cases worldwide

· 600,000 deaths worldwide

Colorectal cancer treatment represents a significant growing healthcare cost. Annually, $14 billion is spent in the U.S. on colorectal cancer treatment and the projected annual treatment costs are expected to be $20 billion in 2020. The incidence of colorectal cancer in Medicare patients is expected to rapidly rise from 106,000 cases in 2010 to more than 180,000 cases in 2030.

It is widely accepted that colorectal cancer is among the most preventable, yet least prevented cancers. Colorectal cancer can take up to 10-15 years to progress from a pre-cancerous lesion to metastatic cancer and death. Patients who are diagnosed early in the progression of the disease—with pre-cancerous lesions or polyps, or early-stage cancer—are more likely to have a complete recovery and to be treated less expensively. Accordingly, the American Cancer Society (ACS) recommends that all people age 50 and older undergo regular colorectal cancer screening. Of the more than 80 million people in the U.S. for whom routine colorectal cancer screening is recommended, nearly 47 percent have not been screened according to current guidelines. Poor compliance has meant that nearly two-thirds of colorectal cancer diagnoses are made in the disease’s late stages. The five-year survival rates for stages 3 and 4 are 67 percent and 12 percent, respectively. We believe the large underserved population of unscreened and inadequately screened patients represents a significant opportunity for a patient friendly screening test.

Professional colorectal cancer screening guidelines in the U.S., including those of the ACS, the American College of Gastroenterology, and the American Gastroenterological Association, recommend regular screening by a variety of methods. Historically, these recommendations consisted of colonoscopy, flexible sigmoidoscopy and fecal occult blood testing (FOBT) as well as combinations of some of these methods. On March 4, 2008, the ACS and the U.S. Multi-Society Task Force on Colorectal Cancer included sDNA screening technology in an updated national colorectal cancer screening guidelines as a screening option for the detection of colorectal cancer in average risk, asymptomatic individuals age 50 and older. The U.S. Multi-Society Task Force on Colorectal Cancer is a consortium of several organizations that includes representatives of the American College of Gastroenterology, American Gastroenterological Association, American Society for Gastrointestinal Endoscopy and the American College of Physicians/Society of Internal Medicine. In November 2014 the ACS updated the colorectal cancer screening guidelines to specifically include Cologuard as a recommended sDNA screening test.

The competitive advantages of sDNA-based screening provide a significant market opportunity. Assuming a 30-percent test adoption rate and a three-year screening interval, we estimate the potential U.S. market for sDNA screening to be more than $2 billion and we estimate the potential global market opportunity to be greater than $3 billion.

On August 11, 2014, the FDA approved Cologuard for use as the first and only sDNA non-invasive colorectal cancer screening test. Our submission to the FDA for Cologuard included the results of our pivotal DeeP-C clinical trial that had over 10,000 patients enrolled at 90 enrollment sites in the U.S. and Canada. The results of our DeeP-C clinical trial for Cologuard were published in the New England Journal of Medicine in April 2014. The peer-reviewed study, “Multi-target Stool DNA Testing for Colorectal-Cancer Screening,” highlighted the performance of Cologuard in the trial population:

· Cancer Sensitivity: 92%

· High-Grade Dysplasia Sensitivity: 69%

· Specificity: 87%

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On October 9, 2014, the CMS issued a final NCD for Cologuard. As outlined in the NCD, Medicare Part B will cover Cologuard once every three years for beneficiaries who meet all of the following criteria:

· Age 50 to 85 years,

· Asymptomatic (no signs or symptoms of colorectal disease including but not limited to lower gastrointestinal pain, blood in stool, positive guaiac fecal occult blood test or fecal immunochemical test), and

· At average risk for developing colorectal cancer (no personal history of adenomatous polyps, colorectal cancer, or inflammatory bowel disease, including Crohn’s Disease and ulcerative colitis; no family history of colorectal cancers or adenomatous polyps, familial adenomatous polyposis, or hereditary non-polyposis colorectal cancer).

In the 2015 Clinical Laboratory Fee Schedule, CMS established reimbursement for Cologuard (HCPCS code G0464) at $492.72. However, under the Protecting Access to Medicare Act of 2014 (“PAMA”), the basis for Cologuard’s CMS reimbursement rate is expected to change, beginning in January, 2017. Under PAMA, the CMS reimbursement rate for Cologuard is expected to be calculated based on the weighted median of private payer rates. Medicare covers 43% of patients in the screening population for Cologuard.

We also believe it will be necessary to secure favorable coverage and reimbursement from commercial payors to achieve commercial success. We believe that third-party payors’ reimbursement of Cologuard will depend on a number of factors, including payors’ determination that it is: sensitive for colorectal cancer; not experimental or investigational; approved by major guidelines organizations; reliable, safe and effective; medically necessary; appropriate for the specific patient; and cost-effective.

Cologuard is currently included in the ACS colorectal cancer screening guidelines. The US Preventive Services Task Force (USPSTF) is expected to issue draft colorectal cancer screening guidelines during the second half of 2015 and final guidelines during the first half of 2016. If USPSTF assigns an "A" or "B" grade to Cologuard, then the Patient Protection and Affordable Care Act will require most private health insurance plans to begin (within one year after the new USPSTF recommendation) covering Cologuard without charging the patient any co-pay or deductible. Although we cannot provide any assurance that USPSTF will assign Cologuard an "A" or "B" grade, we believe receiving an "A" or "B" grade would increase Cologuard's insurance coverage and market adoption.

A critical part of the value proposition of Cologuard is our physician and patient engagement team which helps to drive compliance for Cologuard as the team actively engages with patients to help them get screened. This activity is focused on having patients complete Cologuard tests that have been ordered for them by their physicians and supporting physicians in their efforts to have their patients screened.

Our sales and marketing strategy includes three main elements with a focus on physicians, patients, and payors.

We are engaging physicians with several strategies. We have a 245 person sales team, including approximately 200 in a direct field sales force, actively engaging with physicians and their staffs to emphasize the need for colorectal cancer screening, educate them on the value of Cologuard, and enroll them in our physician ordering system to enable them to prescribe the test. We are focused on specific physicians based on specialty and propensity to prescribe colorectal cancer screening tests. We are also focused on physician groups and larger regional and national health systems. We have entered into a co-promotion agreement with Ironwood Pharmaceuticals and leveraging 160 of their clinical sales specialists to substantially increase  the number of physicians reached in the United States.Further, to build awareness, we have launched a medical education program that includes on-line training and peer-to-peer presentations.

After the launch of Cologuard, we initiated a significant public relations effort to engage patients. We have conducted targeted direct-to-patient advertising campaigns through social media, print and other channels.

One of the key components to engaging with payors was securing coverage from CMS which we did in October of 2014. Additionally, we are providing cost effectiveness data to payors to make the case for Cologuard reimbursement.

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We are focusing our efforts on large national and regional insurers, insurers in states that require health insurers to cover colorectal cancer screening consistent with the ACS guidelines and health plans that have affiliated health systems.

As part of our commercialization strategy, we also established a state of the art, highly automated lab facility that is certified pursuant to applicable CLIA regulations to process Cologuard tests and provide patient results. Our commercial lab operation is housed in a 32,000 square foot facility in Madison, Wisconsin. At our lab, we have the capacity to process approximately one million tests per year.

Product Pipeline

We also are focused on developing our product pipeline for future products.  We are continuing to collaborate with MAYO on future products related to early detection of gastrointestinal (GI) cancers specifically in the areas of esophageal and pancreatic cancers. GI cancers account for 145,000 or 25% of all U.S. cancer deaths annually and represent a significant market opportunity for future products. In February 2015, we amended and restated our license agreement with MAYO to extend our arrangement with MAYO for an additional five years and broaden our collaboration efforts to develop screening, surveillance and diagnostic tests and tools for use in connection with gastrointestinal cancers, pre-cancers, diseases and conditions.

In June 2015, we entered into a joint development and license agreement with The University of Texas MD Anderson Cancer Center to establish a collaboration aimed at developing a blood-based lung cancer screening test to determine the need for low-dose computed tomography (LDCT). This test would offer the opportunity to screen nearly 10 million Americans considered high-risk smokers and former smokers. The partnership is also aimed at developing a diagnostic test to determine the malignant status of nodules found through computed tomography screening. This test would be valuable to nearly four million Americans diagnosed with lung nodules each year. The American Cancer Society estimates that lung cancer will be diagnosed in 221,200 Americans and cause 158,040 deaths in the United States this year and that, world-wide, lung cancer will be diagnosed in 1,825,000 people and cause 1,590,000 deaths. Currently, more than half of lung cancer cases are diagnosed at an advanced stage, after symptoms appear, when the five-year survival rate is in the low single digits. If detected at an early stage, lung cancer's five-year survival rate can be as high as 80 percent.

Additionally, we will continue to explore opportunities for expanding the indications of Cologuard such as for patients between the ages of 40-49 or for high risk patients.

We have generated limiting operating revenues since inception and, as of June 30, 2015, we had an accumulated deficit of approximately $495.7 million. We expect to continue to incur losses for the next several years, and it is possible we may never achieve profitability.

2015 Priorities

Our top priorities for 2015 include growing revenue for Cologuard, continuing to provide world class service as order volume grows, and developing our product pipeline for future products.

We plan to grow Cologuard revenue through the continued efforts of our sales force to work with physicians and systems to adopt Cologuard for colorectal cancer screening. In addition, we are working with payors to secure favorable reimbursement for Cologuard which will be a key component to growing revenue for 2015.

Another key priority for 2015 is to achieve and maintain at least a 70% compliance rate for patients who are prescribed Cologuard and to whom we ship a Cologuard test kit. As of June 30, 2015, our patient compliance rate for Cologuard was approximately 73%. The patient compliance rate is derived from the number of valid test results reported divided by the number of collection kits shipped to patients 60 or more days prior to June 30, 2015.

We also are focused on developing our product pipeline for future products as outlined in the Product Pipeline section above.

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Financial Overview

Laboratory service revenue. Total laboratory service revenue was $8.1 million and $12.4 million for the three and six months ended June 30, 2015. Our laboratory service revenue is generated primarily by the Cologuard test. Cologuard became available to be marketed and sold upon FDA approval on August 11, 2014.

License fee revenue.  There was no license fee revenue for the three and six months ended June 30, 2015 and$0.3 million for the six months ended June 30, 2014. There was no license fee revenue for the three months ended June 30, 2014. License fee revenue is composed of the amortization of up-front technology license fee payments associated with our collaboration, license and purchase agreement with Genzyme. The previously unamortized Genzyme up-front payment and holdback amounts were amortized on a straight-line basis over the initial Genzyme collaboration period, which ended in January 2014 therefore leading to a decline in revenue when compared to the prior year. Due to completion of the collaboration period in January 2014, we do not expect to recognize further significant revenues under this agreement.

Our Cost Structure.  Our selling, general and administrative expenses consist primarily of non-research personnel salaries, office expenses, professional fees, sales and marketing expenses incurred in support of our commercialization efforts and non-cash stock-based compensation.

Cost of sales includes costs related to inventory production and usage and the cost of laboratory services to process tests and provide results to physicians. Gross margin as a percentage of laboratory service revenue is also affected by our current revenue recognition policy, which may result in costs being incurred in one period that relate to revenues recognized in a later period.

We expect that gross margin for our laboratory services will continue to fluctuate and be affected by the adoption rates of the Cologuard test, our revenue recognition policy, the levels of reimbursement, and payment patterns of third-party payors and patients.

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 accounting principles generally accepted in the United States (GAAP). The preparation of these financial statements requires us to make 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 revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, tax positions and stock-based compensation. We base our estimates on historical experience and on various other factors that are believed to be appropriate under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 of our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014, we believe that the following accounting policies and judgments are most critical to aid in fully understanding and evaluating our reported financial results.

Revenue Recognition.

Laboratory service revenue. Our revenues are generated primarily by the Cologuard test. Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. We assess whether the fee is fixed or determinable based on the nature of the fee charged for the laboratory services delivered and whether there are existing contractual arrangements with customers, third-party commercial payors (insurance carriers and health plans) or coverage of the test by CMS. When evaluating collectability, we consider factors such as collection experience for the healthcare industry, the financial standing of customers or third-party commercial payors, and whether we have sufficient collection history to reliably estimate a payor’s individual payment patterns.

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A portion of laboratory service revenues earned by us will initially be recognized on a cash basis because the above criteria will not have been met at the time the test results are delivered. We generally bill third-party payors upon generation and delivery of a test result to the ordering physician following completion of a test. Patients may have out-of-pocket costs for amounts not covered by their insurance carrier and we bill the patient directly for these amounts in the form of co-pays and deductibles in accordance with their insurance carrier and health plans. Some third-party payors may not cover the Cologuard test as ordered by the physician under their reimbursement policies. Consequently, we pursue reimbursement on a case-by-case basis directly from the patient.

For laboratory services performed, where the collectability is not reasonably assured, we will continue to recognize revenues upon cash collection until it can reliably estimate the amount that would be ultimately collected for the Cologuard test. In order to begin to record revenue on an accrual basis in these scenarios, we expect to use at least several months of payment history, review the number of tests paid against the number of tests billed, and consider the payor’s outstanding balance for unpaid tests to determine whether payments are being made for a consistently high percentage of tests billed and at appropriate amounts given the contracted or historical payment amount. Our Cologuard test became available upon FDA approval on August 11, 2014. The national coverage decision was released by CMS on October 9, 2014 and for these tests, revenue is recognized on an accrual basis once the services have been performed as the price is fixed or determinable, and collectability is reasonably assured.

Total laboratory service revenue for the three and six months ended June 30, 2015 was $8.1 million and $12.4 million, respectively.

License fees.  License fees for the licensing of product rights on initiation of strategic agreements are recorded as deferred revenue upon receipt of cash and recognized as revenue on a straight-line basis over the license period.

As more fully described in our 2014 Form 10-K, in connection with our January 2009 strategic transaction with Genzyme Corporation, we deferred the initial $16.65 million in cash received at closing and amortized that up-front payment on a straight-line basis into revenue over the initial five-year collaboration period which ended in January 2014. In addition, in 2010 we received holdback amounts of $1.85 million, which were deferred at the time of receipt and were amortized on a straight-line basis into revenue over the then remaining term of the collaboration period.

In addition, we deferred a $1.53 million premium related to common stock purchased by Genzyme and amortized that amount on a straight-line basis into revenue over the initial five-year collaboration period which ended in January 2014.

We did not recognize revenue in connection with the amortization of the up-front payments from Genzyme during the three and six months ended June 30, 2015. We recognized approximately $0.3 million in license fee revenue in connection with the amortization of the up-front payments from Genzyme during the six months ended June 30, 2014. We did not recognize license fee revenue during the three months ended June 30, 2014.

Inventory. Inventory is stated at the lower of cost or market value (net realizable value). We determine the cost of inventory using the first-in, first out method (FIFO). We estimate the recoverability of inventory by reference to internal estimates of future demands and product life cycles, including expiration. We periodically analyze our inventory levels to identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value, and record a charge to cost of sales for such inventory as appropriate. In addition, our products are subject to strict quality control and monitoring which we perform throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, we record a charge to cost of sales to write down such unmarketable inventory to its estimated realizable value.

Direct and indirect manufacturing costs incurred during process validation and for other research and development activities, which are not permitted to be sold, have been expensed to research and development.  Raw material inventory that was purchased in prior periods, and expensed to research and development, may still be on hand and used toward the production of commercial Cologuard, provided it has an appropriate remaining shelf life.

In connection with the launch of Cologuard, we have invested in its manufacturing operations to support future demand for Cologuard. Because of this investment in the future, we are not currently operating at normal capacity.

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Charges related to excess capacity are included as current period charges to cost of sales, and are not capitalized into inventory.

Stock-Based Compensation.  In accordance with GAAP, all stock-based payments, including grants of employee stock options, restricted stock and restricted stock units and shares purchased under an employee stock purchase plan (ESPP) (if certain parameters are not met), are recognized in the financial statements based on their fair values. The following assumptions are used in determining fair value for stock options, restricted stock and ESPP shares:

· Valuation and Recognition — The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The estimated fair value of employee stock options is recognized to expense using the straight-line method over the vesting period.

· Expected Term - Expected term is based on the Company’s historical life data and is determined using the average of the vesting period and the contractual life of the stock options granted.

· Expected Volatility - Expected volatility is based on the Company’s historical stock volatility data over the expected term of the awards.

· Risk-Free Interest Rate - The Company bases the risk-free interest rate used in the Black-Scholes valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining expected term.

· Forfeitures - The Company records stock-based compensation expense only for those awards that are expected to vest. A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. The Company’s forfeiture rate used in the six months ended June 30, 2015 and 2014 was 4.99%.

The fair value of each restricted stock award and restricted stock unit is determined on the date of grant using the closing stock price on that day. The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions in Note 4 to our condensed financial statements.

Results of Operations

Laboratory service revenue. Our laboratory service revenues are generated primarily by the Cologuard test. Our Cologuard test became available upon FDA approval on August 11, 2014. Total laboratory service revenue for the three and six months ended June 30, 2015 was $8.1 million and $12.4 million, respectively.

License fee revenue.  There was no license fee revenue for the three and six months ended June 30, 2015. Total license fee revenue was $0.3 million for the six month periods ended June 30, 2014. There was no license fee revenue for the three months ended June 30, 2014. License fee revenue is composed of the amortization of up-front technology license fee payments associated with our collaboration, license and purchase agreement with Genzyme. The previously unamortized Genzyme up-front payment and holdback amounts were amortized on a straight-line basis over the initial Genzyme collaboration period, which ended in January 2014 therefore leading to a decline in revenue when compared to the prior year.

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Cost of Sales. Cost of sales includes costs related to inventory production and usage and the cost of laboratory services to process tests and provide results to physicians. Gross margin as a percentage of laboratory service revenue is also affected by our current revenue recognition policy, which may result in costs being incurred in one period that relate to revenues recognized in a later period. Cost of sales was $5.1 million and $9.3 million for the three and six months ended June 30, 2015 compared to none in the comparable prior year period. The increase in cost of sales is related to the production and testing services of our Cologuard test, which obtained FDA approval during the third quarter of 2014.

	Three Months Ended June 30,
	2015		2014		Change
Indirect production costs	$	1.4	$	—	$	1.4
Personnel expenses		1.3		—		1.3
Direct production costs		1.0		—		1.0
Depreciation expense		0.7		—		0.7
Professional fees		0.3		—		0.3
Facility costs		0.2		—		0.2
Stock-based compensation		0.2		—		0.2
Other cost of sales		—		—		—
Total cost of sales expenses	$	5.1	$	—	$	5.1

	Six Months Ended June 30,
	2015		2014		Change
Personnel expenses	$	2.8	$	—	$	2.8
Direct production costs		1.9		—		1.9
Indirect production costs		1.8		—		1.8
Depreciation expense		1.3		—		1.3
Professional fees		0.6		—		0.6
Facility costs		0.4		—		0.4
Stock-based compensation		0.4		—		0.4
Other cost of sales		0.1		—		0.1
Total cost of sales expenses	$	9.3	$	—	$	9.3

Research and development expenses. Research and development expenses increased to $8.1 million for the three months ended June 30, 2015 from $7.2 million for the three months ended June 30, 2014. Research and development expense increased to $14.7 million for the six months ended June 30, 2015, from $14.6 million for the six months ended June 30, 2014.The increase in research and development expenses was primarily due to an increase in stock-based compensation expenses, professional fees, and research collaboration expenses related to increased research and development activities focused on new pipeline products. 

	Three Months Ended June 30,
	2015		2014		Change
Personnel expenses	$	2.2	$	2.8	$	(0.6)
Professional fees		1.6		0.3		1.3
Research collaborations		1.4		0.5		0.9
Stock-based compensation		1.0		0.8		0.2
Other research and development		0.8		1.0		(0.2)
Lab expenses		0.7		0.9		(0.2)
Clinical trial expenses		0.4		0.9		(0.5)
Total research and development expenses	$	8.1	$	7.2	$	0.9

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	Six Months Ended June 30,
	2015		2014		Change
Personnel expenses	$	4.4	$	5.1	$	(0.7)
Lab expenses		1.0		1.9		(0.9)
Stock-based compensation		1.8		1.5		0.3
Other research and development		1.8		2.6		(0.8)
Clinical trial expenses		1.2		1.8		(0.6)
Research collaborations		1.9		1.1		0.8
Professional fees		2.6		0.6		2.0
Total research and development expenses	$	14.7	$	14.6	$	0.1

General and administrative expenses.  General and administrative expenses increased to $13.7 million for the three months ended June 30, 2015 compared to $6.2 million for the three months ended June 30, 2014. General and administrative expenses increased to $26.7 million for the six months ended June 30, 2015, from $10.8 million for the six months ended June 30, 2014. The increase in general and administrative expenses was primarily a result of increased legal and professional fees, increased personnel costs and stock-based compensation expense due to increased headcount, additional information technology costs, increased depreciation expense, and other general and administrative expenses to support the needs of our growing infrastructure and overall growth of the Company.

	Three Months Ended June 30,
	2015		2014		Change
Personnel expenses	$	4.1	$	1.2	$	2.9
Legal and professional fees		3.2		1.6		1.6
Stock-based compensation		2.4		1.2		1.2
Information technology costs		1.8		0.8		1.0
Other general and administrative		1.0		0.9		0.1
Depreciation expense		0.9		0.3		0.6
Facility costs		0.3		0.2		0.1
Total general and administrative expenses	$	13.7	$	6.2	$	7.5

	Six Months Ended June 30,
	2015		2014		Change
Personnel expenses	$	8.3		2.5	$	5.8
Legal and professional fees		7.0	$	2.9		4.1
Stock-based compensation		4.1		2.2		1.9
Information technology costs		3.4		1.0		2.4
Other general and administrative		2.0		1.2		0.8
Depreciation expense		1.7		0.6		1.1
Facility costs		0.2		0.4		(0.2)
Total general and administrative expenses	$	26.7	$	10.8	$	9.8

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Sales and marketing expenses. Sales and marketing expenses increased to $20.6 million for the three months ended June 30, 2015, compared to $6.2 million for the three months ended June 30, 2014. Sales and marketing expenses increased to $37.1 million for the six months ended June 30, 2015, compared to $10.6 million for the six months ended June 30, 2014. The increase in sales and marketing expense was a result of hiring additional sales and marketing personnel and increasing our advertising and patient marketing efforts related to the commercialization of our Cologuard test.

	Three Months Ended June 30,
	2015		2014		Change
Personnel expenses	$	11.7	$	2.6	$	9.1
Professional fees		7.8		3.3		4.5
Stock-based compensation		0.9		0.2		0.7
Other sales and marketing		0.2		0.1		0.1
Total sales and marketing expenses	$	20.6	$	6.2	$	14.4

	Six Months Ended June 30,
	2015		2014		Change
Personnel expenses	$	22.3	$	3.6	$	18.7
Professional fees		12.3		5.9		6.4
Stock-based compensation		1.9		0.3		1.6
Other sales and marketing		0.6		0.8		(0.2)
Total sales and marketing expenses	$	37.1	$	10.6	$	26.5

Investment income.  Investment income increased to $193.0 thousand for the three months ended June 30, 2015 compared to $146.0 thousand for the three months ended June 30, 2014. Investment income increased to $415.0 thousand for the six months ended June 30, 2015 compared to $232.0 thousand for the six months ended June 30, 2014. The increase in investment income was primarily due to an increase in the average investment balance for the three months ended June 30, 2015 when compared to the same period in 2014. This is primarily the result of our larger issuances of common stock in 2014 as compared to 2013.

Interest income and expense. Interest income increased to $107.0 thousandfor the three months ended June 30, 2015 from $13.0 thousand of interest expense for the three months ended June 30, 2014. Interest income increased to $96.0 thousand for the six months ended June 30, 2015 from $28.0 thousand of interest expense for the six months ended June 30, 2014. This changewas primarily due to the forgiveness of the accrued interest expense previously recorded on the Wisconsin Department of Commerce loan. We have obtained reasonable assurance that this will be forgiven as we have met the 185 minimum job creation requirement per the agreement.

Liquidity and Capital Resources

We have financed our operations since inception primarily through private and public offerings of our common stock. As of June 30,  2015, we had approximately $33.8 million in unrestricted cash and cash equivalents and approximately $177.1 million in marketable securities.

All of our investments in marketable securities are comprised of fixed income investments and all are deemed available-for-sale. The objectives of this portfolio are to provide liquidity and safety of principal while striving to achieve the highest rate of return, consistent with these two objectives. Our investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer.

Net cash used in operating activities was $65.7 million for the six months ended June 30, 2015 as compared to $28.9 million for the six months ended June 30, 2014. The principal use of cash in operating activities for the six months ended June 30, 2015 was to fund our net loss which increased from the six months ended June 30, 2014 primarily due to increased sales and marketing efforts and general and administrative costs due to the commercial launch of Cologuard and to support the overall growth of the Company.

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Net cash provided by investing activities was $36.3 million for the six months ended June 30, 2015 as compared to $101.3 million of cash used in investing activities for the six months ended June 30, 2014.  The increase in cash provided by investing activities for the six months ended June 30, 2015 compared to the same period in 2014 was primarily the result of the timing of purchases and maturities of marketable securities. Excluding the impact of purchases and maturities of marketable securities, net cash used in investing activities was $10.7 million which consisted of purchases of property and equipment of $10.7 million for the six months ended June 30, 2015 and $7.2 million for the same period in 2014. The increase in property and equipment purchases during the six months ended June 30, 2015 was primarily the result of increased laboratory equipment purchases, building purchases, and leasehold improvement purchases.

Net cash provided by financing activities was $5.1 million for the six months ended June 30, 2015, as compared to net cash provided by financing activities of $138.0 million for the six months ended June 30, 2014. The decrease in cash provided by financing activities for the six months ended June 30, 2015 was due to the receipt of $3.7 million of cash proceeds from mortgage payable, $859.0 thousand from stock option exercises and $758.0 thousand from proceeds in connection with the Company’s employee stock purchase plan slightly offset by capital lease payments of $183.0 thousand compared to the receipt of $137.7 million of cash from our April 2014 common stock offering, the receipt of $337.0 thousand from proceeds in connection with the Company’s employee stock purchase plan, $193.0 thousand from stock option exercises slightly offset by capital lease payments of $173.0 thousand for the same period in 2014.

We expect that cash and cash equivalents and marketable securities on hand at June 30, 2015, will be sufficient to fund our current operations for at least the next twelve months, based on current operating plans. However, since payments for our Cologuard test will be our only material revenue source and we have just begun to collect such payments and do not know the timing or amount of any such payments, it is possible that we may need to raise additional capital to fully fund our current strategic plan. If we are unable to obtain sufficient additional funds to enable us to fund our operations through the completion of such plan, our results of operations and financial condition would be materially adversely affected and we may be required to delay the implementation of our plan and otherwise scale back our operations. Even if we successfully raise sufficient funds to complete our plan, we cannot assure that our business will ever generate sufficient cash flow from operations to become profitable.

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The standard is effective for our financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 may be applied using either a full retrospective or a modified retrospective approach and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017.We would be permitted to early adopt ASU 2014-09 for the fiscal year beginning after December 15, 2016, and interim periods therein. We are currently evaluating the impact of this amendment on our financial position and results of operations.

Off-Balance Sheet Arrangements

As of June 30, 2015, we had no off-balance sheet arrangements.

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Material Changes in Specified Contractual Obligations

A table of our specified contractual obligations was provided in the Management’s Discussion and Analysis of Financial Condition and Results of Operation of our most recent Annual Report on Form 10-K.  During June 2015, we entered into a debt agreement to finance the purchase of the facility and contemplated improvements located at 501 Charmany Drive in Madison, WI for up to $5.1 million. Under the debt agreement, we are required to make monthly principal and interest payments of $31.2 thousand beginning on October 12, 2015 through May 12, 2019, and a final principal and interest payment due on June 12, 2019 in an amount of $4.4 million, as further discussed in Note 8 of the Notes to the Condensed Consolidated Financial Statements of this Quarterly Report, which such discussion is incorporated herein by reference.  With the exception of the debt agreement discussed above, there were no material changes outside the ordinary course of our business in the specified contractual obligations during the three months ended June 30, 2015.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is principally confined to our cash, cash equivalents and marketable securities. We invest our cash, cash equivalents and marketable securities in securities of the U.S. government and its agencies and in investment-grade, highly liquid investments consisting of commercial paper, bank certificates of deposit, asset backed securities and corporate bonds, which, as of June 30, 2015 were classified as available-for-sale. We place our cash equivalents and marketable securities with high-quality financial institutions, limit the amount of credit exposure to any one institution and have established investment guidelines relative to diversification and maturities designed to maintain safety and liquidity.

Based on a hypothetical ten percent adverse movement in interest rates, the potential losses in future earnings, fair value of risk-sensitive financial instruments, and cash flows are immaterial, although the actual effects may differ materially from the hypothetical analysis.

Item 4. Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based upon that evaluation, our principal executive officer and our principal financial officer concluded that, as of June 30, 2015, our disclosure controls and procedures were effective.  Disclosure controls and procedures enable us to record, process, summarize and report information required to be included in our Exchange Act filings within the required time period.  Our disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the periodic reports filed with the SEC is accumulated and communicated to our management, including our principal executive, financial and accounting officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

During the fiscal quarter covered by this report, there have been no significant changes in internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Part II - Other Information

Item 1.  Legal Proceedings

We are not currently a party to any pending legal proceedings that we believe will have a material adverse effect on our business, financial condition or results of operations. We may, however, be subject to various claims and legal actions arising in the ordinary course of business from time to time.

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Item 1A. Risk Factors

We operate in a rapidly changing environment that involves a number of risks that could materially affect our business, financial condition or future results, some of which are beyond our control.  In addition to the other information set forth in this report, the risks and uncertainties that we believe are most important for you to consider are discussed in Part I, “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K.  Other than the factors set forth below, there have been no material changes to the risk factors described in that report.

Our success depends heavily on our Cologuard colorectal cancer screening test.

For the foreseeable future, our ability to generate revenues will depend entirely on the commercial success of our Cologuard test. The commercial success of our Cologuard test and our ability to generate revenues will depend on several factors, including the following:

· acceptance in the medical community; 

· inclusion of Cologuard in healthcare guidelines, such as those developed by ACS and USPSTF;

· patient acceptance of and demand for the Cologuard test;

· successful sales, marketing and educational programs;

· the number of patients tested for colorectal cancer as well as the number of patients who use Cologuard for that purpose; 

· sufficient coverage and reimbursement by third party payors; 

· the amount and nature of competition from other colorectal cancer or pre-cancer screening products and procedures;

· maintaining FDA marketing approval of Cologuard in the United States and the receipt and maintenance of marketing approval from foreign regulatory authorities;

· maintaining and defending patent protection for the intellectual property relevant to Cologuard; and 

· our ability to establish and maintain commercial manufacturing, distribution, sales force and CLIA laboratory testing capabilities.

If we are unable to develop substantial sales of our Cologuard test or if we are significantly delayed or limited in doing so, our business prospects would be adversely affected.

If third-party payors, including managed care organizations, do not approve reimbursement for our Cologuard test at adequate reimbursement rates, we may be unable to successfully commercialize our Cologuard test which would likely have a material adverse effect on our business.

Successful commercialization of our Cologuard test depends, in large part, on the availability of adequate reimbursement from government insurance plans, managed care organizations and private insurance plans.  Although we received a positive coverage decision and what we believe is a favorable initial reimbursement rate from the Centers for Medicare and Medicaid (CMS) for our Cologuard test, it is also critical that other third party payors approve reimbursement for our Cologuard test at adequate reimbursement rates. Third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new healthcare products approved for marketing by the FDA. As a result, there is significant uncertainty surrounding whether the use of tests that incorporate new technology, such as our Cologuard test, will be eligible for coverage by third-party payors or, if eligible for coverage, what the reimbursement rates will be. Reimbursement of stool-based DNA colorectal cancer screening by

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a third-party payor may depend on a number of factors, including a payor’s determination that tests using our technologies are: sensitive for colorectal cancer and pre-cancer; not experimental or investigational; approved by the major guidelines organizations; reliable, safe and effective; medically necessary; appropriate for the specific patient; and cost-effective.

If we are unable to obtain positive decisions from third-party payors, including managed care organizations, approving reimbursement for our Cologuard test at adequate levels, its commercial success would be compromised and our revenues would be significantly limited. We may also experience material delays in obtaining such reimbursement decisions and payment for our Cologuard test which are beyond our control.Moreover, coverage determinations and reimbursement rates are subject to change, and we cannot guarantee that even if we initially achieve adequate coverage and reimbursement rates, they will be applicable to our Cologuard test in the future.

The success of our Cologuard test depends on the degree of market acceptance by physicians, patients, healthcare payors and others in the medical community.

Our Cologuard test may not gain market acceptance by physicians, healthcare payors and others in the medical community. The degree of market acceptance of our Cologuard test will depend on a number of factors, including:

· its demonstrated sensitivity and specificity for detecting colorectal cancer and pre-cancer; 

· its price; 

· the availability of alternative screening methods; 

· the willingness of physicians to prescribe Cologuard;

· the interval at which patients are screened using Cologuard; and 

· sufficient third-party coverage or reimbursement.

Even if our Cologuard test is superior to other colorectal cancer screening options, adequate third-party reimbursement is obtained and medical practitioners choose to order our Cologuard test, only a small number of people may decide to be screened for colorectal cancer. Despite the availability of current colorectal cancer screening methods as well as the recommendations of the ACS that all Americans age 50 and above be screened for colorectal cancer, approximately 47 percent of these individuals are not screened according to current guidelines. Use of a stool-based DNA colorectal cancer screening test will require people to collect a stool sample, which some people may be reluctant to do. If our Cologuard test does not achieve an adequate level of acceptance, we may not generate material revenues and we may not become profitable. 

Our assumptions regarding the market opportunity for Cologuard may not prove true.  We estimate the potential market opportunity for Cologuard assuming, among other things, a 30-percent test adoption rate and a three-year screening interval.  Although ACS guidelines recommend a three-year screening interval and CMS has determined that Medicare will cover the test at this interval, physicians, healthcare payors, the FDA and other regulators and opinion leaders could recommend a less frequent testing schedule.  Further, patients may not comply with the recommended testing interval.

The US Preventive Services Task Force (USPSTF) is expected to issue draft colorectal cancer screening guidelines during the second half of 2015 and final guidelines during the first half of 2016.  If USPSTF assigns an “A” or “B” grade to Cologuard, then the Patient Protection and Affordable Care Act will require most private health insurance plans to begin (within one plan year after the new USPSTF recommendation) covering Cologuard without charging the patient any co-pay or deductible.  We believe that the grade which USPSTF assigns to Cologuard could significantly affect the market acceptance of our Cologuard test.  We cannot provide any assurance that USPSTF will assign Cologuard a positive grade.  If USPSTF provides a grade lower than a “B”, healthcare professionals may be less likely to recommend Cologuard and healthcare payor coverage of Cologuard could decrease, which could materially and negatively impact our financial results and prospects.

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We expect to make significant investments to research and develop new cancer diagnostic tools, which may not be successful.

In addition to commercializing our Cologuard test, we are focused on developing our pipeline for future products, including screening and diagnostic tests for lung cancer, pancreatic cancer and esophageal cancer.  Our efforts to develop new cancer diagnostic tools or other products or services may not be successful, may cause us to incur significant expense and may distract our management from successfully commercializing Cologuard.  Any new cancer diagnostic tools we develop will be subject to clinical trials and FDA approval, which may be a lengthy and expensive process.  There can be no guarantee that we will develop any products that the FDA would approve or that would be commercially viable.  If we determine that any of our current or future development programs is unlikely to succeed, we may abandon it without any return on our investment into the program.

We face uncertainty related to healthcare reform, pricing, coverage and reimbursement, which could reduce our revenue.

Recent healthcare reform laws, including the Patient Protection and Affordable Care Actand the Protecting Access to Medicare Act of 2014 (“PAMA”), are significantly affecting the U.S. healthcare and medical services industry.  Existing legislation, and possible future legal and regulatory changes, could substantially change the structure and finances of the health insurance system and the methodology for reimbursing medical services, drugs and devices, including our current and future products and services.  Any change in reimbursement policy could result in a change in patient co-payments, which could adversely affect patient willingness and ability to use our Cologuard test and any other product or service we may develop.  Healthcare reforms, which may intend to reduce healthcare costs, may have the effect of discouraging third-party payors from covering certain kinds of medical products and services, particularly newly developed technologies, such as our Cologuard test.

Even without further legislative reform, there can be no assurance that CMS will maintain its current reimbursement rate for our Cologuard test.  If the CMS reimbursement rate for Cologuard is reduced, our revenues could be adversely affected.  There can be no assurance that CMS and third party payors who initially decide to cover Cologuard will continue to cover Cologuard. A hedge fund has submitted a request that CMS reconsider its reimbursement rate for Cologuard, which was presented at a CMS public meeting on July 16, 2015.  We can provide no assurance that CMS will not negatively alter its coverage or reimbursement rate based on this request or otherwise.

Under PAMA, the basis for Cologuard’s CMS reimbursement rate is expected to change, beginning in January, 2017.  Under PAMA, we expect the CMS reimbursement rate for Cologuard to be tied to the volume-weighted median reimbursement for Cologuard from commercial payors.  Therefore, if Cologuard’s volume-weighted median commercial reimbursement rate falls below the current CMS reimbursement rate (or the adjusted rate, if CMS determines to adjust the reimbursement rate as a result of the above-referenced request for reconsideration or otherwise) in 2016, we anticipate that the CMS reimbursement rate would decline in 2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On May 6, 2015, the Company issued Restricted Stock Unit awards to fifty-four new non-executive employees as inducement grants to enter into employment with the Company.  These awards cover a total of 55,114 shares of the Company’s common stock.  These awards vest in four equal annual installments beginning on the first anniversary of the date of grant.  These new hire inducement awards were granted pursuant to NASDAQ Listing Rule 5635(c)(4) and Section 4(a)(2) of the Securities Act of 1933.  The Company intends to file a registration statement on Form S-8 to register the shares of common stock underlying these awards prior to the time at which they vest.

Item 3.  Defaults Upon Senior Securities

Not applicable.

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Item 4.  Mine Safety Disclosures

Not applicable.

Item 5.  Other Information

Not applicable.

Item 6.  Exhibits

The exhibits required to be filed as a part of this report are listed in the Exhibit Index.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		EXACT SCIENCES CORPORATION
Date: July 31, 2015	By:	/s/ Kevin T. Conroy
		Kevin T. Conroy
		President and Chief Executive Officer
		(Principal Executive Officer)
Date: July 31, 2015	By:	/s/ William J. Megan
		William J. Megan
		Senior Vice President, Finance
		(Principal Financial Officer)

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EXHIBIT INDEX

Exhibit Number	Description
3.1	Sixth Amended and Restated Certificate of Incorporation of the Registrant (previously filed as Exhibit 3.3 to the Registrant’s Registration Statement on Form S‑1 (File No. 333‑48812), filed on October 27, 2000, and incorporated herein by reference).
3.2	First Amendment to Sixth Amended and Restated Certificate of Incorporation of the Registrant (previously filed as Appendix A to the Definitive Proxy Statement for the Company’s 2014 Annual Meeting of Stockholders, filed on June 20, 2014, and incorporated herein by reference).
3.3	Amended and Restated By-Laws of the Registrant (previously filed as Exhibit 3.1 to the Registrant’s Report on Form 10-Q for the period ended March 31, 2009 and incorporated herein by reference)
10.1*	Exact Sciences Corporation 2010 Omnibus Long-Term Incentive Plan (As Amended and Restated Effective April 28, 2015) (previously filed as Appendix A to the Definitive Proxy Statement for the Company’s 2015 Annual Meeting of Stockholders, filed on April 30, 2015, and incorporated herein by reference).
10.2*	Exact Sciences Corporation Non-Employee Director Compensation Policy (filed herewith).
31.1	Certification Pursuant to Rule 13(a)-14(a) or Rule 15d-14(a) of Securities Exchange Act of 1934.
31.2	Certification Pursuant to Rule 13(a)-14(a) or Rule 15d-14(a) of Securities Exchange Act of 1934
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101	Interactive Data Files

*Indicates a management contract or any compensatory plan, contract or arrangement.

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EX-10.2

Exhibit 10.2

Exact Sciences Corporation

Non-Employee Director Compensation Policy

The purpose of this Director Compensation Policy of Exact Sciences Corporation, a Delaware corporation (the “Company”), is to provide a total compensation package that enables the Company to attract and retain, on a long-term basis, high caliber directors who are not employees or officers of the Company or its subsidiaries. 

In furtherance of the purpose stated above, all non-employee directors shall be paid compensation for services provided to the Company as set forth below:

A.Initial Compensation

Upon his or her initial election to the board, a new director shall receive stock options having a value equal to $300,000.  Such options shall vest annually over three years (1/3 on the first anniversary of the grant, 1/3 on the second anniversary of the grant and 1/3 on the third anniversary of the grant).  If a director ceases to serve as a director before such stock options are fully vested due to death, or if there is a Change in Control prior to such vesting, then such options shall become fully vested as of the date of such death or Change in Control, as applicable.

B.Annual Compensation

1.Annual Cash Compensation

a.On the date of each annual meeting of the Company’s stockholders, each non-employee director who is continuing as a director following such annual meeting shall be paid an annual cash compensation amount as follows:

Board Member Cash Compensation

Annual retainer for each director:$45,000

Board chair (if independent chair) additional compensation:$25,000

Lead independent director (if no independent chair) additional compensation:$25,000

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Committee Member Cash Compensation

Committee chair Cash compensation

-	Audit	$25,000
-	Compensation	$15,000
-	Nominating & Governance	$10,000
-	Innovation & Technology	$10,000

Committee member (other than committee chair) cash compensation

-	Audit	$12,500
-	Compensation	$7,500
-	Nominating & Governance	$5,000
-	Innovation & Technology	$5,000

b.In lieu of cash, a director may elect to receive restricted stock having an equivalent dollar value based on the closing sale price of the Company’s common stock on the date of grant.  To be effective, notice of such election must be delivered to the Company’s Principal or Chief Financial Officer in writing or electronically prior to the annual meeting at which such election shall first take effect, and such election shall be irrevocable and remain in effect until the later of (i) immediately prior to the second annual meeting following the date of delivery of such notice, or (ii) written or electronic notice from the director to the Principal or Chief Financial Officer terminating such election.

2.Annual Equity Compensation

a.On the date of each annual meeting of the Company’s stockholders, each non-employee director who is continuing as a director following the date of such annual meeting shall be granted restricted stock or deferred stock units having a value of $200,000 with the number of restricted stock or deferred stock units to be issued being determined, based on the closing sale price of the Company’s common stock on the date of grant.  A director shall elect whether such award is restricted stock or deferred stock units by delivering written or electronic notice of such election to the Principal or Chief Financial Officer prior to January 1 of the calendar year in which such award will be made (or the date of the annual meeting with respect to the first award made to a director under this Policy if it is not possible for the director to make his or her election prior to January 1 of the calendar year in which such award will be made); provided, however, that if the Principal or Chief Financial Officer receives no such election, such grant shall be made in restricted stock.

b.On the date of each annual meeting of the Company’s stockholders, the board chair (if independent), provided such individual will continue as board chair following the date of the annual meeting, shall be granted an additional annual award having a value equal to $15,000 based on the closing sale price of the Company’s common stock on the date of grant.  The chair may

2

elect to receive such award in either restricted stock or deferred stock units by delivering written or electronic notice of such election to the Principal or Chief Financial Officer prior to January 1 of the calendar year in which such award will be made (or the date of the annual meeting with respect to the first award made to the chair under this Policy if it is not possible for the chair to make his or her election prior to January 1 of the calendar year in which such award will be made); provided, however, that if the Principal or Chief Financial Officer receives no such election, such grant shall be made in restricted stock.

c.Grants of annual equity compensation described in Section 2 of this Policy shall not become vested until the first anniversary of the grant date (or, if earlier, the date of the next annual meeting of the Company’s stockholders (the “Annual Award Vesting Date”).  If a director ceases to serve as a director before the Annual Award Vesting Date due to the director’s death, or if there is a Change in Control prior to the Annual Award Vesting Date, then the shares shall become fully vested as of the date of such death or Change in Control, as applicable.  If a director ceases to serve as a director at any time for any reason other than death before the earlier of the Annual Award Vesting Date or a Change in Control, then the annual equity grant shall become vested pro rata (based on the number of days between the grant date and the date of cessation of services divided by (x) 365 days for awards made at an annual stockholders meeting or (y) the number of days from the date of commencement of services until the next annual stockholders meeting for an award made other than at an annual stockholders meeting), and to the extent the shares are not thereby vested they shall be forfeited as of the date of such cessation of services.  These vesting rules will apply whether an award is payable in shares or deferred stock units.

3.Partial Year Compensation

If a director is elected or appointed to the board other than on the date of an annual meeting of stockholders, such director’s annual cash and equity compensation for the period between the date of such election or appointment and the date of the next following annual meeting of the Company’s stockholders shall be granted in accordance with subsection B of this Policy on the date of such meeting but adjusted  pro rata to reflect the date of such director’s election or appointment and the date of such meeting and, provided, further, that the number of restricted stock or deferred stock units to be issued pursuant to this paragraph shall be determined, based on the closing sale price of the Company’s common stock on the date of such director’s appointment, and shall be fully-vested on grant. 

4.Per-Meeting Cash Compensation in Special Circumstances

Additional cash compensation shall be paid at the rate of $1,500 per meeting attended, whether such meeting is attended in person or by telephone, in the following special circumstances:

a.To the extent the number of board meetings or committee meetings, calculated on a per-committee basis, exceeds 10 in a given year.  For purposes of this section, a year commences with the Company’s annual meeting of stockholders.  Only the members of a given committee are eligible for the payments described in this section with respect to meetings of that committee.  For the avoidance of doubt, no additional compensation would be payable under this

3

section if a director attends 9 board meetings, 9 compensation committee meetings and 9 audit committee meetings; rather, additional compensation would only be triggered by the 11th meeting of the board or a given committee. 

b.To the extent the board creates a special committee, or designates the members of a standing committee to function with respect to a special purpose as members of a special committee.  Only the members of the special committee are eligible for the payments described in this section with respect to meetings of such special committee. 

C.Additional Terms

1.All equity and equity-based awards under this Policy (including stock options, restricted stock and deferred stock units) shall be made under and pursuant to the Company’s 2010 Omnibus Long-Term Incentive Plan (“Plan”).  Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Plan.

2.Deferred stock units are bookkeeping entries representing the equivalent of shares of the Company’s common stock.  Deferred stock units are paid in shares of the Company’s common stock on the effective date of the director’s retirement or removal from the board.

3.All vesting under the equity grants described in this Policy immediately ceases upon cessation of service as a director for any reason.

4.A director may not sell, transfer or otherwise dispose of any shares of restricted stock awarded under this Policy until they become vested; however, the director shall have the right to receive dividends with respect to such shares and to vote such shares prior to vesting.

5.The exercise price for all stock options under this Policy shall be the Company’s closing stock price on the date of grant, or, if the date of grant is not a trading day, then the first trading day after the date of grant.

6.For purposes of determining the number of stock options in a given grant, stock options shall be valued using the Black-Scholes method.

7.The compensation described in this Policy is in addition to reimbursement of all out-of-pocket expenses incurred by directors in attending meetings of the board.

Approved April 28, 2015 and effective July 23, 2015 (supersedes all prior Non-Employee Director Compensation Policies)

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EX-31.1

Exhibit 31.1

Certification pursuant to Section302 of the Sarbanes-Oxley Act of 2002

I, Kevin T. Conroy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Exact Sciences Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 31, 2015	By:	/s/ Kevin T. Conroy
	Kevin T. Conroy
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification pursuant to Section302 of the Sarbanes-Oxley Act of 2002

I, William J. Megan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Exact Sciences Corporation (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: July 31, 2015	By:	/s/ William J. Megan
	William J. Megan
	Principal Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Exact Sciences Corporation (the “Company”) on Form 10-Q for the quarter ended June 30, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Kevin T. Conroy, President and Chief Executive Officer of the Company and William J. Megan, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to our knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

a

/s/ Kevin T. Conroy

Kevin T. Conroy

President and Chief Executive Officer

July 31, 2015

/s/ William J. Megan

William J. Megan
Principal Financial Officer

July 31, 2015

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SUBSEQUENT EVENTS (Details) - USD ($) $ / shares in Units, $ in Thousands, shares in Millions		6 Months Ended
	Jul. 24, 2015	Jun. 30, 2014	Jun. 30, 2015
Subsequent event
Price of common stock (in dollars per share)			$ 29.74
Proceeds from sale of common stock, net of issuance costs		$ 137,670
Subsequent Event [Member] | Common Stock [Member]
Subsequent event
Issuance of common stock, net of issuance costs (in shares)	7.0
Price of common stock (in dollars per share)	$ 25.50
Proceeds from sale of common stock, net of issuance costs	$ 174,000
Underwriting discount and other stock issuance costs	$ 4,500

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STOCK-BASED COMPENSATION (Details 2) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
STOCK-BASED COMPENSATION
Forfeiture rate (as a percent)			4.99%	4.99%
Additional disclosures
Market price (in dollars per share)	$ 29.74		$ 29.74
Total intrinsic value of options exercised			$ 1,800	$ 700
Weighted Average Grant Date Fair Value
Unrecognized compensation cost	$ 38,200		$ 38,200
Weighted average period for recognition of unrecognized compensation cost			3 years 1 month 6 days
Share based compensation expense	$ 4,600	$ 2,500	$ 8,200	$ 4,500
Stock Options [Member]
Valuation assumptions
Risk-free interest rates (as a percent)				1.96%
Risk-free interest rates, minimum (as a percent)			1.50%
Risk-free interest rates, maximum (as a percent)			1.92%
Expected term			6 years 3 months	6 years 3 months
Expected volatility (as a percent)				80.80%
Expected volatility, minimum (as a percent)			67.10%
Expected volatility, maximum (as a percent)			73.20%
Dividend yield (as a percent)			0.00%	0.00%
Weighted average fair value per share of options granted during the period (in dollars per share)			$ 15.81	$ 9.86
Shares
Outstanding at the beginning of the period (in shares)			4,934,317
Granted (in shares)			340,978
Exercised (in shares)			(96,573)
Forfeited (in shares)			(35,025)
Outstanding at the end of the period (in shares)	5,143,697		5,143,697		4,934,317
Exercisable at the end of the period (in shares)	4,367,935		4,367,935
Vested and expected to vest at the end of the period (in shares)	5,104,986		5,104,986
Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)			$ 3.63
Granted (in dollars per share)			23.51
Exercised (in dollars per share)			8.08
Forfeited (in dollars per share)			16.55
Outstanding at the end of the period (in dollars per share)	$ 4.77		4.77		$ 3.63
Exercisable at the end of the period (in dollars per share)	2.61		2.61
Vested and expected to vest at the end of the period (in dollars per share)	$ 4.68		$ 4.68
Weighted Average Remaining Contractual Term
Outstanding at the end of the period			5 years		5 years 2 months 12 days
Exercisable at the end of the period			4 years 3 months 18 days
Vested and expected to vest at the end of the period			5 years 2 months 12 days
Aggregate Intrinsic Value
Outstanding at the end of the period	$ 128,421		$ 128,421
Exercisable at the end of the period	118,496		118,496
Vested and expected to vest at the end of the period	$ 127,926		$ 127,926
Employee Stock [Member]
Valuation assumptions
Risk-free interest rates, minimum (as a percent)	0.25%	0.10%	0.25%	0.10%
Risk-free interest rates, maximum (as a percent)	0.60%	0.41%	0.60%	0.41%
Expected volatility, minimum (as a percent)	51.20%	42.50%	51.20%	42.50%
Expected volatility, maximum (as a percent)	57.40%	49.50%	57.40%	49.50%
Dividend yield (as a percent)	0.00%	0.00%	0.00%	0.00%
Weighted average fair value per share of stock purchase rights granted during the period (in dollars per share)	$ 7.48	$ 3.76	$ 7.48	$ 3.76
Weighted Average Grant Date Fair Value
Granted (in dollars per share)	$ 7.48	$ 3.76	$ 7.48	$ 3.76
Employee Stock [Member] | Minimum [Member]
Valuation assumptions
Expected term	6 months	6 months	6 months	6 months
Employee Stock [Member] | Maximum [Member]
Valuation assumptions
Expected term	2 years	2 years	2 years	2 years
Restricted Stock Awards And Restricted Stock Units R S U [Member]
Valuation assumptions
Weighted average fair value per share of stock purchase rights granted during the period (in dollars per share)			$ 23.62
Restricted Shares
Outstanding at the beginning of the period (in shares)			1,541,114
Granted (in shares)			1,104,074
Released (in shares)			(262,656)
Forfeited (in shares)			(105,825)
Outstanding at the end of the period (in shares)	2,276,707		2,276,707		1,541,114
Weighted Average Grant Date Fair Value
Outstanding at the beginning of the period (in dollars per share)			$ 13.86
Granted (in dollars per share)			23.62
Released (in dollars per share)			11.84
Forfeited (in dollars per share)			14.79
Outstanding at the end of the period (in dollars per share)	$ 18.78		$ 18.78		$ 13.86

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Beginning Balance	$ (115)
Other comprehensive (loss) income before reclassifications	110	$ (24)
Amounts reclassified from accumulated other comprehensive loss	(6)	(12)
Ending Balance	(11)	89
Accumulated Translation Adjustment [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Other comprehensive (loss) income before reclassifications	(32)
Ending Balance	(32)
Accumulated Net Unrealized Investment Gain Loss [Member]
Accumulated Other Comprehensive Income (Loss), Net of Tax [Roll Forward]
Other comprehensive (loss) income before reclassifications	142	(24)
Amounts reclassified from accumulated other comprehensive loss	(6)	(12)
Ending Balance	$ 21	$ 89

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LONG-TERM DEBT (Details)	1 Months Ended		6 Months Ended
	Dec. 31, 2009 USD ($)	Nov. 30, 2009 USD ($) item	Jun. 30, 2015 USD ($)	Dec. 31, 2014 USD ($)
Debt Instrument [Line Items]
Long-term debt			$ 3,488,000	$ 1,000,000
Debt Agreement to Finance Building Purchase and Improvements [Member]
Debt Instrument [Line Items]
Maximum funds available under debt agreement			5,100,000
Amount of funds allocated to the purchase price of the building under the debt agreement			$ 3,700,000
Interest rate (as a percent)			4.15%
Total amount of principal and interest payments to be paid through the maturity date of the debt agreement			$ 31,200,000
Final principal and interest payment due under the debt agreement			4,400,000
Total debt outstanding			3,700,000
Current portion of long-term debt			200,000
Deferred financing costs			26,100,000
Wisconsin Department of Commerce Loan [Member]
Debt Instrument [Line Items]
Maximum funds available under debt agreement		$ 1,000,000
Interest rate (as a percent)		2.00%
Proceeds from long term debt	$ 1,000,000
Number of new full time positions required to be created for reduction in principal amount by specified amount | item		100
Reduction in the principal amount for each new position created		$ 5,405
Full time positions required to be created for forgiveness of full amount of principal | item		185
Interest rate if job creation requirements are not met (as a percent)		4.00%
Period for which both principal and interest payments are deferred		5 years
Benefit associated with the expected loan forgiveness that has been recorded as an offset to operating expenses			1,000,000
Construction Loans [Member] | Debt Agreement to Finance Building Purchase and Improvements [Member]
Debt Instrument [Line Items]
Maximum funds available under debt agreement			1,400,000
Total debt outstanding			$ 0

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2015

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries, Exact Sciences Laboratories, LLC, Exact Sciences Finance Corporation, Exact Sciences Europe LTD, and variable interest entities. All significant intercompany transactions and balances have been eliminated in consolidation.

References to “Exact”, “we”, “us”, “our”, or the “Company” refer to Exact Sciences Corporation and its wholly owned subsidiaries.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers cash on hand, demand deposits in bank, money market funds, and all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents. The Company had no restricted cash at June 30, 2015 and December 31, 2014.

Marketable Securities

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities carried at amortized cost are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Marketable equity securities and debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive loss. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity computed under the straight-line method, which approximates the effective interest method. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income.

At June 30, 2015 and December 31, 2014, the Company’s investments were comprised of fixed income investments and all were deemed available-for-sale. The objectives of the Company’s investment strategy are to provide liquidity and safety of principal while striving to achieve the highest rate of return consistent with these two objectives.  The Company’s investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer. Investments in which the Company has the ability and intent, if necessary, to liquidate in order to support its current operations (including those with a contractual term greater than one year from the date of purchase) are classified as current. All of the Company’s investments are considered current. There were no realized losses for the six months ended June 30, 2015 and 2014.  Realized gains were $4.8 thousand and $7.6 thousand for the six months ended June 30, 2015 and 2014, respectively.

We periodically review our investments in unrealized loss positions for other-than-temporary impairments. This evaluation includes, but is not limited to, significant quantitative and qualitative assessments and estimates regarding credit ratings, collateralized support, the length of time and significance of a security’s loss position, our intent not to sell the security, and whether it is more likely than not that we will have to sell the security before recovery of its cost basis. For the six months ended June 30, 2015, no investments were identified with other-than-temporary declines in value.

Available-for-sale securities at June 30, 2015 consisted of the following:

	June 30, 2015
			Gains in Accumulated		Losses in Accumulated
			Other Comprehensive		Other Comprehensive		Estimated Fair
(In thousands)	Amortized Cost		Income		Income		Value
Corporate bonds	$	120,096	$	28	$	(22)	$	120,102
U.S. government agency securities		4,249		—		(1)		4,248
Asset backed securities		48,687		26		(10)		48,703
Commercial paper		4,000		—		—		4,000
Total available-for-sale securities	$	177,032	$	54	$	(33)	$	177,053

Available-for-sale securities at December 31, 2014 consisted of the following:

	December 31, 2014
			Gains in Accumulated		Losses in Accumulated
			Other Comprehensive		Other Comprehensive		Estimated Fair
(In thousands)	Amortized Cost		Income		Income		Value
Corporate bonds	$	141,239	$	21	$	(136)	$	141,124
U.S. government agency securities		18,687		8		(7)		18,688
Certificates of deposit		60,821		17		(18)		60,820
Commercial paper		3,993		—		—		3,993
Total available-for-sale securities	$	224,740	$	46	$	(161)	$	224,625

Changes in Accumulated Other Comprehensive Income (Loss)

The amounts recognized in accumulated other comprehensive income (loss) (AOCI) for the six months ended June 30, 2015 were as follows (in thousands):

					Accumulated
	Cumulative		Unrealized		Other
	Translation		Gain (Loss)		Comprehensive
	Adjustment		on Securities		Income (Loss)
Balance at December 31, 2014	$	—	$	(115)	$	(115)
Other comprehensive (loss) income before reclassifications		(32)		142		110
Amounts reclassified from accumulated other comprehensive loss		—		(6)		(6)
Net current period change in accumulated other comprehensive income (loss)		(32)		136		104
Balance at June 30, 2015	$	(32)	$	21	$	(11)

The amounts recognized in AOCI for the six months ended June 30, 2014 were as follows (in thousands):

					Accumulated
	Cumulative		Unrealized		Other
	Translation		Gain(Loss)		Comprehensive
	Adjustment		on Securities		Income (Loss)
Balance at December 31, 2013	$	—	$	125	$	125
Other comprehensive (loss) income before reclassifications		—		(24)		(24)
Amounts reclassified from accumulated other comprehensive loss		—		(12)		(12)
Net current period change in accumulated other comprehensive income (loss)		—		(36)		(36)
Balance at June 30, 2014	$	—	$	89	$	89

Amounts reclassified from accumulated other comprehensive income (loss) for the six months ended June 30, 2015 were as follows (in thousands):

	Affected Line Item in the	Six Months Ended June 30,
Details about AOCI  Components	Statement of Operations	2015		2014
Change in value of available-for-sale investments
Sales and maturities of available-for-sale investments	Investment income	$	(6)	$	(12)
Total reclassifications		$	(6)	$	(12)

Property and Equipment

Property and equipment are stated at cost and depreciated using the straight-line method over the assets’ estimated useful lives. Maintenance and repairs are expensed when incurred; additions and improvements are capitalized. The estimated useful lives of fixed assets are as follows:

	Estimated
Asset Classification	Useful Life
Laboratory equipment	3-  5years
Computer equipment and computer software	3years
Leasehold improvements	Lesser of the remaining lease term or useful life
Furniture and fixtures	3years

At June 30, 2015, the Company had $7.7 million of assets under construction which consisted of $4.8 million related to a new building purchase,$1.5 million of capitalized costs related to software projects, $0.8 million of costs related to machinery and equipment, and $0.6 million of costs related to leasehold improvement and building projects. Depreciation will begin on these assets once they are placed into service. The Company expects to incur $2.4 million in costs to complete the building improvements of which $1.4 million will be financed.  The Company expects to incur minimal costs to complete the leasehold improvements, machinery and equipment, and the software projects, and these projects are expected to be completed in 2015.

Software Capitalization Policy

Software development costs related to internal use software are incurred in three stages of development: the preliminary project stage, the application development stage, and the post-implementation stage. Costs incurred during the preliminary project and post-implementation stages are expensed as incurred. Costs in the application development stage that meet the criteria for capitalization are capitalized and amortized using the straight-line basis over the estimated economic useful life of the software.

Net Loss Per Share

Basic net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average common shares outstanding during the period.  Basic and diluted net loss per share are the same because all outstanding common stock equivalents have been excluded, as they are anti-dilutive due to the Company’s losses.

The following potentially issuable common shares were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses for each period:

	June 30,
	2015	2014
Shares issuable upon exercise of stock options	5,144	6,221
Shares issuable upon exercise of outstanding warrants(1)	—	75
Shares issuable upon the release of restricted stock awards	2,277	1,546
Shares issuable upon the vesting of restricted stock awards related to licensing agreement	—	24
	7,421	7,866

(1) At June 30, 2014, represents warrants to purchase 75,000 shares of common stock issued under a consulting agreement.

Revenue Recognition

Laboratory Service Revenue. The Company’s revenues will be generated primarily by the Cologuard® test. Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable, and collectability is reasonably assured. The Company assesses whether the fee is fixed or determinable and if the collectability is reasonably assured based on the nature of the fee charged for the laboratory services delivered and whether there are existing contractual arrangements with customers, third-party commercial payors (insurance carriers and health plans) or coverage of the test by Centers for Medicare & Medicaid Services (CMS). In addition, when evaluating collectability, the Company considers factors such as collection experience for the healthcare industry, the financial standing of customers or third-party commercial payors, and whether it has sufficient collection history to reliably estimate a payor's individual payment patterns.

A portion of laboratory service revenues earned by the Company will be initially recognized on a cash basis because the above criteria will not have been met at the time the test results are delivered. The Company generally bills third-party payors upon generation and delivery of a test result to the ordering physician following completion of a test.  Patients may have out-of-pocket costs for amounts not covered by their insurance carrier and the Company bills the patient directly for these amounts in the form of co-pays and deductibles in accordance with their insurance carrier and health plans. Some third-party payors may not cover the Cologuard test under their reimbursement policies. Consequently, in such cases, the Company pursues reimbursement on a case-by-case basis directly from the patient.

For laboratory services performed, where the collectability is not reasonably assured, the Company will continue to recognize revenues upon cash collection until it can reliably estimate the amount that would be ultimately collected for the Cologuard test. In order to begin to record revenue on an accrual basis in these scenarios, the Company expects to use at least several months of payment history, review the number of tests paid against the number of tests billed, and consider the payor's outstanding balance for unpaid tests to determine whether payments are being made for a consistently high percentage of tests billed and at appropriate amounts given the contracted or historical payment amount.  With regard to Cologuard tests covered by Medicare, the national coverage determination for Cologuard was released by CMS on October 9, 2014 and for these tests, revenue is recognized on an accrual basis once the services have been performed as the price is fixed or determinable, and collectability is reasonably assured.

The Company recognized approximately $8.1 million and $12.4 million in laboratory service revenue for the three and six months ended June 30, 2015.

License fees.  License fees for the licensing of product rights are recorded as deferred revenue upon receipt of cash and recognized as revenue on a straight-line basis over the license period. As more fully described in the 2014 Form 10-K, in connection with the Company’s January 2009 strategic transaction with Genzyme Corporation, the Company deferred the initial $16.65 million in cash received at closing and amortized that up-front payment on a straight-line basis into revenue over the initial five-year collaboration period which ended in January 2014. In addition, in 2010 the Company received holdback amounts of $1.85 million, which were deferred at the time of receipt and were amortized on a straight-line basis into revenue over the then remaining term of the collaboration period.

In addition, the Company deferred $1.53 million premium related to common stock purchased by Genzyme and amortized that amount on a straight-line basis into revenue over the initial five-year collaboration period which ended in January 2014.

The Company did not recognize revenue in connection with the amortization of the up-front payments from Genzyme during the three and six months ended June 30, 2015. The Company recognized approximately $0.3 million in license fee revenue in connection with the amortization of the up-front payments from Genzyme during the six months ended June 30, 2014. There was no license fee revenue recognized during the three months ended June 30, 2014.

Inventory

Inventory is stated at the lower of cost or market value (net realizable value). The Company determines the cost of inventory using the first-in, first out method (FIFO). The Company estimates the recoverability of inventory by reference to internal estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory levels to identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value, and records a charge to cost of sales for such inventory as appropriate. In addition, the Company's products are subject to strict quality control and monitoring which the Company performs throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, the Company records a charge to cost of sales to write down such unmarketable inventory to its estimated realizable value.

Direct and indirect manufacturing costs incurred during process validation and for other research and development activities, which are not permitted to be sold, have been expensed to research and development.  Raw material inventory that was purchased in prior periods, and expensed to research and development, may still be on hand and used toward the production of commercial Cologuard, provided it has an appropriate remaining shelf life.  This inventory is expected to provide a gross margin benefit to the Company in future periods of $0.3 million if the entirety of those balances are allocated to inventory produced for resale and not allocated to research and development activities.

Inventory consist of the following (amount in thousands):

	June 30,		December 31,
	2015		2014
Raw Materials	$	1,072	$	1,019
Semi-finished and finished goods		5,203		2,998
Total inventory	$	6,275	$	4,017

Foreign Currency Translation

For the Company’s international subsidiary, formed in 2014, the local currency is the functional currency. Assets and liabilities of this subsidiary are translated into United States dollars at the period-end exchange rate or historical rates as appropriate. Consolidated statements of earnings amounts are translated at average exchange rates for the period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheet as a component of accumulated other comprehensive income in total Exact Sciences Corporation’s shareholders’ equity. Transaction gains and losses are included in the consolidated statement of operations in 2015.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation in the consolidated financial statements and accompanying notes to the consolidated financial statements.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 7) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
	Jan. 27, 2009	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014	Dec. 31, 2010
Revenue Recognition
Laboratory service revenue		$ 8,119		$ 12,385
License fee revenue					$ 294
Gross Profit		3,025		3,079	294
Inventory
Raw materials		1,072	$ 1,019	1,072	1,019
Semi-finished and finished goods		5,203	2,998	5,203	2,998
Total inventory		$ 6,275	4,017	6,275	4,017	$ 4,017
Cologuard Member | Scenario, Forecast [Member]
Revenue Recognition
Gross Profit				$ 300
Collaboration License And Purchase Agreement [Member] | Genzyme Corporation [Member]
Revenue Recognition
Amount of Deferred Revenue	$ 16,650
Amount subject to holdback							$ 1,850
Initial collaboration period	5 years
Amount of premium being amortized	$ 1,530
License fee revenue			$ 300		$ 300

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 6) - shares	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Common shares not included in the computation of diluted net loss per share
Potentially issuable common shares not included in the computation of diluted net loss per share because they would have an anti-dilutive effect	7,421,000	7,866,000
Additional disclosure
Number of shares of common stock that can be purchased through issuance of warrants under a consulting agreement		75,000
Stock Options [Member]
Common shares not included in the computation of diluted net loss per share
Potentially issuable common shares not included in the computation of diluted net loss per share because they would have an anti-dilutive effect	5,144,000	6,221,000
Warrants [Member]
Common shares not included in the computation of diluted net loss per share
Potentially issuable common shares not included in the computation of diluted net loss per share because they would have an anti-dilutive effect		75,000
Restricted Stock Awards [Member]
Common shares not included in the computation of diluted net loss per share
Potentially issuable common shares not included in the computation of diluted net loss per share because they would have an anti-dilutive effect	2,277,000	1,546,000
Restricted Stock Related To Licensing Agreement [Member]
Common shares not included in the computation of diluted net loss per share
Potentially issuable common shares not included in the computation of diluted net loss per share because they would have an anti-dilutive effect		24,000

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MAYO LICENSE AGREEMENT (Details)		1 Months Ended						3 Months Ended			6 Months Ended		12 Months Ended
	Jun. 11, 2009 $ / shares shares	Feb. 28, 2015 USD ($) installment	Aug. 31, 2014 USD ($)	Jun. 30, 2014 USD ($) shares	Sep. 30, 2011 shares	Jun. 30, 2011 USD ($)	Jun. 30, 2009 item	Jun. 30, 2015 USD ($)	Jun. 30, 2014 USD ($)	Sep. 30, 2009 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2014 USD ($)	Dec. 31, 2012 USD ($)
Other Payments
Charges incurred as part of the research collaboration								$ 8,115,000	$ 7,174,000		$ 14,686,000	$ 14,604,000
M A Y O Foundation [Member] | Warrant Covering One Million Shares [Member]
Warrants
Number of shares of common stock covered by warrants | shares	1,000,000
M A Y O Foundation [Member] | Warrant Covering Two Hundred Fifty Thousand Shares [Member]
Warrants
Warrants exercised, gross (in shares) | shares				250,000
Licensing Agreements [Member]
Amendments
Extension period		5 years
License fee payments		$ 1,000,000
Licensing Agreements [Member] | M A Y O Foundation [Member]
Warrants
Number of common stock purchase warrants granted | item							2
Other Payments
Upfront payment										$ 80,000
Milestone payment contingent upon FDA approval			$ 500,000			$ 250,000
Payments for research and development efforts								400,000	200,000		1,600,000	700,000
Estimated liability for research and development efforts				$ 1,000,000				$ 700,000	$ 1,000,000		700,000	$ 1,000,000
Amendments
License fees payable in five annual installments		$ 5,000,000
Number of annual installments in which license fees are payable | installment		5
License fee annual installment		$ 1,000,000
Licensing Agreements [Member] | M A Y O Foundation [Member] | Minimum [Member]
Warrants
Royalty payments											$ 25,000		$ 10,000
Licensing Agreements [Member] | M A Y O Foundation [Member] | Warrant Covering One Million Shares [Member]
Warrants
Exercise price (in dollars per share) | $ / shares	$ 1.90
Number of shares of common stock covered by warrants | shares	1,000,000
Warrants exercised, gross (in shares) | shares					1,000,000
Licensing Agreements [Member] | M A Y O Foundation [Member] | Warrant Covering Two Hundred Fifty Thousand Shares [Member]
Warrants
Exercise price (in dollars per share) | $ / shares	$ 1.90
Number of shares of common stock covered by warrants | shares	250,000
Vesting period of warrant	4 years
Warrants exercised, gross (in shares) | shares				80,000
Warrants forfeited (in shares) | shares				10,587
Warrants exercised, net of forfeiture (in shares) | shares				69,413

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MD ANDERSON LICENSE AGREEMENT (Details) - MD Anderson License Agreement [Member] - USD ($) $ in Millions	Jun. 30, 2015	Apr. 10, 2015
Agreements
Maximum annual expense incurred by licensee in which the Company is obligated to reimburse		$ 1.0
Estimated liability for IVD Assay development efforts	$ 0.3
Quarterly fee required to be paid for the use of samples already collected prior to the effective date of the agreement		$ 0.3
Estimated liability for use of samples	0.5
Commerical sales of product to date	$ 0.0

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ORGANIZATION AND BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2015

ORGANIZATION

ORGANIZATION AND BASIS OF PRESENTATION

(1) ORGANIZATION AND BASIS OF PRESENTATION

Organization

Exact Sciences Corporation (together with its subsidiaries, “Exact”, “we”, “us” or the “Company”) was incorporated in February 1995. Exact is a molecular diagnostics company currently focused on the early detection and prevention of some of the deadliest forms of cancer. The Company has developed an accurate, non-invasive, patient-friendly screening test for the early detection of colorectal cancer and pre-cancer, and is currently working on the development of tests for lung cancer, pancreatic cancer and esophageal cancer.

Basis of Presentation

The accompanying condensed consolidated financial statements, which include the accounts of Exact Sciences Corporation and those of its wholly-owned subsidiaries, Exact Sciences Laboratories, LLC, Exact Sciences Finance Corporation, Exact Sciences Europe LTD, and variable interest entities are unaudited and have been prepared on a basis substantially consistent with the Company’s audited financial statements and notes as of and for the year ended December 31, 2014 included in the Company’s Annual Report on Form 10-K (the “2014 Form 10-K”). These condensed financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. In the opinion of management, all adjustments (consisting only of adjustments of a normal and recurring nature) considered necessary for a fair presentation of the results of operations have been included. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year. The statements should be read in conjunction with the audited financial statements and related notes included in the 2014 Form 10-K.  Management has evaluated subsequent events for disclosure or recognition in the accompanying financial statements up to the filing of this report.

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STOCK-BASED COMPENSATION (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
STOCK-BASED COMPENSATION
Stock-based compensation expense	$ 4.6	$ 2.5	$ 8.2	$ 4.5

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Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Current Assets:
Cash and cash equivalents	$ 33,765	$ 58,131
Marketable securities	177,053	224,625
Accounts receivable, net	2,151	1,376
Inventory, net	6,275	4,017
Prepaid expenses and other current assets	4,019	3,528
Total current assets	223,263	291,677
Property and Equipment, at cost:
Laboratory equipment	11,279	10,381
Assets under construction	7,664	1,552
Computer equipment and computer software	10,807	7,577
Leasehold improvements	6,446	5,937
Furniture and fixtures	933	939
Property and Equipment, gross	37,129	26,386
Less-Accumulated depreciation	(9,817)	(6,439)
Net property and equipment	27,312	19,947
Other long-term assets	2,442	1,200
Total assets	253,017	312,824
Current Liabilities:
Accounts payable	1,345	2,647
Accrued liabilities	16,306	13,960
Debt and capital lease obligation, current portion	345	360
Other short-term liabilities	734	554
Total current liabilities	18,730	17,521
Long-term debt	3,488	1,000
Long-term accrued interest		106
Other long-term liabilities	4,620	3,599
Lease incentive obligation, less current portion	1,338	1,614
Total liabilities	$ 28,176	$ 23,840
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $0.01 par value Authorized—5,000,000 shares Issued and outstanding—no shares at June 30, 2015 and December 31, 2014
Common stock, $0.01 par value Authorized—200,000,000 shares Issued and outstanding—89,061,044 and 88,626,042 shares at June 30, 2015 and December 31, 2014	$ 891	$ 887
Additional paid-in capital	719,635	709,019
Accumulated other comprehensive income (loss)	(11)	(115)
Accumulated deficit	(495,674)	(420,807)
Total stockholders' equity	224,841	288,984
Total liabilities and stockholders’ equity	$ 253,017	$ 312,824

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash flows from operating activities:
Net loss	$ (74,867)	$ (35,544)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization of fixed assets	3,377	1,344
Stock-based compensation	8,168	4,478
Amortization of deferred license fees		(294)
Amortization of other long-term liabilities	(241)
Forgiveness of long-term debt	(1,000)
Amortization of premium on short-term investments	702	370
Changes in assets and liabilities:
Prepaid expenses and other current assets	(291)	(1,788)
Accounts receivable	(775)
Inventory, net	(2,258)
Accounts payable	(1,302)	(404)
Accrued liabilities	3,181	3,210
Lease incentive obligation	(276)	(270)
Accrued interest	(106)	11
Net cash used in operating activities	(65,688)	(28,887)
Cash flows from investing activities:
Purchases of marketable securities	(19,318)	(138,855)
Maturities of marketable securities	66,324	44,768
Purchases of property and equipment	(10,742)	(7,196)
Net cash provided by (used in) investing activities	36,264	(101,283)
Cash flows from financing activities:
Proceeds from exercise of common stock options	859	193
Proceeds from sale of common stock, net of issuance costs		137,670
Payments on capital lease obligations	(183)	(173)
Proceeds from mortgage payable	3,656
Proceeds in connection with the Company's employee stock purchase plan	758	337
Net cash provided by financing activities	5,090	138,027
Effects of exchange rate on cash and cash equivalents	(32)
Net increase (decrease) in cash and cash equivalents	(24,366)	7,857
Cash and cash equivalents, beginning of period	58,131	12,851
Cash and cash equivalents, end of period	33,765	20,708
Supplemental disclosure of non-cash investing and financing activities:
Unrealized gain (loss) on available-for-sale investments	136	36
Issuance of 21,826 and 32,666 shares of common stock to fund the Company’s 401(k) matching contribution for 2014 and 2013, respectively	$ 835	$ 456

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FAIR VALUE (Details 2) $ in Thousands	Jun. 30, 2015 USD ($)
Fair value of investments in unrealized loss positions
Total fair value of available-for-sale securities in a continuous unrealized loss position for less than twelve months	$ 90,326
Total fair value of available for sale securities in a continuous unrealized loss position for greater than twelve months	1,432
Total fair value of available-for-sale securities in a continuous unrealized loss position	91,758
Gross unrealized loss of investments in unrealized loss positions
Total gross unrealized losses of available-for-sale securities in a continuous unrealized loss position for less than twelve months	(32)
Total gross unrealized losses of available-for-sale securities in a continuous unrealized loss position for greater than twelve months	(1)
Total gross unrealized losses of available-for-sale securities in a continuous unrealized loss position	(33)
Contractual maturities of the available-for-sale investments in debt securities, Cost
Due in one year or less	120,619
Due after one year through two years	56,412
Contractual maturities of the available-for-sale investments in debt securities, Fair Value
Due in one year or less	120,616
Due after one year through two years	56,437
Corporate bonds [Member]
Fair value of investments in unrealized loss positions
Total fair value of available-for-sale securities in a continuous unrealized loss position for less than twelve months	65,965
Total fair value of available-for-sale securities in a continuous unrealized loss position	65,965
Gross unrealized loss of investments in unrealized loss positions
Total gross unrealized losses of available-for-sale securities in a continuous unrealized loss position for less than twelve months	(21)
Total gross unrealized losses of available-for-sale securities in a continuous unrealized loss position	(21)
Contractual maturities of the available-for-sale investments in debt securities, Cost
Due in one year or less	112,370
Due after one year through two years	7,725
Contractual maturities of the available-for-sale investments in debt securities, Fair Value
Due in one year or less	112,367
Due after one year through two years	7,734
Asset backed securities [Member]
Fair value of investments in unrealized loss positions
Total fair value of available-for-sale securities in a continuous unrealized loss position for less than twelve months	21,863
Total fair value of available for sale securities in a continuous unrealized loss position for greater than twelve months	1,432
Total fair value of available-for-sale securities in a continuous unrealized loss position	23,295
Gross unrealized loss of investments in unrealized loss positions
Total gross unrealized losses of available-for-sale securities in a continuous unrealized loss position for less than twelve months	(10)
Total gross unrealized losses of available-for-sale securities in a continuous unrealized loss position for greater than twelve months	(1)
Total gross unrealized losses of available-for-sale securities in a continuous unrealized loss position	(11)
Contractual maturities of the available-for-sale investments in debt securities, Cost
Due after one year through two years	48,687
Contractual maturities of the available-for-sale investments in debt securities, Fair Value
Due after one year through two years	48,703
U. S. government agency securities [Member]
Fair value of investments in unrealized loss positions
Total fair value of available-for-sale securities in a continuous unrealized loss position for less than twelve months	2,498
Total fair value of available-for-sale securities in a continuous unrealized loss position	2,498
Gross unrealized loss of investments in unrealized loss positions
Total gross unrealized losses of available-for-sale securities in a continuous unrealized loss position for less than twelve months	(1)
Total gross unrealized losses of available-for-sale securities in a continuous unrealized loss position	(1)
Contractual maturities of the available-for-sale investments in debt securities, Cost
Due in one year or less	4,249
Contractual maturities of the available-for-sale investments in debt securities, Fair Value
Due in one year or less	4,249
Commercial Paper [Member].
Contractual maturities of the available-for-sale investments in debt securities, Cost
Due in one year or less	4,000
Contractual maturities of the available-for-sale investments in debt securities, Fair Value
Due in one year or less	$ 4,000

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2015

FAIR VALUE MEASUREMENTS

Schedule of fair value measurements along with the level within the fair value hierarchy in which the fair value measurements fall

The following table presents the Company’s fair value measurements as of June 30, 2015 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall.  Amounts in the table are in thousands.

			Fair Value Measurement at June 30, 2015 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Fair Value at		Identical Assets		Inputs		Inputs
Description	June 30, 2015		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents
Cash and money market	$	33,765	$	33,765	$	—	$	—
Available-for-Sale
Marketable securities
Corporate bonds		120,101		—		120,101		—
U.S. government agency securities		4,249		—		4,249		—
Asset backed securities		48,703		—		48,703		—
Commercial paper		4,000		—		4,000		—
Total	$	210,818	$	33,765	$	177,053	$	—

The following table presents the Company’s fair value measurements as of December 31, 2014 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall.  Amounts in the table are in thousands.

			Fair Value Measurement at December 31, 2014 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Fair Value at		Identical Assets		Inputs		Inputs
Description	December 31, 2014		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents
Cash and money market	$	53,569	$	53,569	$	—	$	—
Corporate bonds		4,562		—		4,562		—
Available-for-Sale
Marketable securities
Corporate bonds		141,124		—		141,124		—
U.S. government agency securities		18,688		—		18,688		—
Asset backed securities		60,820		—		60,820		—
Commercial paper		3,993		—		3,993		—
Total	$	282,756	$	53,569	$	229,187	$	—

Schedule of gross unrealized losses and fair values of investments in an unrealized loss position

		June 30, 2015
		Less than 12 months			12 months or greater				Total
(In thousands)		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Marketable Securities
Corporate bonds	$	65,965	$	(21)	$	—	$	—	$	65,965	$	(21)
U.S. government agency securities		2,498		(1)		—		—		2,498		(1)
Asset backed securities		21,863		(10)		1,432		(1)		23,295		(11)
Total	$	90,326	$	(32)	$	1,432	$	(1)	$	91,758	$	(33)

Summary of contractual maturities available for the sale of investments in debt securities

The following summarizes contractual underlying maturities of the Company’s available-for-sale investments in debt securities at June 30, 2015 (in thousands):

		Due one year or less			Due after one year through two years
Description		Cost		Fair Value		Cost		Fair Value
Marketable Securities
U.S. government agency securities	$	4,249	$	4,249	$	—	$	—
Corporate bonds		112,370		112,367		7,725		7,734
Commercial paper		4,000		4,000		—		—
Asset backed securities		—		—		48,687		48,703
Total	$	120,619	$	120,616	$	56,412	$	56,437

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NEW MARKET TAX CREDIT (Details) - New Market Tax Credit Program [Member] - USD ($) $ in Millions	1 Months Ended	3 Months Ended		6 Months Ended
	Dec. 31, 2014	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2015
Disclosures related to New Market Tax Credit
Net proceeds received from financing arrangements			$ 2.4
Loan issued to a subsidiary of the Company by the Investor	$ 7.5		7.5
Loan transaction eliminated in Company's consolidated financial statements	5.1		5.1
Fee related to not exercising the option to purchase certain real property under a specified agreement	$ 1.2
Amortization of contribution liability recognized as a decrease in expenses		$ 0.1		$ 0.2
Land purchase option asset		1.2		1.2
Land purchase option liability		1.2		1.2
Variable Interest Entity, Primary Beneficiary [Member]
Disclosures related to New Market Tax Credit
Debt issuance costs			0.2
Investor [Member]
Disclosures related to New Market Tax Credit
Loan receivable issued to Investor			$ 5.1
Term of the loan receivable			7 years
Loan receivable interest rate (as a percent)	2.74%		2.74%
Recapture (as a percentage)			100.00%
Recapture period			7 years
Investor [Member] | Variable Interest Entity, Primary Beneficiary [Member] | Long-term other liabilities
Disclosures related to New Market Tax Credit
Financing arrangement, amount outstanding	$ 2.4	$ 2.2	$ 2.4	$ 2.2

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning Balance	$ (115)
Other comprehensive (loss) income before reclassifications	110	$ (24)
Amounts reclassified from accumulated other comprehensive loss	(6)	(12)
Net current period change in accumulated other comprehensive income (loss)	104	(36)
Ending Balance	(11)	89
Accumulated Translation Adjustment [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Other comprehensive (loss) income before reclassifications	(32)
Net current period change in accumulated other comprehensive income (loss)	(32)
Ending Balance	(32)
Accumulated Net Unrealized Investment Gain Loss [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Other comprehensive (loss) income before reclassifications	142	(24)
Amounts reclassified from accumulated other comprehensive loss	(6)	(12)
Net current period change in accumulated other comprehensive income (loss)	136	(36)
Ending Balance	$ 21	$ 89

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Consolidated Statements of Cash Flows (Parenthetical) - shares	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Consolidated Statements of Cash Flows
Issuance of shares of common stock to fund the Company's 401(k) matching contribution	21,826	32,669

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2015	Dec. 31, 2014
Consolidated Balance Sheets
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, Authorized shares	5,000,000	5,000,000
Preferred stock, Issued shares	0	0
Preferred stock, outstanding shares	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, Authorized shares	200,000,000	200,000,000
Common stock, Issued shares	89,061,044	88,626,042
Common stock, outstanding shares	89,061,044	88,626,042

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2015

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

(10)  SUBSEQUENT EVENTS

On July 24, 2015 the Company completed an underwritten public offering of 7.0 million shares of common stock at a price of $25.50 per share to the public. The Company received approximately $174.0 million of net proceeds from the offering, after deducting $4.5 million for the underwriting discounts and commissions and other stock issuance costs paid by the Company.

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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Jul. 29, 2015
Document and Entity Information
Entity Registrant Name	EXACT SCIENCES CORP
Entity Central Index Key	0001124140
Document Type	10-Q
Document Period End Date	Jun. 30, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		96,087,664
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2

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RECENT ACCOUNTING PRONOUNCEMENTS

6 Months Ended

Jun. 30, 2015

New Accounting Pronouncements And Changes In Accounting Principles Abstract

RECENT ACCOUNTING PRONOUNCEMENTS

(11) RECENT ACCOUNTING PRONOUNCEMENTS

In April 2015, the Financial Accounting Standards Board issued Accounting Standards Update No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The standard is effective for the Company’s financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 may be applied using either a full retrospective or a modified retrospective approach and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company would be permitted to early adopt ASU 2014-09 for the fiscal year beginning after December 15, 2016, and interim periods therein. The Company is currently evaluating the impact of this amendment on its financial position and results of operations.

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Consolidated Statements of Operations - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Net sales
Laboratory service revenue	$ 8,119		$ 12,385
License fees				$ 294
Total revenue	8,119		12,385	294
Cost of sales	5,094		9,306
Gross margin	3,025		3,079	294
Operating expenses:
Research and development	8,115	$ 7,174	14,686	14,604
General and administrative	13,683	6,230	26,654	10,816
Sales and marketing	20,593	6,166	37,117	10,622
Total operating expenses	42,391	19,570	78,457	36,042
Loss from operations	(39,366)	(19,570)	(75,378)	(35,748)
Other income (expense)
Investment income	193	146	415	232
Interest income (expense)	107	(13)	96	(28)
Total other income	300	133	511	204
Net loss	$ (39,066)	$ (19,437)	$ (74,867)	$ (35,544)
Net loss per share-basic and diluted (in dollars per share)	$ (0.44)	$ (0.24)	$ (0.84)	$ (0.46)
Weighted average common shares outstanding-basic and diluted (in shares)	88,919	82,048	88,791	76,548

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STOCK-BASED COMPENSATION

6 Months Ended

Jun. 30, 2015

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

(5) STOCK-BASED COMPENSATION

Stock-Based Compensation Plans

The Company’s stock-based compensation plans include the 2010 Omnibus Long-Term Incentive Plan (As Amended and Restated Effective April 28, 2015), the 2010 Employee Stock Purchase Plan, the 2015 Inducement Grant Plan and the 2000 Stock Option and Incentive Plan (collectively, the “Stock Plans”).

Stock-Based Compensation Expense

The Company recorded $4.6 million and $8.2 million in stock-based compensation expense during the three and six months ended June 30, 2015 in connection with the amortization of restricted stock and restricted stock unit awards, stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees, non-employee consultants and non-employee directors.   The Company recorded $2.5 million and $4.5 million in stock-based compensation expense during the three and six months ended June 30, 2014 in connection with the amortization of restricted stock and restricted stock unit awards, stock purchase rights granted under the Company’s employee stock purchase plan and stock options granted to employees and non-employee directors.

Determining Fair Value

Valuation and Recognition – The fair value of each option award is estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions in the table below. The estimated fair value of employee stock options is recognized to expense using the straight-line method over the vesting period.

Expected Term – Expected term is based on the Company’s historical life data and is determined using the average of the vesting period and the contractual life of the stock options granted.

Expected Volatility - Expected volatility is based on the Company’s historical stock volatility data over the expected term of the awards.

Risk-Free Interest Rate - The Company bases the risk-free interest rate used in the Black-Scholes valuation model on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent expected term.

Forfeitures - The Company records stock-based compensation expense only for those awards that are expected to vest.  A forfeiture rate is estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from initial estimates.  The Company’s forfeiture rate used in the six months ended June 30, 2015 and 2014 was 4.99%.  

The fair value of each restricted stock and restricted stock unit award is determined on the date of grant using the closing stock price on that day.

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2015	2014	2015	2014
Option Plan Shares
Risk-free interest rates	(1)	(1)	1.5%  -  1.92%	1.96%
Expected term (in years)	(1)	(1)	6.25	6.25
Expected volatility	(1)	(1)	67.1%  -  73.2%	80.8%
Dividend yield	(1)	(1)	0 %	0%
Weighted average fair value per share of options granted during the period	(1)	(1)	$  15.81	$  9.86
ESPP Shares
Risk-free interest rates	0.25%  -  0.6%	0.1%  - 0.41%	0.25%  -  0.6%	0.1%  - 0.41%
Expected term (in years)	0.5  -  2	0.5  - 2	0.5  -  2	0.5  - 2
Expected volatility	51.2%  -  57.4%	42.5%  - 49.5%	51.2%  -  57.4%	42.5%  - 49.5%
Dividend yield	0 %	0%	0 %	0%
Weighted average fair value per share of stock purchase rights granted during the period	$ 7.48	$ 3.76	$ 7.48	$ 3.76

(1) The Company did not grant options under its 2010 Option Plan during the period indicated.

Stock Option and Restricted Stock Activity

A summary of stock option activity under the Stock Plans during the six months ended June 30, 2015 is as follows:

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
Options	Shares	Price		Term (Years)	Value(1)
(Aggregate intrinsic value in thousands)
Outstanding, December 31, 2014	4,934,317	$	3.63	5.2
Granted	340,978		23.51
Exercised	(96,573)		8.08
Forfeited	(35,025)		16.55
Outstanding, June 30, 2015	5,143,697	$	4.77	5.0	$	128,421
Exercisable, June 30, 2015	4,367,935	$	2.61	4.3	$	118,496
Vested and expected to vest, June 30, 2015	5,104,986	$	4.68	5.2	$	127,926

(1) The aggregate intrinsic value of options outstanding, exercisable and vested and expected to vest is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for options that had exercise prices that were lower than the $29.74 market price of the Company’s common stock at June 30, 2015.  The total intrinsic value of options exercised during the six months ended June 30, 2015 and 2014 was $1.8 million and $0.7 million, respectively.

As of June 30, 2015, there was $38.2 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all Stock Plans.  Total unrecognized compensation cost will be adjusted for future changes in forfeitures.  The Company expects to recognize that cost over a weighted average period of 3.1 years.

A summary of restricted stock activity under the Stock Plans during the six months ended June 30, 2015 is as follows:

		Weighted
	Restricted	Average Grant
	Shares	Date Fair Value
Outstanding, January 1, 2015	1,541,114	$	13.86
Granted	1,104,074		23.62
Released	(262,656)		11.84
Forfeited	(105,825)		14.79
Outstanding, June 30, 2015	2,276,707	$	18.78

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MD ANDERSON LICENSE AGREEMENT

6 Months Ended

Jun. 30, 2015

MD ANDERSON LICENSE AGREEMENT

MD ANDERSON LICENSE AGREEMENT

(4) MD ANDERSON LICENSE AGREEMENT

Overview

On April 10, 2015, the Company entered into a Joint Development and License Agreement (“MD Anderson Agreement”) with the University of Texas M.D. Anderson Cancer Center (“MD Anderson”) to jointly develop, clinically validate and obtain FDA approval and CMS coverage and reimbursement for in-vitro diagnostic and screening tools for the early detection of lung cancer (the “IVD Assays”). Under the MD Anderson Agreement, MD Anderson granted the Company an exclusive license which provides the Company with the intellectual property rights for the purpose of developing, manufacturing and marketing IVD Assays. In addition to granting the Company a license to the covered MD Anderson intellectual property, MD Anderson agreed to make personnel available to provide the Company product development and research and development assistance. Pursuant to the MD Anderson Agreement, the Company is obligated to reimburse IVD Assay development expenses incurred by the staff at MD Anderson, up to a maximum of $1.0 million per year for the first two years of the MD Anderson Agreement. At June 30, 2015 the Company recorded an estimated liability in the amount of $0.3 million for IVD Assay development efforts. As of June 30, 2015 the Company has not made payments for IVD Assay development costs. Beginning on April 30, 2015 and continuing through December 31, 2016, the Company is required to pay a quarterly fee of $0.3 million for the use of samples already collected prior to the effective date of the agreement which will be utilized in the continued research and development of IVD Assays. As of June 30, 2015 the Company recorded an estimated liability in the amount of $0.5 million for the use of samples provided by MD Anderson. Further, the Company has agreed to pay MD Anderson a low single digit royalty on the Company’s net sales of products using the licensed MD Anderson intellectual property. As of June 30, 2015 there have been no commercial sales of such product.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details)	6 Months Ended
	Jun. 30, 2015 USD ($) item	Jun. 30, 2014 USD ($)	Dec. 31, 2014 USD ($)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Restricted cash	$ 0		$ 0
Number of objectives of the entity's investment strategy | item	2
Realized gains	$ 4,800	$ 7,600
Minimum contractual term of certain current investments which can be liquidated	1 year
Available-for-sale securities
Amortized Cost	$ 177,032,000		224,740,000
Gains in Accumulated Other Comprehensive Income	54,000		46,000
Losses in Accumulated Other Comprehensive Income	(33,000)		(161,000)
Estimated Fair Value	177,053,000		224,625,000
Realized losses	0	$ 0
Corporate bonds [Member]
Available-for-sale securities
Amortized Cost	120,096,000		141,239,000
Gains in Accumulated Other Comprehensive Income	28,000		21,000
Losses in Accumulated Other Comprehensive Income	(22,000)		(136,000)
Estimated Fair Value	120,102,000		141,124,000
U. S. government agency securities [Member]
Available-for-sale securities
Amortized Cost	4,249,000		18,687,000
Gains in Accumulated Other Comprehensive Income			8,000
Losses in Accumulated Other Comprehensive Income	(1,000)		(7,000)
Estimated Fair Value	4,248,000		18,688,000
Asset backed securities [Member]
Available-for-sale securities
Amortized Cost	48,687,000
Gains in Accumulated Other Comprehensive Income	26,000
Losses in Accumulated Other Comprehensive Income	(10,000)
Estimated Fair Value	48,703,000
Commercial paper [Member]
Available-for-sale securities
Amortized Cost	4,000,000		3,993,000
Estimated Fair Value	$ 4,000,000		3,993,000
Certificates of deposit [Member]
Available-for-sale securities
Amortized Cost			60,821,000
Gains in Accumulated Other Comprehensive Income			17,000
Losses in Accumulated Other Comprehensive Income			(18,000)
Estimated Fair Value			$ 60,820,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2015

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries, Exact Sciences Laboratories, LLC, Exact Sciences Finance Corporation, Exact Sciences Europe LTD, and variable interest entities. All significant intercompany transactions and balances have been eliminated in consolidation.

References to “Exact”, “we”, “us”, “our”, or the “Company” refer to Exact Sciences Corporation and its wholly owned subsidiaries.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company considers cash on hand, demand deposits in bank, money market funds, and all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents. The Company had no restricted cash at June 30, 2015 and December 31, 2014.

Marketable Securities

Marketable Securities

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date. Debt securities carried at amortized cost are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Marketable equity securities and debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses, net of tax, reported in other comprehensive loss. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity computed under the straight-line method, which approximates the effective interest method. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income.

At June 30, 2015 and December 31, 2014, the Company’s investments were comprised of fixed income investments and all were deemed available-for-sale. The objectives of the Company’s investment strategy are to provide liquidity and safety of principal while striving to achieve the highest rate of return consistent with these two objectives.  The Company’s investment policy limits investments to certain types of instruments issued by institutions with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer. Investments in which the Company has the ability and intent, if necessary, to liquidate in order to support its current operations (including those with a contractual term greater than one year from the date of purchase) are classified as current. All of the Company’s investments are considered current. There were no realized losses for the six months ended June 30, 2015 and 2014.  Realized gains were $4.8 thousand and $7.6 thousand for the six months ended June 30, 2015 and 2014, respectively.

We periodically review our investments in unrealized loss positions for other-than-temporary impairments. This evaluation includes, but is not limited to, significant quantitative and qualitative assessments and estimates regarding credit ratings, collateralized support, the length of time and significance of a security’s loss position, our intent not to sell the security, and whether it is more likely than not that we will have to sell the security before recovery of its cost basis. For the six months ended June 30, 2015, no investments were identified with other-than-temporary declines in value.

Available-for-sale securities at June 30, 2015 consisted of the following:

	June 30, 2015
			Gains in Accumulated		Losses in Accumulated
			Other Comprehensive		Other Comprehensive		Estimated Fair
(In thousands)	Amortized Cost		Income		Income		Value
Corporate bonds	$	120,096	$	28	$	(22)	$	120,102
U.S. government agency securities		4,249		—		(1)		4,248
Asset backed securities		48,687		26		(10)		48,703
Commercial paper		4,000		—		—		4,000
Total available-for-sale securities	$	177,032	$	54	$	(33)	$	177,053

Available-for-sale securities at December 31, 2014 consisted of the following:

	December 31, 2014
			Gains in Accumulated		Losses in Accumulated
			Other Comprehensive		Other Comprehensive		Estimated Fair
(In thousands)	Amortized Cost		Income		Income		Value
Corporate bonds	$	141,239	$	21	$	(136)	$	141,124
U.S. government agency securities		18,687		8		(7)		18,688
Certificates of deposit		60,821		17		(18)		60,820
Commercial paper		3,993		—		—		3,993
Total available-for-sale securities	$	224,740	$	46	$	(161)	$	224,625

Changes in Accumulated Other Comprehensive Income

Changes in Accumulated Other Comprehensive Income (Loss)

The amounts recognized in accumulated other comprehensive income (loss) (AOCI) for the six months ended June 30, 2015 were as follows (in thousands):

					Accumulated
	Cumulative		Unrealized		Other
	Translation		Gain (Loss)		Comprehensive
	Adjustment		on Securities		Income (Loss)
Balance at December 31, 2014	$	—	$	(115)	$	(115)
Other comprehensive (loss) income before reclassifications		(32)		142		110
Amounts reclassified from accumulated other comprehensive loss		—		(6)		(6)
Net current period change in accumulated other comprehensive income (loss)		(32)		136		104
Balance at June 30, 2015	$	(32)	$	21	$	(11)

The amounts recognized in AOCI for the six months ended June 30, 2014 were as follows (in thousands):

					Accumulated
	Cumulative		Unrealized		Other
	Translation		Gain(Loss)		Comprehensive
	Adjustment		on Securities		Income (Loss)
Balance at December 31, 2013	$	—	$	125	$	125
Other comprehensive (loss) income before reclassifications		—		(24)		(24)
Amounts reclassified from accumulated other comprehensive loss		—		(12)		(12)
Net current period change in accumulated other comprehensive income (loss)		—		(36)		(36)
Balance at June 30, 2014	$	—	$	89	$	89

Amounts reclassified from accumulated other comprehensive income (loss) for the six months ended June 30, 2015 were as follows (in thousands):

	Affected Line Item in the	Six Months Ended June 30,
Details about AOCI  Components	Statement of Operations	2015		2014
Change in value of available-for-sale investments
Sales and maturities of available-for-sale investments	Investment income	$	(6)	$	(12)
Total reclassifications		$	(6)	$	(12)

Property and Equipment

Property and Equipment

Property and equipment are stated at cost and depreciated using the straight-line method over the assets’ estimated useful lives. Maintenance and repairs are expensed when incurred; additions and improvements are capitalized. The estimated useful lives of fixed assets are as follows:

	Estimated
Asset Classification	Useful Life
Laboratory equipment	3-  5years
Computer equipment and computer software	3years
Leasehold improvements	Lesser of the remaining lease term or useful life
Furniture and fixtures	3years

At June 30, 2015, the Company had $7.7 million of assets under construction which consisted of $4.8 million related to a new building purchase,$1.5 million of capitalized costs related to software projects, $0.8 million of costs related to machinery and equipment, and $0.6 million of costs related to leasehold improvement and building projects. Depreciation will begin on these assets once they are placed into service. The Company expects to incur $2.4 million in costs to complete the building improvements of which $1.4 million will be financed.  The Company expects to incur minimal costs to complete the leasehold improvements, machinery and equipment, and the software projects, and these projects are expected to be completed in 2015.

Software Capitalization Policy

Software Capitalization Policy

Software development costs related to internal use software are incurred in three stages of development: the preliminary project stage, the application development stage, and the post-implementation stage. Costs incurred during the preliminary project and post-implementation stages are expensed as incurred. Costs in the application development stage that meet the criteria for capitalization are capitalized and amortized using the straight-line basis over the estimated economic useful life of the software.

Net Loss Per Share

Net Loss Per Share

Basic net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted average common shares outstanding during the period.  Basic and diluted net loss per share are the same because all outstanding common stock equivalents have been excluded, as they are anti-dilutive due to the Company’s losses.

The following potentially issuable common shares were not included in the computation of diluted net loss per share because they would have an anti-dilutive effect due to net losses for each period:

	June 30,
	2015	2014
Shares issuable upon exercise of stock options	5,144	6,221
Shares issuable upon exercise of outstanding warrants(1)	—	75
Shares issuable upon the release of restricted stock awards	2,277	1,546
Shares issuable upon the vesting of restricted stock awards related to licensing agreement	—	24
	7,421	7,866

(1) At June 30, 2014, represents warrants to purchase 75,000 shares of common stock issued under a consulting agreement.

Revenue Recognition

Revenue Recognition

Laboratory Service Revenue. The Company’s revenues will be generated primarily by the Cologuard® test. Revenues are recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed and determinable, and collectability is reasonably assured. The Company assesses whether the fee is fixed or determinable and if the collectability is reasonably assured based on the nature of the fee charged for the laboratory services delivered and whether there are existing contractual arrangements with customers, third-party commercial payors (insurance carriers and health plans) or coverage of the test by Centers for Medicare & Medicaid Services (CMS). In addition, when evaluating collectability, the Company considers factors such as collection experience for the healthcare industry, the financial standing of customers or third-party commercial payors, and whether it has sufficient collection history to reliably estimate a payor's individual payment patterns.

A portion of laboratory service revenues earned by the Company will be initially recognized on a cash basis because the above criteria will not have been met at the time the test results are delivered. The Company generally bills third-party payors upon generation and delivery of a test result to the ordering physician following completion of a test.  Patients may have out-of-pocket costs for amounts not covered by their insurance carrier and the Company bills the patient directly for these amounts in the form of co-pays and deductibles in accordance with their insurance carrier and health plans. Some third-party payors may not cover the Cologuard test under their reimbursement policies. Consequently, in such cases, the Company pursues reimbursement on a case-by-case basis directly from the patient.

For laboratory services performed, where the collectability is not reasonably assured, the Company will continue to recognize revenues upon cash collection until it can reliably estimate the amount that would be ultimately collected for the Cologuard test. In order to begin to record revenue on an accrual basis in these scenarios, the Company expects to use at least several months of payment history, review the number of tests paid against the number of tests billed, and consider the payor's outstanding balance for unpaid tests to determine whether payments are being made for a consistently high percentage of tests billed and at appropriate amounts given the contracted or historical payment amount.  With regard to Cologuard tests covered by Medicare, the national coverage determination for Cologuard was released by CMS on October 9, 2014 and for these tests, revenue is recognized on an accrual basis once the services have been performed as the price is fixed or determinable, and collectability is reasonably assured.

The Company recognized approximately $8.1 million and $12.4 million in laboratory service revenue for the three and six months ended June 30, 2015.

License fees.  License fees for the licensing of product rights are recorded as deferred revenue upon receipt of cash and recognized as revenue on a straight-line basis over the license period. As more fully described in the 2014 Form 10-K, in connection with the Company’s January 2009 strategic transaction with Genzyme Corporation, the Company deferred the initial $16.65 million in cash received at closing and amortized that up-front payment on a straight-line basis into revenue over the initial five-year collaboration period which ended in January 2014. In addition, in 2010 the Company received holdback amounts of $1.85 million, which were deferred at the time of receipt and were amortized on a straight-line basis into revenue over the then remaining term of the collaboration period.

In addition, the Company deferred $1.53 million premium related to common stock purchased by Genzyme and amortized that amount on a straight-line basis into revenue over the initial five-year collaboration period which ended in January 2014.

The Company did not recognize revenue in connection with the amortization of the up-front payments from Genzyme during the three and six months ended June 30, 2015. The Company recognized approximately $0.3 million in license fee revenue in connection with the amortization of the up-front payments from Genzyme during the six months ended June 30, 2014. There was no license fee revenue recognized during the three months ended June 30, 2014.

Inventory

Inventory

Inventory is stated at the lower of cost or market value (net realizable value). The Company determines the cost of inventory using the first-in, first out method (FIFO). The Company estimates the recoverability of inventory by reference to internal estimates of future demands and product life cycles, including expiration. The Company periodically analyzes its inventory levels to identify inventory that may expire prior to expected sale or has a cost basis in excess of its estimated realizable value, and records a charge to cost of sales for such inventory as appropriate. In addition, the Company's products are subject to strict quality control and monitoring which the Company performs throughout the manufacturing process. If certain batches or units of product no longer meet quality specifications or become obsolete due to expiration, the Company records a charge to cost of sales to write down such unmarketable inventory to its estimated realizable value.

Direct and indirect manufacturing costs incurred during process validation and for other research and development activities, which are not permitted to be sold, have been expensed to research and development.  Raw material inventory that was purchased in prior periods, and expensed to research and development, may still be on hand and used toward the production of commercial Cologuard, provided it has an appropriate remaining shelf life.  This inventory is expected to provide a gross margin benefit to the Company in future periods of $0.3 million if the entirety of those balances are allocated to inventory produced for resale and not allocated to research and development activities.

Inventory consist of the following (amount in thousands):

	June 30,		December 31,
	2015		2014
Raw Materials	$	1,072	$	1,019
Semi-finished and finished goods		5,203		2,998
Total inventory	$	6,275	$	4,017

Foreign Currency Translation

Foreign Currency Translation

For the Company’s international subsidiary, formed in 2014, the local currency is the functional currency. Assets and liabilities of this subsidiary are translated into United States dollars at the period-end exchange rate or historical rates as appropriate. Consolidated statements of earnings amounts are translated at average exchange rates for the period. The cumulative translation adjustments resulting from changes in exchange rates are included in the consolidated balance sheet as a component of accumulated other comprehensive income in total Exact Sciences Corporation’s shareholders’ equity. Transaction gains and losses are included in the consolidated statement of operations in 2015.

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LONG-TERM DEBT

6 Months Ended

Jun. 30, 2015

LONG TERM DEBT

LONG-TERM DEBT

(8)  LONG-TERM DEBT

Building Purchase Mortgage

During June 2015, the Company entered into a debt agreement with an unrelated third party financial institution to finance the purchase of the facility and contemplated improvements located at 501 Charmany Drive in Madison, WI for $5.1 million. Of the $5.1 million in funds available pursuant to the credit agreement, $3.7 million was directly applied towards the purchase price of the building in June 2015 and the remaining $1.4 million is a construction loan available to finance future improvements. The debt agreement is secured by the acquired building.

Borrowings under the debt agreement bear interest at 4.15% per annum which is calculated on the outstanding principal balance. The Company is required to make interest only payments on the outstanding principal balance from July 12, 2015 through September 12, 2015 which is the period the Company anticipates completing all building related improvements.  Beginning on October 12, 2015 and continuing through the maturity date, May 12, 2019, the Company is required to make monthly principal and interest payments of $31.2 thousand. The final principal and interest payment due on June 12, 2019 is $4.4 million.

As of June 30, 2015 no draws have been made on the $1.4 million portion of the debt agreement related to construction of future improvements. There is an outstanding principal balance of $3.7 million, and the current portion is $0.2 million. Additionally, the Company has recorded $26.1 thousand in deferred financing costs which are being amortized through June 12, 2019.

Wisconsin Department of Commerce Loan

During November 2009, the Company entered into a loan agreement with the Wisconsin Department of Commerce pursuant to which the Wisconsin Department of Commerce agreed to lend up to $1.0 million to the Company subject to the Company’s satisfaction of certain conditions. The Company received the $1.0 million in December 2009. The terms of the loan are such that portions of the loan become forgivable if the Company meets certain job creation requirements at a specified wage rate. After the Company creates 100 full time positions, the principal shall be reduced at the rate of $5,405 for each new position created thereafter during the measurement period. The loan’s terms also contain a milestone that if the Company has created 185 new full‑time positions as of June 30, 2015, the full amount of principal shall be forgiven. The loan bears an interest rate of 2%, which is subject to an increase to 4% if the Company does not meet certain job creation requirements. Both principal and interest payments under the loan agreement are deferred for five years.

As of June 30, 2015, and during the term of the loan agreement, the Company has created 185 new, full-time Wisconsin-based jobs at the specified wage rate. The $1.0 million benefit associated with the expected loan forgiveness has been recorded as an offset to the operating expenses during the period ended June 30, 2015.

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2015

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

(6) FAIR VALUE MEASUREMENTS

The FASB has issued authoritative guidance which requires that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions.  Under the standard, fair value measurements are separately disclosed by level within the fair value hierarchy.  The fair value hierarchy establishes and prioritizes the inputs used to measure fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs.  Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company.  Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.

The three levels of the fair value hierarchy established are as follows:

Level 1	Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the reporting date.  Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2	Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3	Unobservable inputs that reflect the Company’s assumptions about the assumptions that market participants would use in pricing the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not available.

Fixed-income securities and mutual funds are valued using a third party pricing agency. The valuation is based on observable inputs including pricing for similar assets and other observable market factors. There has been no material change from period to period.  The estimated fair value of the Company’s long-term debt based on a market approach was approximately $3.5 million and $1.0 million as of June 30, 2015 and December 31, 2014, respectively, and represent Level 2 measurements.  When determining the estimated fair value of the Company’s long-term debt, the Company used market-based risk measurements, such as credit risk.

The following table presents the Company’s fair value measurements as of June 30, 2015 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall.  Amounts in the table are in thousands.

			Fair Value Measurement at June 30, 2015 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Fair Value at		Identical Assets		Inputs		Inputs
Description	June 30, 2015		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents
Cash and money market	$	33,765	$	33,765	$	—	$	—
Available-for-Sale
Marketable securities
Corporate bonds		120,101		—		120,101		—
U.S. government agency securities		4,249		—		4,249		—
Asset backed securities		48,703		—		48,703		—
Commercial paper		4,000		—		4,000		—
Total	$	210,818	$	33,765	$	177,053	$	—

The following table presents the Company’s fair value measurements as of December 31, 2014 along with the level within the fair value hierarchy in which the fair value measurements in their entirety fall.  Amounts in the table are in thousands.

			Fair Value Measurement at December 31, 2014 Using:
			Quoted Prices		Significant
			in Active		Other		Significant
			Markets for		Observable		Unobservable
	Fair Value at		Identical Assets		Inputs		Inputs
Description	December 31, 2014		(Level 1)		(Level 2)		(Level 3)
Cash and cash equivalents
Cash and money market	$	53,569	$	53,569	$	—	$	—
Corporate bonds		4,562		—		4,562		—
Available-for-Sale
Marketable securities
Corporate bonds		141,124		—		141,124		—
U.S. government agency securities		18,688		—		18,688		—
Asset backed securities		60,820		—		60,820		—
Commercial paper		3,993		—		3,993		—
Total	$	282,756	$	53,569	$	229,187	$	—

The following table summarizes gross unrealized losses and fair values of our investments in an unrealized loss position as of June 30, 2015, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:

		June 30, 2015
		Less than 12 months			12 months or greater				Total
(In thousands)		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss		Fair Value		Gross Unrealized Loss
Marketable Securities
Corporate bonds	$	65,965	$	(21)	$	—	$	—	$	65,965	$	(21)
U.S. government agency securities		2,498		(1)		—		—		2,498		(1)
Asset backed securities		21,863		(10)		1,432		(1)		23,295		(11)
Total	$	90,326	$	(32)	$	1,432	$	(1)	$	91,758	$	(33)

The following summarizes contractual underlying maturities of the Company’s available-for-sale investments in debt securities at June 30, 2015 (in thousands):

		Due one year or less			Due after one year through two years
Description		Cost		Fair Value		Cost		Fair Value
Marketable Securities
U.S. government agency securities	$	4,249	$	4,249	$	—	$	—
Corporate bonds		112,370		112,367		7,725		7,734
Commercial paper		4,000		4,000		—		—
Asset backed securities		—		—		48,687		48,703
Total	$	120,619	$	120,616	$	56,412	$	56,437

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NEW MARKET TAX CREDIT

6 Months Ended

Jun. 30, 2015

NEW MARKET TAX CREDIT

NEW MARKET TAX CREDIT

(7) NEW MARKET TAX CREDIT

During the fourth quarter of 2014, the Company received approximately $2.4 million in net proceeds from financing agreements related to working capital and capital improvements at one of its Madison, Wisconsin facilities.  This financing arrangement was structured with an unrelated third party financial institution (the “Investor”), an investment fund, and its majority owned community development entity in connection with the Company’s participation in transactions qualified under the federal New Markets Tax Credit (“NMTC”) program, pursuant to Section 45D of the Internal Revenue Code of 1986, as amended. Through its participation in this program, the Company has secured low interest financing and the potential for future debt forgiveness related to the Madison, Wisconsin facility.  Upon closing of this transaction, the Company provided an aggregate of approximately $5.1 million to the Investor, in the form of a loan receivable, with a term of seven years, bearing an interest rate of 2.74% per annum. This $5.1 million in proceeds plus capital from the Investor was used to make an aggregate $7.5 million loan to a subsidiary of the Company. This financing arrangement is not secured by any assets of the Company. On December 1, 2021, the Company would receive a repayment of its approximately $5.1 million loan. The $5.1 million is eliminated in the consolidation of the financial statements. This transaction also includes a put/call feature that becomes enforceable at the end of the seven-year compliance period. The Investor may exercise its put option or the Company can exercise the call, both of which will serve to trigger forgiveness of the net debt. The value attributable to the put/call is nominal. The $2.4 million is recorded in Other Long-Term Liabilities on the consolidated balance sheets. The benefit of this net $2.4 million contribution will be recognized as a decrease in expenses, included in cost of sales, as the Company amortizes the contribution liability over the seven-year compliance period as it is being earned through our on-going compliance with the conditions of the NMTC program. The Company has recorded $0.1 million and $0.2 million as a decrease of expenses for the three and six months ended June 30, 2015. At June 30, 2015, the remaining balance is $2.2 million. The Company incurred approximately $0.2 million of debt issuance costs related to the above transactions, which are being amortized over the life of the agreements.

The Investor is subject to 100% recapture of the NMTC it receives for a period of seven years as provided in the Internal Revenue Code and applicable U.S. Treasury regulations.  The Company is required to be in compliance with various regulations and contractual provisions that apply to the NMTC arrangement.  Noncompliance with applicable requirements could result in the Investor’s projected tax benefits not being realized and, therefore, require the Company to indemnify the Investor for any loss or recapture of NMTC related to the financing until such time as the recapture provisions have expired under the applicable statute of limitations.  The Company does not anticipate any credit recapture will be required in connection with this financing arrangement. 

The Investor and its majority owned community development entity are considered Variable Interest Entities (VIEs) and the Company is the primary beneficiary of the VIEs.  This conclusion was reached based on the following:

· The ongoing activities of the VIEs—collecting and remitting interest and fees and NMTC compliance—were all considered in the initial design and are not expected to significantly affect performance throughout the life of the VIE;

· Contractual arrangements obligate the Company to comply with NMTC rules and regulations and provide various other guarantees to the Investor and community development entity;

· The Investor lacks a material interest in the underling economics of the project; and

· The Company is obligated to absorb losses of the VIEs.

Because the Company is the primary beneficiary of the VIEs, they have been included in the consolidated financial statements. There are no other assets, liabilities or transactions in these VIEs outside of the financing transactions executed as part of the NMTC arrangement. The $5.1 million is eliminated in consolidation of the financial statements.

Also in December 2014, in connection with the NMTC transaction, the Company entered into a land purchase option agreement with the owner of certain real property (land) adjacent to certain of the Company’s current Madison, Wisconsin facilities. The option is renewable annually in exchange for a fee. If the Company exercises its land purchase option, it will pay a fixed amount for the land.  That fixed amount approximates the current fair value of the land.  If the Company decides not to exercise its option, then on December 31, 2021 (which is after the seven year compliance period of the NMTC program) the Company must pay $1.2 million to the community development entity. As discussed below, the community development entity is a variable interest entity consolidated into the Company.  The community development entity would then distribute this money to its members.  The majority member of the community development entity is also the owner of the land subject to the land purchase option.  The Company has recorded the obligation and the land purchase option asset for $1.2 million to reflect the Company’s assessment that it is probable that at least $1.2 million will be paid in the future based on resolution of the land purchase option. The asset is included in Other Long-Term Assets and the liability is included in Other Long-Term Liabilities on the consolidated balance sheet.

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WISCONSIN ECONOMIC DEVELOPMENT TAX CREDIT

6 Months Ended

Jun. 30, 2015

WISCONSIN ECONOMIC DEVELOPMENT TAX CREDIT

WISCONSIN ECONOMIC DEVELOPMENT TAX CREDIT

(9)  WISCONSIN ECONOMIC DEVELOPMENT TAX CREDITS

During the first quarter of 2015, the Company entered into an agreement with the Wisconsin Economic Development Corporation (“WEDC”) to earn $9.0 million in refundable tax credits if the Company expends $26.3 million in capital investments and establishes and maintains 758 full-time positions in the state of Wisconsin over a seven year period.  The tax credits earned should first be applied against the tax liability otherwise due and if there is no such liability present, the claim for tax credits will be reimbursed in cash to the Company.  The maximum amount of the refundable tax credit to be earned for each year is fixed, and the Company earns the credits by meeting certain capital investment and job creation thresholds over the seven year period. Should the Company earn and receive the job creation tax credits but not maintain those full-time positions through the end of the agreement, the Company may be required to pay those credits back to WEDC. 

The Company will record the earned tax credits as job creation and capital investments occur. The amount of tax credits earned will be recorded as a liability and amortized as a reduction of operating expenses over the expected period of benefit. The tax credits earned from capital investment will be recognized as on offset to depreciation expense over the expected life of the acquired capital assets. The tax credits earned related to job creation will be recognized as an offset to operational expenses over the life of the agreement as the Company is required to maintain the minimum level of full-time positions through the seven year period.

As of June 30, 2015 the Company has earned $1.4 million of tax credits.  $0.2 million is a current asset and $1.2 million is a long term asset, reflecting when collection of the refundable tax credits is expected to occur. 

During the three and six month periods ending June 30, 2015, the Company has amortized $40.5 thousand of the credits earned as a reduction of operating expenses.  At June 30, 2015, the Company also has a $0.2 million current liability and a $1.2 million long term liability, reflecting when the expected benefit of the tax credit amortization will reduce future operating expenses.

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FAIR VALUE (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014	Jun. 30, 2014	Dec. 31, 2013
Fair value measurements
Cash and cash equivalents	$ 33,765	$ 58,131	$ 20,708	$ 12,851
Marketable securities	177,053	224,625
Estimate Of Fair Value Fair Value Disclosure [Member]
Fair value measurements
Total	210,818	282,756
Fair Value Inputs Level1 [Member]
Fair value measurements
Total	33,765	53,569
Fair Value Inputs Level2 [Member]
Fair value measurements
Total	177,053	229,187
Long-term debt	3,500	1,000
Cash and Money Market [Member] | Estimate Of Fair Value Fair Value Disclosure [Member]
Fair value measurements
Cash and cash equivalents	33,765	53,569
Cash and Money Market [Member] | Fair Value Inputs Level1 [Member]
Fair value measurements
Cash and cash equivalents	33,765	53,569
Corporate bonds [Member] | Estimate Of Fair Value Fair Value Disclosure [Member]
Fair value measurements
Cash and cash equivalents		4,562
Marketable securities	120,101	141,124
Corporate bonds [Member] | Fair Value Inputs Level2 [Member]
Fair value measurements
Cash and cash equivalents		4,562
Marketable securities	120,101	141,124
U. S. government agency securities [Member] | Estimate Of Fair Value Fair Value Disclosure [Member]
Fair value measurements
Marketable securities	4,249	18,688
U. S. government agency securities [Member] | Fair Value Inputs Level2 [Member]
Fair value measurements
Marketable securities	4,249	18,688
Asset backed securities [Member] | Estimate Of Fair Value Fair Value Disclosure [Member]
Fair value measurements
Marketable securities	48,703	60,820
Asset backed securities [Member] | Fair Value Inputs Level2 [Member]
Fair value measurements
Marketable securities	48,703	60,820
Commercial Paper [Member]. | Estimate Of Fair Value Fair Value Disclosure [Member]
Fair value measurements
Marketable securities	4,000	3,993
Commercial Paper [Member]. | Fair Value Inputs Level2 [Member]
Fair value measurements
Marketable securities	$ 4,000	$ 3,993

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STOCK-BASED COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2015

STOCK-BASED COMPENSATION

Schedule of valuation assumptions

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2015	2014	2015	2014
Option Plan Shares
Risk-free interest rates	(1)	(1)	1.5%  -  1.92%	1.96%
Expected term (in years)	(1)	(1)	6.25	6.25
Expected volatility	(1)	(1)	67.1%  -  73.2%	80.8%
Dividend yield	(1)	(1)	0 %	0%
Weighted average fair value per share of options granted during the period	(1)	(1)	$  15.81	$  9.86
ESPP Shares
Risk-free interest rates	0.25%  -  0.6%	0.1%  - 0.41%	0.25%  -  0.6%	0.1%  - 0.41%
Expected term (in years)	0.5  -  2	0.5  - 2	0.5  -  2	0.5  - 2
Expected volatility	51.2%  -  57.4%	42.5%  - 49.5%	51.2%  -  57.4%	42.5%  - 49.5%
Dividend yield	0 %	0%	0 %	0%
Weighted average fair value per share of stock purchase rights granted during the period	$ 7.48	$ 3.76	$ 7.48	$ 3.76

(1) The Company did not grant options under its 2010 Option Plan during the period indicated.

Summary of stock option activity under the Stock Plans

				Weighted
		Weighted		Average
		Average		Remaining	Aggregate
		Exercise		Contractual	Intrinsic
Options	Shares	Price		Term (Years)	Value(1)
(Aggregate intrinsic value in thousands)
Outstanding, December 31, 2014	4,934,317	$	3.63	5.2
Granted	340,978		23.51
Exercised	(96,573)		8.08
Forfeited	(35,025)		16.55
Outstanding, June 30, 2015	5,143,697	$	4.77	5.0	$	128,421
Exercisable, June 30, 2015	4,367,935	$	2.61	4.3	$	118,496
Vested and expected to vest, June 30, 2015	5,104,986	$	4.68	5.2	$	127,926

(1) The aggregate intrinsic value of options outstanding, exercisable and vested and expected to vest is calculated as the difference between the exercise price of the underlying options and the market price of the Company’s common stock for options that had exercise prices that were lower than the $29.74 market price of the Company’s common stock at June 30, 2015.  The total intrinsic value of options exercised during the six months ended June 30, 2015 and 2014 was $1.8 million and $0.7 million, respectively.

Summary of restricted stock and restricted stock unit activity under the Stock Plans

		Weighted
	Restricted	Average Grant
	Shares	Date Fair Value
Outstanding, January 1, 2015	1,541,114	$	13.86
Granted	1,104,074		23.62
Released	(262,656)		11.84
Forfeited	(105,825)		14.79
Outstanding, June 30, 2015	2,276,707	$	18.78

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 4) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Details about AOCI Components
Investment income	$ (193)	$ (146)	$ (415)	$ (232)
Reclassification Out Of Accumulated Other Comprehensive Income (Loss) [Member]
Details about AOCI Components
Investment income			(6)	(12)
Accumulated Net Unrealized Investment Gain Loss [Member] | Reclassification Out Of Accumulated Other Comprehensive Income (Loss) [Member]
Details about AOCI Components
Investment income			$ (6)	$ (12)

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Consolidated Statements of Comprehensive Loss - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Consolidated Statements of Comprehensive Loss
Net loss	$ (39,066)	$ (19,437)	$ (74,867)	$ (35,544)
Other comprehensive loss, net of tax:
Unrealized (loss) gain on available-for-sale investments	(59)	(44)	136	(36)
Foreign currency translation loss	(22)		(32)
Comprehensive loss	$ (39,147)	$ (19,481)	$ (74,763)	$ (35,580)

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MAYO LICENSE AGREEMENT

6 Months Ended

Jun. 30, 2015

MAYO LICENSE AGREEMENT

MAYO LICENSE AGREEMENT

(3) MAYO LICENSE AGREEMENT

Overview

As more fully described in the 2014 Form 10-K, in June 2009 the Company entered into a license agreement (the “MAYO Agreement”) with MAYO Foundation for Medical Education and Research (“MAYO”). Pursuant to the MAYO Agreement, the Company granted MAYO two common stock purchase warrants with an exercise price of $1.90 per share covering 1,000,000 and 250,000 shares of common stock, respectively. The MAYO Agreement required the Company to make payments to MAYO for up-front fees, fees upon the achievement of certain milestones, and certain other payments. In addition to the license to intellectual property owned by MAYO, MAYO agreed to make available personnel to provide the Company product development and research and development assistance. The Company agreed to make royalty payments to MAYO on potential future net sales of any products developed from the licensed technology. The Company sought rights to the MAYO intellectual property for the specific purpose of developing a non-invasive, stool-based DNA screening test for colorectal cancer.  At the time the MAYO Agreement was executed, the Company’s sole focus was the development of such a test.  Accordingly, the Company recognized the initial payments and expenses related to the warrants at the time of the transaction and the amounts were expensed to research and development as there were no anticipated alternative future uses associated with the intellectual property.

Warrants

The warrants granted to MAYO were valued based on a Black-Scholes pricing model at the date of the grant. The warrants were granted with an exercise price of $1.90 per share of common stock. The grant to purchase 1,000,000 shares was immediately exercisable and the grant to purchase 250,000 shares vested and became exercisable over a four year period.

MAYO exercised the warrant to purchase 1,000,000 shares through several partial exercises. As of September 2011, the warrant covering 1,000,000 shares was fully exercised.

MAYO exercised the warrant to purchase 250,000 shares through partial exercises, the last of which occurred in June 2014. In June 2014, MAYO exercised the remaining shares of this warrant by utilizing the cashless exercise provision contained in the warrant. As a result of this exercise for a gross amount of 80,000 shares, in lieu of paying a cash exercise price, MAYO forfeited its right with respect to 10,587 shares leaving it with a net amount of 69,413 shares. Following this exercise, all of MAYO’s warrants to purchase the Company’s common stock were fully exercised.

Royalty Payments

Under the MAYO Agreement, the Company agreed to make royalty payments to MAYO based on a percentage of net sales of products developed from the licensed technology starting in the third year of the agreement.  In 2012, minimum royalty payments were $10,000. For each year from 2015 through 2033 (the year the last patent expires), the minimum royalty payments are $25,000 per year.

Other Payments

Other payments under the MAYO Agreement include an upfront payment of $80,000, a milestone payment of $250,000 on the commencement of patient enrollment in a human cancer screening clinical trial, and a $500,000 payment upon FDA approval of the Company’s Cologuard test.  The upfront payment of $80,000 was made in the third quarter of 2009 and expensed to research and development in the second quarter of 2009. The Company began enrollment in human cancer screening clinical trial in June 2011 and the milestone payment of $250,000 was made and expensed to research and development in June 2011.  The Company received FDA approval for its Cologuard test in August 2014, and the milestone payment of $500,000 was made and expensed to research and development in August 2014.

In addition, the Company pays MAYO for research and development efforts.  During the three and six months ended June 30, 2015, the Company made payments of $0.4 million and $1.6 million, respectively. At June 30, 2015 the Company recorded an estimated liability in the amount of $0.7 million for MAYO’s research and development efforts.  During the three and six months ended June 30, 2014, the Company made research and development payments to MAYO of $0.2 million and $0.7 million, respectively. At June 30, 2014 the Company recorded an estimated liability in the amount of $1.0 million for research and development efforts.

May 2012 Amendment

In May 2012 the Company expanded the relationship with MAYO through an amendment to the MAYO Agreement. As part of the amendment, MAYO expanded the Company’s license to include all gastrointestinal cancers and diseases, and new cancer screening applications of stool- and blood-based testing.

As part of the amendment, the Company agreed to make restricted stock grants to MAYO upon the achievement of certain milestones with respect to commercial launch of the Company’s second and third licensed products. Additionally, the Company agreed to make milestone payments once certain sales levels are reached on licensed products. It is uncertain as to when or if these milestones will be met; therefore, the milestone payments have not been recorded as a liability. The Company evaluates the status of the milestone payments at each reporting date to determine if a liability should be recorded for the milestone payment.

February 2015 Amendment

In February 2015 the Company amended and restated the MAYO Agreement to extend the Company’s arrangement with MAYO for an additional five years and to broaden the Company’s and MAYO’s collaboration efforts to develop screening, surveillance and diagnostic tests and tools for use in connection with gastrointestinal cancers, precancers, diseases and conditions.  Under the amended and restated agreement (the “Restated MAYO Agreement”), MAYO agreed to continue to make personnel available during the additional five year period to provide the Company product development and research and development assistance. The Restated MAYO Agreement defines “gastrointestinal” to include certain airway organs (including the pharynx, larynx, trachea, bronchi and lungs) and certain head and neck organs (including nasal passages, mouth and throat).  The Restated MAYO Agreement also reflects an expanded list of patent rights that MAYO licenses to the Company.

Pursuant to the Restated MAYO Agreement, the Company agreed to pay MAYO an additional $5.0 million, payable in five annual $1.0 million installments, the first of which was due February 10, 2015. The first $1.0 million payment was made to MAYO in February 2015 and was capitalized to pre-paid assets and will be amortized to research and development expenses straight-line over the initial 12 month research period.  Additionally, the Company will make milestone payments once certain sales levels are reached on licensed products. It is uncertain as to when or if these milestones will be met; therefore, the milestone payments have not been recorded as a liability. The Company evaluates the status of the milestone payments at each reporting date to determine if a liability should be recorded for the milestone payment.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 5) $ in Thousands	6 Months Ended
	Jun. 30, 2015 USD ($) item	Dec. 31, 2014 USD ($)
Property and equipment
Assets under construction	$ 7,664	$ 1,552
Software Capitalization Policy
Software development stages | item	3
Labratory equipment [Member] | Minimum [Member]
Property and equipment
Estimated Useful Life	3 years
Labratory equipment [Member] | Maximum [Member]
Property and equipment
Estimated Useful Life	5 years
Computer Equipment and Computer Software [Member]
Property and equipment
Estimated Useful Life	3 years
Assets under construction	$ 800
Leasehold Improvements [Member]
Property and equipment
Assets under construction	$ 600
Furniture and fixtures [Member]
Property and equipment
Estimated Useful Life	3 years
Software Development [Member]
Property and equipment
Assets under construction	$ 1,500

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WISCONSIN ECONOMIC DEVELOPMENT TAX CREDIT (Details) - Wisconsin Economic Development Tax Credit Agreement [Member]	3 Months Ended		6 Months Ended
	Jun. 30, 2015 USD ($)	Mar. 31, 2015 USD ($) item	Jun. 30, 2015 USD ($)
Agreements
Refundable tax credits available, contingent on the Company expending $26.3 million in capital investments and establishing 758 full-time positions		$ 9,000,000
Capital investment expenditures over specified period, requirement to earn the refundable tax credits		$ 26,300,000
Full-time positions that must be created over a specified time period to earn the refundable tax credits | item		758
Period over which the capital investment expenditures must be incurred and the creation of full-time positions must be completed		7 years
Refundable tax credits earned	$ 1,400,000		$ 1,400,000
Amortization of tax credits	40,500		40,500
Short-term other assets
Agreements
Refundable tax credit receivable	200,000		200,000
Long-term other assets
Agreements
Refundable tax credit receivable	1,200,000		1,200,000
Short-term other liabilities
Agreements
Refundable tax credit, offsetting liability	200,000		200,000
Long-term other liabilities
Agreements
Refundable tax credit, offsetting liability	$ 1,200,000		$ 1,200,000

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2015

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Schedule of available-for-sale securities

Available-for-sale securities at June 30, 2015 consisted of the following:

	June 30, 2015
			Gains in Accumulated		Losses in Accumulated
			Other Comprehensive		Other Comprehensive		Estimated Fair
(In thousands)	Amortized Cost		Income		Income		Value
Corporate bonds	$	120,096	$	28	$	(22)	$	120,102
U.S. government agency securities		4,249		—		(1)		4,248
Asset backed securities		48,687		26		(10)		48,703
Commercial paper		4,000		—		—		4,000
Total available-for-sale securities	$	177,032	$	54	$	(33)	$	177,053

Available-for-sale securities at December 31, 2014 consisted of the following:

	December 31, 2014
			Gains in Accumulated		Losses in Accumulated
			Other Comprehensive		Other Comprehensive		Estimated Fair
(In thousands)	Amortized Cost		Income		Income		Value
Corporate bonds	$	141,239	$	21	$	(136)	$	141,124
U.S. government agency securities		18,687		8		(7)		18,688
Certificates of deposit		60,821		17		(18)		60,820
Commercial paper		3,993		—		—		3,993
Total available-for-sale securities	$	224,740	$	46	$	(161)	$	224,625

Schedule of amounts recognized in accumulated other comprehensive income (AOCI)

The amounts recognized in accumulated other comprehensive income (loss) (AOCI) for the six months ended June 30, 2015 were as follows (in thousands):

					Accumulated
	Cumulative		Unrealized		Other
	Translation		Gain (Loss)		Comprehensive
	Adjustment		on Securities		Income (Loss)
Balance at December 31, 2014	$	—	$	(115)	$	(115)
Other comprehensive (loss) income before reclassifications		(32)		142		110
Amounts reclassified from accumulated other comprehensive loss		—		(6)		(6)
Net current period change in accumulated other comprehensive income (loss)		(32)		136		104
Balance at June 30, 2015	$	(32)	$	21	$	(11)

The amounts recognized in AOCI for the six months ended June 30, 2014 were as follows (in thousands):

					Accumulated
	Cumulative		Unrealized		Other
	Translation		Gain(Loss)		Comprehensive
	Adjustment		on Securities		Income (Loss)
Balance at December 31, 2013	$	—	$	125	$	125
Other comprehensive (loss) income before reclassifications		—		(24)		(24)
Amounts reclassified from accumulated other comprehensive loss		—		(12)		(12)
Net current period change in accumulated other comprehensive income (loss)		—		(36)		(36)
Balance at June 30, 2014	$	—	$	89	$	89

Schedule of amounts reclassified from accumulated other comprehensive income

Amounts reclassified from accumulated other comprehensive income (loss) for the six months ended June 30, 2015 were as follows (in thousands):

	Affected Line Item in the	Six Months Ended June 30,
Details about AOCI  Components	Statement of Operations	2015		2014
Change in value of available-for-sale investments
Sales and maturities of available-for-sale investments	Investment income	$	(6)	$	(12)
Total reclassifications		$	(6)	$	(12)

Schedule of estimated useful lives of fixed assets

	Estimated
Asset Classification	Useful Life
Laboratory equipment	3-  5years
Computer equipment and computer software	3years
Leasehold improvements	Lesser of the remaining lease term or useful life
Furniture and fixtures	3years

Schedule of potentially issuable common shares not included in the computation of diluted net loss per share because they would have an anti-dilutive effect

	June 30,
	2015	2014
Shares issuable upon exercise of stock options	5,144	6,221
Shares issuable upon exercise of outstanding warrants(1)	—	75
Shares issuable upon the release of restricted stock awards	2,277	1,546
Shares issuable upon the vesting of restricted stock awards related to licensing agreement	—	24
	7,421	7,866

(1) At June 30, 2014, represents warrants to purchase 75,000 shares of common stock issued under a consulting agreement.

Schedule of inventory

Inventory consist of the following (amount in thousands):

	June 30,		December 31,
	2015		2014
Raw Materials	$	1,072	$	1,019
Semi-finished and finished goods		5,203		2,998
Total inventory	$	6,275	$	4,017